Wuxi Little Swan Company Limited Annual Report 2018
WUXI LITTLE SWAN COMPANY LIMITED
ANNUAL REPORT 2018
Marc h 2019
Wuxi Little Swan Company Limited Annual Report 2018
Part I Important Notes, Table of Contents and Definitions
The Board of Directors (or the “Board”), the Supervisory Committee as well as the directors,supervisors and senior management of Wuxi Little Swan Company Limited (hereinafter referred toas the “Company”) hereby guarantee the factuality, accuracy and completeness of the contents ofthis Report and its summary, and shall be jointly and severally liable for any misrepresentations,misleading statements or material omissions therein.Mr. Fang Hongbo, Chairman of the Board of the Company, Mr. Sun Yunan, the Company’s ChiefFinancial Officer (CFO), and Mr. Xu Yunwei, the Company’s Financial Manager hereby guaranteethat the Financial S tatements carried in this Report are factual, accurate and complete.All the Company’s directors have attended the Board meeting for the review of this Report and itssummary.Any plans for the future and other forward-looking statements mentioned in this Report and itssummary shall NOT be considered as absolute promises of the Company to investors. Therefore,investors are reminded to exercise caution when making investment decisions.As approved by the said Board meeting, the Company has no final dividend plan, either in the formof cash or stock, for the year 2018.This Report and its summary have been prepared in both Chinese and English. Should there be anydiscrepancies or misunderstandings between the two versions, the Chinese versions shall prevail.
Wuxi Little Swan Company Limited Annual Report 2018
Table of Contents
Part I Important Notes, Table of Contents and Definitions ...... 2
Part II Corporate Information and Key Financial Information ...... 5
Part III Business Summary ...... 9
Part IV Operating Performance Discussion and Analysis ...... 12
Part V Significant Events ...... 28
Part VI Share Changes and Shareholder Information ...... 53
Part VII Preferred Shares ...... 60
Part VIII Directors, Supervisors, Senior Management and Staff ...... 61
Part IX Corporate Governance ...... 68
Part X Corporate Bonds ...... 75
Part XI Financial Statements ...... 76
Part XII Documents Available for Reference ...... 76
Wuxi Little Swan Company Limited Annual Report 2018
Definitions
Term Definition“Little Swan”, the “Company” or “we”
Wuxi Little Swan Company Limited and its consolidated subsidiaries, exceptwhere the context otherwise requiresMidea Group Midea Group Co., Ltd.Titoni Titoni Investments Development Ltd.Midea Group Finance Midea Group Finance Co., Ltd.GD Midea Holding GD Midea Holding Co., Ltd.Hefei Midea Washing Machine Hefei Midea Washing Machine Co., Ltd.Wuxi Little Swan General Appliance Wuxi Little Swan General Appliance Co., Ltd.Wuxi FILIN Electronics Wuxi FILIN Electronics Co., Ltd.CSRC The China Securities Regulatory CommissionThe “Reporting Period” or “Current Period” The period from 1 January 2018 to 31 December 2018RMB, RMB’0,000
Expressed in the Chinese currency of Renminbi, expressed in tens of thousandsof Renminbi
Wuxi Little Swan Company Limited Annual Report 2018
Part II Corporate Information and Key Financial Information
I Corporate Information
Stock name Little Swan, Littleswan-B Stock code 000418, 200418Stock exchange for stock listing Shenzhen Stock ExchangeCompany name in Chinese无锡小天鹅股份有限公司Abbr.小天鹅Company name in English (if any) Wuxi Little Swan Company LimitedLegal representative Fang HongboRegistered address
No. 18, Changjiang Road S., National Hi-tech Development Zone, Wuxi, Jiangsu Province,P.R.ChinaZip code 214028Office address
No. 18, Changjiang Road S., National Hi-tech Development Zone, Wuxi, Jiangsu Province,P.R.ChinaZip code 214028Company website http://www.littleswan.comEmail address ir@littleswan.com.cn
II Contact Information
Board Secretary Securities RepresentativeName Ms. Zhou SixiuAddress
No. 18, Changjiang Road S., National Hi-techDevelopment Zone, Wuxi, Jiangsu Province, P.R.China
Tel. 0510-81082320Fax 0510-83720879Email address ir@littleswan.com.cn
III Media for Information Disclosure and Place where this Report Is Lodged
Newspapers designated by the Company for information disclosure Securities Times, Ta Kung Pao (HK)Website designated by CSRC for publication of this Report http://www.cninfo.com.cnPlace where this Report is lodged Securities Department of the Company
Wuxi Little Swan Company Limited Annual Report 2018
IV Change to Company Registered Information
Unified social credit code 91320200704046760TChange to principal activity of theCompany since going public (if any)
No change
Every change of controllingshareholder since incorporation (ifany)
The Company was incorporated in November 1993 by raising funds from targeted sources,with Jiangsu Little Swan Group Co., Ltd. as the controlling shareholder. In June 2007, WuxiGuolian Development (Group) Co., Ltd. became the controlling shareholder as JiangsuLittle Swan Group Co., Ltd. transferred the 87,673,341 Little Swan A-shares to it accordingto law. In April 2008, GD Midea Holding Co., Ltd. became the controlling shareholder as ittook over, upon agreement, all the Company’s shares held by Wuxi Guolian Development(Group) Co., Ltd. In September 2013, Midea Group Co., Ltd. became the controllingshareholder as it merged in GD Midea Holding Co., Ltd. in a stock swap.
V Other Information
The independent audit firm hired by the Company:
Name PricewaterhouseCoopers Zhong Tian LLPOffice address
11/F., PricewaterhouseCoopers Center, 2 Corporate Avenue, 202 Hu Bin Road, HuangpuDistrict, Shanghai, PRCAccountants writing signatures Huang Meimei, Zhang Xiaoying
The independent sponsor hired by the Company to exercise constant supervision over the Company in theReporting Period:
√Applicable □ Not applicable
Name Office address Representative Period of supervisionHuatai UnitedSecurities Co., Ltd.
25/F, CTS Tower, No.4011 Shennan Road,Shenzhen, Guangdong
Bian Jianguang
From 4 August 2006 to the date when all privateshareholders pay off the considerations that have been paidin advance for them and the restricted shares are unlocked
The independent financial advisor hired by the Company to exercise constant supervision over the Company inthe Reporting Period:
□ Applicable √Not applicable
VI Key Financial Information
Indicate by tick mark whether there is any retrospectively restated datum in the table below.□ Yes √No
Wuxi Little Swan Company Limited Annual Report 2018
2018 2017 change 2016Operating revenue (RMB) 23,636,929,478.3321,384,699,076.6510.53% 16,334,914,501.69Net profit attributable to the listed company’sshareholders (RMB)
1,862,458,658.291,506,412,505.2223.64% 1,175,054,922.85Net profit attributable to the listed company’sshareholders before exceptional items (RMB)
1,822,990,385.731,456,953,109.5925.12% 1,162,942,494.37Net cash generated from/used in operatingactivities (RMB)
2,624,892,821.132,015,753,818.3030.22% 3,896,072,787.38Basic earnings per share (RMB/share) 2.942.3823.53% 1.86Diluted earnings per share (RMB/share) 2.942.3823.53% 1.86Weighted average return on equity (%) 24.42%23.12%1.30% 21.14%31 December 2018 31 December 2017Change 31 December 2016Total assets (RMB) 23,561,899,125.8521,338,421,243.6710.42% 18,885,986,837.64Equity attributable to the listed company’sshareholders (RMB)
8,312,062,507.537,047,090,800.9717.95% 5,983,847,862.72
VII Accounting Data Differences under China’s Accounting Standards for BusinessEnterprises (CAS) and International Financial Reporting Standards (IFRS) and ForeignAccounting Standards
1. Net Profit and Equity under CAS and IFRS□ Applicable √Not applicableNo difference for the Reporting Period.2. Net Profit and Equity under CAS and Foreign Accounting Standards□ Applicable √Not applicableNo difference for the Reporting Period.
VIII Key Financial Information by Quarter
Unit: RMBQ1 Q2 Q3 Q4Opera ting revenue 6,811,940,933.685,244,997,352.375,359,920,386.18 6,220,070,806.11Net profit attributable to the listedcompany’s shareholders
511,022,240.89391,024,805.53445,019,926.40 515,391,685.48Net profit attributable to the listedcompany’s shareholders
efore exceptional
501,731,839.62390,059,222.75427,541,808.27 503,657,515.10
Wuxi Little Swan Company Limited Annual Report 2018
itemsNet cash generated from/used in operatingactivities
284,655,859.29-111,426,836.88112,274,735.02 2,339,389,063.70
Indicate by tick mark whether any of the quarterly financial data in the table above or their summations differsmaterially from what have been disclosed in the Company’s quarterly or interim reports.□ Yes √No
IX Exceptional Gains and Losses
√Applicable □ Not applicable
Unit: RMBItem 2018 2017 2016 NoteGain or loss on disposal of non-current assets (inclusive ofimpairment allowance write-offs)
13,137,087.29-975,423.00 -1,833,734.45Gain or loss on fair-value changes in trading financial assets andliabilities & investment income from disposal of trading financialassets and liabilities and available-for-sale financial assets(exclusive of effective portion of hedges that arise in theCompany’s ordinary course of business)
-7,619,781.9722,954,813.04
Non-operating income and expense other than the above 44,275,866.7244,138,356.17 18,160,667.04Less: Income tax effects 7,474,356.9412,040,092.19 2,455,096.12
Non-controlling interests effects (net of tax) 2,850,542.544,618,258.39 1,759,407.99Total 39,468,272.5649,459,395.63 12,112,428.48--
Explanation of why the Company reclassifies as recurrent an exceptional gain/loss item defined or listed in theExplanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to thePublic—Exceptional Gain/Loss Items:
□ Applicable √Not applicableNo such cases for the Reportin g Period.
Wuxi Little Swan Company Limited Annual Report 2018
Part III Business Summary
I Principal Activity of the Company in the Reporting Period
Wuxi Little Swan Company Limited designs, manufactures and markets washing machines and clothes driers. Itsmain products include front-loading washing machines, top-loading washing machines and clothes driers. LittleSwan is the earliest washing machine manufacturer in China. In 1978, China’s first fully-auto washing machinegreeted the world in the Company. And the Company has focused on clothes driers as a new business in the recentyears. The Company is one of the world’s few manufacturers who can produce the full lines of both washingmachines and clothes driers.The Company has attached great importance to continual investment in research and development, with over 900R&D personnel. The Company has a sound technological R&D system, including one state-level technologicalcenter and two state-recognized labs. Little Swan Lab is the first washing machine lab in China to pass the ULNorth American safety verification and the German VDE verification. Little Swan holds on to independentinnovation and has the internationally advanced frequency-changing, intelligent control, structure design,industrial design and other core washing technologies. It owns 2 manufacturing bases, one in Wuxi, JiangsuProvince and the other one in Hefei, Anhui Province, with a total site area of more than 800,000 ㎡ as well as acombined annual production capacity of over 24 million units.. It also has domestically and internationallyfirst-class manufacturing equipments and an experienced manufacturing team. The Company’s products are soldto the domestic market as well as over 160 other countries and regions, wit h the overseas market accounting forapproximately 20% in the Company’s total sales. In domestic sale, the Company adopts the marketing mode of“agents+direct sale” and simultaneously develops the online and offline channels. In overseas sale, the Companyfocuses on OEM/ODM and attaches importance to its own brands at the same time. The Company adopts atwo-brand strategy (“Little Swan” and “Midea”) and the business under both brands has seen fast and soundgrowth in the recent years.The Company has been focusing on its core businesses and its core strategies of “Advanced Products,Efficiency-Driven Growth and Global Operations”. According to consumers’ needs, it furthers businesstransformation, betters its product mix, and keeps improving product quality. Meanwhile, with efforts inoperational improvement throughout the entire value chain, management efficiency has increased significantly.
Wuxi Little Swan Company Limited Annual Report 2018
All these efforts contribute to the increasing profitability and make the Company one of the most competitivewashing machine manufacturers. According to AVC and customs statistics, the Company boasts a leadingdomestic market share, with the highest export volume and value among the country’s washing machine makers.For the status quo and seasonality of the laundry industry, which is currently at a mature stage, please see thecontents under the subheading “Macro-Environment” of “Part IV Operating Performance Discussion andAnalysis”.
II Significant Changes in Major Assets
1. Significant Changes in Major Assets
Major assets Main reason for significant changesEquity assets No significant changeFixed assets No significant changeIntangible assets No significant changeConstruction in progress No significant change
2. Major Assets Overseas□ Applicable √Not applicable
III Core Competitiveness Analysis
Our core competitiveness is demonstrated in the following aspects:
1. Remarkable industry insights and great R&D and innovation strength: We are the sole company in Chinathat has focused on the washing machine industry since the end of 1970s. Profound knowledge and experience hasbeen accumulated through the several decades in technology, R&D and innovation, market research, businessoperation, etc., which has given us unique judging and foreseeing abilities towards industry and technologyadvancements. Through constant input of R&D resources over the years, we have owned leading technologicalcompetitiveness in the industry. We hold on to independent innovation and have the internationally advancedfrequency-changing, intelligent control, structure design, industrial design and other core technologies. Weconnect technology, products and customers through medium and long-term technological planning, and haveresearch talent, talent reserve and development talent for our R&D.2. Our capability of managing the industrial chain: We keep building a customer-oriented supply chain
Wuxi Little Swan Company Limited Annual Report 2018
management system, have set up an industry-leading cross-enterprise procurement platform with the help ofMidea Group, constantly increase the efficiency of our supply chain and foster a strategic partnership with oursuppliers. In terms of channels, in the domestic first and secondary markets, we mainly work with Suning, Gomeand some other big regional customers; in the tertiary and fourth markets, we combine agent channels, flagshipstores and franchised stores to distribute our products to households. In e-commerce, we continue to enhancecooperation with major online shopping platforms, expand our own online shopping center and optimize thesupply of products. Overseas, we keep optimizing our global operations, deepening our cooperation with strategiccustomers and enhancing the promotion of our own brands. We enjoy a good and long-term cooperation with ourmajor customers at home and abroad.3. Our capability to respond to needs of consumers: We have been keeping a watchful eye on market changes,studying consumers’ needs, and focusing on improvement of the whole process experience of customers inshopping, product use and after-sales service. Consumers are always looking for professional, intelligent, greenand individualized washing machines. And we satisfy customers’ needs with the spirit of craftsman and providethem with extremely easy use experience through our innovative solutions of intelligent accurate self-loading,intelligent roller water cube, intelligent WIFI, cold water washing, silver nano-particle sterilization, allergiesprevention and classified washing. We adopt a two-brand strategy (“Little Swan” and “Midea”) to createdifferentiation for the satisfaction of different needs. With a history of four decades, Little Swan is considered avery reliable brand among consumers, with the slogan of “Whole-hearted Little Swan” being well-known amongthem. As for Midea, a comprehensive home appliance brand, its share in the washing machine market keeps risingwith increasing recognition.4. Our capability of reform and self-improvement: Through years of accumulation, we have developed acorporate culture of sustained reform and self-improvement. Along with rapid changes in the market and this newera, we will keep reforming our organizational structure and operating model so as to ensure our capability ofsustainable development. We are the first in the sector to adopt a T+3 order-oriented production and sale system, adirect delivery system, a shared inventory system, a CDOC system and a product manager system. And in orderfor continuing vitality, we keep seeking for creative incentive mechanisms, promoting organizational and culturalrecreation, improving our talent pool and furthering the reform of our operations, which has produced impressiveresults.No material change occurred to the Company’s core competitiveness in the Reporting Period.
Wuxi Little Swan Company Limited Annual Report 2018
Part IV Operating Performance Discussion and Analysis
I Overview
(I) Macro-EnvironmentIn 2018, the global economy generally maintained a recovery trend with individual economies evidently polarized,and trade and geopolitical frictions intensified. The overall economic situation at home was stable, regulatorypolicies for real estate became tightened, prices for raw materials ran high, the exchange rate of Renminbifluctuated dramatically, growth in the home appliance market was weak, and the growth rate of the washingmachine industry slowed down.In 2018, the washing machine sector on domestic market entered a matured development period. Influenced bymacro-economic and real estate policies, consumption end was mainly driven by needs of regeneration andstructural upgrade. Consumption market has been segmented and become high-end oriented, intelligent anddifferentiated constantly, clothes dryer products have been growing considerably, and consumption has turnedfrom popularized to structural consumption. On overseas market, there's a huge development space, and it hasbecome a must road to speed up globalized production distribution and enlarge expansion on emerging markets.According to the online in dustrial data, total sales of washing machin es from January to December of 2018 was60.651 million sets, a year-on-year growth of 2.4%; domestic sales was 45.32 million sets, a year-on-year growthof 2.7%, export sales was 20.281 million sets, a year-on-year growth of 1.7%.(II) Analysis of the Core BusinessesIn face of the complicated political and economic conditions at home and abroad in 2018, the Companycontinuously focused on its core business of washing machines and clothes driers. Closely following its corestrategies of “Advanced Products, Efficiency-Driven Growth and Global Operations”, the Company strove fromendogenous growth driven by product and efficiency improvement. In the Reporting Period, in light of theindustry-wide consumption upgrade and in order for continuous growth, the Company took the initiative topromote business transformation to actively deal with external changes. It increased medium-and-high-endofferings in its product mix so as to stay sustainably competitive. For 2018, the Company recorded operatingrevenue of RMB23.64 billion, up 10.5% year-on-year; a net profit attributable to the Company as the parent ofRMB1.86 billion, representing a 23.6% growth from 2017; and a 26.2% gross profit margin, 0.9 percentage point
Wuxi Little Swan Company Limited Annual Report 2018
higher than 2017.The revenue growth was fuelled by the increased unit sales and average selling price as a result of a refinedproduct mix and greater strength in terms of products. Meanwhile, a larger business scale, higher efficiency andmore investment income boosted profit. The overall operational efficiency has improved significantly thanks tothe Company’s efforts in promoting excellent performance through the value chain, and investment incomeincreased on the back of more self-owned capital.(III) Work Done in 20181. Constantly increase R&D input, enhance management innovation and improve leadership of productsThe Company has been implementing the product leadership strategy, increasing its R&D input and building itscontinuous competitiveness for products facing the future. It has been deepening the reform of product managers,improving business awareness of the R&D team to enable project development idea to focus more on marketneeds and consumers' hotspots, constantly improving target rate of corporate planning, concentrating coreresources on building high-end products. It has been substantiating the objective of “studying one generation,reserving one generating and developing one generation”, and conducting innovation research layout and buildingproduct leadership centering round development of innovative products, study of pioneering platforms, researchof key parts, differentiated layout of selling points and improvement of basic performance. Through structuraloptimization of R&D resource allocation and put-through and collaboration of value chain, enlarge launch of newproducts, and it has launched star products such as Beverly Qing (Inclining) series revolving washer, Beverly Yi(Horizontal) series front-loader washing machine and steam ironing-free dryers in succession. Within thereporting period, our Beverly washing machines won IF Award of Germany, Red Dot Award of Germany, IdeaAward of the United States and International CMF Technical Innovation Award. Our Beverly washing machineswon Red Top Award of China's high-end home appliance, China's Appearance Design Gold Prize, China's HomeAppliance Products and Technical Innovation Results Award. The Company won “Cold Water WashingTechnology Certification” granted by VDE and certification of “25-year Service Life for BLDC Electric Motors”and “25-year Service Life for CIM Electric Motors”. Within the reporting period, the product competitiveness ofthe Company has been enhanced continuously.2. Domestic sales has been restructured actively to cope with environmental change and has achieved stableyear-on-year growthFor the situation that growth speed of washing machine sector on domestic market has been evidently sloweddown, the Company made a business adjustment actively, deepened the dual-brand strategy, highlighted Little
Wuxi Little Swan Company Limited Annual Report 2018
Swan brand and strengthen Midea brand. As a result, the product structure of Little Swan has been optimizedcontinuously, and Midea brand has achieved rapid growth. Online and offline operation and brand propaganda hasbeen conducting for the products to enlarge launch of new products, increase specially supplied models ofproducts for different channels, further improve product lines, optimize product structure and drive sales growthcontinuously. Launch and promotion ofnew Beverly products has beenenhanced, which enabled Beverly toachieve a rapid growth and proportion ofmedium and high end products isimproving continuously. Within thereporting period, the Company realizeddomestic sales revenue of RMB16.8billion, a year-on-year growth of 10.5%.3. Market expansion is enlarged for domestic sales to drive global operation continuously, and aconsiderable year-on-year growth is achievedFaced with the complicated and volatile political and economic environment of the world and the pressure ofslowing-down growth rate of export market, the Company has been pushing forward its global operating strategyfirmly, exploring new markets and new clients actively, deepening the cooperation with strategic clients andoverseas sales achieves a considerable growth and profit-making capability has been improved continuously. Ithas been enhancing the promotion of its own brands, propelling sales of its own brands of Toshiba and improvingits brand recognition and profit-making capability, and its own brands have been developing well. It has beenlaunching differentiated products continuously for regional markets, enhancing market competitiveness of theproducts and expanding the incremental market greatly. It has been exploring global manufacturing distributionactively and enhancing long-term competitiveness of the Company. Within the reporting period, overseas salesrevenue of the Company achieved RMB4.9 billion, a year-on-year growth of 14.7%.4. Implement efficiency driving firmly and improve whole value chain excellent operation all-roundlyThe Company has been implementing T+3 strategy firmly, pushing forward optimization and improvement ofbusiness processes of plan integration and procurement integration and speeding up circulation to ensure delivery.It has been optimizing supply layout constantly, improving guaranteed supply capability and response speed foroutsourced parts and driving improvement of its self-manufacturing capability. It has been improving its
Wuxi Little Swan Company Limited Annual Report 2018
whole-process management from design to use, driving lean improvement, manufacturability improvement,automation input and high-end manufacturing capability robustly and improving lean manufacture level andefficiency. Centering round the market and oriented by strategy, it has been driving organizational reform,optimizing its business management process and improving response speed of the organization constantly. Withinthe reporting period, operat i ng efficie ncy of the company has been improved significantly.
II Core Business Analysis
1. OverviewThe Company is mainly engaged in washing machines. And this remained the same in the Reporting Period.Movements of revenue, cost, expense, etc. are as follows:
Unit: RMBItem 2018 2017
Change Change (%)Operating revenue 23,636,929,478.3321,384,699,076.652,252,230,401.68 10.53%Cost of sales17,444,047,983.8115,982,893,658.841,461,154,324.97 9.14%Operating profit2,460,967,201.572,048,866,736.50412,100,465.07 20.11%Profit before tax 2,479,157,987.432,064,694,943.36414,463,044.07 20.07%Net profit attributable to the
Company as the parent
1,862,458,658.291,506,412,505.22356,046,153.07 23.64%
2. Revenue and Cost Analysis(1) Breakdown of Operating Revenue
Unit: RMB
2018 2017
Change (%)Opera ting revenue
As % of totaloperating revenue (%)
Opera ting revenue
As % of totaloperating revenue (%)Total 23,636,929,478.33 100%21,384,699,076.65100% 10.53%By operating divisionHome appliancemanufacturing
21,692,952,459.61 91.78%19,469,125,226.2391.04% 11.42%Other 1,943,977,018.72 8.22%1,915,573,850.428.96% 1.48%By product categoryWashing machines 21,692,952,459.61 91.78%19,469,125,226.2391.04% 11.42%
Wuxi Little Swan Company Limited Annual Report 2018
Other 1,943,977,018.72 8.22%1,915,573,850.428.96% 1.48%By operating segmentDomestic 18,739,863,208.93 79.28%17,114,743,424.7880.03% 9.50%Overseas 4,897,066,269.40 20.72%4,269,955,651.8719.97% 14.68%
(2) Operating Division, Product Category or Operating Segment Contributing over 10% of OperatingRevenue or Operating Profit
Unit: RMB
Opera ting revenue Cost of sales
Gross profit
margin
YoY change inoperating revenue
YoY change in
cost of sales
YoY change ingross profit marginBy operating divisionHome appliancemanufacturing
21,692,952,459.61 15,584,261,291.4228.16%11.42%9.68% 1.14%By product categoryWashingmachines
21,692,952,459.61 15,584,261,291.4228.16%11.42%9.68% 1.14%By operating segmentDomestic 16,795,886,190.21 11,369,386,862.6132.31%10.51%9.01% 0.93%Overseas 4,897,066,269.40 4,214,874,428.8613.93%14.68%11.54% 2.43%
Core business data of the prior year restated according to the changed statistical caliber for the Reporting Period:
□ Applicable √Not applicable(3) Whether Revenue from Physical Sales Is Higher than Service Revenue
Operating division Item Unit 2018 2017 Change (%)Home appliancemanufacturing
Unit sales Unit 21,149,59920,462,099 3.36%Output Unit 20,485,72820,393,476 0.45%Inventory Unit 1,943,6452,607,516 -25.46%
Any over 30% YoY movements in the data above and why:
□ Applicable √Not applicable(4) Execution Progress of Major Signed Sales Contracts in the Reporting Period□ Applicable √Not applicable
Wuxi Little Swan Company Limited Annual Report 2018
(5) Breakdown of Cost of Sales
Unit: RMB
Product category Item
2018 2017
Change
(%)Cost of sales
As % of totalcost of sales (%)
Cost of sales
As % of totalcost of sales (%)Washing machines Raw materials 14,301,150,946.5291.77%13,209,710,403.74 92.97%-1.20%Washing machines Labor costs 749,612,619.965.28%632,054,812.65 4.45%0.83%Washing machines
Depreciation andamortization
230,995,508.041.63%201,388,852.45 1.42%0.21%Washing machines Energy 90,143,848.380.63%77,018,797.10 0.54%0.09%
(6) Changes in the Scope of Consolidated Financial Statements for the Reporting Period□ Yes √No(7) Major Changes to the Business Scope or Product or Service Range in the Reporting Period□ Applicable √Not applicable(8) Major Customers and SuppliersMajor customers:
Total sales to top five customers (RMB) 8,934,801,645.91Total sales to top five customers as % of total sales of the Reporting Period (%) 41.19%Total sales to related parties among top five customers as % of total sales of the Reporting Period (%) 17.15%
Information about to p five customers:
No. Customer Sales revenue contributed for the Reporting Period (RMB) As % of total sales revenue (%)1 Customer A 3,720,722,529.5417.15%2 Customer B 1,955,803,693.199.02%3 Customer C 2,315,109,756.0610.67%4 Customer D 537,825,230.482.48%5 Customer E 405,340,436.641.87%Total -- 8,934,801,645.9141.19%
Other information about major customers:
√Applicable □ Not applicableCustomer A is the total of partial subsidiaries controlled by controlling shareholders of the Company.
Wuxi Little Swan Company Limited Annual Report 2018
Main suppliers:
Total purchases from top five suppliers (RMB) 5,139,849,268.19Total purchases from top five suppliers as % of total purchases of the Reporting Period (%) 35.94%Total purchases from related parties among top five suppliers as % of total purchases of theReporting Period (%)
25.00%
Information about to p five sup pli ers:
No. Supplier
Purchase in the Reporting Period
(RMB)
As % of total purchases (%)1 Supplier A 3,574,747,992.0925.00%2 Supplier B 548,223,395.033.83%3 Supplier C 457,629,616.283.20%4 Supplier D 296,089,306.802.07%5 Supplier E 263,158,957.991.84%Total -- 5,139,849,268.1935.94%
Other information about major suppliers:
√Applicable □ Not applicableSupplier A is the total of partial subsidiaries controlled by controlling shareholders of the Company.
3. Expense
Unit: RMB
2018 2017 Change (%) Reason for any significant changeSelling expense 3,351,676,000.522,872,849,586.1416.67%Administrative expense 181,699,829.11177,543,281.442.34%Finance costs -531,729,710.86-71,808,982.80-640.48%
Increase of deposits interest incomeand exchange earningR&D expense 733,045,215.90550,779,796.2733.09%Increase of R&D investment
4. R&D ExpenseDuring the Reporting Period, the Company was market-oriented and centered on customers’ needs, intensifyingR&D continuou sly. The R&D inpu t was mainly fo r: 1. strengthen ing R&D and inno vation of high -end, intelligen t,and dryers for better competitive edges in the future; 2. strengthening user research continuously, increasingmanufacturability of products and creating continuous cost competitive advantages; 3. expanding the high-endtalent pool. In 2018, the Company’s expenditure on R&D was RMB730 million, representing 7.52% of its audited
Wuxi Little Swan Company Limited Annual Report 2018
net assets and 3.10% of its revenue in the year.Details about R&D expense:
2018 2017 Change (%)Number of R&D personnel944887 6.43%R&D personnel as % of total employees8.24%8.70% -0.46%R&D expense (RMB)733,045,215.90550,779,796.27 33.09%R&D expense as % of operating revenue3.10%2.58% 0.52%Capitalized R&D expense (RMB)0.000.00 0.00%Capitalized R&D expense as % of total R&D expense0.00%0.00% 0.00%
Reasons for any significant YoY change in the percentage of R&D expense in operating revenue:
□ Applicable √Not applicableReason for any sharp variation in the percentage of capitalized R&D expense and rationale:
□ Applicable √Not applicable5. Cash Flows
Unit: RMB
Item 2018 2017 Change (%)Subtotal of cash generated from operating activities 21,032,314,952.8317,737,932,301.25 18.57%Subtotal of cash used in operating activities 18,407,422,131.7015,722,178,482.95 17.08%Net cash generated from/used in operating activities 2,624,892,821.132,015,753,818.30 30.22%Subtotal of cash generated from investing activities 17,050,655,473.1511,517,797,636.35 48.04%Subtotal of cash used in investing activities 18,779,510,384.2915,658,505,062.46 19.93%Net cash generated from/used in investing activities -1,728,854,911.14-4,140,707,426.11 58.25%Subtotal of cash generated from financing activities 117,603,683.89680,166,782.34 -82.71%Subtotal of cash used in financing activities 714,121,209.861,267,750,117.45 -43.67%Net cash generated from/used in financing activities -596,517,525.97-587,583,335.11 -1.52%Net increase in cash and cash equivalents 295,744,885.68-2,754,200,845.50 110.74%
Explanation of why any of the data above varies significantly:
√Applicable □ Not applicableThe reason for the increase of Net cash flows from operating activities: mainly due to the increase of cash fromselling products and rendering of service.The reason for the increase of Net cash flows from investing activities: mainly due to the increase of structuraldeposits during the Reporting Period.
Wuxi Little Swan Company Limited Annual Report 2018
Reason for any big difference between the net operating cash flow and the net profit for this Reporting Period□ Applicable √Not applicable
III Analysis of Non-Core Businesses
□ Applicable √Not applicable
IV Analysis of Assets and Liabilities
1. Significant Changes in Asset Composition
Unit: RMB
31 December 2018 31 December 2017
Change inpercentage
(%)
Reason for any significant
changeAmount
As % oftotal assets
Amount
As % oftotal assetsMonetary capital 1,926,938,134.40 8.18%1,588,264,516.057.44%0.74%Accounts receivable 1,957,583,475.15 8.31%1,736,724,496.108.14%0.17%Inventories 1,754,597,149.53 7.45%1,980,766,196.149.28%-1.83%Investment property 54,776,877.23 0.23%61,695,825.000.29%-0.06%Fixed assets 1,121,036,700.25 4.76%1,029,668,355.844.83%-0.07%Construction inprogress
15,486,834.370.07%37,972,252.600.18%-0.11%
The equipment wasconverted into fixed assetsafter being testedShort-termborrowings
117,603,683.890.50%81,393,672.340.38%0.12%
Increase of the discountedundue notes receivable
2. Assets and Liabilities at Fair Value
Unit: RMB
Item Beginning amount
Gain/loss on
fair-valuechanges in the
Reporting
Period
Cumulative
fair-valuechangescharged to
equity
Impairm
entallowance for theReporting Period
Purchased in theReporting Period
Sold in theRepor ting Period
Endingamount
Financial assets1. Financial assets at fairvalue through gains/losses(exclusive of derivative
5,270,238.03 -5,270,238.03
Wuxi Little Swan Company Limited Annual Report 2018
financial assets)3.Available-for-salefinancial assets
3,792,871,097.60 -57,871,097.60-3,735,000,000.00 0.00Total of above 3,798,141,335.63 -63,141,335.63-3,735,000,000.00 0.00Financial liabilities 0.00 3,078,878.950.000.000.000.00 3,078,878.95
Significant changes to the measurement attributes of the major assets in the Reporting Period:
□ Yes √No3. Restricted Asset Rights as at the Period-EndAs of the end of the Reporting Period, there were no such circumstances where any main assets of the Companywere sealed, distrained, frozen, impawned, pledged or limited in any other way.
V Investments Made
1. Total Investment Amount
Total investment amount of Reporting Period (RMB) Total investment amount of last year (RMB) Change (%)
297,706,394.90 320,566,388.23 -7.13%
2. Major Equity Investments Made in the Reporting Period□ Applicable √Not applicable3. Major Non-Equity Investments Ongoing in the Reporting Period□ Applicable √Not applicable4. Financial Investments
(1) Securities Investments
□ Applicable √Not applicableNo such cases in the Reporting Period.(2) Investments in Derivative Financial Instruments
Unit: RMB’0,000
Operator RelaRelaType of InitialStarting EndingBeginniPurchased Sold in ImpairmEnding ProportiActua
Wuxi Little Swan Company Limited Annual Report 2018
tionshipwiththeCom
any
ted-partytransaction ornot
derivativ
e
investme
ntamount
date datenginvestmentamount
in theReporting
Period
theReporting Period
entprovisio
n (if
any)
investm
entamount
on ofclosinginvestm
entamount
in theCompan
y’s
closing
net
assets
lgain/loss in
theRepor
tingPerio
d
Bank Not Not
Forwardforexcontract
17,676
10 May2017
24 May2019
17,67619,12532,313 4,488 0.46%-762Total 17,676 -- -- 17,67619,12532,313 4,488 0.46%-762Capital source for derivativeinvestment
All from the Company’s own fundsLawsuits involved (ifapplicable)
N/ADisclosure date of boardannouncement approvingderivative investment (if any)
13 March 2018Disclosure date ofshareholders’ meetingannouncement approvingderivative investment (if any)
12 April 2018
Analysis of risks and controlmeasures associated withderivative investments held inthe Reporting Period(including but not limited tomarket risk, liquidity risk,credit risk, operational risk,legal risk, etc.)
The Company has considered and formulated the Management Methods for Forex Trading Business
and the Management Methods for Futures Hedging Business to implement full assessment and
control on its derivative investments, with highlights as follows:
1. About legal risk: The Company's futures and forex trading business are conducted in compliance
with laws and regulations, with clearly defined responsibilities and obligations between the
Company and agencies.
Control measures: The Company has designated relevant departments with the responsibility for
enhancing expertise in laws, regulations and market rules, conducting strict examination and
verification of contracts, defining responsibility and obligations, and strengthening compliance
checks, so as to ensure that the Company's derivatives investment and position operations meet the
requirements of the laws and regulations and internal manageme nt system of the Company.
2. About operational risk: Risks caused by imperfect internal processes, staff, systems and external
issues may cause the Company to incur losses during the course of its futures and forex trading
business.
Control measures: The Company has not only developed relevant management systems that clearly
define the assignment of responsibility and approval process for futures and forex trading, but has
Wuxi Little Swan Company Limited Annual Report 2018
also established a well-developed monitoring mechanism, aimed at effectively reducing operationalrisk by strengthening its risk control over the business, decision-making and trading processes.3. About market Risk: the uncertainty in staple commodity price changes and exchange ratefluctuations in the foreign exchange market has led to greater market risks existing in the futures
usiness and the foreign exchange capital business. At the same time, during the operation offutures, it is una
bb
le to raise funds in time to establish and maintain the hedge position, or in terms ofthe foreign exchange business, the foreign exchange funds used for performance cannot be paid ontime, which may lead to any loss from such futures operation and any default risk.Control Measures: the Company will adhere to the principle of prudent and steady operation tooperate its futures business and foreign exchange fund business. For the futures business, theCompany will strictly determine the business volume according to the needs of production andoperation, apply for the futures trading, and implement the stop-loss mechanism. Besides, theCompany will also establish a futures risk measurement system to calculate the amount of marginused, the floating profit and loss, the amount of available margin and the needed amount of marginfor establishing the proposed position so as to determine the amount of margin that may be required.For the foreign exchange fund business, the tiered management mechanism will be implemented. Ifa business unit applies for any fund business, it needs to conduct risk analysis on the conditions orenvironment that affect the business’s profit and loss, estimate the maximum possible gains andlosses, and report the acceptable margin ratio or the total amount. Meanwhile, the Company needsto timely update the operation of the fund business and guarantee the funding arrangement beforethe due date.Changes in market prices orfair value of derivativeinvestments during theReporting Period (fair valueanalysis should includemeasurement method andrelated assumptions andparameters)
1. The loss from Forex forward contract was RMB7.62 million during the Reporting Period;2. Public offer in futures market or forward forex quotations announced by the Bank of China areused in the fair value analysis of the derivative investments.
Significant changes inaccounting policies andspecific accounting principlesadopted for derivativeinvestments in the ReportingPeriod compared to previousreporting period
No significant changes
Opinion of independentdirectors on derivativeinvestments and risk control
In the opinion of the Company’s independent director, the Company has formulated variousderivative investment systems including Administrative Measures for Foreign Exchange FundBusiness and Administrative Measures for Futures Hedging Business, which can effectively controlthe risk of derivative investment; the Company will regard the futures hedging business as aneffective tool to stabilize any
bp
rice fluctuation by strengthening the internal control, implementingeffective risk prevention measures and improving the operational management; the Company’sderivative investment business mainly focuses on the export business, which can help the Company
Wuxi Little Swan Company Limited Annual Report 2018
lock the exchange rate and avoid any exchange rate fluctuation risk. Since there is no speculativeoperation and no compliance risk, the Company’s liquidity will not be affected.
5. Use of Funds Raised□ Applicable √Not applicableNo such cases in the Reporting Period
VI Sale of Major Assets and Equity Interests
1. Sale of Major Assets□ Applicable √Not applicableNo such cases in the Reporting Period.2. Sale of Major Equity Interests□ Applicable √Not applicable
VII Major Subsidiaries
Unit: RMB’0,000
Name
Relationship with theCompany
Principal activity
Registered
capital
Total assets Net assets
Operating
revenue
Operating
profit
Net profitHefei MideaWashing MachineCo., Ltd.
Subsidiary
Washing machinemanufacturing
US$13,552 892,370.11353,710.211,132,894.38 70,732.9160,720.81
Wuxi FILIN Subsidiary
Electroniccomponentmanufacturing
US$362.4564 203,769.45132,082.35127,046.20 36,022.1830,798.38
Subsidiaries obtained or disposed in the Reporting Period:
□ Applicable √Not applicable
VIII Structured Bodies Controlled by the Company
□ Applicable √Not applicable
Wuxi Little Swan Company Limited Annual Report 2018
IX Prospects
(I) Development Trends in the IndustryIn 2019, recovery of global economy may be slowed down, there will be a greater uncertainty for trade frictionand geopolitics, China’s economy will turn from a high-speed growth stage to a high-quality development stage,and its economic growth speed may be gradually slowed down. The kinetic energy for growth of China’s homeappliance sector is undergoing a gradual transformation, and the kinetic energy for traditional growth such asgrowth in scale, population dividend and internet dividend is weakened gradually and the incremental dividend isbeing transformed to fission of stock. With continuous increase of residents’ revenue, enterprises shall adaptthemselves to and grasp consumption upgrade trend accurately. There will be a trend to combine intelligent lifescenarios in the future, integrate and apply various cutting-edge technologies and provide smart home appliancewith better experience for users. Development and application of new technologies such as IT is restructuringcooperation modes in the ecosphere of home appliance sector, and making industrial boundary vaguer. Needs ofusers are getting more and more personalized, and lean manufacture and smart manufacture are becoming aninevitable choice for home appliance sector to gain competitive advantage. New products, new services, newmodes and new participants will impact the industrial pattern constantly, and competition will be keener. Ingeneral, on the background that an uncertainty of global economic development is intensified and China isundergoing a great economic transformation, home appliance sector will face a great challenge, but the change ofdevelopment trend of the sector will bring new development opportunities for enterprises.(II) Development Plan of the CompanyIn 2019, the Company will stick to its professional development path, focus on main lines of washing machinesand clothes dryers, continue the main strategic axle of “ being led by products, driven by efficiency and goingglobal”. It will drive business transportation firmly, optimize structure of products, improve proportion of high,medium and low end products constantly, pursue growth of high quality and ensure continuous growth of revenueand profit. Centering round the strategic axle of the Company, the following work will mainly be done in 2019:
1. Product leadershipFurther increase R&D input, build innovation capability for products continuously, as innovation capability iscore competitiveness to determine future development. Centering round users, improve scientific researchcapability for users and improve implementation of CDOC and support differentiated innovation for products.Improve industrial design and breakthroughs of new techniques, enhance sense of quality and sense of artisticaesthetic and improve competitiveness of products. Optimize configuration structure of research and development
Wuxi Little Swan Company Limited Annual Report 2018
resources, and focus more on key models of machines, core technologies, new techniques, clothes dryers andpioneering research so as to ensure sustainable competitiveness in the future. Enhance talent introduction andoutbound cooperation continuously, drive reform of R&D organization, build a R&D atmosphere based onbusiness pioneers and arose the vitality of the organization constantly.2. Effici ency drivingGo on driving digital transformation and achieve whole-process management and application of data with aid ofIOT and so on and drive business and management reform through intelligent operation; greatly push forward leanmanufacturing, automation and intelligence and gradually push forward intelligent manufacturing and improvemanufacturing efficiency and level constantly on the basis of intensifying lean manufacturing and automationcapability; through continuous resource allocation and put-through and coordination of the whole value chain,respond to market demands rapidly and improve operating efficiency of value chain. Push forward distribution ofglobal manufacturing capability and deepen resource coordination with Toshiba, and drive organizational reformand increase response speed for excellent operation of the whole value chain constantly.3. Global operationOn domestic market, drive transformation of marketing and retail actively, intensify online and offline consistency,and drive reform of business mode continuously centering round the market and user’s needs. Stick to dual-branddifferentiation strategy, enhance promotion of Beverly, continuously promote news products of high quality andconstantly optimize sales structure of products. Enhance systematic construction of brands, focus on promotionand diversion and improve brand recognition. On overseas sales market, enhance market expansion further anddevelop new clients actively. For the differentiated needs of regional market, intensify market research andproduct planning, provide targeted products, and improve market competitiveness rapidly. Focus on Toshibabrand, and promote development of our own brands.(III) Key Capital Expenditure Plan for Near FutureTo actively adapt to internal and external environment change and satisfy the future development demand of theCompany, the investment focus of the Company in 2019 shall be put on R&D and innovation, intelligentmanufacturing, high-end brand construction, quality improvement, etc. and meanwhile the Company shall activelypromote global layout and promote the global competitiveness of the Company. The Company shall strictlycontrol non-production operation investment. Investment fund comes from the Company's own fund.(IV) Main Risks in Future Development1. Macro risk. Under the influence of uncertainty of world economy, slowdown of domestic economic growth,
Wuxi Little Swan Company Limited Annual Report 2018
continuous control of real estate and turbulence of political and economical structure, consumption marketrecession may continue and the industry may face the risk of insufficient growth power.2. Market risk. Washing machine industry is a mature and fully competitive industry with many foreignenterprises and local enterprises involved. Though the Company has strong competition advantage, it still facesthe impact brought by market risks such as intensification of industry competition, continuously upgrading ofconsumption structure, the challenge of new comers, and profound adjustment of global industrial pattern andre-division.3. Cost risk. If the price of raw materials continues to rise in 2019, cost pressure of the Company shall furtherincrease to directly affect the profitability of the Company with continuous rise in Labor cost.4. Exchange rate risk. Since exchange rate fluctuation is very uncertain, though the Company has adoptedcertain countermeasures to deal with exchange rate fluctuation risk, exchange rate fluctuation still greatly affectthe profitability of the export sales business of the Company.5. Policy risk. Overseas non-tariff trade barriers and anti-dumping policy shall also have an impact on the scaleand profit of export sales business of the Company.
X Communications with the Investment Community such as Researches, Inquiries andInterviews
1. During the Reporting Period
Date
Way ofcommunication
Type ofcommunication
party
Index to main information communicated24 January 2018 to 2
February 2018
Field research Institution
Little Swan A: The Sheet of Interactions with Investors from 24 January2018 to 2 February 2018 (No. 2018-01) on www.cninfo.com.cn15 March 2018 to 22
March 2018
Field research Institution
Little Swan A: The Sheet of Interactions with Investors from 15 March2018 to 22 March 2018 (No. 2018-02) on www.cninfo.com.cn8 August 2018 to 17
August 2018
Field research Institution
Little Swan A: The Sheet of Interactions with Investors from 8 August2018 to 17 August 2018 (No. 2018-03) on www.cninfo.com.cnTimes of communications 26Number of institutions communicated with 110Number of individuals communicated with 187Number of other communication parties 0Tip-offs or leakages of substantialsupposedly-confidential information during
None
Wuxi Little Swan Company Limited Annual Report 2018
communications
Part V Significant Events
I Profit Distributions to Ordinary Shareholders (in the Form of Cash and/or Stock)
The profit distributions to ordinary shareholders, either in the form of cash or stock, in the past three years(including the Reporting Period) are summarized as follows:
2018 profit distribution plan: the Company didn’t carry out the 2018 profit distribution plan, with no sharedividend in any form. The plan was reviewed and approved by 6
th
Meeting of the 9
th
Board of Director of theCompany, and intended to be submitted to Annual General Meeting for review.2018 interim profit distribution plan: based on the total 632,487,764 shares of the Company as of 31 December2018, a cash dividend of RMB40 (tax inclusive) per 10 shares was distributed to all the shareholders. The planwas reviewed and approved by 5
th
Meeting of the 9
th
Board of Director of the Company, and intended to besubmitted to Annual General Meeting for review.2017 profit distribution plan: based on the total 632,487,764 shares of the Company as of 31 December 2017, acash dividend of RMB10 (tax inclusive) per 10 shares was distributed to all the shareholders, with no sharedividend in any form. The said plan has b een carried out in May 2018.2016 profit distribution plan: based on the total 632,487,764 shares of the Company as of 31 December 2016, acash dividend of RMB7.5 (tax inclusive) per 10 shares was distributed to all the shareholders, with no sharedividend in any form. The said plan has b een carried out in May 2017.Cash dividend for ordinary shareholders in the past three years (including the Reporting Period):
Unit: RMB
Year
Cash dividends(tax inclusive)
(A)
Net profit attributable toordinary shareholders of thelisted company in consolidated
statements for the year (B)
A as % of
B (%)
Cash dividendsin other forms(such as sharerepurchase) (C)
C as %
of B(%)
Total cashdividends(including those in
other forms) (D)
D as %of B (%)2018 2,529,951,056.00 1,862,458,658.29135.84%0.000.00% 2,529,951,056.00135.84%2017 632,487,764.00 1,506,412,505.2241.99%0.000.00% 632,487,764.0041.99%2016 474,365,823.00 1,175,054,922.8540.37%0.000.00% 474,365,823.0040.37%
Indicate by tick mark whether the Company fails to put forward a cash dividend proposal for the ordinaryshareholders despite the facts that the Company has made profits in the Reporting Period and the profits of theCompany as the parent distributable to the ordinary shareholders are positive.
□ Applicable √Not applicable
II Final Dividend Plan for the Reporting Period
Share dividend per 10 shares from retained earnings (share)
Cash dividend per 10 shares (RMB) (tax inclusive)40.00Share dividend per 10 shares from capital reserves (share)
Share base (share)632,487,764.00Cash dividends (RMB) (tax inclusive) 2,529,951,056.00Cash dividends in other forms (such as share repurchase) (RMB) 0.00Total cash dividends (including those in other forms) (RMB) 2,529,951,056.00Distributable profit (RMB) 3,235,769,891.68Total cash dividends (including those in other forms) as % of the total profit distribution 100%
Cash dividend policyOther
Details about cash and/or share dividend proposalGiven that the Interim Profit Distribution Plan has been reviewed and approved by the 5
th
Meeting of the 9
th
Board of Di re ct or s, t heCompany distributed a cash dividend of RMB40 (tax inclusive) per 10 shares to all shareholders based on the total 632,487,764shares of the Company as of 31 December 2018, and the cash dividend reached RMB2,530 million. The Company intended to notcarry out the 2018 profit distribution plan, with no bonus shares or share dividend in any form after comprehensively consideringthe financial conditions and subsequent demand of production and operation of the Company.For 1996 when the Company was listed to now, the Company has accumulatively distributed cash dividend of RMB5,498 million,and the amount of dividends is 5.33 times of the amount of raised fund. The proportion of cash dividends has exceeded 40% forseven consecutive years
III Fulfillment of Commitments
1. Commitments of the Company’s Actual Controller, Shareholders, Related Parties and Acquirers, as wellas the Company Itself and other Entities Fulfilled in the Reporting Period or Ongoing at the Period-end
Commitment
Promis
or
Type ofcommitme
nt
Details of commitment
Date ofcommit
mentmaking
Term ofcommit
ment
Fulfillm
ent
Commitmentsmade in sharereform
Controllingshareholder
Commitmentconcerningshareholding
Where the controlling shareholder Midea Group plans to sell theCompany’s shares released from trading moratorium held by itvia the bid trading system of the Shenzhen Stock Exchange, andMidea Group decreases over 5% shares within six months sincethe first reduction of holdings, Midea Group will disclose anindicative public announcement on share selling through the
February2008
Long-standing
Ongoing
reduction Company two trading days before its first reduction of holdings.
Commitmentsmade inacquisitiondocuments orshareholdingalterationdocuments
Controllingshareholderandactualcontroller
Commitment ofavoidinghorizontalcompetition
1. As for the commitment of avoiding horizontal competition,Midea Group (the controlling shareholder) and Mr. He Xiangjian(the actual controller) has promised that, for the period after thesaid transaction when the Company’s controlling shareholder andactual controller remain unchanged, the actual controller Mr. HeXiangjian, his immediat e family, Midea Group and its controlledother enterprises neither recently nor in the future will engage inany production or operation activity the same as or similar to therecently main business of Little Swan or its controlledenterprises, as well as will neither engage in nor participate in anycompetitive business the same as the recently main business ofLittle Swan or its controlled enterprises through controlling othereconomic entities, institutions, economic organizations. If LittleSwan and its controlled enterprises further developed its scope ofthe operation business on the basis of the recently business, and ifthe actual controller Mr. He Xiangjian, his immediate family,Midea Group and its controlled other enterprises had executedproduction of that, would solve the corresponding horizontalcompetition problems within the reasonable period. If recentlythere was no any production or operation, would not engage inthe similar new business that competed with Little Swan and itscontrolled enterprises. If there was any situation violated theabove commitments, the profits gained from the business relatedto operation were belongs to Little Swan.
December 2010,and 6June2014
Long-standing
Ongoing
Controllingshareholderandactualcontroller
Commitment onregulationofrelated-partytransactions
2. The commitment by Midea Group and the actual controller onthe specification of the related-
arty transaction. Midea Group(the controlling shareholder) and Mr. He Xiangjian (the actualcontroller) has promised that, for the period after the saidtransaction when the Company’s controlling shareholder andactual controller remain unchanged, the actual controller Mr. HeXiangjian, his immediat e family, Midea Group and its controlledother enterprises will specify and try their best to reduce therelated-
pp
arty transactions with Little Swan and its controlledenterprises. If occurred the unavoidable related transactions withLittle Swan and its controlled enterprises, would sign thenormative related-
pp
arty transactions agreement Little Swanaccording to laws and would execute the approval procedureaccording to the relevant regulations to ensure the fairness of theprice of the related-party transactions; ensure to execute theinformation disclose obligation of related-
pp
arty transactionsaccording to the relevant regulations; ensure not to makeadvantage of the related-
pp
arty transactions for illegallytransferring the assets and profits of Little Swan, as well as not to
December 2010,and 6June2014
Long-standing
Ongoing
make advantage of the related-
arty transactions for harming tothe interests of Little Swan and the shareholders; would notrequire Little Swan to offer any more favorable conditioncompared with that offered to the independent third party in anyfair trade market transaction; execute the voting debarb obligationwhen involved in the voting of the related events of the actualcontroller Mr. He Xiangjian, his immediate family, Midea Groupand its controlled other enterprises. If Midea Group and Mr. HeXiangjian violated the above commitments and promises that ledto the harm for the equity of Little Swan or other shareholders,Midea Group and Mr. He Xiangjian should take the responsibilityof the corresponding liability for damage.Controllingshareholderandactualcontroller
Commitment onindependence
3. As for the commitment on independence, Midea Group and theactual controller Mr. He Xiangjian has promised that, to furtherensure the independent operation of Little Swan, Mr. HeXiangjian, Midea Group and its controlled other enterpriseswould maintain the mutual independent in terms of personnel,finance, assets, business and institutions with Little Swanaccording to the relevant laws and regulations as well as thenormative documents.
December 2010,and 6June2014
Long-standing
Ongoing
Controllingshareholder
Commitment onrelated-party depositsandborrowings
4. As for the commitment on related-
pp
arty deposits and
pb
orrowings, up to April 8, 2010, the Financial Settlement Centerof Midea Group had settled all internal deposits and borrowingswith Hefei Midea Washing Machine Co., Ltd.; and Midea Grouphas promised that there will be no more deposits, borrowings orother funds flows incurred between the Financial SettlementCenter and Hefei Midea Washing Machine Co., Ltd..
December 2010
Long-standing
Ongoing
Controllingshareholder
Commitment onhousingpropertieswith noownershipcertificates
5. The commitment by Midea Group on housing properties withno ownership certificates of the target company for sale isdetailed as follows. Two pieces of the buildings of Hefei MideaWashing Machine Co., Ltd. assessed and sold to the Company areof no ownership certificates—the warehouse for half-finished
bp
roducts (176 square meters) and the workshop for injectionmolding (834 square meters), both located in the old factory onHewa Road, Hefei. Midea Group has promised that if loss occursdue to the said two buildings without ownership certificates in theasset disposal process in the future, it will assume the loss thuscaused and make c o mpensation to the Company.
December 2010
Long-standing
Ongoing
Controllingshareholder
Commitment ontrademarks
6. The commitment by Midea Group on trademarks is detailed asfollows. (1) Concerning the “Midea” trademark: Upon approvaland implementation of the equity transfer transaction, MideaGroup has promised that it will make sure that Hefei MideaWashing Machine Co., Ltd. uses the “Midea” trademark in a
December 2010
The useright ofthe“Royalstar”
Ongoing
proper manner. Hefei Midea Washing Machine Co., Ltd. will beallowed to use the “Midea” trademark with a trademark use feenot more than that paid by Midea Group (the controllingshareholder of Midea Group) and its subsidiaries (currently 3‰of the annual sales income generated by products using the“Midea” trademark), and upon negotiation and signing of the“Agreement for Trademark Use”. The related-
arty transactionsincurred due to the said use of the “Midea” trademark will besubmitted to the decision-making organ of the Company forapproval according to the stipulated procedure. As such, interestsof the Company and its minority shareholders will besafeguarded. (2) Concerning the “Royalstar” trademark: MideaGroup has signed the “Contract for Trademark Use” with HefeiRoyalstar Group and obtained the ordinary use rights of the“Royalstar” (both in Chinese and English) trademark. As thetransferor in the transfer transaction of equity interests ofRoyalstar Washing Equipment, Midea Group has promised thatwithin the scope as agreed in the “Contract for Trademark Use”,if any dispute arises between Hefei Midea Washing Machine Co.,Ltd. and Hefei Royalstar Group over the former’s execution ofthe “Contract for Trademark Use”, Little Swan will not beinvolved. If Hefei Midea Washing Machine Co., Ltd. and LittleSwan have to assume any responsibility or loss due to theaforesaid dispute, Midea Group is willing to take on theresponsibility instead and make compensations to Hefei MideaWashing Machine Co., Ltd. and Little Swan at full amount.
trademarkdetailedin (2)expiredon 31March2013and wasnotrenewed. Andthe othercommitmentcontinues.
Controllingshareholder
Commitment onsocialsecuritypaymentand taxrisks
7. The commitment
pb
y Midea Group on social security paymentand tax risks is detailed as follows. Midea Group has promisedthat upon the completion of the said equity transfer deal, if HefeiMidea Washing Machine Co., Ltd. is obliged to take on anyresponsibility or pay relevant fares as required by relevantgovernment authorities due to its social security payment beforethe said deal, Midea Group is willing to pay relevant fares forHefei Midea Washing Machine Co., Ltd. to relevant governmentauthorities in a timely manner and assume any other liability. Ifany loss thus occurs to Hefei Midea Washing Machine Co., Ltd.or Little Swan, Midea Group is willing to assume relevantresponsibilities for compensation. Upon the completion of thesaid equity transfer deal, if income tax evasion or any other taxrisk is found in Hefei Midea Washing Machine Co., Ltd., MideaGroup is willing to assume relevant legal responsibilities andrisks and pay relevant taxes in a timely manner to relevantgovernment authorities; and if any loss thus occurs to LittleSwan, Midea Group will assume the corresponding responsibility
December 2010
Long-standing
Ongoing
for compensation.
Controllingshareholder
Commitment oncapitalsafety
8. The commitment by Midea Group on capital safety at thefinance companies of the Company: during the validity period ofthe Financial Services Agreement, when Midea Group occurredemergency situation of payment difficulty at finance companies,it should adopt the effective measures such as increase the capitalfund of the finance companies according to the actual needs ofsolving the payment difficulty to ensure the capital safety of theCompany.
February
2019
Effective for oneyear
Ongoing
Commitmentsmade in time ofassetrestructuring
Actualcontroller
Declaration andcommitment letterfor theopinion ofstockexchangeand sharereductionplan
1. I agree on this consolidation and combination in principle. 2. Ihave not the plan for reducing the equity I hold in Midea Groupand/or Little Swan during the period from the date of thisconsolidation and combination and resumption of trading to thedate of implementation, and I will not reduce the equity I hold inMidea Group and/or Little Swan during the period from the dateof this consolidation and combination and resumption of tradingto the date of implementation. 3. This letter of commitment willhave legal binding force on me as of the date of its signing, and Iwill assume corresponding compensation liability in case MideaGroup or Little Swan suffers from any loss due to my actingagainst my commitment to the contents under this letter ofcommitment.
October
2018
Long-standing
Ongoing
Actualcontroller
Commitment letterforavoidinghorizontalcompetition
1. I, my direct relatives and other enterprises under their controlhave not been engaged in, nor will they be engaged in any
roduction and business activity the same as or similar to currentmain businesses of Midea Group and the enterprises under itscontrol, and I, my direct relatives and other enterprises undertheir control will not be engaged in or participate in anycompetitive business the same as the main business of theenterprise nowadays under the control of Midea Group and theenterprises under its control through any other economic entity,agency or economic organization. 2. If Midea Group and theenterprises under its control further expand their business scopeon the basis of their existing business, and I, my direct relativesand other enterprises under their control have been conducting
pp
roduction or business operation for it, so long as I am the actualcontroller of Midea Group, I, my direct relatives and otherenterprises under their control agree to solve the non-competitiveissue arising out of this within the term specified at that time. 3.When Midea Group and the enterprises under its control furtherexpand their business scope on their existing business scope, andI, my direct relatives and other enterprises under their controlhave not conducted production or business operation for it yet, solong as I am the actual controller of Midea Group, I, my direct
October
2018
Long-standing
Ongoing
relatives and other enterprises under their control will not beengaged in such new business competing with Midea Group andthe enterprises under its control. So long as I am recognized asthe actual controller of Midea Group pursuant to effective laws,regulations and other normative documents of the People’sRepublic of China, I will not change and dissolve my abovecommitment.
Actualcontroller
Commitment letterforstandardizing andreducingrelated-partytransaction
1. I, my direct relatives and other enterprises under their controlwill standardize and endeavor to reduce affiliated partytransactions with Midea Group and the enterprises under itscontrol. If I, my direct relatives and other enterprises under theircontrol conduct any affiliated party transaction that cannot be
revented with Midea Group and the enterprises under its control,including but not limited to commodity transaction, provision ofservices between them or acting as agents to each other, astandard agreement on the affiliated party transaction will besigned with Midea Group pursuant to the laws and regulations,and the approval formalities will be handled pursuant to relevantlaws, regulations, rules and other standard documents as well asthe articles of association of Midea Group, the price of theaffiliated party transaction will be ensured to be fair and theinformation disclosure obligations for the affiliated partytransaction will be performed pursuant to relevant laws,regulations and the articles of association of Midea Group, theywill not transfer the fund or profit of Midea Group illegally bytaking advantage of the affiliated party transaction, and they willnot undermine the benefits of Midea Group and its stockholdersby taking advantage of the affiliated party transaction. 2. Icommit that I will perform the obligation of vote avoidance whenthe stockholders’ meeting of Midea Group is voting on anyaffiliated party transaction involving I, my direct relatives andother enterprises under their control. 3. I, my direct relatives andother enterprises under their control will not require Midea Groupto give them more preferential conditions compared with thosegiven to any independent third party in any fair transaction on themarket. So long as I am recognized as the actual controller ofMidea Group pursuant to effective laws, regulations and othernormative documents of the People’s Republic of China, I willnot change and dissolve my above commitment. I will performthe above commitment truthfully and assume corresponding legalresponsibilities. If I do not perform the obligations andresponsibilities in the above commitment, I will assumecorresponding liabilities pursuant to laws, regulations, rules andother normative documents.
October
2018
Long-standing
Ongoing
Actualcontroller
Commitment letterformaintaining theindependence of theCompany
To further ensure independent operation of Midea Group, I andthe other enterprises under my control will keep independentfrom Midea Group in terms of personnel, finance, assets, businessand organization pursuant to relevant laws, regulations andnormative documents. So long as I am recognized as the actualcontroller of Midea Group pursuant to effective laws, regulationsand other normative documents of the People’s Republic ofChina, I will not change and dissolve my above commitment. Iwill perform the above commitment truthfully and assumecorresponding legal responsibilities. If I do not perform theobligations and responsibilities in the above commitment, I willassume corresponding liabilities pursuant to laws, regulations,rules and other normative documents.
Long-standing
Ongoing
Controllingshareholder
Commitment letterforprovidingfactual,accurateandcompleteinformation
The Company will provide the information for this consolidationand combination for the intermediary agency engaged for theconsolidation and combination in time, ensure that the providedinformation is true, accurate and complete, there’s not any falserecording, misleading statement or significant omission, and theCompany will assume separate and joint and several legalliabilities for authenticity, accuracy and completeness for the
rovided information. In case of any false recording, misleadingstatement or significant omission for the provided information onthe part of the Company and bring any loss for the investors, itwill assume the compensation liability pursuant to the laws.
October
2018
Long-standing
Ongoing
Controllingshareholder
Note forPunishme
nts andcreditquality
1. By the date that this letter is issued, the Company has not thecircumstance of initiating an investigation by the judicial organon account of its being suspected of committing a crime or that ofinitiating an investigation by China Securities RegulatoryCommission on account of its being suspected of violating lawsor regulations. 2. By the date that this letter is issued, in the recentfive years, the Company has not been subject to anyadministrative penalty (except for those evidently not related tosecurities market), criminal penalty or major civil lawsuit orarbitration involving economic disputes, nor has it anycircumstance of not repaying its large-sum debt at due time, not
pp
erforming its commitment or being subject to the administra tiveregulatory measures of China Securities Regulatory Commissionor the disciplinary penalty of the securities exchange, and it hasnot other major behavior of breaking promises.
October
2018
Long-standing
Ongoing
Controllingshareholder
Note forshareholdingreduction
1. The Company has not the plan for reducing the equity it holdsin Little Swan during the period from the date of thisconsolidation and combination and resumption of trading to thedate of implementation, and the Company will not reduce the
October
2018
Long-standing
Ongoing
plan
equity it holds in Little Swan during the period from thisconsolidation and combination and resumption of trading to thedate of implementation. The equity held by the Company will becanceled after this consolidation and combination is completed. 2.This letter of commitment will have legal binding force on theCompany as of the date of its signing, and it will assumecorresponding compensation liability in case Little Swan suffersfrom any loss due to the Company’s acting against itscommitment to the contents under this letter of commitment.
Related party
Declaration andcommitment letterfor theopinion ofstockexchangeand sharereductionplan
1. The Company agrees on this consolidation and combination in
rinciple. 2. The company has not the plan for reducing the equityits holds in Midea Group during the period from the date of thisconsolidation and combination and resumption of trading to thedate of implementation, and it will not reduce the equity it holdsin Midea Group during the period from the date of thisconsolidation and combination and resumption of trading to thedate of implementation. 3. This letter of commitment will havelegal binding force on the Company as of the date of its signing,and the Company will assume corresponding compensationliability in case Midea Group suffers from any loss due to theCompany’s acting against its commitment to the contents underthis letter of commitment.
October
2018
Long-standing
Ongoing
Related party
Note forhorizontalcompetition withMideaGroupCo., Ltd.
By the date that this letter is issued, the Company and theenterprises under it other than Midea Group and the enterprisesunder it have not been engaged in any production and businessactivity the same as or similar to current main businesses ofMidea Group and the enterprises under its control, nor have they
pb
een engaged in or participate in any competitive business that isthe same as the main businesses of Midea Group and theenterprises under its control through any other economic entity,agency or economic organization.
October
2018
Long-standing
Ongoing
Related party
Commitment letterforstandardizing andreducingrelated-partytransaction
1. The Company will standardize and endeavor to reduceaffiliated party transactions with Midea Group and the enterprisesunder its control. If the Company conducts any affiliated partytransaction that cannot be prevented with Midea Group and theenterprises under it, including but not limited to commoditytransaction, provision of services or acting as agents to eachother, they shall sign a standard agreement on the affiliated partytransaction with Midea Group pursuant to the laws andregulations, and go through the approval formalities pursuant torelevant laws, regulations, rules and other standard documents aswell as the articles of association of Midea Group, ensure that the
bp
rice of the affiliated party transaction is fair, ensure to perform
October
2018
Long-standing
Ongoing
the information disclosure obligations for the affiliated partytransaction pursuant to relevant laws, regulations and the articlesof association of Midea Group, and ensure that they will nottransfer the fund or profit of Midea Group illegally by takingadvantage of the affiliated party transaction, and they will notundermine the benefits of Midea Grou
and its stockholders bytaking advantage of the affiliated party transaction. 2. TheCompany commits that it will perform the obligation of voteavoidance when the stockholders’ meeting of Midea Group isvoting on any affiliated party transaction involving the Companyand other enterprise under its control. 3.The Company and otherenterprises under its control will not require Midea Group to givethem more preferential conditions compared with those given toany independent third party in any fair transaction on the market.So long as the Company is recognized as the dominantstockholder of Midea Group pursuant to effective laws,regulations and other normative documents of the People’sRepublic of China, the Company will not change and dissolve itsabove commitment. The Company will perform the abovecommitment truthfully and assume corresponding legalresponsibilities. If it does not perform the obligations andresponsibilities in the above commitment, it will assumecorresponding liabilities pursuant to laws, regulations, rules andother normative documents.
Related party
Commitment letterformaintaining theindependence of theCompany
To further ensure independent operation of Midea Group, theCompany and the other enterprises under its control will keepindependent from Midea Group in terms of personnel, finance,assets, business and organization pursuant to relevant laws,regulations and normative documents. So long as the Company isrecognized as a dominant stockholder of Midea Group pursuantto effective laws, regulations and other normative documents ofthe People’s Republic of China, it will not change and dissolve itsabove commitment. The Company will perform the abovecommitment truthfully and assume corresponding legalresponsibilities. If it does not perform the obligations andresponsibilities in the above commitment, it will assumecorresponding liabilities pursuant to laws, regulations, rules andother normative documents.
October
2018
Long-standing
Ongoing
Related party
Note forviolationsof lawsandregulationin the
By the date that this letter is issued, in the recent five years, theCompany and its current senior managers have not thecircumstance of being subject to any administrative penalty(except for those evidently not related to securities market),criminal penalty or major civil lawsuit or arbitration involvingeconomic disputes, nor have they the circumstance of initiating
Long-standing
Ongoing
recent fiveyears
an investigation by the judicial organ on account of their beingsuspected of committing a crime or that of initiating aninvestigation by China Securities Regulatory Commission onaccount of their being suspected of violating laws or regulations.
Shareholder
Note forshareholdingreductionplan
1. The company has not the plan for reducing the equity it holdsin Little Swan during the period from the date of thisconsolidation and combination and resumption of trading to thedate of implementation, and it will not reduce the equity it holdsin Little Swan during the period from the date of thisconsolidation and combination and resumption of trading to thedate of implementation. The equity of Little Swan the Companyholds will be canceled after this consolidation and combination iscompleted. 2. This letter of commitment will have legal bindingforce on the Company as of the date of its signing, and theCompany will assume corresponding compensation liability incase Little Swan suffers from any loss due to the Company’sacting against its commitment to the contents under this letter ofcommitment.
October
2018
Long-standing
Ongoing
Commitmentsmade in time ofIPO orrefinancing
Equity incentivecommitments
Othercommitmentsmade tominorityshareholders
Fulfilled on time YesSpecific reasonsfor failing tofulfillcommitments ontime and plansfor next step(if any)
N/A
2. Where there had been an earnings forecast for an asset or project and the Reporting Period was stillwithin the forecast period, explain why the forecast has been reached for the Reporting Period.□ Applicable √Not applicable
IV Occupation of the Company’s Capital by the Controlling Shareholder or Its RelatedParties for Non-Operating Purposes
□ Applicable √Not applicableNo such cases in the Reporting Period.
V Explanations Given by the Board of Directors, the Supervisory Board and the IndependentDirectors (if any) Regarding the Independent Auditor's “Modified Opinion” on the FinancialStatements of the Reporting Period
□ Applicable √Not applicable
VI YoY Changes to Accounting Policies, Estimates and Methods
√Applicable □ Not applicableRefer to Note V(29) in Part XI for details of changes in accounting policies of the Company during the ReportingPeriod.
VII Retrospective Restatements due to Correction of Material Accounting Errors in theReporting Period
□ Applicable √Not applicableNo such cases in the Reporting Period.
VIII YoY Changes to the Scope of the Consolidated Financial Statements
□ Applicable √Not applicableNo such cases in the Reporting Period.
IX Engagement and Disengagement of Independent Auditor
Current independent auditorName of the domestic independent auditor PricewaterhouseCoopers Zhong Tian LLPThe Company’s payment to the domestic independent auditor (RMB’0,000) 240How many consecutive years the domestic independent auditor has providedaudit service for the Company
Names of the certified public accountants from the domestic independent auditorwriting signatures on the auditor’s report
Huang Meimei and Zhang Xiaoying
How many consecutive years the certified public accountants have provided auditservice for the Company
Indicate by tick mark whether the independent auditor was changed for the Reporting Period.□ Yes √NoIndependent auditor, financial advisor or sponsor engaged for the audit of internal controls:
□ Applicable √Not applicable
X Possibility of Listing Suspension or Termination after Disclosure of this Report
□ Applicable √Not applicable
XI Insolvency and Reorganization
□ Applicable √Not applicableNo such cases in the Reporting Period.
XII Major Legal Matters
□ Applicable √Not applicableNo such cases in the Reporting Period.
XIII Punishments and Rectifications
□ Applicable √Not applicableNo such cases in the Reporting Period.
XIV Credit Quality of the Company as well as Its Controlling Shareholder and ActualController
□ Applicable √Not applicable
XV Equity Incentive Plans, Employee Stock Ownership Plans or Other Incentive Measuresfor Employees
□ Applicable √Not applicableNo such cases in the Reporting Period.
XVI Major Related-Party Transactions
1. Continuing Related-Party Transactions√Applicable □ Not applicableRefer to XIV Related Parties and Related-party Transactions in Part XI Financial Reports for details of continuingrelated-party transactions.2. Related-Party Transactions Regarding Purchase or Sales of Assets or Equity Interests□ Applicable √Not applicableNo such cases in the Reporting Period.3. Related Transactions Regarding Joint Investments in Third Parties□ Applicable √Not applicableNo such cases in the Reporting Period.4. Credits and Liabilities with Related Parties□ Applicable √Not applicableNo such cases in the Reporting Period.5. Other Major Related-Party Transactions(1) About the Financial Service Agreement which Signed with the Midea Group Finance Co., Ltd. ofRelated-party Transactio nIt was agreed that, the financial company should provide the service of deposit, loan, note discount, guarantee,settlement, and the series of the financial services that approved by the CBRC according to the requirements ofthe Company as well as its subsidiaries. During the one-year validity after date of the validation of the agreement,the maximum of the deposit balance that the Company and its subsidiaries disposed in the financial companyshould not exceed the amount of RMB3 billion per day; and the total amount of credit (including drawing bankdraft, discounting acceptance bill, and loans, etc) that the financial company granted to the Company and itssubsidiaries should not exceed the amount of RMB6 billion per day.At the period-end, the deposit balance of the Company at financial company was of RMB0.385 billion with no
loans.(2) About Trademark License of Related-party Transactions
①The Company permitted Wuxi Little Swan Refrigeration Equipment Co., Ltd. and its majority-owned
subsidiaries to use trademark of LITTLE SWAN and picture in air conditioner, heating equipment, ventilatingdevice, heat pump water heater, unified products of air conditioner and hot water, as well as thermal energy savingequipment; permittedGD Midea Group Co., Ltd. and its controlled subsidiaries to use to use trademark of
LITTLE SWAN and picture in the refrigerators and the freezers; at the same time GD Midea Holding Co., Ltd.permitted the Company and subsidiaries of the Company to use trademark of Midea in production, sales and adcampaign of washing machines and dryers. The aforesaid licensing contracts were all contracted with 0.3%charges of net sales revenue of products with the authorized trademark as trademark license fees, and thepermitting period last from the 1 January 2017 to 31 December 2019.②The Company permitted Midea Group Co., Ltd. and its majority-owned subsidiaries to use trademark ofBeverly in water heater, water purification equipment and machinery, which was charged with 0.3% charges of netsales revenue of products with the authorized trademark as trademark license fees, and the permitting period lastfrom the 1 December 2015 to 31 December 2018. On 6 August 2018, the Proposal on Trademark Licensing andConnected Transactions was reviewed and approved at the 16
th
Meeting of the 8
th
Board of Directors, and theCompany and Midea Group renewed the Beverly Trademark Licensing Contract. the Company agreed to license“比佛利” and “BEVERLY” trademarks in a non-exclusive manner to the Midea Group and its majority-ownedsubsidiaries, and those “licensed trademarks” could be applied to dishwashers, kitchen range hoods, gas stoves,disinfection cupboards, water dispensers, water heaters, water purification equipment and machines, washingwater heaters (gas or electric heating), gas stoves, bathroom fixtures, ice machines and equipment, and refrigeratorproducts. However, the trademark license fee will be calculated at 0.3% of the net sales of various authorizedtrademark products in the above license contracts. The license period is from 1 September 2018 to 31 August2021.(3) The Company held the 2017 Annual General Meeting on 9 March 2018 which reviewed and approved theProposal on Estimating the Amount of the 2018 Daily Related-party Transactions.
(4) The Company held the 16
th
Meeting of the 8
th
Board of Directors on 6 August 2018 which reviewed andapproved the Proposal on the Adjustment of the Amount of 2018 Daily Related-party Transactions.
(5) The Company held the 3
rd
Meeting of the 9
th
Board of Directors on 29 October 2018 which reviewed andapproved the Proposal on the Adjustment of the Amount of 2018 Daily Related-party Transactions.
Index to the current announcements about the said related-party transactions disclosed
Title of current announcement Disclosure date Disclosure websiteProposal on Estimating the Amount of the 2018 Daily Related-party Transactions 13 March 2018 www.cninfo.com.cnProposal on Trademark Licensing and Related-party Transactions 8 August 2018 www.cninfo.com.cnProposal on the Adjustment of the Amount of 2018 Daily Related-party Transactions 8 August 2018 www.cninfo.com.cnProposal on the Adjustment of the Amount of 2018 Daily Related-party Transactions
31 December
2018
www.cninfo.com.cn
XVII Major Contracts and Execution thereof
1. Entrustment, Contracting and Leases
(1) Entrustment
□ Applicable √Not applicableNo such cases in the Reporting Period.
(2) Contracting
□ Applicable √Not applicableNo such cases in the Reporting Period.
(3) Leases
□ Applicable √Not applicableNo such cases in the Reporting Period.2. Major Guarantees
(1) Guarantees
Unit: RMB'0,000
Guarantees provided by the Company and its subsidiaries for external parties (exclusive of those for subsidiaries)Obligor
Disclosure date ofthe guarantee line
announcement
Line ofguarantee
Actualoccurrence
date
Actualguarantee
amount
Type ofguarantee
Term ofguarantee
Havingexpired or
not
Guarantee for arelated party or
notTotal approved line for such guarantees in theReporting Period (A1)
Total actual amount of such guarantees in theReporting Period (A2)
Total approved line for such guarantees at the end of
Total actual balance of such guarantees at the
the Reporting Period (A3) end of the Reporting Period (A4)
Guarantees provided by the Company for its subsidiariesObligor
Disclosure date ofthe guarantee line
announcement
Line ofguarantee
Actual occurrence
date
Actualguarantee
amount
Type ofguarantee
Term ofguarantee
Havingexpiredor not
Guarantee for
a relatedparty or not
Hefei MideaWashingMachineCo., Ltd.
9 March 2017 125,000 19 April 2017 29.5Joint-liability10 months Yes No9 March 2017 125,000 19 April 2017 28.12Joint-liability10 months Yes No9 March 2017 125,000 21 April 2017 275.09Joint-liability10 months Yes No9 March 2017 125,000 26 July 2017 12,010.46Joint-liabilityHalf year Yes No9 March 2017 125,000 28 November 201710,897.83Joint-liabilityHalf year Yes No9 March 2017 125,000 29 November 20171,090.72Joint-liabilityHalf year Yes No13 March 2018 130,000 22 January 2018 25.73Joint-liability1 month Yes No13 March 2018 130,000 12 March 2018 72.73Joint-liability2 months Yes No13 March 2018 130,000 13 April 2018 274.61Joint-liability3 months Yes No13 March 2018 130,000 13 April 2018 173.73Joint-liability2 months Yes No13 March 2018 130,000 15 January 2018 80.33Joint-liability14 months No No13 March 2018 130,000 28 March 2018 268.08Joint-liability1 year No No13 March 2018 130,000 17 April 2018 175.45Joint-liability1 year No NoTotal approved line for such guarantees in theReporting Period (B1)
130,000
Total actual amount of such guarantees in theReporting Period (B2)
25,402.38Total approved line for such guarantees at theend of the Reporting Period (B3)
130,000
Total actual balance of such guarantees at the end ofthe Reporting Period (B4)
523.86Guarantees provided between subsidiariesObligor
Disclosure date ofthe guarantee line
announcement
Line ofguarantee
Actual occurrence
date
Actualguarantee
amount
Type ofguarantee
Term ofguarantee
Havingexpiredor not
Guaranteefor a relatedparty or notTotal approved line for such guarantees in theReporting Period (C1)
Total actual amount of such guarantees in theReporting Period (C2)
Total approved line for such guarantees at theend of the Reporting Period (C3)
Total actual balance of such guarantees at the end ofthe Reporting Period (C4)
Total guarantee amount (total of the three kinds of guarantees above)Total guarantee line approved in theReporting Period (A1+B1+C1)
130,000
Total actual guarantee amount in the Reporting Period(A2+B2+C2)
25,402.38Total approved guarantee line at the end of theReporting Period (A3+B3+C3)
130,000
Total actual guarantee balance at the end of theReporting Period (A4+B4+C4)
523.86Total actual guarantee amount (A4+B4+C4) as % of the Company’s net assets 0.06%
Of which:
Balance of guarantees provided for shareholders, actual controller and their related parties (D) 0Balance of debt guarantees provided directly or indirectly for obligors with an over 70% debt/asset ratio (E) 0Amount by which the total guarantee amount exceeds 50% of the Company’s net assets (F) 0Total of the three amounts above (D+E+F) 0Joint responsibilities possibly borne in the Reporting Period for undue guarantees (if any) N/AProvision of external guarantees in breach of the prescribed procedures (if any) N/A
(2) Irregularities in Provision of Guarantees□ Applicable √Not applicableNo such cases in the Reporting Period.3. Cash Entrusted to Other Entities for Management(1) Cash Entrusted for Wealth Management
Unit: RMB’00,000,000
Type Capital resources Amount incurredOutstanding balance Overdue unrevoked amountTrust financial products Self-owned funds 12.5 0 0Bank financial products Self-owned funds 24.85 0 0
Total 37.35 0 0
Particulars about high-risk cash entrusted for wealth management with significant single amount or low securitylow liquidity and not breakeven
Unit: RMB’00,000,000
Name of
trusteeinstitutio
n (or
name of
trustee)
Type oftrusteeinstitutio
n (orname oftrustee)
Type
ofproduc
ts
amoun
t
Capitalresourc
es
Commencemen
t date
Termin
ationdate
Fundsallocat
ion
Method
ofremuner
ation
Annual yield
forreferen
ce
Expectedearnings(ifany)
Theactualloss/gainamounts
in theReporting Period
The actualwithdrawal
ofloss/gain n
theReporting
Period
Amount ofprovisions forimpairment
Lega
lprocedures ornot
Plan forentrusted
assetmanagement in
thefuture or
not
Overviews ofevents
andqueryindex(if any
Bank Bank
Trustplan
12.50
Self-ow
nedfunds
January
2017
8 June2018
Subjec
t tocontra
ct
Annualyield forreference subject
to
4.20%
-5.25%
0.600.18
Received
as percontract
Yes Yes
www.cninfo.com.cn
(AnnouncemComm
on
24.85
Self-ow
ned
April
July
4.80%
-
0.890.43 Yes Yes
wealthmanagement
funds 2017 2018contract5.00%entNo.:
2018-0
7)Total 37.35 -- -- -- -- -- -- 1.490.61 -- -- -- --
Situations where principal can’ t be taken back or other possibilities that result in impairment□ Applicable √Not applicable
(2) Entrusted Loans
□ Applicable √Not applicableNo such cases in the Reporting Period.4. Other Major Contracts□ Applicable √Not applicableNo such cases in the Reporting Period.
XVIII Corporate Social Responsibility (CSR)
1. Measures Taken to Fulfill CSR CommitmentThe Company positively executed the social responsibility, paid attention on maintaining the legal equities of eachbenefit-related p arty, insisted to harmonious coex ist with each party. The Company po sitively participated in t hesocial and public welfare undertakings, paid attention on the environmental protection and positively responded tothe national appeal of energy saving and emission-reduction that made great efforts to contribute to the sustainabledevelopment of the society as well as environment, with the specific work situation as follows:
(1) Safeguarding Legitimate Rights and Interests of Consumers: Being market-oriented, the Companycentered on the customers’ needs and keeps improving quality management to offer products with a quality higherthan the expectation of consumers and an improved user experience. It has a national servicehotline—4008228228— and service number of after-sales Wechat to answer to customers’ questions andcomplaints, ensure that they would be satisfied.(2) Offering Generous Returns to Shareholders. The Company constructed a more perfect corporategovernance structure and formulated a corresponding management system for ensure the shareholders to fullyenjoy each legal interests stipulated by the laws and regulations. In line with the stipulation of the Articles of
Association, the Company realized the allocable profit positive, and there were no significant investment plan orsignificant cash expenditure events (excluding raise funds investment events). Any within three consecutive years,the Company allocated the profits in cash accumulatively no less than 30% of the average distributive profitsrealized in recent three years. The Company attached great importance to the retribution and had been executingthe cash dividends for recent years.(3) Constructing Strategic Partnership. The Com pany positively constructed the strategic partnership withsuppliers and customers, complied with the business rule, paid attention on the communication and cooperationwith each related party, built up interests community with the partners for growing together and sharingachievements, ensured the interests and relevant equities of the partners and jointly dedicated to maintain thesustainable healthy development of the industry.(4) Safeguarding Rights and Interests of Employees. The Company strictly implemented the state laws andregulations to positively guarantee the legal interests of the staff. Withholding the “people-oriented” spirit, theCompany offered a favorable working and living environment for its staff and built as well as improved the salarystandard and the incentive system, and provided competitive salary reward with improving space. The Companyoffered various kinds of t raining to promote the career development of the staff by the method combined either ininternal or external. It also conducts many leisure activities to enrich employees’ life.(5) Promoting Energy Saving and Environmental Protection. In strict compliance with the country’s laws andregulations for environment protection, the Company carried out and promoted the energy conservation andemission reduction and executed the social responsibility under the low-carbon time through innovation inmanagement, technology and products. During the progress of produce, the Company realized 100% of therecycle and the reuse of the industrial water consumption; the Company explored the Accurate Automatic LaunchDetergent Technology, which gained the authentication of the international authority-UK Intertek, and at the sametime received the green leave label of Carbon Footprint that meant the Company be the first enterprise thatreceived that label in the domestic washing machine industry.2. Measures Taken for Targeted Poverty Alleviation□ Applicable √Not applicableThe Company did not engage in targeted poverty alleviation activities during the Reporting Period, nor has it anysuch plans for the time being.
3. Issues Related to Environmental ProtectionIndicate by tick mark whether the Company or any of its subsidiaries is identified as a major polluter by theenvironmental protection authorities.□ Yes √No tNo such cases in the Reporting Period.The State Environmental Protection Department, the Company still attaches great importance to theenvironmental protection management and has carried out the following related works according to applicablelaws:
1. According to the requirements stated in Administrative Measures for the Recording of Emergency Responsesfor Sudden Environmental Incidents of Enterprises and Institutions, considering applicable national laws andregulations, rules and standards for environmental protection and the actual conditions of the unit, EmergencyPlan for Environmental Emergencies was prepared and submitted to the local environmental protection bureau forrecords;2. The Sewage Discharging Permit issued by the local environmental protection bureau was obtained, and theEnvironmental Impact Assessment of the Construction Project was prepared by the unit with the qualification ofenvironmental assessment, and passed the approval and acceptance inspection conducted by the environmentalprotection departme nt;3. Accordingly, the Company has also constructed a sewage treatment station and equipped various waste gastreatment facilities and dust control facilities etc., and it will also regularly maintain these environmentalprotection facilities. As a result, all kinds of environmental protection facilities are working normally, andagencies with the third-party qualification will be entrusted to conduct inspections on a regular basis. Therefore,the Company has not discharged any sewage or pollutant beyond the specific standard or limit, and strictlyconformed to relevant requirements put forward by the environmental protection department.
XIX Other Significant Events
On 24 October 2018, the Company announced the major assets restructuring plan. Midea Group intends to issueA-shares to absorb the Company, which means Midea Group issues shares to all shareholders of the Companyexcluding Midea Group and TITONI to exchange all A-shares and B-shares held by those shareholders. TheA-shares and B-shares held by Midea Group and TITONI are not involved in the conversion and these shares will
be cancelled after the merger by share swap.After the completion of the merger by share swap, the Company will terminate the listing and cancel the legalperson qualification. Midea Group or its wholly-owned subsidiaries will inherit and undertake all assets, liabilities,business, personnel, contracts and all other rights and obligations of the Company. Midea Group will apply forlisting on the main board of the Shenzhen Stock Exchange for all additional A-shares due to the merger by shareswapThe above-mentioned major assets restructuring was reviewed and approved on general meetings of both sides on21 December 2018 and unconditionally passed by the China Securities Regulatory Commission (CSRC) on 20February 2019 and examined and approved by CSRC on 12 March 2019. At present, the restructuring is in theprogress (see www.cninfo.com.cn for details). Investors are advised to pay attention to the investment risks.
XX Significant Events of Subsidiaries
□ Applicable √Not applicable
Part VI Share Changes and Shareholder Information
I. Share Changes
1. Share Changes
Unit: share
Before Increase/decrease in the Reporting Period (+/-) AfterShares
Percentage
(%)
Newissues
Shares asdividendconvertedfrom profit
Shares asdividendconvertedfrom capital
reserves
OtherSubtotal Shares
Percentage
(%)1. Restricted shares 2,087,745 0.33%17,02517,025 2,104,7700.33%1.3 Shares held by otherdomestic investors
2,087,745 0.33%17,02517,025 2,104,7700.33%Among which: Shares held bydomestic legal persons
2,052,720 0.32% 2,052,7200.32%Shares held by domesticnatural persons
35,025 0.01%17,02517,025 52,0500.01%2. Non-restricted shares 630,400,019 99.67%-17,025-17,025 630,382,99499.67%2.1 RMB ordinary shares 439,364,147 69.47%-17,025-17,025 439,347,12269.47%2.2 Domestically listedforeign shares
191,035,872 30.20% 191,035,87230.20%3. Total shar es 632,487,764 100.00%00 632,487,764100.00%
Reasons for share changes:
Reason for changes in shares held by domestic natural persons: based on the confidence in the Company, Mr. LuJianfeng, the Director and General Manager of the Company, purchased 22,700 shares of the Company on 5 July2018 and accumulatively holds 69,400 shares of the Company. In line with the No.141 regulation stipulated in theCorporate Law, the amount of shares transferred annually shall not exceed 25% of total shares held of theCompany. Thus the 17,025 shares of increased 22,700 shares were transferred as restricted shares.Approval of share changes:
□ Applicable √Not applicableTransfer of share ownership:
□ Applicable √Not applicableProgress on any share repurchase:
□ Applicable √Not applicableProgress on reducing the repurchased shares by means of centralized bidding:
□ Applicable √Not applicableEffects of share changes on the basic and diluted earnings per share, equity per share attributable to theCompany’s ordinary shareholders and other financial indicators of the prior year and the prior accounting period,respectively:
□ Applicable √Not applicableOther information that the Company considers necessary or is required by the securities regulator to be disclosed:
□ Applicable √Not applicable2. Changes in Restricted Shares
Unit: share
Name ofshareholder
Amount ofrestricted shares at
the Period-begin
Amount of restricted
shares relievedduring the Reporting
Period
Amount of restricted
shares increasedduring the Reporting
Period
Amount ofrestrictedshares at thePeriod-end
Reason forrestriction
Date of dissolution
Lu Jianfeng 35,025 0 17,025 52,050
Locked by
seniormanagement
Adjust restricted shares andnegotiable shares yearly inaccordance with regulationsstipulated in Corporation Law。Total 35,025 0 17,025 52,050 -- --
II. Issuance and Listing of Securities
1. Securities (Exclusive of Preferred Shares) Issued in the Reporting Period□ Applicable √Not applicable2. Changes to Total Shares, Shareholder Structure and Asset and Liability Structures□ Applicable √Not applicable
3. Existing Staff-Held Shares□ Applicable √Not applicable
III Shareholders and Actual Controller
1. Shareholders and Their Shareholdings at the Period-End
Unit: share
Number ofordinaryshareholders
22,531
Number of ordinaryshareholders at themonth-end prior to thedisclosure of this Report
19,710
Number of preferredshareholders withresumed voting rights(if any) (see note 8)
Number of preferred shareholderswith resumed voting rights at themonth-end prior to the disclosureof this Report (if any) (see note 8)
5% or greater shareholders or top 10 shareholders
Name of shareholder Nature of shareholder
Sharehol
dingpercenta
ge
Total sharesheld at theperiod-end
Increase/decrease in theReporting
Period
Number
ofrestricted shares
held
Number ofnon-restricte
d shares
held
Shares inpledge or
frozenStatu
s
SharesMIDEA GROUP CO., LTD.
Domesticnon-state-owned legal
person
37.78%238,948,1170 238,948,117TITONI INVESTMENTSDEVELOPMENT LTD.
Foreign legal person14.89%94,204,9420 94,204,942HONGKONG SECURITIESCLEANING CO., LTD
Foreign legal person6.61%41,830,50527,638,807 41,830,505GAOLING FUND,L.P. Foreign legal person3.74%23,664,1250 23,664,125GREENWOODS CHINA ALPHAMASTER FUND
Foreign legal person2.59%16,371,559-1,415,509 16,371,559AGRICULTURAL BANK OFCHINA- E FUND CONSUMPTIONSECTOR STOCK INVESTMENTFUND
Domestic
non-state-owned legal
person
1.72%10,876,2593,737,924 10,876,259CENTRAL HUIJIN ASSETMANAGEMENT CO., LTD.
State-owned lega l
person
1.61%10,156,3000 10,156,300BILL & MELINDA GATESFOUNDATION TRUST
Foreign legal person1.28%8,070,5061,531,732 8,070,506FINANCE BUREAU OF WUXI
State-owned lega l
person
1.21%7,652,203-9,401,868 7,652,203NATIONAL SOCIAL SECURITY Domestic1.18%7,470,9737,470,973 7,470,973
FUND PORTFOLIO 406non-state-owned legal
personStrategic investor or general legal person becoming a top-10ordinary shareholder due to rights issue (if any) (see note 3)
NoneRelated or acting-in-concert parties among the shareholdersabove
Midea Group and TITONI Investments Development Ltd. are parties
acting in concert.Top 10 non-restricted shareholdersName of shareholder
Non-restricted shares
at the period-end
Shares by typeType SharesMIDEA GROUP CO., LTD. 238,948,117RMB ordinary share238,948,117TITONI INVESTMENTS DEVELOPMENT LTD. 94,204,942
Domestically listed
foreign stock
94,204,942HONGKONG SECURITIES CLEANING CO., LTD 41,830,505RMB ordinary share41,830,505GAOLING FUND,L.P. 23,664,125
Domestically listed
foreign stock
23,664,125GREENWOODS CHINA ALPHA MASTER FUND 16,371,559
Domestically listed
foreign stock
16,371,559AGRICULTURAL BANK OF CHINA- E FUND CONSUMPTIONSECTOR STOCK INVESTMENT FUND
10,876,259RMB ordinary share10,876,259CENTRAL HUIJIN ASSET MANAGEMENT CO., LTD. 10,156,300RMB ordinary share10,156,300BILL & MELINDA GATES FOUNDATION TRUST 8,070,506RMB ordinary share8,070,506FINANCE BUREAU OF WUXI 7,652,203RMB ordinary share7,652,203NATIONAL SOCIAL SECURITY FUND PORTFOLIO 406 7,470,973RMB ordinary share7,470,973Related or acting-in-concert parties among top 10 unrestricted publicshareholders, as well as between top 10 unrestricted public shareholdersand top 10 shareholders
Midea Group and TITONI Investments Development Ltd.are parties acting in concert.Top 10 ordinary shareholders involved in securities margin trading (if any)(see note 4)
None
Indicate by tick mark whether any of the top 10 ordinary shareholders or the top 10 unrestricted ordinaryshareholders of the Company conducted any promissory repo during the Reporting Period.□ Yea √NoNo such cases in the Reporting Period.2. Controlling Shareholder
Name of controlling
shareholder
Legalrepresentative/pers
Date ofestablishment
Unified social credit code Principal activity
on in chargeMidea Group Co., Ltd. Fang Hongbo 7 April 200091440606722473344C
Consumer appliances and heatingventilation air conditioner, robotsand automatic systems, and etc.Controlling shareholder’sholdings in other listedcompanies at home or abroadin the Reporting Period
The Company’s controlling shareholder is Midea Group Co., Ltd. with the securities code of000333, refer to information disclosed on www.cninfo.com.cn for details about other listedcompanies at home or abroad controlled and shared by the Company in the Reporting Period
Change of the controlling shareholder in the Reporting Period:
□ Applicable √Not applicableNo such cases in the Reporting Period.3. Actual Controller and Its Acting-in-Concert Parties
Name of actual controller
Relationship with actual
controller
Nationality
Right of residence in other
countries or regionsHe Xiangjian Self the People's Republic of ChinaNoMain occupation and duty Current board chairman of Midea Holding and former board chairman of Midea GroupUsed-to-be-holding listed companieshome and abroad in the last ten years
Midea Group (000333.SZ), Little Swan (A: 000418.SZ;B:200418), and KUKA AG(KU2.DE)
Change of the actual controller during the Reporting Period:
□ Applicable √Not applicableNo such cases in the Reporting Period.Ownership and control relations between the actual controller and the Company:
Indicate by tick mark whether the actual controller controls the Company via trust or other ways of assetmanagement.□ Applicable √Not applicable4. Other 10% or Greater Corporate Shareholders
Name of corporate
shareholder
Legal representative /
company principal
Date of establishmentRegistered capital Business scopeTITONI Xiao Mingguang 7 February 2007 USD50,000 Holding equity interests in Little Swan
5. Limitations on Shareholding Decrease by the Company’s Controlling Shareholder, Actual Controller,Reorganizer and Other Commitment Makers□ Applicable √Not applicable
He Xian
ian
Midea Holding Co., Ltd.
Midea Group Co., Ltd.
94.55%
33.20%
Midea Electric Investment (BVI) Limited
TITONI Investments Development Ltd.
Wuxi Little Swan Co., Ltd.
100%
100%
14.89%
37.78%
Part VII Preferred Shares
□ Applicable √Not applicableNo preferred shares in the Reporting Period.
Part VIII Directors, Supervisors, Senior Management and Staff
I Change in Shareholdings of Directors, Supervisors and Senior Management
Name Office title
Incumbent
/Former
Gender AgeStart of tenure End of tenure
Beginnin
gsharehol
ding(share)
Increase in
theReporting
Period(share)
Decrease
in theReporting Period(share)
Otherincrease/decre
ase(share)
Endingshareholding(share)Fang Hongbo Chairman of the Board Incumbent Male 519 May 2008 24 August 20210 0 0 0 0
Lu Jianfeng
General Manager Incumbent Male 45
14 December
2016
24 August 202146,700 22,700 0 0 69,400Director Incumbent Male 4511 April 201724 August 20210 0 0 0 0XiaoMingguang
Director Incumbent Male 4712 January 201024 August 20210 0 0 0 0Jiang Peng Director Incumbent Male 4511 April 201724 August 20210 0 0 0 0Zhou Sixiu
Secretary of the Board Incumbent Female 4510 January 200724 August 20210 0 0 0 0
Director Incumbent Female 4521 August 201224 August 20210 0 0 0 0Sun Yunan
CFO Incumbent Male 40
24 November
2014
24 August 20210 0 0 0 0
Director Incumbent Male 4026 August 201524 August 20210 0 0 0 0Jiang Qingyun Independent director Incumbent Male 5422 August 201424 August 20210 0 0 0 0Tao Xiangnan Independent director Incumbent Male 5220 April 201524 August 20210 0 0 0 0
Zhu Heping Independent director Incumbent Male 5426 August 201524 August 20210 0 0 0 0
Liu Di
Chairman ofSupervisoryCommittee
Incumbent Male 3611 April 201824 August 20210 0 0 0 0Wang Shouhu Supervisor Incumbent Male 3722 August 201424 August 20210 0 0 0 0Xu Pengcheng
Staff representative
supervisor
Incumbent Male 495 August 201424 August 20210 0 0 0 0Liang Pengfei
Chairman ofSupervisoryCommittee
Left Male 4122 August 201411 April 20180 0 0 0 0Total -- -- -- ---- -- 46,700 22,700 0 0 69,400
II Change of Directors, Supervisors and Senior Management
Name Office title Type of change Date of change Reason for changeLiang Pengfei Chairman of Supervisory CommitteeLeft 11 April 2018 Job change
III Biographical Information
Professional backgrounds, major work experience and current duties in the Company of the incumbent directors,supervisors and senior management:
(1) Mr. Fang Hongbo, born in 1967, holder of a master’s degree, now serves in the Company as the Chairman ofthe Board, the Chairman of the Board & President of Midea Group Co., Ltd. and member of SupervisoryCommittee in Kuka AG. He once was the Board Chairman and President of GD Midea Holding Co., Ltd., etc.(2) Mr. Lu Jianfeng, born in 1973, holder of a master’s degree, now serves as the Director and General Managerof the Company. He once was the Domestic Home A/C President, China Marketing President and Vice Presidentof GD Midea Holding Co., Ltd., as well as the Environmental Appliances General Manager of Midea Group, etc.(3)Mr. Xiao Mingguang, born in 1970, is a master’s degree holder. He now serves as a Director of the Company
and a Vice President of Midea Group. He once was the Deputy Director of the Financial Management Departmentand the Director of the Operational Management Department of Midea Group, the Director of the Audit andSupervision Department of GD Midea Holding Co., Ltd., as well as the Chief Financial Officer of Midea Group,among others.(4) Jiang Peng, born in 1973, holder of a master’s degree, now serves as Director in the Company, BoardSecretary and Investors Relations Director of Media Group Co., Ltd. He ever acted as the SecuritiesRepresentative and Board Secretary of GD Midea Holding Co., Ltd.(5) Ms. Zhou Sixiu, born in 1973, holder of a master’s degree, now serves as a director and the Board Secretary ofthe Company. She once was the Securities Representative of Wuxi Qingfeng Co., Ltd., etc.(6) Sun Yunan, born in 1978, holder of a master’s degree, now serves as a director and the CFO of the Company.He ever served as Finance Minister of Automatic Factory of the Company, Refrigerator Career Dept. Factory andManager of Accounting and Process Management of Midea Group, etc.(7) Jiang Qingyun, was born in 1964, doctor degree. He now serves as Independent Director of the Company,Marketing Director of School of Management Fudan University, and Independent Director of Misho Ecology &Landscape Co., Ltd. and Galaxy Biomedical Investment Co., Ltd.(8) Tao Xiangnan was born in 1966, doctor degree. He now serves as Independent Director of the Company,
Professor of Business School of MUST.(9) Zhu Heping was born in 1964, doctor degree. He now serves as Independent Director of the Company,Accounting Professor of school of business of Jiangnan University, non-professional member of CICPA andIndependent Director of Jiangsu Asia-Pacific Light Alloy Technology Co., Ltd., Jiangsu Baichuan High-tech NewMaterials Co., Ltd. and Jiangsu Pengyao Environment Protection Co., Ltd.(10) Liu Di was born in 1982, bachelor degree. He now serves as the Supervisor, Director of Operations & HumanResources in the Company. He once worked as the management manager of Midea Group and managementmanager of Central Air-conditioning Division in Midea Group.(11) Wang Shouhu, was born in 1981, bachelor, He now serves as Supervisor Manager of Internal Audit. He everacted as Director of Management Audit of Media Daily Appliance Group and Supervision of Integrity officer ofMedia Group, etc.(12) Xu Pengcheng, was born in 1969, bachelor. He now serves as Staff Representative Supervisor and Director ofR&D of the Company. He ever acted as Minister of impeller Development Dept. officer of R&D of AutomaticWashing Machine Company and GM of Hefei Midea Washing Machine Co., Ltd., etc.Offices held concurrently in shareholding entities:
Name
Shareholding
entity
Office held in th eshareholding entity
Start of tenure End of tenure
Remuneration orallowanc e from theshareholding entityFang Hongbo
Midea Group Chairman of the Board25 August 2012 26 September 2021 YesMidea Group President 15 October 2013 26 September 2021 YesXiao Mingguang
Midea Group Vice President 2 December 2015 26 September 2021 Yes
TITONI Director 23 December 2013 NoNotes
N/A
Offices held concurrently in other entities:
Name Other entity
Office held in th e
entity
Start of tenure End of tenure
Remuneration orallowance from the entityJiang Qingyun
School of Management
Fudan University
Professor andMarketing Director
1 August 1998 YesTao Xiangnan MUST Professor 10 January 2018 Yes
Zhu Heping
School of Business of
Jiangnan University
Professor 1 September 2007 YesNotes
N/A
Punishments imposed in the recent three years by the securities regulator on the incumbent directors, supervisorsand senior management as well as those who left in the Reporting Period:
□ Applicable √Not applicable
IV Remuneration of Directors, Supervisors and Senior Management
Decision-making procedure, determination basis and actual payments of remuneration for directors, supervisorsand senior management:
(1) Decision-making procedure for the remuneration of directors, supervisors and senior management: Theremuneration for senior management is proposed by the Remuneration and Appraisal Committee under the Boardand finalized upon the Board’s approval; and that for directors and supervisors is subject to their positions.(2) Determining basis for the remuneration of directors, supervisors and senior management: The remuneration ofdirectors, supervisors and senior management receiving remuneration from the Company consist of the basicannual salary and performance annual salary. The basic annual salary is decided according to the duties, risks,pressure and other factors born by the directors, supervisors and senior management, and it stays unchanged;while the performance annual salary is linked with the profit completion rate and the appraisal results of targetresponsibility system of the Company. The remuneration system of the directors, supervisors and seniormanagement of the Company serves for its operating strategy, which is adjusted according to the changes ofoperation situation of the Company so as to adapt to the needs of the further development of the Company. Theadjustment basis for the remuneration of directors, supervisors and senior management of the Company is asfollows: (1) the increase level of remuneration in the same industry; (2) the earnings of the Company; (3) theadjustment of organization structure; (4) adjustment on positions. The allowances for independent directors areRMB100, 000 (tax included) per year upon consideration and approval of the shareholders’ meeting, and theexpenses occurred to execute their responsibilities are borne by the Company.(3) Actual payment for the remuneration of directors, supervisors and senior management: The basic salary ofdirectors, supervisors and senior management receiving remuneration from the Company is paid monthly; theallowance for independent directors is paid quarterly.Remuneration of directors, supervisors and senior management for the Reporting Period
Unit: RMB'0,000
Name Office title GenderAge
Incumbent/For
mer
Total before-taxremuneration from the
Company
Any remunerationfrom related partyFang Hongbo Chairman of the Board Male51Incumbent Yes
Lu Jianfeng Director & General Manager Male45Incumbent375.67Xiao Mingguang Director Male48Incumbent0 Yes
Jiang Peng Director Male45Incumbent0 Yes
Zhou Sixiu Director & Board Secretary Female 45Incumbent174.98
Sun Yunan Director & CFO Male40Incumbent326.06Jiang Qingyun Independent Director Male54Incumbent10Tao Xiangnan Independent director Male52Incumbent10
Zhu Heping Independent director Male54Incumbent10
Liu Di
Chairman of Supervisory
Committee
Male36Incumbent207.13Wang Shouhu Supervisor Male37Incumbent63.22Xu Pengcheng Staff representative supervisor Male49Incumbent301.32Liang Pengfei
Chairman of Supervisory
Committee
Male41Left 16 YesTotal -- -- ---- 1,494.39 --
Equity incentives for directors, supervisors and senior management in the Reporting Period:
□ Applicable √Not applicable
V Employees
1. Number, Functions and Educational Backgrounds of Employees
Number of in-service employees of the Company as the parent 6,535Number of in-service employees of major subsidiaries 4,924Total number of in-service employees 11,459Total number of paid employees in the Reporting Period 13,193Number of retirees to whom the Company as the parent or itsmajor subsidiaries need to pay retirement pensions
FunctionsFunction EmployeesProduction 8,741Sales 907Technical 1,423Financial 165Administrative 223Total 11,459
Educational backgroundsEducational background EmployeesMaster’s degree and above 332Bachelor’s degree 2,203College and Technical secondary school 3,150Middle school and below 5,774Total 11,459
76%
8%
12%
1%
2%
Production
Technical
FinancialAdministrative
Sales
Functions
3%
19%
27%
50%
Master and above
BachelorMiddleschoo l and
College an dTechnicalSecondary School
Educationalbackground
2. Employee Remuneration PolicyThe remuneration of employees is paid on time according to the Company’s Methods for RemunerationManagement. The Company decides its employees’ fixed salaries accordin g to their positions and their floatingwages in line with its operating results. Meanwhile, the Company leans to strategic talent so as to ensurecompetitive wages for core personnel. And the remuneration policy will be irregularly adjusted according toregional differences, the talent supply, employees’ turnover, changes in the industry environment and theCompany’s paying ability.3. Employee Training PlansIt will decide the training content for employees from different levels and groups according to the postqualification, and promote the training of entire staff, so as to build a learning organization.
4. Labor Outsourcing□ Applicable √Not applicable
Part IX Corporate Governance
I General Information of Corporate Governance
The Company continuously perfected its corporate governance; promote the improvement of its operation andformulate the corresponding internal control system, prevented and controlled risks and safeguarded the legitimaterights and interests of the Company and the shareholders in accordance with the requirements of relevant laws andrules such as Company Law, Securities Law issued by CSRC. The actual situation of the Company’s corporategovernance is in accordance with the requirements of Administrative Rule for Listed Companies issued by CSRC.For better governance, the Company has formulated the Rules of Procedure for the Board of Directors, theSupervisory Board, shareholders’ meetings and the specialized committees under the Board of Directors, as wellas the Disclosure of Information Management System, Raise Money Management System, Related TransactionManagement System, Information Source Insider Registration Management System, Internal Report System forthe Major Issues, System of Accountability for Management, the Preliminary Plan Regarding Risk Handling inFinancial Services (Accepting Deposits and Lending) Provided by Midea Group Finance Co., Ltd, etc. During theReporting Period, according to applicable laws and regulations and the need arising from its actual operations, theCompany held the 2017 Annual General Meeting on 11 April 2018, at which the Articles of Association had beenrevised, further improving its corporate governance mechanism.In line with the relevant provisions of Company Law, the Articles of Association etc., the Company established acomparative perfect organization control structure system The Board of Director conducted the resolutions ofgeneral meeting of shareholders, response for the significant decision-making events and general meeting ofstockholders; the Company appointed GM by law, presided over the daily production operation and management,organized the implementation of resolution of the Board, was responsible for the Board of Directors; thesupervisor of the Company was the supervisory organization for the Company which supervised the behaviors ofthe directors, GM and the finance of the Company. The four committees, Strategy Committee, the Remunerationand Appraisal Committee, Audit Committee, the Nomination Committee were under the Board of Directors. theCompany’s General Meeting of shareholders, Board of Directors, Board of directors and operation managerialpersonnel with clear responsibilities and rights, performing their duties, effective checks and balances, scientificdecision-making and coordinate operations, which laid a solid foundation for sustained, stable and healthy
development of the Company.Indicate by tick market whether there is any material incompliance with the regulatory documents issued by theCSRC governing the governance of listed companies.□ Yes √No
II The Company’s Independence from Its Controlling Shareholder in Business, Personnel,Asset, Organization and Financial Affairs
The Company is completely separated from its controlling shareholder in aspects such as business, personnel,assets, institutions and finance and possesses independent and complete business and self-dependent operatingability.1. In respect of business, the Company owned independent and integrated system of R&D, purchasing, productionand sales. Main business of the Company is washing machine that there isn’t any horizontal competition betweenthe Company and the controlling shareholder. The Company was completely separated from the controllingshareholder in business.2.In respect of personnel, in terms of labor, personnel and salary management, the Company and the controllingshareholder were independent each other, there existed no mixed operation and management between theCompany and the controlling shareholder. Such senior management staff as General Manager, CFO and BoardSecretary did not take any posts in shareholding companies.3. In respect of assets, the Company’s assets were complete, and there was the clear property right relationshipbetween the Company and the controlling shareholder.4. In respect of organization, the Company has set up the organization that was independent from the controllingshareholder completely, the Board of Directors, the Supervisory Board and internal organization could operateindependently.5. In respect of financing, the Company owned independent financial department, established independentaccounting system and financial management system, opened independent bank account, paid tax in line withlaws.
III Horizontal Competition
□ Applicable √Not applicable
IV Annual and Extraordinary General Meetings Convened during the Reporting Period
1. General Meeting Convened during the Reporting Period
Meeting Type
Investor
articipation ratio
Date of the
meeting
Disclosure
date
Index to disclosed informationThe 2017 Annual GeneralMeeting
Annual GeneralMeeting
59.13% 11 April 201812 April 2018
Announcement No. 2018-14disclosed on www.cninfo.com.cnThe 1
st
ExtraordinaryGeneral Meeting of 2018
ExtraordinaryGeneral Meeting
63.58% 24 August 2018
25 August
2018
Announcement No. 2018-30disclosed on www.cninfo.com.cnThe 2
nd
ExtraordinaryGeneral Meeting of 2018
ExtraordinaryGeneral Meeting
22.34%
21 December
2018
22 December
2018
Announcement No. 2018-58disclosed on www.cninfo.com.cn
2. Special General Meetings Convened at the Request of Preferred Shareholders with Resumed VotingRights□ Applicable √Not applicable
V Performance of Duty by Independent Directors in the Reporting Period
1. Attendance of Independent Directors at Board Meetings and General Meetings
Attendance of independent directors at board meetings and general meetingsIndependent
director
Total number ofboard meetingsthe independent
director waseligible to attend
Boardmeetingsattended on
site
Board meetingsattended by way
oftelecommunicati
on
Boardmeetingsattendedthrough a
proxy
Board meetingsthe independentdirector failed to
attend
The independentdirector failed to attendtwo consecutive board
meetings (yes/no)
GeneralmeetingsattendedJiang Qingyun 7 2 5 0 0 No 3Tao Xiangnan 7 2 5 0 0 No 2
Zhu Heping 7 2 5 0 0 No 3
2. Objections Raised by Independent Directors on Matters of the CompanyIndicate by tick mark whether any independent directors raised any objections on any matter of the Company.□ Yes √No3. Other Information about the Performance of Duty by Independent DirectorsIndicate by tick mark whether any suggestions from independent directors were adopted by the Company.
√Yes □ NoSuggestions from independent directors adopted or not adopted by the Company:
During the Reporting Period, the independent directors of the Company in strict accordance with the relevant laws,regulations and rules of Articles of Association, focus on the operation of the Company, perform their dutiesindependently and put forward the professional opinions to complete the system of the Company and dailymanagement decisions , for those events need issued opinions, the independent directors put forward independentand impartial advice, which play a proper role to improve the company governance mechanism, safeguard thelegitimate rights and interests of the Company and all shareholders.
VI Performance of Duty by Specialized Committees under the Board in the Reporting Period
During the Reporting Period, the performance of the specialized committees under the Board for 2018 inaccordance with the Company Law, Guidelines for Governance of Listed Companies, Articles of Association andRules of Procedures for the specialized committees under the Board was as follows:
1.The Audit Committee under the Board convened four meetings, at which reviewed and approved the AnnualFinancial Statement Report 2017, Annual Report and Its Abstract 2017, Summary Report of the Audit Committeeon the 2017 Annual Audit Work, Proposal on Engaging the Audit Firm for 2018, First Quarter Report 2018,Semi-annual Report 2018 and Third Quarter Report 2018.2. The strategy Committee under the Board convened one meeting, at which reviewed and approved the proposalon Mid-term Development Plan of t he Co mpany (2018-2020);3.The Remuneration and Appraisal Committee under the Board convened one meeting, at which reviewed andapproved the Proposal on Paying the 2017 Annual Remuneration to the Senior Management;4. The Nomination Committee under the Board convened two meetings, at which reviewed and approved theProposal on General Election of the Board and Nomination of Candidates for Non-independent Directors, theProposal on General Election of the Board and Nomination of Candidates for Independent Directors, the Proposalon Appointment of General Managers, the Proposal on Appointment of CFO and the Proposal on Appointment ofSecretary of the Board.
VII Performance of Duty by the Supervisory Committee
Indicate by tick mark whether the Supervisory Committee found any risk to the Company during its supervision inthe Reporting Period.
□ Yes √No
VIII Appraisal of and Incentive for Senior Management
The selection, appraisal and incentive system of the senior management of the Company were implementedaccording to relevant regulations of the Company Law and the Articles of Association of the Company. TheCompany established examination and evaluation system on the basis of the target responsibility, determine theevaluation index, evaluation method and evaluation method relate to the assessment results, according to theannual signing of the Target Responsibility Assessment System Agreement with senior management. During theReporting Period, the Company had in accordance with the measures for the management of target responsibilitysystem exam and the rate the senior management, and had reflected in an annual performance remuneration,which effectively improved the senior management’ responsibility and work enthusiasm.
IX Internal Control
1. Material Internal Control Weaknesses Identified for the Reporting Period□ Yes √No2. Internal Control Self-Evaluation Report
Disclosure date of the internal control self-evaluation report 30 March 2019Index to the disclosed internal control self-evaluation report
For details about the Internal Control Self-Evaluation Report2018, see www.cninfo.com.cn, the website designated by theShenzhen Stock Exchange for information disclosure.Evaluated entities’ combined assets as % of consolidated total assets100.00%Evaluated entities’ combined operating revenue as % of consolidatedoperating revenue
100.00%Identification standards for internal control weaknessesType
Weaknesses in internal control over financial
reporting
Weaknesses in internal control not related to
financial reporting
Nature standard
For details, please refer to “(III) Basis forinternal control appraisal and identificationstandards for internal control defects” in Part IIIof the Internal Control Self-Evaluation Report2018 disclosed on www.cninfo.com.cn dated 30March 2019.
For details, please refer to “(III) Basis forinternal control appraisal and identificationstandards for internal control defects” in Part IIIof the Internal Control Self-Evaluation Report2018 disclosed on www.cninfo.com.cn dated 30March 2019.Quantitative standardFor details, please refer to “(III) Basis for For details, please refer to “(III) Basis for
internal control appraisal and identificationstandards for internal control defects” in Part IIIof the Internal Control Self-Evaluation Report2018 disclosed on www.cninfo.com.cn dated 30March 2019.
internal control appraisal and identificationstandards for internal control defects” in Part IIIof the Internal Control Self-Evaluation Report2018 disclosed on www.cninfo.com.cn dated 30March 2019.Number of material weaknessesin internal control over financialreporting
Number of material weaknessesin internal control not related tofinancial reporting
Number of serious weaknessesin internal control over financialreporting
Number of serious weaknessesin internal control not related tofinancial reporting
X Independent Auditor’s Report on Internal Control
Opinion paragraph in the independent auditor’s report on internal controlThe audit firm for internal control believes that the Company makes valid internal control on financial report in all significantaspects on 31 December 2018 according to the Basic Rules on Enterprise In ternal Control and other relevant stipulations.Independent auditor’s report on internalcontrol disclosed or not
DisclosedDisclosure date 30 March 2019Index to such report disclosed
For details about the Auditor’s Report on Internal Control 2018, see www.cninfo.com.cn,
the website designated by the Shenzhen Stock Exchange for information disclosure.Type of the auditor’s opinion Unmodified unqualified opinionMaterial weaknesses in internal controlnot related to financial reporting
None
Indicate by tick mark whether any modified opinion is expressed in the independent auditor’s report on theCompany’s internal control.□ Yes √NoIndicate by tick mark whether the independent auditor’s report on the Company’s internal control is consistentwith the internal control self-evaluation report issued by the Company’s Board.√Yes □ No
Part X Corporate Bonds
Does the Company have any corporate bonds publicly offered on the stock exchange, which were outstandingbefore the date of this Report’s approval or were due but could not be redeemed in full?□ Yes √No
Part XI Financial Report
[English T ranslation for Reference Only]
Auditor’s Report
PwC ZT Shen Zi (2019) No. 10082
(Page 1 of 5)To the Shareholders of Wuxi Little Swan Company Limited,
OpinionWhat we have audited
We have audited the accompanying financial statements of Wuxi Little Swan Company Limited(hereinafter “the Company”), which comprise:
? the consolidated and company balance sheets as at 31 December 2018;? the consolidated and company income statements for the year then ended;? the consolidated and company cash flow statements for the year then ended;? the consolidated and company statements of changes in shareholders’ equity for the year
then ended; and? notes to the financial statements.Our opinionIn our opinion, the accompanying financial statements present fairly, in all material respects, theconsolidated and company’s financial position of the Company as at 31 December 2018, and theirfinancial performance and cash flows for the year then ended in accordance with the requirements ofAccounting Standard s for Business Enterprises (“CASs”).Basis for OpinionWe conducted our audit in accordance with China Standards on Auditing (“CSAs”). Our responsibilitiesunder those standards are further described in the Auditor’s Responsibilities for the Audit of the FinancialStatements section of our report. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opini on.We are independent of the Company in accordance with the Code of Ethics for Professional Accountantsof the Chinese Institute of Certified Public Accountants (“CICPA Code”), and we have fulfilled our otherethical responsibilities in accordance with the CICPA Code.Key Audit MattersKey audit matters are those matters that, in our professional judgment, were of most significance in ouraudit of the financial statements of the current period. These matters were addressed in the context of ouraudit of the fina ncial statements as a whole, and in forming ou r opinion thereo n, and we do not p rovide aseparate opinion on these matters.
PwC ZT Shen Zi (2019) No. 10082
(Page 2 of 5)
Key Audit Matters (cont’d)
The key audit matter identified in our audit is revenue recognition for sales of goods.
Key Audit Matter – Revenue recognition forsales of goods
How our audit addressed the key audit matter
Revenue recognition for sales of goodsRefer to Note V(23) and Note VII(32).The Company and its subsidiariesrecognise revenue when it is probablethat future economic benefits will flowto the entity; when the amount ofrevenue can be reliably measured; andwhen specific criterias have been met foreach of the activities. In 2018, theconsolidated revenue of the Companyamounted to RMB 23,636,929 thousandsof which 99.62% are revenue from salesof goods.We focus on the revenue recognition forsales of goods.Our focus on the revenue recognition forsales of goods is mainly due to a largenumber of goods of Little Swan are soldto large amount of customers in differentsals channels domesticly and abroad.
We performed the following procedures for sales of goods:
We discussed with management of business departments andfinancial department of the Company for the process of sales ofgoods in different sales channels. We understood and evaluatedthe relevant internal controls and performed testing on theoperating ef fectiveness of key controls.We examined samples of sales agreements with customers ofdifferent sales channels of the Company. Based on our discussionwith management, our understanding and audit experience of thesales transactions, we assessed the accounting policy for revenuerecognition for sal es of goods.We performed the following procedures for sales of goodsthrough different sales channels:
?Performed risk assessment procedures including analysis on the
fluctuations of monthly sales amounts and gross margin;?Examined supporting documents related to the sales of goods on
sample basis, including sales agreements, sales orders, sales
invoices, transportation documents , receipt notes and settlement
notes from customers;?Checked supporting documents including receipt notes or
settlement notes from customers for sales of goods recognised
before or after the balance sheet date, so as to evaluate whether
the sales of goods was recorded in the correct period.Based on the audit procedures performed, we found that therevenue recognition for sales of goods was consistent with theaccounting policy of the Company.
PwC ZT Shen Zi (2019) No. 10082
(Page 3 of 5)Other Information
Management of the Company is responsible for the other information. The other information comprises all of theinformation includ ed in 2018 an nual report o f the Company other than the financial statements and our auditor’sreport thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form ofassurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, indoing so, consider whether the other information is materially inconsistent with the financial statements or ourknowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we haveperformed, we conclude that there is a material misstatement of this other information, we are required to reportthat fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management of the Company is responsible for the preparation and fair presentation of these financialstatements in accordance with the CASs, and for such internal control as management determines is necessary toenable the preparation of financial statements that are free from material misstatement, whether due to fraud orerror.
In preparing these financial statements, management is responsible for assessing the Company’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using the goingconcern basis of accounting unless management either intend to liquidate the Company or to cease operations, orhave no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether these financial statements as a whole are freefrom material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes ouropinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted inaccordance with CSAs will always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if, individually or in the aggregate, they could reasonably be expectedto influence the economic decisions of users taken on the basis of these financial statements.
PwC ZT Shen Zi (2019) No. 10082
(Page 4 of 5)Auditor’s Responsibilities for the Audit of the Financial Statements (Cont’d)
As part of an audit in accordance with CSAs, we exercise professional judgment and maintain professionalscepticism throughout the audit. We also:
? Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that issufficient and appropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error, as fraud may involvecollusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
? Obtain an understanding of internal control relevant to the audit in order to design audit procedures that
are appropriate in the circumstances.
? Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.
? Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Company’s ability to continue as a going concern. Ifwe conclude that a material uncertainty exists, we are required to draw attention in our auditor’s reportto the related disclosures in these financial statements or, if such disclosures are inadequate, to modifyour opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’sreport. However, future events or conditions may cause the Company to cease to continue as a goingconcern.
? Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in amanner that achieves fair presentation.
? Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial statements.We are responsible for the direction, supervision and performance of the Company and its subsidiariesaudit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope andtiming of the audit and significant audit findings, including any significant deficiencies in internal control thatwe identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethicalrequirements regarding independence, and to communicate with them all relationships and other matters thatmay reasonably be thought to bear on our independence, and where applicable, related safeguards.
PwC ZT Shen Zi (2019) No. 10082
(Page 5 of 5)
Auditor’s Responsibilities for the Audit of the Financial Statements (Cont’d)
From the matters communicated with those charged with governance, we determine those matters that were ofmost significance in the audit of the financial statements of the current period and are therefore the key auditmatters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosureabout the matter or when, in extremely rare circumstances, we determine that a matter should not becommunicated in our report because the adverse consequences of doing so would reasonably be expected tooutweigh the public interest benefits of such communication.
PricewaterhouseCoopers Zhong Tian LLP Signing CPA Huang MeimeiShanghai , the People’s Republic of China (Engagement Partner)
28 March 2019 Signing CPA Zhang Xiaoying
WUXI LITTLE SWAN CO., LTD.CONSOLIDATED BALANCE SHEETAS AT 31 DECEMBER 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
ASSETS Note
31 December 2018
Consolidated
31 December 2017
ConsolidatedCurrent Assets:
Cash at bank and on handVII(1) 1,926,938,134.40 1,588,264,516.05Financial assets at fair value through profit or loss VII(2) - 5,270,238.03Notes and accounts receivables VII(3) 3,019,035,979.14 3,019,917,180.38Advances to suppliers VII(4) 87,926,863.95 84,346,792.38Other receivables VII(5) 233,956,205.26 108,168,362.07Inventories VII(6) 1,754,597,149.53 1,980,766,196.14Other current assets VII(7) 14,670,897,092.07 12,778,240,745.22Total current assets21,693,351,424.35 19,564,974,030.27
Non-current assets:
Available-for-sale financial assets VII(8) 200,000.00 200,000.00
Investment properties VII(9) 54,776,877.23 61,695,825.00Fixed assets VII(10) 1,121,036,700.25 1,029,668,355.84Construction in progress VII(11) 15,486,834.37 37,972,252.60Intangible assets VII(12) 181,939,282.79 187,045,347.27Long-term prepaid expenses VII(13) 25,540,285.92 22,382,020.52Deferred tax assets VII(14) 427,278,679.21 407,151,474.64Other non-current assets VII(15) 42,289,041.73 27,331,937.53Total non-current assets1,868,547,701.50 1,773,447,213.40
Total assets23,561,899,125.85 21,338,421,243.67
WUXI LITTLE SWAN CO., LTD.CONSOLIDATED BALANCE SHEET(continued)AS AT 31 DECEMBER 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
LIABILITIES AND OWNERS' EQUITY Note
31 December 2018
Consolidated
31 December 2017
ConsolidatedCurrent liabilities:
Short-term borrowings VII(16) 117,603,683.89 81,393,672.34Financial liabilities at fair value through profit or loss VII(17) 3,078,878.95 -Notes and accounts payables VII(18) 7,979,727,116.02 6,632,830,300.51Advances from customers VII(19) 2,024,945,754.25 3,065,815,801.93Employee benefits payable VII(20) 393,998,052.46 349,483,844.76Taxes payable VII(21) 559,619,230.00 638,017,523.31Other payables VII(22) 175,263,267.57 228,117,647.54Other current liabilities VII(23) 2,507,883,253.19 2,107,700,604.61Total current liabilities13,762,119,236.33 13,103,359,395.00
Non-current liabilities:
Long-term employee benefits payable VII(24) 9,888,772.71 12,021,620.17Provisions VII(25) 1,853,074.62 2,253,082.25Deferred income VII(26) 39,475,933.17 2,489,133.21Total non-current liabilities51,217,780.50 16,763,835.63
Total liabilities13,813,337,016.83 13,120,123,230.63
Owners’ equity:
Share capital VII(27) 632,487,764.00 632,487,764.00Capital surplus VII(28) 1,330,650,826.13 1,252,947,546.80Other comprehensive income VII(29) -2,206,100.21 40,496,366.85Surplus reserve VII(30) 332,594,722.29 332,594,722.29Retained earnings VII(31) 6,018,535,295.32 4,788,564,401.03Equity attributable to the owners of the Company8,312,062,507.53 7,047,090,800.97Minority interests1,436,499,601.49 1,171,207,212.07Total owners’ equity9,748,562,109.02 8,218,298,013.04
Total liabilities and owners’ equity23,561,899,125.85 21,338,421,243.67
WUXI LITTLE SWAN CO., LTD.BALANCE SHEET OF THE COMPANYAS AT 31 DECEMBER 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
ASSETS Note
31 December 2018
Company
31 December 2017
Company
urrent Assets:
Cash at bank and on hand 1,054,092,494.27 1,030,061,384.78Financial assets at fair value through profit or loss - 3,724,810.47Notes and accounts receivables XVIII(1) 2,612,181,833.04 3,743,536,948.22Advances to suppliers 61,976,396.93 67,278,861.92Other receivables XVIII(2) 147,971,734.02 61,886,256.59Inventories 1,012,418,438.83 1,206,334,183.68Other current assets 9,410,921,667.01 7,259,605,039.27
CT
otal current assets14,299,562,564.10 13,372,427,484.93
TN
on-current assets:
Available-for-sale financial assets 150,000.00 150,000.00Long-term equity investments XVIII(3) 958,235,041.57 958,235,041.57Investment properties 4,458,055.96 7,882,440.32Fixed assets 615,882,736.87 532,803,209.18Construction in progress 61,980.58 37,321,733.68Intangible assets 87,210,567.00 89,900,867.32Long-term prepaid expenses 8,812,163.74 5,905,684.35Deferred tax assets 264,335,974.30 225,186,332.58Other non-current assets 28,091,110.19 17,138,349.61
NT
otal non-current assets1,967,237,630.21 1,874,523,658.61
TT
otal assets
16,266,800,194.31 15,246,951,143.54
WUXI LITTLE SWAN CO., LTD.BALANCE SHEET OF THE COMPANY (continued)AS AT 31 DECEMBER 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
LIABILITIES AND OWNERS' EQUITY Note
31 December 2018
Company
31 December 2017
Company
urrent liabilities:
Short-term borrowings 43,362,419.45 16,806,882.34
Financial liabilities at fair value through profit or loss 1,597,534.54 -Notes and accounts payables 7,020,284,546.83 6,073,907,942.42Advances from customers 1,198,597,569.21 1,862,974,982.38Employee benefits payable 302,942,210.91 268,065,495.23Taxes payable 347,233,227.80 353,920,883.93Other payables 124,362,696.11 153,979,505.69Other current liabilities 1,536,311,047.76 1,336,384,942.60
CT
otal current liabilities10,574,691,252.61 10,066,040,634.59
TN
on-current liabilities:
Deferred income 30,000,000.00 -
NT
otal non-current liabilities30,000,000.00 -
TT
otal liabilities10,604,691,252.61 10,066,040,634.59
TO
wners’ equity:
Share capital 632,487,764.00 632,487,764.00
Capital surplus 1,473,906,707.63 1,405,575,239.68
Other comprehensive income - 27,970,054.39
Surplus reserve 319,944,578.39 319,944,578.39
Retained earnings 3,235,769,891.68 2,794,932,872.49
OT
otal owners’ equity5,662,108,941.70 5,180,910,508.95
TT
otal liabilities and owners’ equity16,266,800,194.31 15,246,951,143.54
WUXI LITTLE SWAN CO., LTD.CONSOLIDATED INCOME STATEMENTFOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items Note
2018Consolidated
2017Consolidated
evenuesVII(32), VII(33)23,636,929,478.3321,384,699,076.65
RL
ess: Cost of sales VII(32), VII(33)-17,444,047,983.81-15,982,893,658.84
Taxes and surcharges VII(34) -131,688,531.67-131,791,477.12Selling and distribution expenses VII(35) -3,351,676,000.52-2,872,849,586.14General and administrative expenses VII(36) -181,699,829.11-728,323,077.71Research and development espenses VII(37) -733,045,215.90-550,779,796.27Finance income – net VII(38) 531,729,710.8671,808,982.80Including: Interest expenses -82,896,711.16-43,471,999.43Interest imcome 559,310,635.71195,433,894.48Asset impairment losses VII(39) -50,403,477.17-70,595,875.65
LA
dd: Othe income VII(43) 60,261,970.4853,894,074.25
Investment income VII(41) 119,819,109.77320,623,463.23Profit or loss arising from changes in fair value VII(40) -8,349,116.985,270,238.03Gain or loss on disposal of assets VII(42) 13,137,087.29-975,423.00
Operating profit
2,460,967,201.572,048,866,736.50
AA
dd: Non-operating income VII(44) 20,434,056.1017,448,715.84Less: Non-operating expenses VII(45) -2,243,270.24-1,620,508.98
AT
otal profit2,479,157,987.432,064,694,943.36Less: Income tax expenses VII(46) -348,163,057.33-356,274,657.61
TN
et profit2,130,994,930.101,708,420,285.75Classified by continuity of operations
Net profit from continuing operations 2,130,994,930.101,708,420,285.75
Classified by ownership of the equity
Attributable to owners of the Company 1,862,458,658.291,506,412,505.22
Minority interests 268,536,271.81202,007,780.53
WUXI LITTLE SWAN CO., LTD.CONSOLIDATED INCOME STATEMENT (continued)FOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items Note
2018Consolidated
2017ConsolidatedOther comprehensive income, net of tax-49,181,048.69-39,345,928.61Attributable to owners of the Company
-42,702,467.06-30,261,157.76Other comprehensive income that will be
subsequently reclassified to profit or loss
-42,702,467.06-30,261,157.76Including: Changes in fair value ofavailable-for-sale fi na ncial assets
-42,711,851.32-30,246,066.76Foreign-currency financial statementtranslation difference
9,384.26-15,091.00Attributable to minority interests -6,478,581.63-9,084,770.85
Total comprehensive incomes2,081,813,881.411,669,074,357.14Attributable to owners of the Company 1,819,756,191.231,476,151,347.46Attributable to minority interests 262,057,690.18192,923,009.68
arnings per shareVII(47)Basic earnings per share 2.942.38Diluted earnings per share 2.942.38
Notes thereon are parts of this financial report.
WUXI LITTLE SWAN CO., LTD.INCOME STATEMENT OF THE COMPANYFOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items Notes
2018Company
2017Company
evenuesXVIII(4) 16,944,395,616.24 16,227,944,922.59Less: Cost of sales XVIII(4) -13,121,978,095.02 -12,576,166,337.97
Taxes and surcharges -81,402,613.76 -87,954,972.46Selling and distribution expenses -2,226,329,070.34 -1,936,954,187.36General and administrative expenses -158,402,076.19 -137,576,685.03Research and development espenses -527,450,385.05 -422,811,623.35Finance income – net 329,304,681.68 47,870,144.26Including: Interest expenses -45,997,552.93 -31,346,319.38Interest imcome 344,593,418.75 121,741,886.89Asset impairment losses -21,707,777.96 -464,901,476.21
RA
dd: Other income 16,608,877.54 17,697,350.94
Investment income XVIII(5) 67,510,581.99 169,205,446.47Profit or loss arising from changes in fair value -5,322,345.01 3,724,810.47Gain or loss on disposal of assets 11,315,132.66 433,848.54
Operating profit1,226,542,526.78 840,511,240.89
AA
dd: Non-operating income 15,916,328.26 8,471,093.21Less: Non-operating expenses -1,794,344.87 -1,289,079.79
Total profit1,240,664,510.17 847,693,254.31Less: Income tax expenses -167,339,726.98 -186,758,620.94
WUXI LITTLE SWAN CO., LTD.INCOME STATEMENT OF THE COMPANY (continued)FOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items
Notes
2018Company
2017Company
et profit1,073,324,783.19 660,934,633.37
Classified by continuity of operations
Net profit from continuing operations 1,073,324,783.19 660,934,633.37
Other comprehensive income, net of tax-27,970,054.39 -9,545,289.45Other comprehensive income that will be subsequently
reclassified to profit or loss
-27,970,054.39 -9,545,289.45Changes in fair value of available-for-sale financialassets
-27,970,054.39 -9,545,289.45
Total comprehensive income1,045,354,728.80 651,389,343.92
WUXI LITTLE SWAN CO., LTD.CONSOLIDATED CASH FLOW STATEMENTFOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items Note
2018Consolidated
2017ConsolidatedCash flows from operating activities
Cash received from sales of goods or rendering of services 20,859,207,120.69 17,558,217,913.33Refund of taxes and surcharges 40,465,127.34 65,523,277.52Cash received relating to other operating activities VII(48)(a) 132,642,704.80 114,191,110.40
Sub-total of cash inflows21,032,314,952.83 17,737,932,301.25Cash paid for goods and services -15,340,952,680.15 -13,209,347,707.13Cash paid to and on behalf of employees -1,539,248,887.07 -1,267,020,460.78Payments of taxes and surcharges -929,676,780.94 -721,750,460.90Cash paid relating to other operating activities VII(48)(b)-597,543,783.54 -524,059,854.14
Sub-total of cash outflows-18,407,422,131.70 -15,722,178,482.95Net cash flows from operating activitiesVII(49)(a)2,624,892,821.13 2,015,753,818.30
Cash flows from investing activities
Cash received from disposal of investments 16,538,983,636.67 11,100,000,000.00Cash received from returns on investments 119,819,109.77 320,623,463.24Net cash received from disposal of fixed assets, intangible
assets and other long-term assets
20,259,391.10 5,269,840.73Cash received relating to other investing activities VII(48)(c)371,593,335.61 91,904,332.38
Sub-total of cash inflows17,050,655,473.15 11,517,797,636.35Cash paid to acquire fixed assets, intangible assets and other
long-term assets
-279,510,384.29 -209,521,425.79Cash paid to acquire investments -18,500,000,000.00 -15,448,983,636.67
Sub-total of cash outflows-18,779,510,384.29 -15,658,505,062.46Net cash flows from investing activities-1,728,854,911.14 -4,140,707,426.11
WUXI LITTLE SWAN CO., LTD.CONSOLIDATED CASH FLOW STATEMENT (continued)FOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items Note
2018Consolidated
2017ConsolidatedCash flows from financing activities
Cash received from borrowings 117,603,683.89 680,166,782.34
Sub-total of cash inflows117,603,683.89 680,166,782.34Cash repayments of borrowings -81,393,672.34 -782,586,174.12Cash payments for distribution of dividends, profits or
interest expenses
-632,727,537.52 -485,163,943.33Cash payments relating to other financing activities - -
Sub-total of cash outflows-714,121,209.86 -1,267,750,117.45Net cash flows from financing activities-596,517,525.97 -587,583,335.11
ffect of foreign exchange rate changes on cash and cashequivalents-3,775,498.34
-41,663,902.58
EN
et increase/decrease in cash and cash equivalents295,744,885.68 -2,754,200,845.50
Add: Cash and cash equivalents at beginning of year 1,417,489,071.71 4,171,689,917.21
Cash and cash equivalents at end of yearVII(49)(b)1,713,233,957.39 1,417,489,071.71
WUXI LITTLE SWAN CO., LTD.CASH FLOW STATEMENT OF THE COMPANYFOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items
2018Company
2017CompanyCash flows from operating activities
Cash received from sale of goods or rendering of service 14,829,613,631.03 13,498,207,711.94Cash received relating to other operating activities 82,679,983.70 67,433,518.99
Sub-total of cash inflows14,912,293,614.73 13,565,641,230.93Cash paid for goods and services -10,295,617,985.65 -10,552,165,814.20Cash paid to and on behalf of employees -1,081,444,267.99 -886,884,259.02Payments of taxes and surcharges -486,238,665.42 -422,322,982.87Cash paid relating to other operating activities -419,041,419.39 -403,566,550.55
Sub-total of cash outflows-12,282,342,338.45 -12,264,939,606.64Net cash flows from operating activities2,629,951,276.28 1,300,701,624.29
Cash flows from investing activities
Cash received from disposal of investments 9,138,160,815.54 6,440,000,000.00Cash received from returns on investments 67,510,581.99 169,205,446.47Net cash received from disposal of fixed assets, intangible assetsand other long-term assets
17,643,300.66 3,627,843.72Cash received relating to other investing activities 223,766,691.78 66,127,555.36
Sub-total of cash inflows9,447,081,389.97 6,678,960,845.55Cash paid to acquire fixe d assets, intangible assets and otherlong-term assets
-184,308,580.76 -106,969,634.65Cash paid to acquire investments -11,300,000,000.00 -8,678,160,815.54Cash paid to relating to other investing activities - -
Sub-total of cash outflows-11,484,308,580.76 -8,785,130,450.19Net cash flows from investing activities-2,037,227,190.79 -2,106,169,604.64
Cash Flows from Financing Activit ies:
WUXI LITTLE SWAN CO., LTD.CASH FLOW STATEMENT OF THE COMPANY (continued)FOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items
2018Company
2017CompanyCash received from borrowings 43,362,419.45 428,629,992.34
Sub-total of cash inflows43,362,419.45 428,629,992.34Cash repayments of borrowings -16,806,882.34 -535,766,203.80
Cash payments for distribution of dividends, profits or interest expenses -631,293,961.64 -480,899,391.48
Sub-total of cash outflows-648,100,843.98 -1,016,665,595.28Net cash flows from financing activities-604,738,424.53 -588,035,602.94
Effect of foreign exchange rate changes on cash and cash equivalents-3,502,716.40 -14,445,909.84
Net decrease in cash and cash equivalents-15,517,055.44 -1,407,949,493.13Add: Cash and cash equivalents at beginning of year 945,759,061.62 2,353,708,554.75
Cash and cash equivalents at end of year930,242,006.18 945,759,061.62
WUXI LITTLE SWAN CO., LTD.CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items
Attributable to the owners of the Company
Minorityinterests
Total owners’
equityShare capital Capital surplus
Other comprehensive
income
Surplusreserves
RetainedearningsNote VII(27) VII(28) VII(29) VII(30) VII(31)Balance at 1 January 2018632,487,764.001,252,947,546.8040,496,366.85 332,594,722.294,788,564,401.031,171,207,212.078,218,298,013.04
Movements for the year ended 31 December 2018-77,703,279.33-42,702,467.06 -1,229,970,894.29265,292,389.421,530,264,095.98Total comprehensive income ---42,702,467.06 -1,862,458,658.29262,057,690.182,081,813,881.41-Net profit --- -1,862,458,658.29268,536,271.812,130,994,930.10-Other comprehensive income ---42,702,467.06 ---6,478,581.63-49,181,048.69Capital contribution and withdrawal by owners -77,703,279.33- --3,234,699.2480,937,978.57
-Amount recorded in owners' equity arising
from share-based payment arrangements
-77,703,279.33- --3,234,699.2480,937,978.57-Others --- ----Profit distribution --- --632,487,764.00--632,487,764.00-Profit distribution to equity owners --- --632,487,764.00--632,487,764.00
Balance at 31 December 2018632,487,764.001,330,650,826.13-2,206,100.21 332,594,722.296,018,535,295.321,436,499,601.499,748,562,109.02
WUXI LITTLE SWAN CO., LTD.CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)FOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items
Attributable to the owners of the Company
Minorityinterests
Total owners’
equityShare capital Capital surplus
Other comprehensive
income
Surplusreserves
RetainedearningsNote VII(27) VII(28) VII(29) VII(30) VII(31)Balance at 1 January 2017632,487,764.001,191,490,133.0170,757,524.61 332,594,722.293,756,517,718.81975,247,204.686,959,095,067.40
Movements for the years ended 31 December 2017-61,457,413.79-30,261,157.76 -1,032,046,682.22195,960,007.391,259,202,945.64Total comprehensive income ---30,261,157.76 -1,506,412,505.22192,923,009.681,669,074,357.14-Net profit --- -1,506,412,505.22202,007,780.531,708,420,285.75-Other comprehensive income ---30,261,157.76 ---9,084,770.85-39,345,928.61Capital contribution and withdrawal byowners - 61,457,413.79- --3,036,997.7164,494,411.50
-Amount recorded in owners' equity arising
from share-based payment arrangements
- 61,953,091.84 - --2,541,319.6664,494,411.50-Others --495,678.05- --495,678.05-Profit distribution --- --474,365,823.00--474,365,823.00-Profit distribution to equity owners --- --474,365,823.00--474,365,823.00
Balance at 31 December 2017632,487,764.001,252,947,546.8040,496,366.85 332,594,722.294,788,564,401.031,171,207,212.078,218,298,013.04
WUXI LITTLE SWAN CO., LTD.STATEMENT OF CHANGES IN EQUITY OF THE COMPANYFOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items Share capital Capital surplus
Other comprehensive
income
Surplus reservesRetained earnings Total owners’ equityBalance at 1 January 2018632,487,764.001,405,575,239.6827,970,054.39319,944,578.392,794,932,872.495,180,910,508.95
Movements for the yeasr ended 31 December 2018-68,331,467.95-27,970,054.39-440,837,019.19481,198,432.75Total comprehensive income ---27,970,054.39-1,073,324,783.191,045,354,728.80- Net profit ----1,073,324,783.191,073,324,783.19- Other comprehensive income ---27,970,054.39---27,970,054.39Capital contribution and withdrawal by owners-68,331,467.95---68,331,467.95
- Amount recorded in owners' equity arising
from share-based payment arrangements
-68,331,467.95---68,331,467.95Profit distribution -----632,487,764.00-632,487,764.00
- Profit distribution to equity
owners
-----632,487,764.00-632,487,764.00
Balance at 31 December 2018632,487,764.001,473,906,707.63-319,944,578.393,235,769,891.685,662,108,941.70
WUXI LITTLE SWAN CO., LTD.STATEMENT OF CHANGES IN EQUITY OF THE COMPANY (continued)FOR THE YEAR ENDED 31 December 2018(All amounts in Renminbi yuan unless otherwise stated)[English Translation for Reference Only]
Items Share capital Capital surplus
Other comprehensive
income
Surplus reservesRetained earnings Total owners’ equityBalance at 1 January 2017632,487,764.001,350,656,531.6537,515,343.84 319,944,578.392,608,364,062.12 4,948,968,280.00
Movements for the ended 31 December 2017-54,918,708.03-9,545,289.45-186,568,810.37231,942,228.95Total comprehensive income ---9,545,289.45-660,934,633.37651,389,343.92- Net profit ---- 660,934,633.37 660,934,633.37- Other comprehensive income ---9,545,289.45---9,545,289.45Capital contribution and withdrawal by owners -54,918,708.03---54,918,708.03
- Amount recorded in owners' equity arising
from share-based payment arrangements
-54,918,708.03---54,918,708.03Profit distribution -----474,365,823.00-474,365,823.00- Profit distribution to equity owners -----474,365,823.00-474,365,823.00
Balance at 31 December 2017632,487,764.001,405,575,239.6827,970,054.39319,944,578.392,794,932,872.495,180,910,508.95
III. Company profileWuxi Little Swan Co., Ltd. (hereinafter “the Company") was formerly a SOE founded and reorganized as aprivate placement limited liability company by the approval of Jiangsu Provincial Commission for EconomicRestructuring (SuTiGaiSheng (1993) No.253 Document) on 29th Nov,1993. As approved by Jiangsu ProvincialGovernment ((1996) No.52 Document), Securities Regulatory Commission under State Council (ZhengWeiFa(1996) No.14 Document) and Shenzhen Securities and Exchange Commission (ShenZhengBanhan (1996) No.4Document), the Company publicly issued 70 million RMB foreign shares (B-shares) in China, after which theCompany’s share capital came to RMB 310 million.In March 1997, as approved by China Securities Regulatory Commission (ZhengJianFaZi (1997) No.54Document and ZhengJianFaZi (1997) No.55 Document, the Company publicly issued 60 million RMB commonshares (including 90 million staff shares). The public offerings raised 720.83 million RMB yuan and theA-shares were formally listed at Shenzhen Stock Exchange in Mar, 1997. The abbreviation for A-shares is“Little Swan A". A-share code is 000418.On 20 July 2006, the Company’s proposal on reformation of segregated stocks was approved by relevantshareholders’ meeting. To gain liquidity for the restricted stocks of the Company, the holders of the restrictedstocks of the Company agreed to pay the following consi deration: based on the stock regi stration as of 4 August2006, the Company issued bonus shares on 7 August 2006 at the ratio of 2.5 shares to every 10 A-shares toliquidated A-share holders which went public on the same day. After this bonus issue, the total number of sharesof the Company remained unchanged with corresponding changes in the composition of share holdings.Pursuant to the resolution at the Annual General Meeting on 9 May 2008, programme of transference fromcapital surplus to share capital at the ratio of 10 shares to 5 shares was approved. Additional 182,551,920 shareswere allotted at par from the capital surplus of the Company. As a result, the total shares of the Companyincreased to 547,655,760 from 365,103,840.In accordance to the resolution of the 4th section of the 6th board meeting and the 1st temporary shareholdersmeeting in 2010, as well as Document ZhengJianXuKe (2010) No. 1577 “The approval of significant assetsreorganization of Wuxi Little Swan Co., Ltd. and stock offering with assets purchase to Guangdong MideaElectric Appliances Co., Ltd.” issued by China Securities Regulatory Commission, a placement in A share wascompleted in whi ch additi onal 84,8 32,000 shares were i ssued to Gu angdong M idea Elect ric Appli ances Co ., Ltd.(Midea Electric Appliances), while 69.47% equity interest of Hefei Midea Washing Machine Limited (formerlyas Hefei Royal star Washing Machine Manufacture Limited) was acquired. Through the non-public offering of
A share, the Company’s capital share increased by RMB 84,832,000.On 18 September 2013, Midea Group Co., Ltd. (the Group) combined the Company’s former controllingshareholder Midea Electric Appliances through shares exchanges according to Document ZhengJianXuKe (2013)No. 1014 “The approv al of the merger of Guangdong Midea Elect ric Appliances Co., Ltd. to Midea Group Co.,Ltd.” issued by China Securities Regulatory Commission. After the consolidation by merger, the equity interestheld by Midea Electric Appliances previously was held by the Company and its subsidiaries and registrationprocedures for shares transfer were completed by 31 December, 2013. Thus, the Company and its subsidiariesbecame the first major shareholder of the Company.As of 31 December 2018, the total share capital of the Company amounted to 632,487,764, 0.33% of which are2,087,745 A shares with restriction of trading, 69.47% of which are 439,364,147 A shares without restriction oftrading, and 30.20% of which are 191,035,872 B shares without restriction of trading.The address of the Company’s registered office and the headquarters office address is No.18 Changjiang SouthRoad, National High-tech Industrial Development Zone, Wuxi, Jiangsu Province.The Company is engaged in the industry of household electric appliances, the approved scope of business ofwhich includes manufacture, sales and after-sales service of household electric appliances, industrial ceramicproducts, environmental-friendly dry cleaning equipment, washing apparatus for typical machines, processingequipment and fittings. The Company provides laundry service, machining; exports and imports, or be agent fora variety of products and technologies (excluding unauthorized or forbidden products and technologies foroperation according to state regulations for enterprises). It also provides appliance technical services, certifiedoutsourcing services (operated with a valid qualification certificate) and invests in financial instruments withsurplus funds.The financial statements were authorized for issue by the board of directors of the Company on 28 March 2019.Subsidiaries included in the scope of consolidation are listed in Note IX.IV. Basis for the preparation of financial statements
(1) Basis of preparation
The Company and its subsidiaries prepared the financial statements with the Basic Standard of the AccountingStandards for Business Enterprises, accounting policies and other regulations (hereafter referred to as “theAccounting Standard for Business Enterprises” or “CAS”) issued by the Ministry of Finance on and after 15February 2006, and No. 15 Listing Rules on Disclosure Information for Public Business Entities – preparation offinancial statements issued by China Securities Regulatory Commission.
(2) Going concern
The financial report is prepared on the Group’s ability to continue as a going concern.V. Summary of significant accounting policies and accounting estimatesThe Company and its subsidiaries determine the accounting policies and accounting estimates based on theoperation of business, which mainly reflected in the revenue recognition policies (note V (23)).The critical judgements of the Company and its subsidiaries in determining the critical accounting policies arestated in note V (28).(1) Statement of compliance with the Accounting Standards for Business EnterprisesThe financial statements of the Company for the year ended 31 December 2018 are in compliance with theAccounting Standards for Business Enterprises, and truly and completely present the financial position of theCompany and its subsidiaries and the Company as of 31 December 2018 and the operating results, cash flowsand other information of the Company and its subsidiaries and the Company for the year then ended.
(2) Accounting year
The Company’s accounting year starts on 1st Ja nuary and ends on 31st December.
(3) Operating Cycle
Operating cycle is the time between the acquisition of an asset for production and the final cash or cashequivalent realization from the acquisition. The Company’s operating cycle amounted to 12 months.
(4) Recording currency
The Company’s recording currency is Renminbi (RMB). The recording currency of the Company’s subsidiariesis determined based on the primary economic environment in which they operate, and the recording currency ofLittle Swan International (Singapore) Limited is US dollar. The financial statements are presented in RMB.
(5) Business combinations
(a) Business combinations involving enterprises under common controlThe consideration paid and net assets obtained by the absorbing party in a business combination are measured atthe carrying amount, or, at the carrying amount of obtained assets and liabilities (including goodwill arisingfrom combination of the ultimate controlling party and its absorbed entity) on consolidated financial statementswherein the absorbed party has been acquired by the ultimate controlling party from a third party in previousperiod. The difference between the carrying amount of the net assets obtained from the combination and thecarrying amount of the consideration paid for the combination is treated as an adjustment to capital surplus(share premium). If the capital surplus (share premium) is not sufficient to absorb the difference, the remaining
balance is adjusted against retained earnings. Costs directly attributable to the combination are included in profitor loss in the period in which they are incurred. Transaction costs associated with the issue of equity or debtsecurities for the business combination are included in the initially recognized amounts of the equity or debtsecurities.
(b) Business combinations involving enterprises not under common controlThe cost of combination and identifiable net assets obtained by the acquirer in a business combination aremeasured at fair value at the acquisition date. Where the cost of the combination exceeds the acquirer’s interestin the fair value of the acquirer’s identifiable net assets, the difference is recognised as goodwill; whe re the costof combination is lower than the acquirer’s interest in the fair value of the acquirer’s identifiable net assets, thedifference is recognised in profit or loss for the current period. Costs directly attributable to the combination areincluded in profit or loss in the period in which they are incurred. Transaction costs associated with the issue ofequity or debt securities for the business combination are included in the initially recognised amounts of theequity or debt securities.
(6) Basis for preparation of consolidated financial statementsThe consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries.Subsidiaries are consolidated from the date on which the Company and its subsidiaries obtains control and arede-consol idated fro m the date that suc h control ce ases. For a sub sidiary t hat is acqu ired in a busine ss combinat ioninvolving enterprises under common control, it is included in the consolidated financial statements from the datewhen it, together with the Company, comes under common control of the ultimate controlling party. The portionof the net profits realised before the combination date is presented separately in the consolidated incomestatement.In preparing the consolidated financial statements, where the accounting policies and the accounting periods of theCompany and subsidiaries are inconsistent, the financial statements of the subsidiaries are adjusted in accordancewith the accounting policies and the accounting period of the Company. For subsidiaries acquired from businesscombinations involving enterprises not under common control, the individual financial statements of thesubsidiaries are adjusted bas ed on th e fair value of the identifiable net assets at the acquisition date.All significant intra-group balances, transactions and unrealised profits are eliminated in the consolidated financialstatements. The portion of a subsidiary’s equity and the portion of a subsidiary’s net profits, losses andcomprehensive income for the period not attributable to the Company are recognised as minority interests andpresented separately in the consolidated financial statements within equity, net profits and total comprehensive
income respectively. Unrealised gain or loss from selling assets to subsidiaries fully offsets the net incomeattributable to equity holders of the Company. Unrealised gain or loss from purchasing assets from subsidiariesoffsets the net income attributable to equity holders of the company andattributable to the minority interest by the
distribution proportion regarding the Company and the subsidiary. Unrealised gain or loss from transactionbetween subsidiaries offsets the net income attributable to equity holders of the Company and attributable to theminority interest by the distribution proportion regarding the Company and the selling side of the subsidiaries.If different recognition perspectives for the same transaction arise within different accounting identities setup,there is adjustment for the transaction from the Group’s perspective.
(7) Cash and cash equivalentsCash and cash equivalents co mprise cash on hand , deposits that can be readily drawn on demand, and short-termand highly liquid investments that are readily convertible to known amounts of cash and are subject to aninsignificant risk of changes in value.
(8) Foreign currency
(a) Foreign currency transactionForeign currency transactions are translated into RMB using the exchange rates prevailing at the dates of thetransactions.On the balance sheet date, monetary items denominated in foreign currencies are translated into RMB using thespot exchange rates on the balance sheet date. Exchange differences arising from these translations arerecognised in profit or loss for the current period, except for those attributable to foreign currency borrowingsthat have been taken out specifically for the acquisition or construction of qualifying assets, which arecapitalised as part of the cost of those assets. Non-monetary items denominated in foreign currencies that aremeasured at historical costs are translated at the balance sheet date using the spot exchange rates at the date ofthe transactions. The effect of exchange rate changes on cash is presented separately in the cash flow statement.(b) Foreign currency financial statements translationsCarrying amount of assets and liabilities with oversea operating entities are translated into RMB at the spotexchange rate on the balance sheet date. Items in Consolidated Statement of Changes in Equity are translatedinto RMB using the spot exchange rate at the date of the transactions, except for the retained earnings. Incomesand expenses items, which are oversea operating, are translated into RMB using the spot exchange rate at thedate of the transactions. The translation differences of foreign currency transactions are presented in othercomprehensive income. Cash flow items, which are oversea operating, are translated into RMB using the spot
exchange rate at the date of the cash in or cash out. The effect of exchange rate changes on cash is presentedseparately in the cash flow statement.
(9) Financial instruments
(a) Financial assets(i) ClassificationFinancial assets are classified into the following categories at initial recognition: financial assets at fair valuethrough profit or loss, loan and receivables and available-for-sale financial assets. The classification of financialassets depends on the Group’s intention and ability to hold the financial assets.Financial assets at fair value through profit or lossFinancial assets at fair value through profit or loss are derivatives – forward foreign exchange contract.Loan and receivablesLoan and receivables are non-derivative financial assets with fixed or determinable payments that are not quotedin an active market.Available-for-sale financial assetsAvailable-for-sale financial assets are non-derivative financial assets that are designated to be available for saleupon initial recognition and financial assets not classified in any other categories. Available-for-sale financialassets are included in other current assets if they are intended to be disposed by management within 1 year(including 1 year) from balance sheet date.(ii) Recognition and measurementFinancial assets are recognized at fair value on the balance sheet when the Company and its subsidiariesbecomes a party to the contractual provisions of the financial instrument. Transaction costs that are attributableto the acquisition of the financial assets at fair value through profits or losses are included in profit or loss in theperiod in which they are incurred, and transaction costs that are attributable to the acquisition of other financialassets are included in their initially recognized amounts.Financial assets at fair value through profit or loss and available-for-sale financial assets are subsequentlymeasured at fair value. Investments in equity instruments are measured at cost when they do not have a quotedmarket price in an active market and whose fair value cannot be reliably measured. Loan and receivables andheld-to-maturity investments are measured at amortised cost using the effective interest method.Gains or losses arising from change in fair value of financial assets at fair value through profit or loss arerecognized in profit and loss of the current period as profit or loss from changes in fair value. Interests or cash
dividends yield during asset holding period and gains and losses arising from asset disposal are recognized in thecurrent period profit and loss.Gains or losses arising from change in fair value of available-for-sale financial assets are recognized directly inequity, except for impairment losses and foreign exchange gains and losses arising from translation of monetaryfinancial assets. When such financial assets are derecognized, the cumulative gains or losses previouslyrecognized directly into equity are recycled into profit or loss for the current period. Interests onavailable-for-sale investments in debt instruments calculated using the effective interest method during theperiod in which such investments are held and cash dividends declared by the investee on available-for-saleinvestments in equity instruments are recognized as investment income, which is recognized in profits or lossesfor the period.(iii) Impairment of financial assetsExcept for financial assets at fair value through profit or loss, the Company and its subsidiaries assesses thecarrying amount of financial assets at each balance sheet date. If there is objective evidence that the financialasset is impaired, an impairment loss is provided for.The objective evidence are matters that occur after the financial a ssets been recognised, affect its estimatedfuture cash flow and could be measured accurately by the Group.The objective evidence, of which provided for available-for-sale equity instruments being impaired, includes aninvestment in an equity instrument with serious or prolonged decline. The Company and its subsidiaries assessesavailable-for-sale equity instruments at each balance sheet date. If the fair value of equity instruments is lowerthan its initial investment cost of more than 50% (including 50%), or lower than its initial investment costs andthe duration of such circumstances lasts for more than 1 year ( including 1 year), it indicates that the equityinstruments are impaired. If the fair value of equity instruments is less than its initial investment cost of morethan 20% (including 20%) to 50% (not including 50%), the Company and its subsidiaries will consider otherrelevant factors such as ratios of price fluctuation to judge that whether equity instruments are impaired. TheCompany and its subsidiaries measured the initial investment cost of available-for-sale equity instruments usingthe weighted average method.When an impairment loss on a financial asset carried at amortized cost has been incurred, the amount of loss ismeasured at the difference between the asset’s carrying amount and the present value of estimated future cashflows (excluding future credit losses that have not been incurred). If there is objective evidence that the value ofthe financial asset recovered and the recovery is related objectively to an event occurring after the impairment
was recognized, the previously recognized impairment loss is reversed and the amount of reversal is recognizedin profits or losses.When an impairment loss on available-for-sale financial assets incurred, the cumulative losses arising from thedecline in fair value that had been recognized directly in equity are transferred out from equity and intoimpairment loss. For an investment in debt instrument classified as available-for-sale on which impairmentlosses have been recognized, if, in a subsequent period, its fair value increases and the increase can beobjectively related to an event occurring after the impairment loss was recognized in profit or loss, thepreviously recognized impairment loss is reversed into profit or loss for the current period. For an investment inan equity instrument classified as available-for-sale on which impairment losses have been recognized, theincrease in its fair value in a subsequent period is recognized directly in equity.If an impairment loss incurred on a financial asset carried at amortized cost, the amount of loss is measured asthe difference between the asset’s carrying amount and the present value of estimated future cash flowsdiscounted at the current market rate of return for a similar financial asset and cannot be revert in the subsequentperiods.(iv) Derecognition of financial assetsFinancial assets are derecognised when: i) the contractual rights to receive the cash flows from the financialassets have expired; or ii) substantial risks and rewards of ownership of the financial assets have beentransferred; or iii) the control over the financial asset has been waived even if the Company and its subsidiariesdoes not transfer or retain nearly all of the risks and rewards relating to the ownership of a financial asset.On derecognition of a financial asset, the difference between the carrying amount and the aggregate ofconsideration received and the accumulative amount of the changes of fair value originally recorded in theowner’s equity is recognised in the profit or loss.(b) Financial liabilitiesFinancial liabilities are classified into the following categories at initial recognition: the financial liabilities atfair value through profit or loss and other financial liabilities. The financial liabilities in the Company and itssubsidiaries mainly comprise of other financial liabilities, including short-term borrowings, notes payables,accounts payables, dividends payables, other payables and other current liabilities, which are recognised initiallyat fair value and measured subsequently at amortized cost using the effective interest method.Borrowings are recognised initially at fair value, net of transaction costs incurred, and subsequently carried atamortized costs using the effective interest method.
Other financial liabilities are classified as current liabilities if they mature within one year (one year included);others are classified as non-current liabilities; non-current liabilities due for repayment within one year since thebalance sheet date are classified as current portion of non-current liabilities.A financial liability (or a part of financial liability) is derecognised when and only when the obligation specifiedin the contract is discharged or cancelled. The difference between the carrying amount of a financial liability (ora part of financial liability) extinguished and the consideration paid is recognised in profit or loss.(c) Determination of the fair value of the financial instrumentsThe fair value of a financial instrument that is traded in an active market is determined at the quoted price in theactive market. The fair value of a financial instrument for which the market is not active is determined by usinga valuation technique. In the process of valuation, the Company and its subsidiaries uses valuation techniquesthat are appropriate in the circumstances and for which sufficient data and other supporting information areavailable while selecting inputs that are consistent with the characteristics of the asset or liability that marketparticipants would take into account in a transaction for the asset or liability. The use of relevant observableinputs is maximized while that of unobservable inputs is minimized. Unobservable inputs shall be used to theextent that the relevant observable inputs are unavailable.
(10) Receivables
Receivables comprise notes receivables, accounts receivables, interests receivables and other receivables.Accounts receivables arising from sale of goods or rendering of services are initially recognised at fair value ofthe contractual payments from the buyers or service recipients.(a) Receivables with amounts that are individually significant and subject to separate assessment forprovision for bad debts
Criteria for recognition of individually significantreceivables
The amount of account receivable individually accounts for over 10%(including 10%) of total amount of accounts receivable on balance sheet date oris individually more than RMB 10,000,000 (including RMB 10,000,000); theamount of other receivable individually accounts for over 10% (including 10%)of total amount of other receivable on balance sheet date or is individuallymore than RMB 5,000,000 (including RMB 5,000,000).Accrual for receivables with amounts that areindividually significant are subject to separateassessment for impairment
Receivables with amounts that are individually significant are subject toseparate assessment for impairment. If there exists objective evidence that theCompany and its subsidiaries will not be able to collect the amount under the
original terms, a provision for bad debts of that receivable is made at thedifference between its carrying amount and the present value of estimatedfuture cash flows.The provision for impairment of the receivables that are individually significantis established at the difference between the carrying amount of the receivableand the present value of estimated future cash flows.
(b) Receivables that are subject to provision for bad debts on the grouping basis
Provision for bad debts
Grouping upon aging basis
Accounts receivables and other receivables with amounts that are notindividually significant and those receivables that have been individuallyassessed for impairment and have not been found impaired are classified intocertain groupings based on their credit risk characteristics. Provision for baddebts is determined based on the historical loss experience for groupings ofreceivables with similar credit risk characteristics, taking into consideration ofthe current circumstances .
A provision for impairment of the receivables is made based on the aging of receivables at the followingpercentage:
Aging Provision as a percentage of accounts receivableProvision as a percentage of other receivablesWithin 1 year 5.00%5.00%Between 1 and 2 years 10.00%10.00%Between 2 and 3 years 30.00%30.00%Between 3 and 4 years 50.00%50.00%Between 4 and 5 years 50.00%50.00%Over 5 years 100.00%100.00%
Notes receivables of the Company and its subsidiaries are all bank’s acceptance bills. The Company regard theseacceptance bills from banks are at low credit risk level, thus no bad debt provision is necessary to be accrued.Interest receivables of the Company and its subsidiaries are all interest from bank deposits with low credit risklevel, thus no bad debt provision on the grouping basis is necessary to be accrued.(c) Accounts receivables with an insignificant single amount but for which the bad debt provision ismade independently
Recognition criteria
Receivables that are not individually significant are subject to separate impairmentassessment if there is objective evidence that the Company and its subsidiaries will not beable to collect the full amounts according to the original terms.Recognition methodThe provision for impairment of the receivables is established at the difference between
the carrying amount of the receivables and the present value of estimated future cashflows.
(11) Inventory
(a) ClassificationInventories include raw materials, work in progress, finished goods and turnover materials, and are presented atthe lower of cost and net realizable value.(b) Determination of costCost is determined on the weighted average method. The cost of finished goods and work in progress comprisesraw materials, direct labour and an allocation of all production overhead expenditures incurred based on normaloperating capacity .(c) The determination of net realizable value and the method of provisions for impairment of inventoriesProvisions for declines in the value of inventories are determined at the carrying value of the inventories net oftheir net realizable value. Net realizable value is determined based on the estimated selling price in the ordinarycourse of business, less the estimated costs to completion and estimated costs necessary to make the sale andrelevant taxes.(d) The Company and its sudsidiaries adopt the perpetual inventory system.(e) Amortisation methods of low value consumables and packaging materialsTurnover materials include low value consumables and packaging materials, which are expensed when issued.(12) Long-term equity investmentsLong-term equity investments include the Company’s long-term equity investments in its subsidiaries.Subsidiaries are all entities over which the Company is able to control.Investments in subsidiaries are measured using the cost method in the Company’s financial statements, andadjusted by using the equity method when preparing the consolidated financial statements.(a) Determination of investment costFor long-term equity investments acquired through a business combination: for long-term equity investmentsacquired through a business combination involving enterprises under common control, the investment cost shallbe the absorbing party’s share of the carrying amount of owners’ equity of the party being absorbed at thecombination date; for long-term equity investment acquired through a business combination involving enterprisesnot under common control, the investment cost shall be the combination cost.For long-term equity investments acquired not through a business combination: for long-term equity investment
acquired by payment in cash, the initial investment cost shall be the purchase price actually paid; for long-termequity investment acquired by issuing equity securities, the initial investment cost shall be the fair value of theequity securities.(b) Subsequent measurement and recognition of related profits and lossesFor long-term equity investments accounted for using the cost method, they are measured at the initial investmentcosts, and cash dividends or profits distribution declared by the investees are recognised as investment income inprofits or losses.For long-term equity investments accounted for using the equity method, where the initial investment cost of along-term equity investment exceeds the Group’s share of the fair value of the investee’s identifiable net assets atthe acquisition date, the long-term equity investment is measured at the initial investment cost; where the initialinvestment cost is less than the share of the Company and its subsidiaries of the fair value of the investee’sidentifiable net assets at the acquisition date, the difference is included in profits or losses and the cost of thelong-term equity investment is adjusted upwards accordingly.For long-term equity investments accounted for using the equity method, the Company and its subsidiariesrecognize the investment income according to its share of net profit or loss of the investee. The Company and itssubsidiaries discontinue recognizing its share of net losses of an investee after the carrying amount of thelong-term equity investment together with any long-term interests that, in substance, form part of the investor’snet investment in the investee are reduced to zero. However, if the Company and its subsidiaries have obligationsfor additional losses and the criteria with respect to recognition of provisions under the accounting standards oncontingencies are satisfied, the Company and its subsidiaries continue recognizing the investment losses and theprovisions. For changes in owners’ equity of the investee other than those arising from its net profit or loss,othercomprehensive income and profit distribution, the Company and its subsidiaries record its proportionate sharedirectly into capital surplus, provided that the proportion of the Company and its subsidiaries of shareholding inthe investee remains unchanged. The carrying amount of the investment is reduced by the share of the Companyand its subsidiaries of the profit distribution or cash dividends declared by an investee. The unrealized profits orlosses arising from the intra-group transactions amongst the Company, its subsidiaries and its investees areeliminated in proportion to the equity of the Company and its subsidiaries interest in the investees, and then basedon which the investment gains or losses are recognised. For the loss on the intra-group transaction amongst theCompany, its subsidiaries and its investees attributable to asset impairment, any unrealized loss is not eliminated.(c) Basis for determine existence of control, joint control or significant influence over investees
Control is the power to govern the financial and operating policies of the investee so as to obtain benefits from itsoperating activities. Joint control is the contractually agreed sharing of control over an economic activity, andexists only when the strategic financial and operating decisions relating to the activity require the unanimousconsent of the parties sharing control.Significant influence is the power to participate in the financial and operating policy decisions of the investee, butis not control or joint control over those policies.(d) Impairment of long-term equity investmentsThe carrying amount of l ong-term equity investm ents in subsidiaries is reduc ed to the recoverab le amount when t herecoverable amount is less than the carrying amount (Note V(18)).
(13) Investment properties
Investment propert ies, includin g land use rights that have alrea dy been lease d out and buil dings that are held for thepurpose of leasing, are measured initially at cost. Subsequent expenditures incurred in relation to an investmentproperty are included in the cost of the investment property when it is probable that the associated econ omic benefitswill flow to the Company and its subsidiaries and their costs can be reliably measured; otherwise, the expendituresare recognised in profit or loss in the period in which they are incurred.The Company and its subsidiaries adopt the cost model for subsequent measurement of investment properties,which are depreciat ed or amortized using the straight-li ne met hod to allocate t he cost of the assets to their estim atedresidual values over their estimated useful lives.. The estimated useful lives, the estimated net residual values thatare expressed as a percentage of cost and t he annual depreciati on (amortisation) rates of investm ent properties are asfollows:
ItemsEstimate Useful Lives Estimated residual value
Annual Depreciation(amortization) RatesBuildings
20-35 years 5.00% 2.71%-4.75%Land Use Rights
50 years
-
2.00%
When an investment property is transferred to owner-occupied properties, it is reclassified as fixed asset orintangible asset at the date of the transfer. When an owner-occupi ed property is transferred o ut for earning rentals orfor capital appreciation, the fix ed asset or intangible asset is reclassified as investment properties at its carryingamount at the dat e of the transfer.The investm ent property’s estimated useful life, net resid ual value and depreciation ( amortization) method app liedare reviewed and ad justed as appro priate at each y ear-end . An investme nt property is derecog nised on dis posal or
when the investment property is permanently withdrawn from use and no future economic benefits are expectedfrom its disposal. The net am ount of proceeds from sale, transfer, retirem ent or dam age of a n investm ent pro pertyafter its carrying amount and related taxes and expenses is recognised in profit or loss for the current period.The carrying amount of an investment property is reduced to the recoverable amount if the recoverable amountis below the carrying amount (Note V(18)).
(14) Fixed assets
(a) Recognition and initial measurement of fixed assets
Fixed assets comprise buildings, machinery and equipment, motor vehicles and office equipment, etc. Fixedassets are recognized when it is probable that the related economic benefits will flow to the Company and itssubsidiaries and the costs can be reliably measured. Fixed assets purchased or constructed by the Company andits subsidiaries are initially measured at cost at the acquisition date. Subsequent expenditures incurred for fixedassets are inc luded in the cost of the fixed a ssets when it is probable th at the associated ec onomic benefits willflow to the Company and its subsidiaries and the related costs can be reliably measured. The carrying amount ofthe replaced part is derecognised. All the other subsequent expenditures are recognized in profit or loss in theperiod in which they are incurred.(b) Depreciation method
Depreciation is calculated on the straight-line method to write off the cost of each asset to its residual valuesover its estimated useful lives. For fixed asset subject to impairment, depreciation is calculated via writing offthe asset’s carrying amount net of impairment over its useful life in subsequent periods.
Estimated useful lifeEstimated residual value Annual depreciation rateBuildings
Straight-line method
20-35 years
5.00% 2.71%-4.75%Machinery and equipment
Straight-line method
10-15 years
5.00% 6.33%-9.50%Motor vehicles
Straight-line method
5 years
5.00% 19.00%Office equipment
Straight-line method
3-5 years
5.00% 19.00%-31.67%
The estimated useful life, estim ated residual value and depreciation m ethod of fixed assets are reviewed at the endof each year and adjusted appropriately.(c) The carrying amount of fixed assets is reduced to the recoverable amount when the recoverableamount is less than the carrying amount (Note V(18)).(d) DisposalA fixed asset is derecognized on disposal or when no future economic benefits are expected from its use or
disposal. The amount of proceeds on sale, transfer, retirement or damage of a fixed asset net of its carryingamount and related taxes and expenses is recognized in profit or loss.(15) Construction in progressConstruction in progress is measured at its actual costs, which includes construction costs, installation costs,borrowing costs capitalized and other costs necessary to bring construction in progress ready for their intendeduse. Construction in progress is transferred to fixed assets when the assets are ready for their inte nded use, anddepreciation is charged starting from the following month. The carrying amount of construction in progress isreduced to the recoverable amount when the recoverable amount is less than the carrying amount.
(16) Intangible assets
Intangible assets include land use rights, non-patented technology and computer soft wares, which initiallyrecognized at cost.(a) Land use rightsA land use right granted by government with an infinite useful life would not be amortized whilst it incurs noacquisition cost. Other land use rights are amortized on the straight-line basis over 50 years. If the acquisitioncosts of land use rights and the buildings located thereon cannot be reliably allocated between the land use rightsand the buildings, al l of the acq uisi tion costs are recognised as fixed assets.(b) Non-patented technologyNon-patented technology are amortized on the straight-line basis over the shorter of their useful life/benefitperiod stipulated in the agreement or contract and the legal age.(c) Computer softwaresComputer softwares purchased by the Company and its subsidiaries are initially measured at cost, which areamortized on the straight-line over their approved useful period of 3-5 years.(d) Periodical review of useful life and amortisation methodFor an intangible asset with a finite useful life, review of its useful life and amortisation method is performed ateach year-end, with adjustment made as appropriate.(e) Research and developmentThe expenditure on an internal research and development project is classified into expenditure on the researchphase and expenditure on the development phase based on its nature and whether there is material uncertaintythat the research and development activities can form an intangible asset at end of the project.
Expenditure for investigation, evaluation and selection of production process researches is recognised in profitor loss in the period in which it is incurred. Expenditure on the designation, assessment of the final utilization ofthe production process before mass production, is capitalised only if all of the following conditions are satisfied:
? development of the production process has been fully demonstrated by the technical team;? management has approved the budget of production development;? existed market research analysis suggests that the products produced by the new production technology areable to be promoted;? adequate technical, financial and other resources to complete the development and subsequent massproduction and the ability to use or sell the intangible asset; and? the expenditure attributable to the intangible asset during its development phase can be reliably measured.Other development expenditures that do not meet the conditions above are recognised in profit or loss in theperiod in which they are incurred. Development costs previously recognised as expenses are not recognised asan asset in a subsequent period. Capitalised expenditure on the development phase is presented as developmentcosts in the balance sheet and transferred to intangible assets at the date that the asset is ready for its intendeduse.(f) Impairment of intangible assetsThe carrying amount of intangible assets is reduced to the recoverable amount when the recoverable amount isless than the carrying amount (Note V (18)).(17) Long-term prepaid expenses
Long-term prepaid expenses include the expenditure for improvements to fixed assets held under operating
leases, and other expenditures that have been incurred but should be recognised as expenses over more than oneyear in the current and subsequent periods. Long-term prepaid expenses are amortized on the straight-line basisover the expected beneficial period and are presented at actual expenditure net of accumulated amortisation.(18) Impairment of long-term assetsFixed assets, intangible assets with finite useful lives, investment properties measured using the cost model,long-term prepaid expense, other non-current assets and long-term equity investments in subsidiaries are testedfor impairment if there is any indication that an asset may be impaired at the balance date. Intangible assetswhich are not yet ready to use should be tested at least annually for impairment, irrespective of whether there isany indication that it may be impaired. If the result of the impairment test indicates that the recoverable amountof the asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised
for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount isthe higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to bederived from the asset. Provision for asset impairment is determined and recognised on the individual asset basis.If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of a groupof assets to which the asset belongs is determined. A group of assets is the smallest identifiable group of assetsthat is able to generate independe nt cash inflows.Intangible assets with infinite useful lives are tested at least annually for impairment, irrespective of whetherthere is any indication that it may be impaired. Once the above asset impairment loss is recognised, it will not bereversed for the value recovered in the subsequent periods.
(19) Employee benefits
(a) Short-term employee benefits
Short-term employee benefits mainly include wages or salaries, bonus, allowances and subsidies, staff welfare,medical insurance, work injury insurance, maternity insurance, housing funds, and union running costs andemployee education costs. The employee benefits are recognised in the accounting period in which the servicehas been rendered by the employees, and as costs of assets or expenses to whichever the employee service isattributable.
(b) Pension obligations
The Company and its subsidiaries operate various post-employment schemes, including both defined benefit anddefined contribution pension plans. A defined contribution plan is a pension plan under which the Company andits subsidiaries pay fixed contributions into a separate entity then the Company and its subsidiaries have no legalor constructive obligations to pay further contributions. The current and past service cost of the defined benefitplan, recognised in the income statement in employee benefit expense. The net interest cost is calculated byapplying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets.This cost is included in employee benefit expense in the income statement. Actuarial gains and losses arisingfrom experience adjustments and changes in actuarial assumptions are charged or credited to equity in othercomprehensive income in the period in which they arise. In the reporting period, The Company and itssubsidiaries’ pension obligations mainly include the basic endowment insurance and unemployment insurance;both belong to the define d c ontribution plan.Pension insuranceEmployees of the Company and its subsidiaries participate in the social pension insurance organized by the local
labour and social security departments. The Company and its subsidiaries pay pension insurance premium to thepension insurance agency with the local provision of social pension insurance base pay and proportionalmonthly. When the employee is retired, the local labour and social security departments have the responsibilityto pay the basic pension insurance to retired employees. Calculated under the local provision mentioned above,the basic pension insurance to be paid are then recognized in the accounting period in which the service has beenrendered by the employees and into profits and losses or costs of relevant assets.
(c) Termination benefits
Termination benefits are payable when employment is terminated by the Company and its subsidiaries beforethe normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for thesebenefits. the Company and its subsidiaries recognises termination benefits into current period profits and lossesat the earlier of the following dates, when the Company and its subsidiaries can no longer withdraw the offer ofthose benefits and when the entity recognises costs related to restructuring.
(d) Retirement benefits
The Company and its subsidiaries provide termination benefits to employees who accept voluntary redundancyin exchange for these benefits. Termination benefits are the payments of wages or salaries and social insurancefor the employees who accept termination plan before the normal retire age. The termination benefits plancovers the period from the starting date of termination benefit plan to the normal retire age. When theCompany and its subsidiaries terminates the employment relationship with employees before the end of theemployment contract, a provision for termination benefits for the compensation arising from termination of theemployment relationship with employees to the retire age is recognised with a corresponding change to profit orloss. The difference from change of actuarial assumptions and adjustment on benefit is recognised in the currentprofits and losses.Retirement benefits falling due within a year are reclassified as current liabilities.
(20) Dividend distribution
Cash dividends distribution is recognised as a liability in the period in which it is approved by the annualshareholders’ meeting.
(21) Provisions
Provisions for product warranties, onerous contracts etc. are recognised when the Company and its subsidiarieshas a present obligation, it is probable that an outflow of economic benefits will be required to settle theobligation, and the amount of the obligation can be measured reliably.
A provision is initially measured at the best estimate of the expenditure required to settle the related presentobligation. Factors surrounding a contingency, such as the risks, uncertainties and the time value of money, aretaken into account as a whole in reaching the best estimate of a provision. Where the effect of the time value ofmoney is material, the best estimate is determined by discounting the related future cash outflows. The increasein the discounted amount of the pro visi on arisin g from passage of time is recognised as interest expense.The carrying amount of provisions is reviewed at each balance sheet date and adjusted to reflect the current bestestimate.The provisions expected to be settled within one year since the balance sheet date are classified as currentliabilities.
(22) Share-based payment
(a) Type of share-based payment
Share-based payment is a transaction in which the entity acquires services from employees as consideration forequity instruments of the entity or by incurring liabilities for amounts based on the equity instruments. Equityinstruments include equity instruments of the Company, its parent company or other accounting entities of theGroup. Share-based payments are divided into equity-settled and cash-settled payments. The Group’s stockoption plan is the equity-settled share-based payment in exchange of employees' services and is measured at thefair value of the equity instruments at grant date. The equity instruments are exercisable after services in vestingperiod are completed or specified performance conditions are met. In the vesting period, the services obtained incurrent period are included in relevant cost and expenses at the fair value of the equity instruments at grant datebased on the best estimate of the number of exercisable equity instruments, and capital surplus is increasedaccordingly. If the subsequent information indicates the number of exercisable equity instruments differs fromthe previous estimate, an adjustment is made and, on the exercise date, the estimate is revised to equal thenumber of actual vested equity instruments. On the exercise date, the recognised amount calculated based on thenumber of exercised equity instruments is transferred into share capital.
(b) Determination of the fair value of equity instruments
The Company and its subsidiaries determines the fair value of stock options using option pricing model, whichis Black - Scholes option pricing model.
(c) Basis for determining best estimate of exercisable equity instruments
At the end of each reporting period, the Company and its subsidiaries revises its estimates of the number ofoptions that are expected to vest based on the non-marketing performance and service conditions. On the
exercise date, the final number of estimated exercisable equity instruments is consistent with the number ofexercised equity instruments.
(d) Accounting treatment related to the exercise of stock options
When the options are exercised on the exercise date, capital and capital surplus are recognized at the same time,carried forward to capital surplus recognized in the vesting period.
(23) Revenue
The amount of revenue is determined in accordance with the fair value of the consideration received orreceivable for the sale of goods and services in the ordinary course of the Company and its subsidiaries’activities. Revenue is shown net of discounts and returns.Revenue is recognized when the economic benefits associated with the transaction will flow to the Group, therelevant revenue can be reliably measured and specific revenue recognition criteria have been met for each ofthe Group’s activities as describe d bel ow:
(a) Sales of goods
The Company and its subsidiaries is engaged in manufacturing and sales of washing machine. Revenue fromsales of goods is recognized when the goods are delivered, significant risks and rewards of ownership of thegoods are transferred to the customers, the Company retains neither continuing managerial involvement to thedegree usually associated with the ownership nor effective control over the goods sold, relevant consideration orthe documents which grant the right to receive the relevant consideration has been received, and related costscan be measured reliably.During the reporting period,the Company and its subsidiaries sales goods mainly through distributors,large-scale chain supermarkets and e-business platform. Revenue is recognized when products accepted bydealers, chain supermarkets and third-party e-business platform. As for self-operation e-business website,revenue is recognized when products accepted by ultimate customers. The risks of damage or price fluctuationof products as well as the rights to sell are transferred to distributors, large-scale chain supermarkets andthird-party e-business platform when the products are accepted. Revenue from the sale of goods via the Group’se-business platform is recognized when products are delivered and accepted by the ultimate customer. Revenuefrom export sale is recognized when terms under the contract as follows are met: the products’ shipment fromcustoms is cleared, the products are then passed over to the ship rail, bill of lading is acquired by the buyer.The Company and its subsidiaries is engaged in sales of materials. Revenue from sales of materials isrecognized when the materials are delivered, significant risks and rewards of ownership of the materials are
transferred to the customers, the Company and its subsidiaries retains neither continuing managerialinvolvement to the degree usually associated with the ownership nor effective control over the materials sold,relevant consideration or the documents which grant the right to receive the relevant consideration has beenreceived, and related costs can be measured reliably.
(b) Transfer of assets use rights
Interest income is determined by using the effective interest method, based on the length of time for which thecash of the Company and its subsidiaries is used by others.Income from an operating lease is recognised on a straight-line basis over the period of the lease.
(24) Government Grants
Governmen t grants are the monetary asset or non-monetary asset that the Company and its subsidiaries receivesfrom the government for free, including tax refund, financial subsidies, etc.(a) Accounting policies and judgement basis upon government grants related to assetsA government grant is recognized when the conditions attached to it can be complied with and the governmentgrant can be received. For a government grant in the form of transfer of monetary assets, the grant is measured atthe amount received or rec eivable. For a government grant in the form of transfer of nonmonetary assets, t he grantis measured at its fair value. A government grant is measured at notional amount wherein its fair value cannot bereliably measured.The government grants related to assets are referred to as government grants that are obtained and utilized by theCompany and its subsidiaries for the procurement, construction, or establishment of long-term assets in othermanners. The governm ent grants related to assets are recognized as deferred in come and amortize them in profit orloss in a reasonable and systematic manner within the useful lives of related assets.(b) Accounting policies and judgement basis upon government grants related to incomesGovernment grants related to income are government grants not related to assets. Government grants related toincome that compensate the future costs, expenses or losses are recorded as deferred income and recognised inprofit or loss, or deducted against related costs, expenses or losses in reporting the related expenses; governmentgrants related to income that compensate the incurred costs, expenses or losses are recognised in profit or loss, ordeducted against related costs, expenses or losses directly in current period.The Company an d its subsidiaries applies the presentation method cons istently to the sim ilar government grants inthe financial statements.
Government grants that are related to ordinary activities are included in operating profit, otherwise, they arerecorded in non-operating income or expenses.(25) Deferred tax assets and deferred tax liabilitiesDeferred tax assets and deferred tax liabilities are calculated and recognised based on the differences arisingbetween the tax bases of assets and liabilities and their carrying amounts (temporary differences). Deferred taxasset is recognised for the deductible losses that can be carried forward to subsequent years for deduction of thetaxable profit in accordance with the tax laws. No deferred tax asset or deferred tax liability is recognised for thetemporary differences resulting from the initial recognition of assets or liabilities due to a transaction other thana business combination, which affects neither accounting profit nor taxable profit (or deductible loss). At thebalance sheet date, deferred tax assets and deferred tax liabilities are measured at the tax rates that are expectedto apply to the period when the asset is realised or the liability is settled.Deferred tax assets are only recognised for deductible temporary differences, deductible losses and tax credits tothe extent that it is probable that taxable profit will be avail able in the future against which the deductibletemporary differences, deductible losses and tax credits can be utilised.Deferred tax liabilities are recognized for temporary differences arising from investments in subsidiaries, unlessthe Company is able to control the timing of the reversal of the temporary difference, and it is probable that thetemporary difference will not reverse in the foreseeable future. When it is probable that the temporarydifferences arising from investments in subsidiaries will be reversed in the foreseeable future and that thetaxable profit will be available in the future against which the temporary differences can be utilized, thecorresponding deferred tax assets are recognized.Deferred tax assets and liabilities are offset when:
? The deferred taxes are relate to the same tax payer within the Company and its subsidiaries and the sametaxation authority, and;? That tax payer has a legally enforceable right to offset current tax assets against current tax liabilities
(26) Leases
A lease that transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease.An operating lease is a lease other than a finance lease.Lease payments under an operating lease are recognised on a straight-line basis over the period of the lease, andare either capitalised as part of the cost of related assets, or charged as an expense for the current period.Rental income from an operating lease is recognised on a straight-line basis over the period of the lease.
(27) Segment information
The Company and its subsidiaries identify operating segments based on the internal organisation structure,management requirements and the internal reporting system, and discloses segment information of reportablesegments determined on the basis of operating segments.An operating segment is a component of the Company and its subsidiaries that satisfies all of the followingconditions:
(a) the component is able to earn revenues and incur expenses from its ordinary activities.(b) whose operating results are regularly reviewed by the Group’s management to make decisions aboutresources to be allocated to the segment and to assess its performance.(c) for which the information on financial position, operating results and cash flows is available to the Group.If two or more operating segments have similar economic characteristics, and satisfy certain conditions, they areaggregated into a single operating segment.(28) Critical accounting estimates and judgementsThe Company and its subsidiaries continually evaluates the critical accounting estimates and key judgementsapplied based on historical experience and other factors, including expectations of future events that are believedto be reasonable under the circumstances. The critical accounting estimates and key assumptions that have asignificant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the nextaccounting year are outlined below:
Income taxesThe Company and its subsidiaries is subject to income taxes in numerous jurisdictions. There are sometransactions and events for which the ultimate tax determination is uncertain during the ordinary course ofbusiness. Significant judgement is required from The Company and its subsidiaries in determining the provisionfor income taxes in each of these jurisdictions. Where the final tax outcome of these matters is different from theamounts that were initially recorded, such differences will impact the income tax and deferred tax provisions inthe period in which such determination is made.(29) Significant changes in accounting poli ciesIn 2018, the Ministry of Finance issued the Circular on the Amendment to the Formats of Corporate FinancialStatements for the Year of 2018 (Cai Kuai [2018] 15). The financial statements are prepared in accordance withthe above circular with restating comparative figures of 2017 and impacts are as follows:
(a) The impact on the consolidated balance sheet and income statement
(b) The impact on the Company balance sheet and income statement
The nature and the reasons of thechanges in accounting
The line items affected The amounts affected31 December 2017 1 January 2017The Company and its subsidiariesgrouped accounts receivable and notesreceivable as notes and accountsreceivables.
Notes receivable Decrease 1,283,192,684.28 Decrease 1,297,609,202.29Accounts receivable Decrease 1,736,724,496.10 Decrease 1,465,654,497.90Notes and accountsreceivables
Increase 3,019,917,180.38 Increase 2,763,263,700.19The Company and its subsidiariesgrouped interests receivable and otherreceivables as other receivables.
Interests receivable Decrease 60,943,907.98 Decrease 26,755,807.07Other receivables Increase 60,943,907.98 Increase 26,755,807.07The Company and its subsidiariesgrouped notes payable and accountspayable as notes and accountspayables.
Notes payable Decrease 2,805,804,600.41 Decrease 2,620,549,815.47Accounts payable Decrease 3,827,025,700.10 Decrease 3,335,089,672.06Notes and accountspayables
Increase 6,632,830,300.51 Increase 5,955,639,487.53The Company and its subsidiariesgrouped dividends payable and otherpayables as other payables.
Dividends payable Decrease 6,996,784.06 Decrease 7,150,684.06Other payables Increase 6,996,784.06 Increase 7,150,684.06
The nature and the reasons of the changes in accounting policiesThe line items affected The amounts affected
31 December 2017The Company and its subsidiaries separately listed research anddevelopment expenses in research and development whichoriginally included in general and administrative expense.
General and administrative expenses Decrease 550,779,796.27Research and development expenses Increase 550,779,796.27
The content and caused of the changes
in accounting policies
The line items affected The amounts affected31 December 20171 January 2017The Company grouped accountsreceivable and notes receivable asaccounts and notes receivables.
Notes receivable Decrease 938,342,347.95Decrease 1,088,559,252.21Accounts receivable Decrease 2,805,194,600.27Decrease 2,310,254,576.98Notes and accountsreceivables
Increase 3,743,536,948.22Increase 3,398,813,829.19The Company grouped interestsreceivables and other receivables as
Interests receivable Decrease 32,913,208.23Decrease 18,798,031.69Other receivables Increase 32,913,208.23Increase 18,798,031.69
VI. Taxation(1) The main catagories and rates of taxes applicable to the Company and its subsidiaries are set outbelows:
category Tax base Tax rateValue-added tax
Taxable value added amount (Tax payable is calculated using thetaxable sales amount multiplied by the applicable tax rate lessdeductible VAT input of the current period)17%, 16%, 11%, 10% or 5%City mai ntenance andconstruction tax
The payment amount of VAT
7% or 5%Enterprise income tax Taxable income 15%, 17% or 25%
Pursuant to the 'Circular on Adjustment of Tax Rate of Value Added Tax' (Cai Shui [2018] 32) jointly issued bythe Ministry of Finance and the State Administration of Taxation, the applicable tax rate of revenue arising fromVAT taxable sales or imported goods of the Company and its subsidiaries, is 16% and 10% from 1 May 2018,while it was 17% and 11% before then.
(2) Tax preferences
According to Enterprise income tax law of the People’s Republic of China, Article 28, the Company and itsthree subsidiaries, Hefei Midea Washing Machine Limited, Wuxi Little Swan GE Limited and Wuxi FilinElectronics Limited, shall be subject to the corporate income tax at the reduced rate of 15% (2017: 25% subject
other receivables.The Company grouped accounts payableand notes payable as notes and accountspayables.
Notes payable Decrease 1,678,546,630.26Decrease 1,508,017,904.49Accounts payable Decrease 4,395,361,312.16Decrease 3,913,090,507.89Notes and accounts payablesIncrease 6,073,907,942.42Increase 5,421,108,412.38The Company grouped dividendspayable and other payables as otherpayables.
Dividends payable Decrease 6,996,784.06 Decrease 7,150,684.06Other payables Increase 6,996,784.06 Increase 7,150,684.06
The content and caused of the changes
in accounting policies
The accounts affected The amounts affected31 December 2017The Company and its subsidiaries separately listed researchand development expenses in research and developmentwhich originally included in general and administrativeexpenses.
General and administrative expenses Decrease 422,811,623.35Research and development expenses Increase 422,811,623.35
to Hefei Midea Washing Machine Limited, and 15% subject to the Company, Wuxi Little Swan GE Limited andWuxi Filin Electronics Limited).In October 2018, the Company gained the certificate of ‘High-tech Enterprises’, which was issued by JiangsuScience and Technology Department, Jiangsu Finance Department, Jiangsu State Administration of Taxation andJiangsu Local Taxation Bureau. The Certificate Number is GR201832001394. Term of validity for thisCertificate is three years, from 2018 to 2021.In October 2018, the Company’s subsidiary Wuxi Little Swan GE Limited gained the certificate of' High-techEnterprises, which was issued by Jiangsu Science and Technology Department, Jiangsu Finance Department,Jiangsu State Administration of Taxation and Jiangsu Local Taxation Bureau. The Certificate Number isGR201832001100. Term of validity for this Certificate is three years, from 2018 to 2021.In October 2018, the Company‘s subsidiary Wuxi Filin Electronics Limited gained the certificate of 'High-techEnterprises‘, which was issued by Jiangsu Science and Technology Department, Jiangsu Finance Department,Jiangsu State Administration of Taxation and Jiangsu Local Taxation Bureau. The Certificate Number isGR201832001053. Term of validity for this Certificate is three years, from 2018 to 2021.In July 2018, the Company’s subsidiary Hefei Midea Washing Machine Limited gained the certificate ofHigh-tech Enterprised, which was issued by Anhui Science and Technology Department, Anhui FinanceDepartment, Anhui State Administration of Taxation and Anhui Local Taxation Bureau. The Certificate Numberis GR201834000882. Term of validity for this Certificate is three years, from 2018 to 2021.The Company‘s subsidiary Little Swan International (Singapore) Limited is subject to the corporate income taxat the rate of 17%.Upon article 1 of the Notice of the Ministry of Finance and the State Administration on Value Added TaxPolicies Applicable to Software Products (Cai Shui [2011] No.100), after levying a value-added-tax on the salefof self-developed software products and services of the Company’s subsidiary Wuxi Filin Electronics Co., Ltd.at the statutory tax rate of 17%, the tax rebate policy will be imposed on the part of the tax that exceeds 3% ofthe actual value-added-tax. Wuxi Filin Electronics Co., Ltd. recorded the VAT return obtained in 2018 in otherincome.VII. Notes to the consolidated financial statements(1) Cash at bank and on hand
31 December 2018 31 December 2017Cash at bank 1,713,233,957.391,417,489,071.71
Other cash balances 213,704,177.01170,775,444.34Total 1,926,938,134.401,588,264,516.05Including: cash deposited overseas 473,362.45503,115.69
As at 31 December 2018, the other cash balances comprises: deposit for bank acceptance bills of RMB209,695,725.87 and deposit for letter of credit of RMB 4,008,451.14 (31 December 2017: deposit for bankacceptance bills of RMB 166,791,807.67 and deposit for forward foreign exchange agreement t of RMB3,983,636.67).(2) Financial assets at fair value through profit or loss
31 December 2018 31 December 2017Forward foreign exchange contract -5,270,238.03
(3) Notes and accounts receivables
31 December 2018 31 December 2017Notes receivable(a) 1,061,452,503.991,283,192,684.28Accounts receivable(b)1,957,583,475.151,736,724,496.10Total3,019,035,979.143,019,917,180.38
(4) Notes receivable
(5) Notes receivable classified by nature
31 December 2018 31 December 2017Bank acceptance notes 1,061,452,503.991,283,192,684.28Less: Provision for bad debts --1,061,452,503.991,283,192,684.28
As at 31 December 2018 and 31 December 2017, there is no trade acceptance receivable. The Company and itssubsidiaries do not recognize impairment risk of the bank acceptance notes, whereupon no bad debt provision isaccrued.As at 31 December 2018 and 31 December 2017, there is no pledged notes receivable.(i) As at 31 December 2018, notes receivable that have been endorsed or discounted but not yet expired
are as follows:
Items 31 December 2018 31 December 2017
Derecognised Not derecognised Derecognised Not derecognisedBank acceptance notes 2,120,713,069.32117,603,683.891,971,348,872.35 81,393,672.34
(a) Accounts receivable(i) Accounts receivable classified by nature:
Category
31 December 2018Cost Bad debt provision
Carrying amountAmount % Amount % of provisionDebtors grouped bycredit risk
2,060,614,184.36 100.00%103,030,709.21 5.00% 1,957,583,475.15
Category
31 December 2017Cost Bad debt provision
Carrying amountAmount % Amount % of provisionDebtors grouped bycredit risk
1,828,131,048.42 100.00%91,406,552.32 5.00% 1,736,724,496.10
Accounts receivable individually significant for which bad debt provision was assessed individually.□Applicable √Not applicableAccounts receivable adopting aging analysis method for bad debt provision:
√Applicable □ Not applicable
Aging
31 December 2018Accounts receivable Bad debt provision % of provision Carrying amountWithin 1 year 2,060,614,184.36103,030,709.215.00% 1,957,583,475.15Total 2,060,614,184.36103,030,709.215.00% 1,957,583,475.15
Aging
31 December 2017Accounts receivable Bad debt provision % of provision Carrying amountWithin 1 year 1,828,131,048.4291,406,552.325.00% 1,736,724,496.10Total 1,828,131,048.4291,406,552.325.00% 1,736,724,496.10
As at 31 December 2018 and 2017, there were no material accounts receivable which were past due.(ii) Accounts receivable withdraw, reversed or collected during the reporting periodDuring the year ended 31 December 2018, the net movement of provision for accounts receivable was RMB11,624,156.89(2017: RMB 14,262,415.59). There were no provision or reverse of provision for individualsignificant accounts receivable.(iii) Accounts receivable written-off during the reporting periodThere were no accounts receivable written-off during the reporting period.
(iv) Top 5 of accounts receivable by customers
Amounts Bad debt provision % of total balanceTotal amount of the top 5 accounts receivableby customers
1,363,473,357.4168,173,667.8766.17%
(v) Accounts receivable derecognised due to the transfer of financial assets
Derecognised Loss on derecognisedAccounts receivables transferred 1,774,993,166.6139,049,849.67
For the year ended 31 December 2018, accounts receivable transferred to the financial institutions withoutrecourse amounted to RMB 1,774,993,166.61(2017: RMB 1,396,967,895.11), of which loss on derecognisedamounted to RMB 39, 04 9,849.67 (2017: RMB 27,699,357.90).
(6) Advances to Suppliers
(a) Aging analysis of advances to suppliers:
Aging
31 December 2018 31 December 2017Balance % of total balance Balance % of total balanceWithin 1 year 80,853,628.49 91.96% 79,671,655.89 94.46%1 to 2 years 6,127,811.51 6.97% 4,675,136.49 5.54%2 to 3 years 945,423.95 1.08%- 0.00%Total 87,926,863.95 100.00%84,346,792.38 100.00%
Escalation for advances to suppliers aging over 1 year with significant amount for which the standards stipulatedby the contract has not yet been reached:
As at 31 December 2018, the balance of advance to suppliers with aging over one year amounts to RMB7,073,235.46 (31 December 2017: RMB 4,675,136.49, mainly comprising the prepayments for goods for whichthe standards stipulated by the contract has not yet been reached)(b) Top 5 prepayment by suppliers
31 December 2018 % of total balanceTotal amount of the top 5 by suppliers26,964,664.7830.67%
(7) Other receivables
Item
31 December 201831 December 2017Interests receivable(a) 213,514,910.1060,943,907.98Other receivables(b) 20,441,295.1647,224,454.09Total 233,956,205.26108,168,362.07
(a) Interests receivable
31 December 2018 31 December 2017Structured deposit interest 212,259,520.5560,096,246.58Bank deposit interest 1,255,389.55847,661.40Total 213,514,910.1060,943,907.98
(b) Other receivables(i) Other receivables by category:
Category
31 December 2018Cost Bad debt provision
Carrying amountAmount % Amount % of provisionDebtors grouped by credit risk 22,751,048.67100.00%2,309,753.5110.15% 20,441,295.16
Category
31 December 2017Cost Bad debt provision
Carrying amountAmount % Amount % of provisionDebtors grouped by credit risk 50,575,167.17100.00%3,350,713.086.63% 47,224,454.09
Other receivable individually significant for which bad debt provision was assessed individually.□ Applicable √Not applicableOther receivable adopting aging analysis method for bad debt provision:
√Applicable □ Not applicable
Aging
31 December 2018Other receivables Bad debt provision % of provision Carrying amountWithin 1 year 19,629,757.67 981,487.875.00%18,648,269.801 to 2 years 1,191,195.66 119,119.5710.00%1,072,076.092 to 3 years 594,008.00 178,202.4030.00%415,805.603 to 5 years 610,287.34 305,143.6750.00%305,143.67Over 5 years 725,800.00 725,800.00100.00%-Total 22,751,048.67 2,309,753.5110.15%20,441,295.16Aging
31 December 2017Other receivables Bad debt provision % of provision Carrying amountWithin 1 year 47,645,755.48 2,381,754.37 5.00% 45,264,001.111 to 2 years 1,435,667.86 143,566.79 10.00% 1,292,101.072 to 3 years 721,400.00 216,420.00 30.00% 504,980.003 to 5 years 326,743.83 163,371.92 50.00% 163,371.91
Over 5 years 445,600.00 445,600.00100.00% -Total 50,575,167.17 3,350,713.086.63%47,224,454.09
As at 31 December 2018 and 31 December 2017, there were no material other receivables which were past due.Other receivables adopting balance percentage method for bad debt provision:
□ Applicable √Not applicableOther receivables adopting other method for bad debt provision:
□ Applicable √Not applicable(ii) Other receivables withdraw, reversed or collected during the reporting periodDuring the year ended 31 December 2018, provision for other receivables was RMB 0.00 (2017: RMB1,737,268.30), reverse of provision for other receivables was RMB 1,040,959.57 (2017: RMB 0.00). There wereno provision or reverse of provisio n for individ ual significant other receivables.(iii) Other receivables written-off during the reporting periodThere were no other receivable written-off during the reporting period.(iv) Other receivables classified by nature
Nature of other receivables 31 December 2018 31 December 2017Deposit in third-party payment serviceaccounts
17,125,330.2644,740,888.28Loan to employees 1,945,069.602,875,802.98Deposits 3,680,648.812,515,443.83Others -443,032.08Less: Bad debt provision -2,309,753.51-3,350,713.08Total 20,441,295.1647,224,454.09
(v) Top 5 of other receivables by customers
Name of the entities Nature of other receivables
31 December
2018
Aging
% of total
balance
Bad debtprovisionAlipay (China) NetworkTechnology Co., Ltd
Deposit in third-partypayment service accounts
10,531,076.19Within 1 year 46.29% 526,553.81Shenzhen Midea PaymentTechnology Co., Ltd
Deposit in third-partypayment service accounts
6,214,698.76Within 1 year 27.32% 310,734.94
uxi China Resources Gas Co.,
WL
td.
Deposits 820,800.00
2 to 3 years andover 5 years
3.61% 754,300.00Shanghai Fengsha IndustrialDevelopment Co., Ltd.
Deposits 601,161.48Within 1 year 2.64% 30,058.07
Wuxi Hi-Tech Logistics Center Co.,Ltd.
Deposits 461,700.001 to 2 years 2.03% 46,170.00Total 18,629,436.43 81.89% 1,667,816.82
(vi) Inventory(vii) Category of inventory
31 December 2018 31 December 2017Cost
Provision for
decline in the value
Carrying amountCost
Provision forwritten-down
Carrying amountRaw materials 34,069,010.35 1,345,523.5732,723,486.78 35,127,847.81 570,442.41 34,557,405.40Work in process 12,809,798.58 -12,809,798.58 14,237,995.55 - 14,237,995.55Finished goods 1,762,014,570.00 52,950,705.831,709,063,864.171,995,530,607.75 63,559,812.56 1,931,970,795.19Total 1,808,893,378.93 54,296,229.401,754,597,149.532,044,896,451.11 64,130,254.97 1,980,766,196.14
(viii)Provision for written-down of inventory
31 December 2017
Increase Decrease
31 December 2018Withdrawal Other
Reverse orwritten-off
OtherRaw materials 570,442.41 775,081.16--- 1,345,523.57Finished goods 63,559,812.56 38,210,901.92-48,820,008.65- 52,950,705.83Total 64,130,254.97 38,985,983.08-48,820,008.65- 54,296,229.40
Provisions for inventories are provided to write down the carrying amount to net realizable value when the netrealizable value is lower.(ix) Other current assets
31 December 2018 31 December 2017Financial products -3,792,871,097.59Structured deposits 14,350,000,000.008,650,000,000.00Input tax to be authenticated or deducted 258,471,417.82283,158,673.31Others 62,425,674.2552,210,974.32Total 14,670,897,092.0712,778,240,745.22
As at 31 December 2018, there were no carrying amount of financial products (As at 31 December 2017, thecarrying value of financial products measured by fair value amounted to RMB 3,792,871,097.59, with principalamounted to RMB 3,735,000,000.00, and accumulated fair value changes recognised in other comprehensiveincome amounted to RMB 57,871,097.59).
(8) Available-for-sale financial assets
31 December 2018 31 December 2017Cost Impairment
Carryingamount
Cost Impairmen Carrying amountAvailable-for-sale equityinstruments:
- measured at cost300,300.00 -100,300.00200,000.00
300,300.00-100,300.00 200,000.00Total300,300.00 -100,300.00200,000.00300,300.00-100,300.00 200,000.00
(9) Investment Properties
(a) Investment properties measured at cost method
Buildings Land use rights TotalCost
31 December 201788,189,256.9622,949,959.07 111,139,216.03Disposal --5,637,235.60 -5,637,235.6031 December 201888,189,256.9617,312,723.47 105,501,980.43Accumulative depreciation and amortization
31 December 201729,852,095.867,015,229.88 36,867,325.74Increase 3,496,869.71355,238.27 3,852,107.98Decrease --2,570,395.81 -2,570,395.8131 December 201833,348,965.574,800,072.34 38,149,037.91Impairment
31 December 201712,576,065.29- 12,576,065.2931 December 201812,576,065.29- 12,576,065.29Carrying amount
31 December 201842,264,226.1012,512,651.13 54,776,877.2331 December 201745,761,095.8115,934,729.19 61,695,825.00
Depreciation and amortization charge for 2018 amounted to RMB 3,852,107.98(2017: RMB 3,159,078.25).
(10) Fixed assets
Item 31 December 2018 31 December 2017Fixed assets 1,121,036,700.251,029,668,355.84Total 1,121,036,700.251,029,668,355.84
Buildings
Machineryand equipment
Motorvehicles
Officeequipment and
fixtures
Total
Cost
31 December 2017735,906,249.69 1,053,086,342.8528,536,914.16139,927,818.59 1,957,457,325.29Add: Purchase 1,430,047.57 119,414,858.093,765,661.0470,498,700.80 195,109,267.50Transferred from constructionin progress
- 56,308,998.02-- 56,308,998.02Disposal or Scrap -1,008,386.77 -27,113,119.16-1,116,017.58-4,181,305.68 -33,418,829.1931 December 2018736,327,910.49 1,201,697,079.8031,186,557.62206,245,213.71 2,175,456,761.62Accumulative depreciation
31 December 2017227,391,811.31 556,756,002.4023,111,726.1599,321,819.31 906,581,359.17Withdrawal 31,236,631.09 93,294,070.631,457,899.5629,171,559.04 155,160,160.32Disposal or Scrap -714,568.61 -19,058,117.52-998,555.80- 3,884,873.39 - 24,656,115.3231 December 2018257,913,873.79 630,991,955.5123,571,069.91124,608,504.96 1,037,085,404.17Depreciation reverses
31 December 20173,918,452.47 17,168,643.3230,622.4089,892.09 21,207,610.28Increase - 834,296.77-- 834,296.77Decrease - -4,659,934.69-19,389.79-27,925.37 -4,707,249.8531 December 20183,918,452.47 13,343,005.4011,232.6161,966.72 17,334,657.20Carrying amount
31 December 2018474,495,584.23 557,362,118.897,604,255.1081,574,742.03 1,121,036,700.2531 December 2017504,595,985.91 479,161,697.135,394,565.6140,516,107.19 1,029,668,355.84
Depreciation charges for 2018 amounted to RMB 155,160,160.32 (2017: RMB 129,563,779.26). The amount ofdepreciation recognized in cost of sales, selling and distribution expenses, general and administrative expenses,research and development expense are RMB 128,757,777.56, RMB 651,154.64, RMB 17,680,722.02 and RMB8,070,506.10 respectively. (2017: The amount of depreciation recognized in cost of sales, selling expense andoperating expense are RMB 107,567,993.75, RMB 686,769.30, RMB 16,099,405.48 and RMB 5,209,610.73respectively).(11) Construction in progress
31 December 2018 31 December 2017Cost
Provision for
impairment loss
Carrying amountCost
Provision forimpairment loss
Carrying amountAutomatic-stampingdrum cabinet rivet line
- --37,167,679.63- 37,167,679.63Filin’s research and 15,424,853.79 -15,424,853.79-- -
developmentworkshopOthers 61,980.58 -61,980.58 804,572.97 - 804,572.97Total 15,486,834.37 -15,486,834.37 37,972,252.60- 37,972,252.60
(a) Changes in major construction-in-progress
Project Budget
31 December
2017
Addition
Transferred into
fixed assets
Other decrease
31 December
2018
% of total budget
Completed
progress
FundingsourcesAutomatic -sta mpi ngdrum cabinet rivetline
40,331,385.00 37,167,679.633,163,705.45-40,331,385.08--100.00%100.00%Equity fundFilin’s research anddevelopmentworkshop
42,978,000.00 -15,424,853.79--15,424,853.7935.89%35.89%Equity fundOthers 1,285,600.00 804,572.97 15,235,020.55-15,977,612.94-61,980.584.82%4.82%Equity fundTotal 84,594,985.00 37,972,252.6033,823,579.79-56,308,998.02-15,486,834.37
(12) Intangible assets
Land use right Non-patented technologyOthers TotalCost
31 December 2017242,666,890.39-1,395,014.56 244,061,904.95Addition 134,462.17-- 134,462.1731 December 2018242,801,352.56-1,395,014.56 244,196,367.12Accumulated amortization
31 December 201755,621,543.12-1,395,014.56 57,016,557.68Addition 5,240,526.65-- 5,240,526.6531 December 201860,862,069.77-1,395,014.56 62,257,084.33Depreciation revere s
31 December 2017--- -31 December 2018--- -Carrying amount
31 December 2018181,939,282.79-- 181,939,282.7931 December 2017187,045,347.27-- 187,045,347.27
In 2018, the amortization of intangible assets amounted to RMB 5,240,526.65 (2017: RMB 5,238,138.88).(13) Long-term prepaid expenses
Item 31 December 2017 Addition Amortization Other decrease 31 December 2018Leaseholdimprovement cost
21,318,606.65 13,830,928.17-10,681,425.73- 24,468,109.09Others 1,063,413.87 681,886.78-673,123.82- 1,072,176.83Total 22,382,020.52 14,512,814.95-11,354,549.55- 25,540,285.92
(14) Deferred income tax assets and deferred income tax liabiliti e s(a) Deferred income tax assets without taking into consideration of the offsetting of balances
Item
31 December 2018 31 December 2017Deductible temporary
difference
Deferred income tax
assets
Deductible temporary
difference
Deferred income tax
assetsProvision for impairment of assets 168,756,876.4025,313,531.46171,883,829.48 25,782,574.43Unrealized profit of inter-grouptransaction 108,282,747.8516,242,412.18107,345,624.86 16,101,843.74Other current liabilities 2,507,882,899.91376,182,434.992,107,686,604.61 370,746,106.98Others 63,602,003.329,540,300.58 26,614,332.30 3,992,149.84Total 2,848,524,527.48427,278,679.212,413,530,391.25 416,622,674.99
Deferred income tax assets details
Item
31 December 2018 31 December 2017Expected to reverse within 1 year (including 1 year) 418,531,140.33412,971,858.44Expected to reverse after 1 year 8,747,538.883,650,816.54Total 427,278,679.21416,622,674.98
(b) Deferred tax liabilities without taking into consideration the offsetting of balances
Item
31 December 2018 31 December 2017Taxable Temporary
difference
Deferred tax
liabilities
Taxable Temporary
difference
Deferred tax
liabilitiesFair value change of financial assets through profit or loss--5,270,238.03 790,535.70Fair value change of available-for-sale financial assets --57,871,097.59 8,680,664.64Total --63,141,335.62 9,471,200.34
Deferred tax liabilities details
Item
31 December 2018 31 December 2017Expected to reverse within 1 year (including 1 year)
-9,471,200.34Expected to reverse after 1 year
--Total -9,471,200.34
(c) Net amounts of deferred income tax assets and liabilities taking into consideration the offsetting of
balances are set out as follows:
Item
31 December 2018
Netting amount
31 December 2018Deferred income taxassets or liabilities, net
31 December 2017
Netting amount
31 December 2017Deferred income taxassets or liabilities, netDeferred income tax assets - 427,278,679.219,471,200.34 407,151,474.64Deferred income tax liabilities - -9,471,200.34 -
(d) List of unrecognized deferred income tax assets
Item 31 December 2018 31 December 2017Deductible temporary difference 27,143,434.0227,153,908.99Deductible tax losses 70,134,184.4481,636,690.06Total 97,277,618.46108,790,599.05
(e) Deductible losses of unrecognized deferred income tax assets will due the following years
Years 31 December 2018 31 December 20172018 -16,300,604.682019 49,620,940.4249,620,940.422020 9,576,983.639,576,983.63
2021 5,618,761.455,618,761.452022 519,399.88519,399.882023 4,798,099.06-Total 70,134,184.4481,636,690.06
(15) Other non-current assets
Item 31 December 2018 31 December 2017Prepayment for equipment 42,289,041.7327,331,937.53
(16) Short-term borrowings
Category 31 December 2018 31 December 2017Discounted notes receivable financing 117,603,683.8981,393,672.34Factoring of accounts receivable --Total 117,603,683.8981,393,672.34
(17) Financial liabilities measured at fair value through profit or loss
Category 31 December 2018 31 December 2017Forward foreign exchange contract 3,078,878.95-
(18) Notes and accounts payables
Item 31 December 2018 31 December 2017Notes payable(a) 4,191,102,993.342,805,804,600.41Accounts payable(b)
3,788,624,122.683,827,025,700.10Total
7,979,727,116.026,632,830,300.51
(a) Notes payable(i) List of notes payable
Item 31 December 2018 31 December 2017Bank acceptance bill
4,191,102,993.342,805,804,600.41
At the end of the year, there was no balance of notes payable that had not been paid.(b) Accounts payable(i) List of accounts payable
Item 31 December 2018 31 December 2017Material 3,764,255,584.193,803,318,504.56Others
24,368,538.4923,707,195.54Total
3,788,624,122.683,827,025,700.10
(ii) Significant accounts payable over one year
Item 31 December 2018 Reason for over one yearMaterial 63,380,565.96Contract expiration has not yet come
(19) Advances from customers
(a) List of advances from customers
Item 31 December 2018 31 December 2017Advance from customers 2,024,945,754.253,065,815,801.93
(b) Significant advance from customers over one year
Item 31 December 2018 Unpaid/ Un-carry-over reasonAdvances from customers 46,186,596.00The project is under processing
(20) Payroll liabilities
(a) List of payroll liabilities
Item 31 December 2017Increase Decrease 31 December 2018Short-term employee benefit payable 320,914,272.911,406,570,521.271,365,853,624.87 361,631,169.31Defined contribution plans payable 25,775,609.10157,623,201.37155,289,142.90 28,109,667.57Termination benefits payable 2,793,962.7519,569,372.1318,106,119.30 4,257,215.58Total 349,483,844.761,583,763,094.771,539,248,887.07 393,998,052.46
(b) List of short-term employee benefit payable
Item 31 December 2017Increase Decrease 31 December 20181. Salary, bonus, allowance and subsidies 282,471,135.341,133,051,079.16-1,103,115,048.01 312,407,166.492. Employee welfare 8,331,772.70111,046,934.96-102,603,405.22 16,775,302.443. Social insurance 12,297,766.4379,830,229.04-79,069,435.09 13,058,560.38-Medical insurance 9,960,643.8064,608,271.86-63,686,148.12 10,882,767.54-Employment injury insurance 1,540,246.239,755,337.33-10,047,203.66 1,248,379.90-Maternity insurance 796,876.405,466,619.85-5,336,083.31 927,412.944. Housing fund 8,897,498.0558,896,031.56-57,798,721.93 9,994,807.685. Labor union funds and employee
education fee
8,916,100.3923,746,246.55-23,267,014.62 9,395,332.32Total 320,914,272.911,406,570,521.27-1,365,853,624.87 361,631,169.31
As at 31 December 2018, there were no overdue balance. The balance will be settled in 2019.(c) Defined contribution plans
Item 31 December 2017Increase Decrease 31 December 2018Pension 24,835,787.74153,613,574.46-151,247,819.45 27,201,542.75
Unemployment insurance 939,821.364,009,626.91-4,041,323.45 908,124.82Total 25,775,609.10157,623,201.37-155,289,142.90 28,109,667.57
(d) Termination benefits payable
Item 31 December 2018 31 December 2017Early retirement benefits payable 1,972,215.582,793,962.75Other termination benefits (i) 2,285,000.00-Total 4,257,215.582,793,962.75
(21) Taxes payable
Item 31 December 2018 31 December 2017Corporate income ta x 480,480,551.80538,655,891.42VAT 19,278,303.6743,514,198.41City maintenance and construction tax 5,060,335.3610,431,895.61Education surcharge 3,924,525.267,895,593.79Others 50,875,513.91 37,519,944.08Total 559,619,230.00638,017,523.31
(22) Other payables
Item 31 December 2018 31 December 2017Dividends payable(a) 9,049,503.926,996,784.06Other payables(b) 166,213,763.65221,120,863.48Total 175,263,267.57228,117,647.54
(a) Dividends payable
Item 31 December 2018 31 December 2017Dividends to ordinary shareholders 9,049,503.926,996,784.06Total 9,049,503.926,996,784.06
(b) Other payables(i) Other payables listed by nature
Item 31 December 2018 31 December 2017Payment for equipment 71,641,381.04119,000,776.50Payment for moulds 36,862,309.0466,898,435.10Energy efficiency rebate -6,140,000.00Collection 7,145,046.775,278,489.39Advances 1,928,571.353,831,550.67Deposits 28,032,371.553,027,766.49
Others 20,604,083.9016,943,845.33Total 166,213,763.65221,120,863.48
(ii) Significant other payables over one year
Item 31 December 2018 Unpaid/ Un-carry-over reasonPayment for equipment 21,250,955.36Contracts expiration has not yet comePayment for moulds 19,631,685.97Contracts expiration has not yet comeTotal 40,882,641.33--
(23) Other current liabilities
Item 31 December 2018 31 December 2017Accrued sale rebate 1,328,293,712.381,190,189,575.45Accrued maintenance and installation costs 439,653,805.88312,536,901.29Accrued sales promotion fees 363,905,275.39276,458,030.09Accrued transportation fee 209,300,910.12169,965,392.33Accrued household electrical appliancesrecycling fund
-15,637,977.00Accrued trademark royalty charges 2,804,104.70-Others 163,925,444.72142,912,728.45Total 2,507,883,253.192,107,700,604.61
(24) Long-term employee benefits payable
Item 31 December 2018 31 December 2017Early retirement benefits payable 11,860,988.2914,815,582.92Less：Payable within one year-1,972,215.58-2,793,962.75Total 9,888,772.7112,021,620.17
The employee benefits payable within one year are included in employee benefits payable.
(25) Provisions
Item31 December 2018 31 December 2017CausesQuality guarantee deposits 1,853,074.622,253,082.25Quality guarantee depositsTotal 1,853,074.622,253,082.25--
(26) Deferred income
Item 31 December 2017 Addition Decrease 31 December 2018 CausesDeferred income-related to assets/income
2,489,133.21 37,640,000.00653,200.0439,475,933.17 Related to assets/incomeTotal 2,489,133.21 37,640,000.00653,200.0439,475,933.17 --
(27) Share capital
31 December
2017
Increase/decrease (+/-)
31 December
2018New shares
issued
Bonusshares
Shares transferredfrom capital surplus
Others SubtotalThe sum of shares 632,487,764.00 ----- 632,487,764.00
(28) Capital surplus
Item 31 December 2017 Increase Decrease 31 December 2018Share premium 1,055,182,718.57-- 1,055,182,718.57Other capital surplus 197,764,828.2377,703,279.33- 275,468,107.56-Share options (a) 163,325,332.3777,703,279.33- 241,028,611.70-Others 34,439,495.86-- 34,439,495.86Total 1,252,947,546.8077,703,279.33- 1,330,650,826.13
Item 31 December 2016 Increase Decrease 31 December 2017Share premium 1,055,182,718.57 -- 1,055,182,718.57Other capital surplus 136,307,414.4461,953,091.84-495,678.05 197,764,828.23-Share options (a) 101,372,240.5361,953,091.84- 163,325,332.37-Others (b) 34,935,173.91--495,678.05 34,439,495.86Total 1,191,490,133.0161,953,091.84-495,678.05 1,252,947,546.80
(a) In 2018, the equity incentive increased the capital reserve of RMB 77,703,279.33 (2017: RMB61,953,091.84 )., which is the corresponding capital reserve of the Midea Group granted to the employees of theCompany and its subsidiaries.(29) Other comprehensive income
Item
31 December
2017
Increase/decrease in the year
31 December
2018Amountfor the
yearbefore
tax
Less: previously
recognized inother comprehensiveincome transferred to
profit or loss
this year
Less: Incometax expense
Attributable tothe Company’s
ownersafter tax
Attributable to
the minorityinterest after
taxItems that may besubsequently reclassifiedinto profits or losses
40,496,366.85 - -57,871,097.598,680,664.64-42,702,467.06 -6,478,581.63-2,206,100.21-change in fair value of
available-for-sale
42,711,851.32- -57,871,097.598,680,664.64-42,711,851.32 -6,478,581.63-
financial assets-currency translation
differences
-2,215,484.47- --9,384.26 --2,206,100.21Total 40,496,366.85- -57,871,097.598,680,664.64-42,702,467.06 -6,478,581.63-2,206,100.21
Item
31 December
2016
Increase/decrease in the year
31 December
2017Amount for theyear before tax
Less: previously
recognized in
othercomprehensive
incometransferred toprofit or loss
this year
Less: Incometax expense
Attributable tothe Company’s
ownersafter tax
Attributable to
the minorityinterest after
taxItems that may besubsequently reclassifiedinto profits or losses
70,757,524.6157,856,006.59-104,142,671.246,940,736.04-30,261,157.76 -9,084,770.8540,496,366.85-change in fair value of
available-for-salefinancial assets
72,957,918.0857,871,097.59-104,142,671.246,940,736.04-30,246,066.76 -9,084,770.8542,711,851.32-currency translation
differences
-2,200,393.47-15,091.00---15,091.00 --2,215,484.47Total70,757,524.6157,856,006.59-104,142,671.246,940,736.04-30,261,157.76 -9,084,770.8540,496,366.85
(30) Surplus reserve
Item 31 December 2017 Increase Decrease 31 December 2018Statutory surplus reserves 332,594,722.29-- 332,594,722.29
In accordance with the Company Law of the PRC, the Company’s Articles of Association, 10% of net profitshould be made to the statutory surplus reserve, after offsetting accumulated losses from prior years, unless theaccumulated statutory surplus reserve reaches 50% of the share capital. Statutory surplus reserve can be used tomake up losses or to increase share capital. At the end of 2018 and 2017, there is no appropriation to the statutorysurplus reserve as the Company’s accumulated statutory surplus reserve has already reached 50% of the sharecapital.
(31) Retained earnings
Item Year ended 31 December 2018 Year ended 31 December 2017
31 December 2017 4,788,564,401.033,756,517,718.81Add: Profit distribution to equity owners 1,862,458,658.291,506,412,505.22Less: Statutory surplus reserve --
Dividends to ordinary shareholders -632,487,764.00-474,365,823.0031 December 2018 6,018,535,295.324,788,564,401.03
Pursuant to the resolution of general meeting of shareholders on 11 April 2018, cash dividends of RMB632,487,764.00 (RMB 1.00 per share) was paid based on the issued shares of 632,487,764.Pursuant to the resolution of board of directors on 14 March 2019, proposal of paying cash dividends of RMB2,529,951,056.00 (RMB 4.00 per share) based on the issued shares of 632,487,764 has been put forward and yetto be approved by the general meeting of shareholders. (Note XVII(1))During the year ended 31 December 2018, statutory surplus reserve of RMB 42,182,749.72 was made fromretained earnings of the Company’s subsidiary Hefei Midea Washing Machine Co., Ltd (2017: RMB29,747,735.36).(32) Revenue and cost of sales
Item
Year ended 31 December 2018 Year ended 31 December 2017Sales revenue Cost of sales Sales revenue Cost of salesMain operations 21,692,952,459.61 15,584,261,291.42 19,469,125,226.23 14,208,417,615.09Other operations 1,943,977,018.72 1,859,786,692.39 1,915,573,850.42 1,774,476,043.75Total 23,636,929,478.33 17,444,047,983.8121,384,699,076.65 15,982,893,658.84
(33) Other operating income and expenses
Item
Year ended 31 December 2018 Year ended 31 December 2017Other operating
income
Other operating
expenses
Other operating
income
Other operating
expensesSales of materials 1,854,340,946.23 1,833,374,789.871,851,646,327.57 1,750,661,648.85Others89,636,072.49 26,411,902.5263,927,522.85 23,814,394.90Total
1,943,977,018.72 1,859,786,692.391,915,573,850.42 1,774,476,043.75
(34) Taxes and surcharges
Item Year ended 31 December 2018 Year ended 31 December 2017City maintenance and construction tax 61,328,450.8460,374,588.37Education surcharge 47,779,483.6746,074,508.07Other 22,580,597.1625,342,380.68Total 131,688,531.67131,791,477.12
(35) Selling and distribution expenses
Item Year ended 31 December 2018 Year ended 31 December 2017Selling and distribution expenses 3,351,676,000.522,872,849,586.14
In 2018, selling and distribution expenses mainly include promotion expenses, transportation and storageexpenses, employee wages and benefits, maintenance and installation expenses and after-sales service expenses,which accounts for over 90% of the total selling expenses (2017: over 90%).(36) General and administrative expenses
Item Year ended 31 December 2018 Year ended 31 December 2017General and administrative expenses 181,699,829.11177,543,281.44
In 2018 , general and administrative expenses mainly include employee wages and benefits as well as depreciationand amortization costs, which account for over 80% of general and administrative expenses (2017: over 80%).(37) Research and development expenses
Item Year ended 31 December 2018 Year ended 31 December 2017Research and development expenses 733,045,215.90550,779,796.27
(38) Finance income - net
Item Year ended 31 December 2018 Year ended 31 December 2017Interest expenses -82,506,900.84-43,471,999.43Interest income 559,310,635.71195,433,894.48Exchange gain/loss 65,268,526.38-70,731,617.24Other financial expenses -10,342,550.39-9,421,295.01Total 531,729,710.8671,808,982.80
(39) Asset impairment losses
Item Year ended 31 December 2018 Year ended 31 December 2017Provision for bad debts 10,583,197.3215,999,683.89Provision for inventory 38,985,983.0848,820,008.65Provision for fixed assets 834,296.775,776,183.11Total 50,403,477.1770,595,875.65
(40) Profit or loss arising from changes in fair value
Item Year ended 31 December 2018Year ended 31 December 2017Forward foreign exchange contract -8,349,116.985,270,238.03
(41) Investment Income
Item Year ended 31 December 2018Year ended 31 December 2017
Income from available-for-sale financial assets 119,089,774.76302,938,888.22Income from disposal of financial assets at fairvalue through profit or loss
729,335.0117,684,575.01Total 119,819,109.77320,623,463.23
There is no significant restriction on the remittance of investment income to the Company and its subsidiaries(42) Gain or loss on disposal of assets
Item
Year ended 31December 2018
Year ended 31December 2017
Non-recurring gain or lossGain or loss on disposal of fixed assets13,137,087.29-975,423.0013,137,087.29
(43) Other income
Item
Year ended 31December 2018
Year ended 31December 2017
Asset-related/Income-relatedOther income related to assets/income 60,261,970.4853,894,074.25Asset-related/Income-related
(44) Non-operating income
Item Year ended 31 December 2018Year ended 31 December 2017Non-recurring gain or lossNon-operating income 20,434,056.1017,448,715.8420,434,056.10
(45) Non-operating expenses
Item Year ended 31 December 2018Year ended 31 December 2017Non-recurring gain or lossExternal donation 80,000.00693,420.0080,000.00Others 2,163,270.24927,088.982,163,270.24Total 2,243,270.241,620,508.98 2,243,270.24
(46) Income tax expenses
(a) Income tax expenses
Item Year ended 31 December 2018 Year ended 31 December 2017Current income tax 359,609,597.25456,606,366.97Deferred income tax -11,446,539.92-100,331,709.36Total 348,163,057.33356,274,657.61
(b) Reconciliation
Item
Year ended31 December 2018
Year ended31 December 2017Total profit 2,479,157,987.43 2,064,694,943.36Income tax expenses calculated at applicable tax rates 371,389,738.85 365,838,075.61
Adjusted income tax of prior year 2,283,020.72 1,708,054.23Effect of change in the tax rates - -1,454,532.93Costs, expenses and losses not deductible for tax purposes 12,686,245.00 10,783,709.89Utilisation of previously unrecognised deductable temporary differences - -640.51
Item
Year ended31 December 2018
Year ended31 December 2017Deductable temporary differences and tax losses for which no deferred taxasset was recognised
1,192,552.76 129,991.32Plus deduction for research and development expenses -39,388,500.00 -20,730,000.00Income tax expense 348,163,057.33 356,274,657.61
(47) Earnings per share
(a) Basic ea rnings per shareBasic earnings per share is calculated by dividing the consolidated net profit attributable to shareholders of theCompany by the weighted average number of ordinary shares in issue:
Item
Year ended31 December 2018
Year ended31 December 2017Consolidated net profit attributable to shareholders of the Company
1,862,458,658.29 1,506,412,505.22Weighted average number of ordinary shares in issue
632,487,764.00 632,487,764.00Basic earnings per share
2.94 2.38
(b) Diluted earnings per shareDiluted earnings per share is calculated by dividing the consolidated net profit attributable to shareholders of theCompany adjusted based on the dilutive potential ordinary shares by the adjusted weighted average number ofordinary shares in issue. There were no dilutive potential ordinary shares in 2018 (2017: nil). Therefore, dilutedearnings per share equal to basic earnings per share.(48) Notes to consolidated cash flow statement(a) Cash received relating to other operating activities
Item Year ended 31 December 2018 Year ended 31 December 2017Interest income 35,049,629.6466,042,642.09Others 97,593,075.1648,148,468.31Total 132,642,704.80114,191,110.40
(b) Cash paid relating to other operating activities
Item Year ended 31 December 2018Year ended 31 December 2017
Expenses 471,126,854.52405,943,801.31Others 126,416,929.02118,116,052.83Total 597,543,783.54524,059,854.14
(c) Cash received relating to other investing activities
Item Year ended 31 December 2018Year ended 31 December 2017Interest income of structured deposits 371,593,335.6191,904,332.38
(49) Supplementary information of cash flow statements(a) Supplementary information of cash flow statements
Year ended 31 December 2018Year ended 31 December 20171. Reconciliation of net profit to cash flows from operatingactivities:
Net profit 2,130,994,930.101,708,420,285.75Add：Provision for asset impairment50,403,477.1770,595,875.65Depreciation of fixed assets and amortization ofinvestment properties
175,607,344.50143,088,037.37Gains/Losses on disposal of fixed assets, intangible assetsand other long-term assets
-13,137,087.29975,423.00Gains/Losses on the changes in fair value 8,349,116.98-5,270,238.03Financial income, net -517,679,233.62-76,642,204.57Investment income -119,819,109.77-320,623,463.23Increase in deferred income tax assets -11,446,539.92-100,331,709.36Amortization of deferred incomes 36,986,799.96-453,200.04Increase/Decrease of inventory 187,183,063.53-304,748,260.10Increase/Decrease in operating receivables 27,565,918.69-339,961,965.35Increase in operating payables 588,946,162.231,176,210,825.71Share-based payments 80,937,978.5764,494,411.50Net cash flows from operating activities 2,624,892,821.132,015,753,818.302. Significant investing and financing activities that do notinvolve cash receipts and payments
--3. Movement in cash and cash equivalents :
Cash at the end of the year 1,713,233,957.391,417,489,071.71Less: Cash at the beginning of the year 1,417,489,071.714,171,689,917.21Net increase/decrease in cas h and cas h equivalents 295,744,885.68-2,754,200,845.50
(b) Cash and cash equivalents
31 December 2018 31 December 2017Cash 1,713,233,957.391,417,489,071.71Including: Cash at hand --Cash on bank 1,713,233,957.391,417,489,071.71Ending balance of cash 1,713,233,957.391,417,489,071.71
(50) Foreign currency monetary items(a) Foreign currency monetary items
31 December 2018Item Foreign currency balanceExchange rate RMB balanceCash at bank & on hand 372,285,919.55
-USD 52,271,646.476.8632 358,750,764.05-EUR 1,724,816.887.8473 13,535,155.50Accounts receivable, notes receivable and other receivables 916,488,166.34
-USD 121,923,285.686.8632 836,783,894.27-EUR 10,153,918.287.8473 79,680,842.92-JPY 378,500.000.0619 23,429.15Accounts payable, notes payable and other payables 14,479,409.75
-USD 1,159,427.846.8632 7,957,385.15-EUR 803,295.347.8473 6,303,699.52-JPY 3,527,061.000.0619 218,325.08
Monetary items listed above are referred to as currencies other than RMB (which is different from the foreigncurrency items designated in Notes XI(1)(a)).(b) Explanation of oversea operating entities, including important oversea operating entities, shoulddisclose the principal places of business, the bookkeeping base currency and the reason of selection, and thecauses if the bookkeeping base currency changes.□Applicable √Not appli cableVIII. Changes in consolidation scopeIn 2018, there is no change in the Group’s consolidation scope.
IX. Equity interests in other entities(1) Equity interests in subsidiaries(a) Components of the Company and its subsidiaries
Name
Place ofbusiness
Place ofregistration
Principleactivities
% of ownership
interest
Acquired byDirectlyIndirectlyWuxi Little Swan General ElectricAppliances Co. , Ltd.WuxiWuxi
Manufacture
100.00%
Establishment or
InvestmentWuxi Filin Electronics Co. , Ltd.
WuxiWuxiManufacture73.00%
Establishment or
InvestmentJiangsu Little Swan Marketing and SalesCo. , Ltd.
WuxiWuxiMarketing99.54%0.09%
Establishment or
InvestmentWuxi Little Swan Import & Export Co. ,Ltd.
WuxiWuxi
Import and
export
88.46%
Establishment or
InvestmentLittle Swan International (Singapore) Co.,Ltd.
SingaporeSingaporeInvesting100.00%
Establishment or
InvestmentLittle Swan (Jing Zhou) Sanjin ElectronicAppliances Limited
JingzhouJingzhouManufacture100.00%
Business merger under
common controlHefei Midea Washing Machine Co., Ltd. HefeiHefeiManufacture69.47%
Business merger under
common control
(b) Subsidiaries with significant minority interests
Name
% of shares held byminority shareholders
Minority interests in
the year
Dividends declared tominority shareholders
Minority interests at31 December 2017Wuxi Filin Electronics Co. , Ltd. 27.00%83,155,625.65- 356,622,343.58Hefei Midea Washing Machine Co., Ltd. 30.53%185,325,283.81- 1,079,821,895.62
(c) The main financia l information of significant not wholly owned subsidiary
Name 31 December 2018 31 December 2017
Current assets
Non-current
assets
Total assets Current liabilities
Non-current
liabilities
Total liabilities Current assets
Non-current
assets
Total assets Current liabilities
Non-current
liabilities
Total liabilitiesWuxi FilinElectronicsCo. , Ltd.
1,954,812,978.39 82,881,486.702,037,694,465.09716,818,370.3452,600.00716,870,970.341,596,854,617.3164,932,264.88 1,661,786,882.19 654,497,661.11155,800.00654,653,461.11Hefei MideaWashingMachineLimited.
8,189,539,097.62 734,162,005.268,923,701,102.885,368,318,150.5918,280,895.395,386,599,045.987,918,309,471.76742,917,514.76 8,661,226,986.52 5,702,514,412.6413,146,938.825,715,661,351.46
Name
Year ended 31 December 2018 Year ended 31 December 2017
Sales
Net profit
Total comprehensive income
Net cash flow from operating
activities
Sales Net profit
Total comprehensive
income
Net cash flow fromoperating activitesWuxi Filin ElectronicsCo. , Ltd.
1,270,462,021.79307,983,798.72307,983,798.7237,472,051.261,144,987,638.37 263,982,689.50 263,982,689.50-12,535,534.97
Hefei Midea WashingMachine Limited.
11,328,943,815.47607,208,143.34585,987,764.77-57,117,295.999,379,833,276.67 428,209,807.98 400,076,520.10750,894,134.08
(2) Interests in associate or joint venturesThere is no interests in associates or joint ventures occurred in the year ended of 2018.X. Segment reportingSales, expenses, assets and liabilities of the Company and its subsidiaries are primarily attributable tomanufacturing and sales of washing machines and related products. No segment information of the Company andits subsidiaries is presented considering the internal organization and management structure, the system of internalfinancial reporting to key management personnel, and similar business nature among various subsidiaries in theGroup.The domestic and overseas sales transaction and non-current assets excluding financial assets and deferred taxasset are as follows:
(a) Sales transactions
31 December 2018 31 December 2017China18,739,863,208.9317,114,743,424.78Other countries4,897,066,269.404,269,955,651.87Total23,636,929,478.3321,384,699,076.65
(b) Non-current assets
31 December 2018 31 December 2017China1,441,069,022.291,366,095,738.76Other countries--Total
1,441,069,022.291,366,095,738.76
XI. Risk related to financial instrumentsThe Company and its subsidiaries' activities are exposed to a variety of financial risks: market risk (primarilyforeign exchange risk and interest rate risk), credit risk and liquidity risk. The Company and its subsidiaries'overall risk management program focuses on the unpredictability of financial markets and seeks to minimizepotential adverse effects on the Company and its subsidiaries' financial performance.
(1) Market risk
(a) Foreign exchange riskThe Company and its subsidiaries' major operations are carried out in Mainland China and majority of itstransactions are denominated in RMB. The Company and its subsidiaries’ recognized assets and liabilitiesnominated in foreign currencies and future foreign currency transactions (mostly USD) are exposed to foreign
exchange risk. Financial department in the Group’s headquarter is in charge of monitoring foreign currencytransactions and the scale of foreign currency assets and liabilities of the Company and its subsidiaries, thusminimize the exposure to foreign exchange risk. Therefore, the Company and its subsidiaries may enter intoforeign exchange agreement or currency swap contract to hedge foreign exchange risk. In the year ended 2018and 2017, foreign exchange agreement was signed by the Company and its subsidiaries to hedge foreignexchange risk .The following table presents the structure analysis of the Company and its subsidiaries’ financial assets andfinancial liabilities by currencies as at 31 December 2018 and 31 December 2017:
Item
31 December 2018USD Other TotalFinancial assets denominated in foreign currencyCash at bank and on hand358,277,401.6013,535,155.50 371,812,557.10Accounts receivables and notes receivables836,356,788.6279,704,272.07 916,061,060.69Other receivables427,105.65- 427,105.65Total1,195,061,295.8793,239,427.57 1,288,300,723.44Financial liabilities denomina ted in foreign currency-- -Accounts payables and notes payables7,957,385.152,701,958.96 10,659,344.11Other payables-3,820,065.64 3,820,065.64Total7,957,385.156,522,024.60 14,479,409.75
Item
31 December 2017USD Other TotalFinancial assets denominated in foreign currency
Cash at bank and in hand191,071,173.1214,916,914.11 205,988,087.23Accounts receivables and notes receivables531,578,236.1376,367,051.71 607,945,287.84Total
722,649,409.2591,283,965.82 813,933,375.07Financial liabilities denomina ted in foreign currency
Accounts payables and notes payables36,668,878.796,033,971.28 42,702,850.07Other payables-37,060,925.00 37,060,925.00Total36,668,878.7943,094,896.28 79,763,775.07
As at 31 December 2018, if the RMB had strengthened/weakened by 5% against the USD while all other variableshad been held constant, the Company and its subsidiaries’ net profit for the year would have been approximatelyRMB 50,470,000, (as at 31 December 2017: approximately RMB 29,150,000) lower/higher for various financialassets and liabilities denominated in USD.(b) Interest rate risk
As at 31 December 2018 and 31 December 2017, there is no any short-term or long-term interest bearingborrowings issued at floating rates in the Company and its subsidiaries. The Company and its subsidiaries expectthat there is no significant interest rate risk.
(2) Credit risk
Credit risk is managed on a grou p basis. Credit risk mainly arises from cash at bank, accounts receivables, otherreceivables, notes receivables, other current assets-structured deposits and financial products, etc.The Company and its subsidiaries expect that there is no significant credit risk associated with cash at bank andstructured deposits since they are deposited at state-owned banks and other medium or large size listed banks.Management does not expect that there will be any significant losses from non-performance by thesecounterparties.The Company and its subsidiaries authorized commercial bank, trust company, asset management company andother financial agencies to conduct short-term investment finance, such as bank financial products, trust plan oftrust company and assets management plan of assets management company, whose investment orientations aremainly on financial instruments with high market credit rating among banks in China as well as fine liquidity andtrust product assets management plan with estimated earnings, including but not limited to commercial bank’sfinancial products, which have low risk, stable return and an investment period within one year. The Company andits subsidiaries' idle funds which are authorized to finance won’t be invested in stock and its derivative products,securities investment funds, entrusted financial products aimed at security investment and other investment relatedto securities.In addition, the Company and its subsidiaries have policies to limit the credit exposure on accounts receivables,other receivables and notes receivables. The Company and its subsidiaries assess the credit quality of and setscredit limits on its customers by taking into account their financial position, the availability of guarantee fromthird parties, their credit history and other factors such as cu rrent market conditions. The credit history of thecustomers is regularly monitored by the Group. In respect of customers with a poor credit history, the Companyand its subsidiaries will use written payment reminders, or shorten or cancel credit periods, to ensure the overallcredit risk of the Company and its subsidiaries is limited to a controllable extent. There are no significant expiredreceivables at 31 December 2018 (2017: Nil).
(3) Liquidity risk
Cash flow forecasting is performed by the Company and its subsidiaries and aggregated by the Group’s financedepartment in its headquarters. The Group’s finance department in headquarter monitors rolling forecasts on the
Company and its subsidiaries’ short-term and long-term liquidity requirements to ensure it has sufficient cash andsecurities that are readily convertible to cash to meet operational needs.The financial liabilities of the Company and its subsidiaries at the balance sheet date are analysed by theirmaturity date below at their undiscounted contractual cash flows:
Item
31 December 2018Within 1 year 1 to 2 years2 to 5 yearsOver 5 years TotalShort-term borrowings117,603,683.89--- 117,603,683.89Notes and accounts payables7,979,727,116.02--- 7,979,727,116.02Other current liabilities
2,507,883,253.19--- 2,507,883,253.19Other payables
175,263,267.57--- 175,263,267.57Provisions1,853,074.62--- 1,853,074.62Total10,782,330,395.29--- 10,782,330,395.29Item
31 December 2017Within 1 year 1 to 2 years2 to 5 yearsOver 5 years TotalShort-term borrowings 81,393,672.34--- 81,393,672.34Notes and accounts payables6,632,830,300.51--- 6,632,830,300.51Other current liabilities
2,107,700,604.61---2,107,700,604.61Other payables
228,117,647.54---228,117,647.54Provisions
2,253,082.25---2,253,082.25Total
9,052,295,307.25---9,052,295,307.25
XII. Fair value disclosure(1) Closing balance of assets and liabilities measured at fair valueBased on the lowest level input that is significant to the fair value measurement in its entirety, the fair valuehierarchy has the following levels:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability,either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3: Inputs for the assets or liabilities that are not based on observable market data (that is,unobservableinputs).The fair value of a financial instrument that is traded in an active market is determined at e quoted price in theactive market. The fair value of a financial instrument for which the market is not active is determined by using avaluation technique. Valuation techniques include cash flow discount model and market comparable companymodel. The input of valuation techniques mainly include risk free rate, expected exchange rate, estimated annual
yield, etc.
Item
31 December 2018Level 1Level 2 Level 3 TotalAssets measured at fair value on a continuous basisFinancial liabilities at fair value through profit or loss –forward foreign exchange contract
--3,078,878.95- -3,078,878.95Available-for-sale financial assets-financial products --- -
Item
31 December 2017Level 1Level 2 Level 3 TotalAssets measured at fair value on a continuous basisAvailable-for-sale financial assets-financial products -5,270,238.03- 5,270,238.03Available-for-sale financial assets-financial products 3,792,871,097.59 3,792,871,097.59
(2) Valuation technique and qualitative and quantitative information of significant parameter used byinstruments measured at fair value by Level 2 and Level 3 on a continuous basisAs at 31 December 2018, the Company and its subsidiaries’ financial assets measured at fair value by Level 2 areforward exchange agreement. The fair value is determined by observable forward exchange rate in current market.As at 31 December 2018, the Company and its subsidiaries don’t hold financial assets measured at fair value byLevel 3. At 31 December 2017, the Company and its subsidiaries’ financial assets measured at fair value by Level3 are financial products of floating income and unprotected principles, which fair value is determined viavaluation techniques by the Group.(3)Reasons of conversion among levels and policies of determining conversion date of instrumentsmeasured at fair value on a continuous basisThe Company and its subsidiaries consider the date of events leading the conversion between different levels asthe conversion recognizing da te. In 2018, there was no conversion between Level 1 and Level 2.(4) The movement of financial assets measured at fair value by Level 3
Item Financial product investments1 January 20183,792,871,097.59Purchase-Disposal-3,735,000,000.00Total gains in current year-57,871,097.59- attributable to profit or loss-57,871,097.59- attributable to other comprehensive income-
31 December 2018-
Item Financial product investments1 January 20175,994,142,671.24Purchase4,745,000,000.00Disposal-6,900,000,000.00Total gains in current year-46,271,573.65- attributable to profit or loss-104,142,671.24- attributable to other comprehensive income57,871,097.5931 December 20173,792,871,097.59
The relevant information of financial assets measured at fair value by Level 3 are below:
Item
Fair value at 31December 2018
Valuationtechnique
Non-observable
Input
Range
Relationshipwith fair value
Observable/unobservableAvailable-for-sale financial assets
- Financialproducts
-
Discountcash flow
Estimated annual
yield
4.20%-5.25%
Moves in the
same direction
unobservable
Item
Fair value at 31December 2017
Valuationtechnique
Non-observable
Input
Range
Relationship
with fair value
Observable/unobservableAvailable-for-salefinancial assets
- Financialproducts
3,792,871,097.59
Discountcash flow
Estimated annual
yield
4.20%-5.25%
Moves in the
same direction
unobservable
(5) Financial assets and liabilities not measured at fair valueFinancial assets and liabilities measured at amortized cost mainly include: notes receivables, accounts receivables,other current assets-structured deposits, other receivables, notes payables, accounts payables, other payables andother current liabilities.Available-for-sale financial assets measured in cost model are investments on shares of unlisted companies, whichhave no quoted price in the active market and the range of reasonable estimation of their fair value is relativelywide and probabilities used to determine the estimation cannot be ascertained reasonably. Therefore, the fairvalues cannot be measured reliably.
The carrying amount of financial assets and liabilities not measured at fair value is a reasonable approximation of theirfair value at 31 December 2018 and 31 December 2017.XIII. Capital managementThe Company and its subsidiaries’ objectives of managing capital policies are to safeguard the Company and itssubsidiaries’ ability to continue operating, in order to provide returns for shareholders and benefits for otherstakeholders and to maintain an optimal capital structure to reduce the cost of capital.In order to maintain or adjust the capital structure, the Company and its subsidiaries may adjust the amount ofdividends paid to sharehol ders, return capital to shareholders, issue new shares or sell assets to reduce debt.The Company and its subsidiaries is not subject to external mandatory capital requirements, and monitors capitalon the basis of gearing ratios.
Item 31 December 2018 31 December 2017Gearing ratios 58.63%61.49%
XIV. Related parties and related party transactions(1) Parent company of the Company
Name Place of registration Nature of business Registered Capital
% of share
holding
% of voting
rightsMidea GroupCo., Ltd.
Foshan, Guangdong
Manufacture and sales of householdappliances and fittings, robot and robotizationsystem, financial service, etc.
6,663,030,506.00 52.67%52.67%
(2) Registered capital and changes in registered capital of the parent company
Name 31 December 2017 Increase Decrease 31 December 2018Midea Group Co., Ltd 6,561,053,319.00103,679,021.001,701,834.00 6,663,030,506.00
(3) The percentage of shareholding and voting rights in the Company held by the parent
Name
31 December 2018 31 December 2017% of share holding % of voting right % of share holding % of voting rightMidea Group Co., Ltd. 52.67% 52.67% 52.67% 52.67%
(4) Subsidiaries of the CompanyFor the detailed information of subsidiaries, please refer to Note IX.
(5) Associates and joint ventures of the CompanyUp to 31 December 2018, there is no associate or joint venture of the Company and its subsidiaries.
(6) Other related parties
Name Relationship with the Company and its subsidiariesNingbo Midea United Supply Limited Controlled by controlling shareholders of the CompanyNingbo Meimei Garden Appliance service Limited Controlled by controlling shareholders of the CompanyMidea E-business Limited Controlled by controlling shareholders of the CompanyZhejiang Meiz hi Compre ssor L imi ted Controlled by controlling shareholders of the CompanyGuangdong Midea Hicks Electronics Limited Controlled by controlling shareholders of the CompanyGuangdong Midea Precision Mold Technology Co., Ltd. Controlled by controlling shareholders of the CompanyMidea W isdom Household Technology Co., Ltd. Controlled by controlling shareholders of the CompanyHefei Hualing Co., Ltd. Controlled by controlling shareholders of the CompanyWuhu Midea Household Appliances Manufacture Limited Controlled by controlling shareholders of the CompanyMidea Appliance (Singapore)Trading Limited Controlled by controlling shareholders of the CompanyMIDEA SCOTT & ENGLISH ELECTRONICS SDN BHD Controlled by controlling shareholders of the CompanyMIDEA CONSUMER ELECTRIC (VIETNAM) CO., LTD Controlled by controlling shareholders of the CompanyPT. MIDEA PLANET INDONESIA Controlled by controlling shareholders of the CompanyORIENT HOUSEHOLD APPLIANCCES LTD. Controlled by controlling shareholders of the CompanyHefei Midea Materials Supply Co., Ltd. Controlled by controlling shareholders of the CompanyGuangdong Midea Consumer Electric Manufacturing Co., Ltd. Controlled by controlling shareholders of the CompanyGuangdong Midea Refrigeration Equipment Limited Controlled by controlling shareholders of the CompanyGuangdong Midea Group Wuhu Refrigeration Equipment Co., Ltd. Controlled by controlling shareholders of the CompanyHubei Midea Refrigerator Limite d Controlled by controlling shareholders of the CompanyHefei Midea Refrigerator Co., Ltd. Controlled by controlling shareholders of the CompanyGuangdong Midea Environmental Equipment Limited Controlled by controlling shareholders of the CompanyMidea Group Finance Co., Ltd.
Controlled by controlling shareholders of the CompanyFoshan Midea Micro Filter Equipment Manufacture Co., Ltd
Controlled by controlling shareholders of the CompanyNingbo Andhra Logistics Co., Ltd.
Controlled by controlling shareholders of the CompanyWuhu Midea Kitchen Electrical Appliance Manufacture Co., Ltd.
Controlled by controlling shareholders of the CompanyGuangdong Midea White Household Appliance Technology InnovationCenter Co., Ltd.
Controlled by controlling shareholders of the CompanyFoshan Midea Clear Lake Water Purification Equipment ManufacturingCo., Ltd.
Controlled by controlling shareholders of the Company
Name Relationship with the Company and its subsidiariesWuhu Welling Motor Sales Co., Ltd. Controlled by controlling shareholders of the CompanyHuai‘an Weiling motor manufacture Limited Controlled by controlling shareholders of the CompanyMidea Welling Motor Technology (Shanghai) Co., Ltd Controlled by controlling shareholders of the CompanyShenzhen Midea Payment Technology Co., Ltd Controlled by controlling shareholders of the CompanyAndhra Logistics Corporation Controlled by controlling shareholders of the CompanyTOSHIBA LIFESTYLEPRODUCTS&SERVICES CORPORATION
Controlled by controlling shareholders of the CompanyTOSHIBA Household Appliances Manufacturing (Nanhai) Limited Controlled by controlling shareholders of the CompanyMidea Group Wuhan Refrigerator Equipment Manufacturing Co., Ltd Controlled by controlling shareholders of the CompanyMIDEA MIDDLE EAST Controlled by controlling shareholders of the CompanyWuhu Midea Kitchen and Bath Appliances Manufacturing Co., Ltd Controlled by controlling shareholders of the CompanyGuangzhou Hualing Refrigeration Equipment Co., Ltd Controlled by controlling shareholders of the CompanyMIDEA AUSTRALIA PTY LTD Controlled by controlling shareholders of the CompanyCARRIER MIDEA INDIA PRIVATE LIMITED Controlled by controlling shareholders of the CompanyMIDEA ELECTRIC TRADING (THAILAND) CO., LTD. Controlled by controlling shareholders of the CompanyGuangdong Midea Logistics Corporation Household Technology Co.,Ltd.
Controlled by controlling shareholders of the CompanyGuangdong Midea Intelligent Robot Co., Ltd. Controlled by controlling shareholders of the CompanyShenzhen Digital Intelligence Scene Location Technology Co., Ltd. Controlled by controlling shareholders of the CompanyJiangsu Midea Cleaning Electrical Appliances Co., Ltd Controlled by controlling shareholders of the CompanyGuangdong Midea Kitchen Electrical Appliances Manufacture Co., Ltd Controlled by controlling shareholders of the CompanyHefei Midea Intelligent Technology Co., Ltd Controlled by controlling shareholders of the CompanyGuangdong Midea HVAC Equipment Co., Ltd Controlled by controlling shareholders of the CompanyTOSHIBA THAILAND CO., LTD. Controlled by controlling shareholders of the CompanyShenzhen Meiyun Zhishu Technology Co., Ltd Controlled by controlling shareholders of the Company
(7) Related party transactions(a) Sale/Purchase of goods and services received/offeredPurchase of goods and services received
Related parties Nature of transaction
Year ended31 December 2018
Approved amounts of
transaction
If it exceedsthe approved
amounts
Year ended31 December 2017Ningbo Midea United Supply LimitedMaterials purchase 2,243,834,039.352,900,000,000.00 No 1,920,029,601.88Huai‘an Weiling motor manufactureLimited /Wuhu Welling Motor Sales
Electric engines
1,178,655,099.431,410,000,000.00 No 1,098,835,770.95
Co., Ltd. purchaseNingbo Andhra Logistics Co., Ltd./Andhra Logistics Co., Ltd.
Storage & logistics 878,081,150.57 1,100,000,000.00 No837,227,988.48Ningbo Meimei Garden Applianceservice Li mited
After-sales service 379,003,539.88395,000,000.00 No293,939,774.67Midea E-business Limited
Sales promotion
services
75,565,262.80125,000,000.00 No61,748,388.77TOSHIBA Household AppliancesManufacturing (Nanhai) Co., Ltd.
Finished goods &fittings purchase
59,805,391.38280,000,000.00 No70,704,350.52Midea Group and its subsidiaries
Purchase of mould,equipment andservices
34,381,517.2535,000,000.00 No15,799,723.28
Related parties
Nature oftransaction
Year ended31 December
2018
Approvedamounts oftransaction
If it exceedsthe approved
amounts
Year ended31December 2017Zhejiang Meiz hi Compre ssor L imi ted
Compressorand materials
24,285,999.4225,000,000.00 No15,491,263.90Guangdong Midea Hicks Electronics Limited /Ningbo Midea United Supply Limited / MideaWisdom Househ old Technology Co., Ltd.
Chip & WifiModulespurchase
20,489,862.8565,000,000.00.00 No65,627,097.94Guangdong Midea Precision Mold TechnologyCo., Ltd.
Mouldpurchase
13,296,082.4125,000,000.00 -Total4,907,397,945.34 6,360,000,000.00
4,379,403,960.39
The pricing policies of related party transactions are agreed price.Sales of goods and services provided
Related parties Nature of transaction
Year ended
31 December
2018
Approvedamounts oftransaction
If it exceedsthe approved
amounts
Year ended31 December 2017Midea Appliance (Singapore)TradingLimited
Sales of washingmachines and materials
3,460,780,406.394,250,000,000.00 No 3,116,834,684.53MIDEA SCOTT & ENGLISHELECTRONICS SDN BHD
Sales of washingmachines
83,452,679.45100,000,000.00 No 62,099,832.07PT. MIDEA PLANET INDONESIA
Sales of washingmachines
59,709,719.0960,000,000.00 No 26,916,420.25
TOSHIBA LIFESTYLEPRODUCTS&SERVICESCORPORATION./ Ningbo AndhraLogistics Co., Ltd./ Andhra Logistics Co.Ltd/ MIDEA MIDDLE EAST/ MideaE-business Limited/ Jiangsu MideaCleaning Electrical Appliances Co., Ltd/Hefei Midea Materials Supply Co., Ltd./Hubei Midea Refrigerator Limite d/Guangdong Midea Kitchen ElectricalAppliances Manufacture Co., Ltd./ HefeiHualing Co., Ltd./ Guangdong MideaRefrigeration Equipment Limited/ HefeiMidea Refrigerator Co., Ltd.
Sales of washingmachines, fittings andmaterials
25,615,644.9830,000,000.00 No 55,957,699.37
Guangdong Midea Logistics CorporationHousehold Technology Co., Ltd.
Sales of washingmachine
31,639,088.3380,000,000.00No -Ningbo Meimei Garden ApplianceService Li mited
Sales of fittings29,566,764.2225,000,000.00 Yes 36,411,806.80TOSHIBA Household AppliancesManufacturing (Nanhai) Limited
Sales of materials18,360,315.5825,000,000.00 No 7,356,261.09ORIENT HOUSEHOLD APPLIANCESLTD.
Sales of washingmachines
17,224,629.8140,000,000.00
No 25,439,421.52MIDEA CONSUMER ELECTRIC(VIETNAM) CO., LTD.
Sales of materials16,073,292.5050,000,000.00 No 21,427,084.19TOSHIBA THAILAND CO., LTD.
Sales of washingmachines, fittings andmaterials
7,866,753.4140,000,000.00 No -Midea Group Wuhan RefrigerationEquipment Co., Ltd
Sales of washingmachines
-N/A N/A 223,179.49Wuhu Midea Kitchen and BathAppliances Manufacturing Co., Ltd
Sales of washingmachines
-N/A N/A 123,307.69Guangzhou Hualing RefrigerationEquipment Limited
Sales of washingmachines
-N/A N/A 37,094.02Midea Group Co., Ltd Sales of materials -N/A N/A 19,999.98Ningbo Midea United Supply Limited Sales of materials-N/A N/A 15,250.64MIDEA AUSTRALIA PTY LTD
Sales of washingmachines
-N/A N/A 3,805.46Total3,750,289,293.764,700,000,000.003,352,865,847.10
The pricing policies of related party transactions are agreed price.
(b) Lease
Lessee Type of assets
Rental income of
2018
Approved amounts
of transaction
If it exceeds theapproved amounts
Rental income of 2017
Hefei Hualing Co., Ltd. House property 12,610,818.7215,000,000.00No 13,446,746.44Total 12,610,818.7215,000,000.00 13,446,746.44
(c) Asset transfer and debt restructuring
Related parties Related-party Transactions
Year ended31 December 2018
Approvedamount oftransaction
If it exceedsthe approved
amount
Year ended31 December 2017Midea Group Co., Ltd. Trademark royalty charges22,114,503.89
Charged by 0.3%
of net sales
No
16,863,306.72Guangdong Midea Group WuhuRefrigeration Equipment Co., Ltd.
Trademark royalty charges6,402,802.205,262,362.33Hubei Midea Refrigerator Limited Trademark royalty charges1,775,276.701,042,287.60Midea Group Co., Ltd Other 18,867.92N/A N/A-TOSHIBA Household AppliancesManufacturing (Nanhai) Limited
Other 17,367.48N/A N/A-Hefei Midea Refrigerator Co., Ltd. Equipments purchase -N/A N/A 301,886.79Total
30,328,818.19
23,469,843.44
In the above-mentioned related party transactions (a), the amount of related transactions actually exceeded theapproved amount in 2018 is RMB 4,566,764.22, which is less than 0.5% (RMB 35,235,454.00) attributable toshareholders' equity of the parent company in 2017, so it is not necessary to perform the Board of Directors'deliberation to approve.(d) Remuneration of key management
Item Year ended 31 December 2018 Year ended 31 December 2017Remuneration of key management 14,943,921.5313,709,700.00
(e) Transaction with Midea Group Finance Co., Ltd.As at 31 December 2018, the Company and its subsidiaries’ Cash at bank deposited in Midea Group Finance Co.,Ltd. amounted to RMB 385,392,637.66 (as at 31 December 2017: RMB 281,627,638.87). During the year ended31 December 2018, interest income of cash at bank mentioned above was RMB 5,528,855.24 (2017: RMB8,435,527.09).As at 31 December 2018, the Company and its subsidiaries’ bank acceptance notes accepted by Midea GroupFinance Co., Ltd. amounted to RMB 4,193,914,501.21 (as at 31 December 2017, RMB 2,016,401,054.99). Duringthe year ended 31 December 2018, commission charges of the bank acceptance notes mentioned above amountedto RMB 4,084,352.41 (2017: RMB 1,567,491.73).As at 31 December 2018, the Company and subsidiaries discounted RMB 2,068,013,368.85 from Midea GroupFinance Co., Ltd. with bank acceptance notes, the balance of bankacceptance notes not overdue is RMB
708,451,603.24. (2017: nil)(8) Receivables from and payables to related parties(a) Receivables from related parties
Name of item Related parties
31 December 2018 31 December 2017Cost
Bad debtprovision
Carryingamount
Bad debtprovisionNotes and accountsreceivables
Midea Appliance (Singapore)TradingLimited
676,841,305.7433,842,065.29589,756,109.51 29,487,805.48Notes and accountsreceivables
PT. MIDEA PLANET INDONESIA 36,337,130.531,816,856.539,792,445.24 489,622.26Notes and accountsreceivables
MIDEA SCOTT & ENGLISH
ELECTRONICS SDN BHD
7,125,006.05356,250.307,962,102.83 398,105.14Notes and accountsreceivables
TOSHIBA Household AppliancesManufacturing (Nanhai) Limited
5,715,120.00285,756.00- -Notes and accountsreceivables
ORIENT HOUSEHOLD APPLIANCESLTD.
4,353,139.77217,656.992,078,970.94 103,948.55
Name of item Related parties
31 December 2018 31 December 2017Cost
Bad debtprovision
Carryingamount
Bad debtprovisionNotes and accountsreceivables
MIDEA MIDDLE EAST 2,943,655.90147,182.80 - -Notes and accountsreceivables
TOSHIBA THAILAND CO., LTD. 2,557,401.07127,870.05 - -Notes and accountsreceivables
Guangdong Midea Logistics Corporation
Household Technology Co., Ltd.
305,144.0015,257.20 - -Notes and accountsreceivables
Midea Consumer Electric (Vietnam) Co.,Ltd.
1,081.3754.07 11,868,764.19 593,438.21Notes and accountsreceivables
Andhra Logistics Corporation -- 52,895.00 2,644.75Notes and accountsreceivables
Ningbo Meimei Garden Appliance service
Limited
-- 4,748,685.08 237,434.25Notes and accountsreceivables
Midea E-business Limited -- 125,900.58 6,295.03Notes and accountsreceivables
Toshiba Lifestyle Products&Services
Corporation
-- 8,103,283.44 405,164.17Total 736,178,984.4336,808,949.23 634,489,156.81 31,724,457.84
Name of item Related parties
31 December 2018 31 December 2017Cost
Bad debtprovision
Carryingamount
Bad debtprovisionOther receivables Shenzhen Midea Payment Technology Co., Ltd 6,214,698.76310,734.94 10,520,299.96 526,015.00Total 6,214,698.76310,734.94 10,520,299.96 526,015.00Prepayment Midea E-business Limited 4,057,571.45- 3,354,919.77 -Prepayment
Shenzhen Digital Intelligence Scene LocationTechnology Co., Ltd.
4,054,358.79- - -Prepayment Guangdong Midea Intelligent Robot Co., Ltd. 1,650,153.90- - -Prepayment
Guangdong Midea Environmental EquipmentLimited
80,850.00- - -Prepayment Ningbo Midea United Supply Limited -- 7,407,695.59 -Prepayment
Guangdong Midea Precision Mold TechnologyCo., Ltd.
-- 309,840.00 -Total 9,842,934.14- 11,072,455.36 -
(b) Payables to related parties
Name of item Related parties 31 December 2018 31 December 2017Notes and accounts payables Wuhu Welling Motor Sales Co., Ltd. 149,150,109.62 146,551,812.62Notes and accounts payables Ningbo Midea United Supply Limited 50,216,557.56 7,300,152.98Notes and accounts payables TOSHIBA Household Appliances Manufacturing
(Nanhai) Limited
26,474,228.17 38,171,577.41Notes and accounts payables Guangdong Midea Precision Mold Technology Co., Ltd.6,194,945.99 5,995,300.00Notes and accounts payables Zhejiang Meizhi Compressor Limited 3,591,972.45 5,500,676.15Notes and accounts payables Ningbo Meimei Garden Appliance service Limited 1,416,510.52 51,350.00Notes and accounts payables Foshan Midea Clear Lake Water Purification Equipment
Manufacturing Co., Ltd.
51,175.80 88,452.00Notes and accounts payables Wuhu Midea Household Appliances Manufacture Limited32,403.45 6,800.00Notes and accounts payables Shenzhen Meiyun Zhishu Technology Co., Ltd 20,740.00 -Notes and accounts payables Guangdong Midea Intelligent Robot Co., Ltd. 8,338.11 -Notes and accounts payables Foshan Midea Micro Filter Equipment Manufacture Co.,
Ltd
3,500.00 -Notes and accounts payables Midea Wisdom Household Technology Co., Ltd. - 1,216,403.00Notes and accounts payables Ningbo Andhra Technology Limited - 68.38Notes and accounts payables Guangdong Midea Environmental Equipment Limited - 13,951.00Total 237,160,481.67 204,896,543.54
Name of item Related parties 31 December 2018 31 December 2017Other payables Hefei Midea Refrigerator Co., Ltd. 1,010,000.00 -Other payables Guangdong Midea Intelligent Robot Co., Ltd. 461,500.00 -Other payables Guangdong Midea Refrigeration Equipment Limited 215,251.80 351,404.33Other payables Ningbo Meimei Garden Appliance service Limited 4,602.99 -Other payables Guangdong Midea HVAC Equipment Co., Ltd 1,707.59 -Other payables Guangdong Midea Precision Mold Technology Co., Ltd. - 100,000.00Other payables Guangdong Midea Consumer Electric Manufacturing Co., Ltd. - 61,458.90Other payables Midea Welling Motor Technology (Shanghai) Co., Ltd - 90,387.26Total 1,693,062.38 603,250.49Other current liabilities Midea Group Co., Ltd 2,804,104.70 -Total 2,804,104.70 -Advances from customers Midea Appliance (Singapore)Trading Limited 37,286,761.09 -Advances from customers MIDEA SCOTT & ENGLISH ELECTRONICS SDN BHD 1,420,475.87 22,283.28Advances from customers Andhra Logistics Corporation 345,530.98 290,804.69Advances from customers Midea E-business Limited 7,741.42 -Advances from customers Guangdong Midea HVAC Equipment Co., Ltd 6,320.00 -Advances from customers TOSHIBA Household Appliances Manufacturing (Nanhai) Limited 3,060.00 2,726,081.57Advances from customers CARRIER MIDEA INDIA PRIVATE LIMITED 2,139.26 1,206.21Advances from customers Ningbo Meimei Garden Appliances Service Limited - 607,507.13Advances from customers Hubei Midea Refrigerator Limited - 104,580.00Advances from customers MIDEA ELECTRIC TRADING (THAILAND) CO., LTD. - 535.80Total 39,072,028.62 3,752,998.68
XV. Share-based payment
(1) Summary
Upon the authorisation of 2017 Annual General Meeting of Midea Group, 33rd meeting of the 2nd term of Boardof Midea Group on 23rd April 2018 has passed the equity options incentive plan (The 5th Incentive Plan), theRestricted Stocks Incentive Plan. 54,520,000 shares of equity options are being granted to 1,330 objects and22,150,000 shares of restricted stocks are being granted to 343 objects on 7th May 2018. As at 31 December 2018,the 1st Equity Options Incentive Plan grants 6,760,000 shares of equity options to 30 objects, the 2nd EquityOptions Incentive Plan grants 5,810,000 shares of equity options to 35 objects, the 3rd Equity Options IncentivePlan grants 7,650,000 shares of equity options to 57 objects, the 4th Equity Options Incentive Plan grants7,100,000 shares of equity options to 112 objects, the 5th Equity Options Incentive Plan grants 4,280,000 shares
of equity options to 112 objectives, the 1st Restricted Stocks Incentive Plan grants 1,530,000 shares of restrictedstocks to 9 objects, the 1st Restricted Reserve Stock Incentive Pan grants 540,000 shares of restricted stocks to 5objects, the 2nd Restricted Stocks Incentive Plan grants 1,400,000 shares of restricted stocks to 22 objects.(2) Impact of share-based payment transactions on financial position and financial performance.The total stock option expenses recogn ised in 2018 we re RMB 80,937,978.57 (2017: RMB 64,494,411.50). As at31 December 2018, the balance relating to the option incentive plan and provided for in capital surplus was RMB241,028,611.70 (31 December 2017: RMB 163,325,332.37 ).XVI. Commitment and contingency
(1) Significant commitments
As at 31 December 2018, no significant commitments shall be disclosed.
(2) Contingency
As at 31 December 2018, no significant contingency shall be disclosed.XVII. Events after balance sheet date(1) Profit distribution after balance sheet dateAccording to the resolution of the Board on 14 March, 2019, the Board propose to distribute RMB2,529,951,056.00 and it has not been recognized as a liability in the financial statement ended 31 December 2018(Note VII(31)). This proposal is still subject to be approved by the Annual General Meeting.
AmountProposed dividends 2,529,951,056.00
(2) According to the Proposal of Examination and Approval of Midea Group Co., Ltd issues convertible A shares inand Wuxi Little Swan Co., Ltd. and its abstract, which approved on the 2nd meeting of the 3rd term of Board ofDirectors held by Midea Group Co., Ltd. and the 2nd meeting of the 9th Board of Directors held by Wuxi LittleSwan Co., Ltd. on 23rd October, Midea Group Co., Ltd plan to issue convertible A shares in order to merge WuxiLittle Swan Co., Ltd. The merger mentioned above is a significant assets reorganization matter of Wuxi Little SwanCo., Ltd. and was approved by Annual General Meeting of both transaction parties on 21st December 2018. On20th February 2019 China Securities Regulatory Commission approved the merger with no conditions .On 12rdMarch 2019, the Company received The Approval of Midea Group Co., Ltd. to Acquire Wuxi Little Swan Co., Ltd.issued by the China Securities Regulatory Commission (Security Permit License [2019] No. 352).
XVIII. Notes to the material items in financial statements(1) Notes and accounts receivables
31 December 2018 31 December 2017Notes receivable(a) 589,229,066.42938,342,347.95Accounts receivable(b) 2,022,952,766.622,805,194,600.27Total 2,612,181,833.043,743,536,948.22
(a) Notes receivable(i) Notes receivable classified by nature
31 December 2018 31 December 2017Bank acceptance notes 589,229,066.42938,342,347.95Less: Provision for bad debts --589,229,066.42938,342,347.95
As at 31 December 2018 and 31 December 2017, there is no trade acceptance receivable. The Company and itssubsidiaries do not recognize impairment risk of the bank acceptance notes, whereupon no bad debt provision isaccrued.As at 31 December 2018 and 31 December 2017, there is no pledged notes receivable.(ii) As at 31 December 2018, notes receivable that have been endorsed or discounted but not yet expired
are as follows:
Items Derecognised Not derecognisedBank acceptance notes 1,651,107,320.9143,362,419.45
(b) Accounts receivable(i) Accounts receivable classified by nature:
Category
31 December 2018Cost Bad debt provision
Carrying amountAmount % of proportionAmount % of proportionDebtors with significant balanceassessed individually
772,744,242.8237.00%-0.00% 772,744,242.82Debtors grouped by credit risk 1,316,008,972.4163.00%65,800,448.615.00% 1,250,208,523.80Total 2,088,753,215.23100.00%65,800,448.613.15% 2,022,952,766.62
Category
31 December 2017Cost Bad debt provision
Carrying amountAmount % of proportionAmount % of proportionDebtors with significant balanceassessed individually
1,434,934,642.8349.87%-- 1,434,934,642.83Debtors grouped by credit risk 1,442,378,902.5750.13%72,118,945.135.00% 1,370,259,957.44Total 2,877,313,545.40100.00%72,118,945.132.51% 2,805,194,600.27
As all debtors of accounts receivable with amounts that are individually significant are subsidiaries of the Company,the Company is convinced that impairment risks do not exist, thus no provision for bad debt was accrued.Accounts receivable individually significant for which bad debt provision was assessed individually.□Applicable √Not applicableAccounts receivable adopting aging analysis method for bad debt provision:
√Applicable □ Not applicable
Aging
31 December 2018Account receivableBad debt provision% of proportion Carrying amountWithin 1 year 1,316,008,972.4165,800,448.615.00% 1,250,208,523.80
Aging
31 December 2017Account receivableBad debt provision% of proportion Carrying amountWithin 1 year 1,442,378,902.5772,118,945.135.00% 1,370,259,957.44
As at 31 December 2018 and 2017, there were no material accounts receivable which were past due.Accounts receivable adopting balance percentage method for bad debt provision:
□ Applicable √Not applicableAccounts receivable adopting other method for bad debt provision:
□ Applicable √Not applicable
(ii) Accounts receivable withdraw, reversed or collected during the reporting periodDuring the year ended 31 December 2018, the movement of provision for accounts receivable was RMB 0.00(2017: RMB 16,965,109.32), the movement of reverse for accounts receivable was RMB 6,318,496.52 (2017:
RMB 0.00). There were no prov isio n or reverse of pr ovision for individual significant other receivables.(iii) Accounts receivable written-off during the reporting periodThere were no accounts receivable written-off during the reporting period(iv) Top 5 of accounts receivable by customers
Name Amounts Bad debt provision % of total balanceTotal amount of the top 5 accounts receivable by customers 1,689,987,667.2246,562,091.81 80.91%
(v) Accounts receivable derecognised due to the transfer of financial assetsFor the year ended 31 December 2018, accounts receivable derecognised due to the transfer of financial assetsamounted to RMB 1,240,899,216.24 (2017: 1,035,937,017.93), of which loss on derecognised amounted to RMB27,229,782.76 (2017: 20,478,740.36).
Derecognised Loss on derecognisedAccounts receivables transferred 1,240,899,216.2427,299,782.76
(2) Other receivables
项目
31 December 201831 December 2017Interests receivable(a) 136,241,903.0032,913,208.23Other receivables(b) 11,729,831.0228,973,048.36Total 147,971,734.0261,886,256.59
(a) Interests receivable
31 December 2018 31 December 2017Structured deposit interest 135,314,452.0532,402,684.93Bank deposit interest 927,450.95510,523.30Total 136,241,903.0032,913,208.23
(b) Other receivables classified by nature:
Category
31 December 2018Other receivables Bad debt provision
CarryingamountAmount % of proportionAmount % of proportionDebtors with significant balanceassessed individually
76,069,797.2885.74%75,456,666.5099.19% 613,130.78
Debtors grouped by credit risk 12,648,032.5514.26%1,531,332.3112.11% 11,116,700.24Total 88,717,829.83100.00%76,987,998.8186.78% 11,729,831.02
Category
31 December 2017Other receivables Bad debt provision
CarryingamountAmount % of proportionAmount % of proportionDebtors with significant balanceassessed individually76,278,456.9271.55%75,455,666.5098.92% 822,790.42Debtors grouped by credit risk 30,323,298.2528.45%2,173,040.317.17% 28,150,257.94Total 106,601,755.17100.00%77,628,706.8172.82% 28,973,048.36
Other receivables with single significant amount and withdrawal bad debt provision separately at end of period.√Applicable □ Not applicable
Other receivables (by company)
31 December 2018Otherreceivables
Bad debtprovision
% ofproportion
Carryingamount
Reason ofprovisionJiangsu Littleswan Marketing and Sales Co. ,L td. 74,295,013.5574,295,013.55100%-UncollectibleWuxi Little Swan Import & Export Co. , Ltd 1,161,652.951,161,652.95100%-UncollectibleWuxi Little Swan General Electric AppliancesCo., Ltd 343,160.00--343,160.00
--Hefei Midea Washing Machine Co., Ltd.269,970.78--269,970.78
--Total76,069,797.2875,456,666.5099.19%613,130.78
Other receivables (by company)
31 December 2017Otherreceivables
Bad debtprovision
% ofproportion
Carryingamount
Reason ofprovisionJiangsu Littleswan Marketing and Sales Co. ,L td. 74,294,013.5574,294,013.55100% - UncollectibleWuxi Little Swan Import & Export Co. , Ltd 1,161,652.951,161,652.95100% - UncollectibleWuxi Little Swan General Eletric Appliances Co., Ltd 416,186.85-- 416,186.85 --Little Swan International (Singapore) Limited 326,710.00-- 326,710.00 --Hefei Midea Washing Machine Co., Ltd. 79,893.57-- 79,893.57 --Total 76,278,456.9275,455,666.50 822,790.42
In the groups, other accounts receivable adopting aging analysis method to withdraw bad debt provision:
√Applicable □ Not applicable
Aging
31 December 2018Other receivable Bad debt provision Withdrawal proportion Carrying amountWithin 1 year 10,712,250.89535,612.545.00% 10,176,638.351 to 2 years 615,773.6661,577.3710.00% 554,196.292 to 3 years 443,808.00133,142.4030.00% 310,665.603 to 5 years 150,400.0075,200.0050.00% 75,200.00Above 5 years 725,800.00725,800.00100.00% -Total 12,648,032.551,531,332.3112.11% 11,116,700.24
Aging
31 December 2017Other receivables Bad debt provision Withdrawal proportion Carrying amountWithin 1 year 28,569,790.251,428,489.515.00% 27,141,300.741 to 2 years 747,308.0074,730.8010.00% 672,577.202 to 3 years 280,400.0084,120.0030.00% 196,280.003 to 5 years 280,200.00140,100.0050.00% 140,100.00Above 5 years 445,600.00445,600.00100.00% -Total 30,323,298.252,173,040.317.17% 28,150,257.94
Other receivables adopting balance percentage method for bad debt provision:
□ Applicable √Not applicableOther receivables adopting other method for bad debt provision:
□ Applicable √Not applicable(i) Other receivables withdraw, reversed or collected during the reporting period
During the year ended 31 December 2018, the movement of provision for other receivables was RMB 0.00 (2017:
1,067,780.73), the movement of reverse for other receivables was RMB 640,708.00 (2017: RMB 0.00). There
were no provision or reverse of provision for individual significant other receivable(ii) Other receivables written-off during the reporting period
There were no other receivables written-off during the reporting period.(iv) Other receivables classified by nature
Nature of other receivables 31 December 2018 31 December 2017
Deposit in escrow accounts 8,728,779.8526,047,303.64
Current accounts with subsidiaries 76,069,797.2876,278,456.92
Deposits 2,458,861.481,404,000.00Loans to employees 1,460,391.222,439,630.53Others -432,364.08Less：Bad debt provision-76,987,998.81-77,628,706.81Total 11,729,831.0228,973,048.36
(V) The top five other receivables classified by debtor at period-end
Name of the entity
Nature of other
receivables
31 December
2018
Aging
% of total other
receivables
Bad debt provision31 December 2018Jiangsu Littleswan Marketing andSales Co.,Ltd.
Inter-companyreceivables
74,295,013.55Over 5 years83.74% 74,295,013.55Alipay (China) NetworkTechnology Co., Ltd.
Advance & temporarypayments deposit inescrow accounts
4,902,786.89Within 1 year5.53% 245,139.34Shenzhen Midea PaymentTechnology Co., Ltd.
Advance & temporarypayments deposit inescrow accounts
3,591,395.61Within 1 year4.05% 179,569.78Wuxi Little Swan Import & ExportCo. , Ltd
Inter-companyreceivables
1,161,652.95Within 1 year1.31% 1,161,652.95
Wuxi China Resources Gas Co.,Ltd.
Deposits 820,800.00
2 to 3 yearsand Over 5
years
0.93% 754,300.00Total 84,771,649.0095.55% 76,635,675.62
(3) Long-term equity investments
Items
31 December 2018 31 December 2017Cost
Impairment
provision
Carrying amountCost
Impairment
provision
Carrying amountInvestment inubsidiaries
1,433,285,041.57 475,050,000.00958,235,041.571,433,285,041.57475,050,000.00 958,235,041.57
(a) Investment in subsidiaries
Name of subsidiaries
Balance at31 December 2017
AdditionDecrease
Balance at31 December 2018
Impairment
provision
Balance ofimpairment
provision
Wuxi Little Swan Import &Export Co. , Ltd
57,500,000.00--57,500,000.00- 57,500,000.00Jiangsu Little Swan Marketingand Sales Co. , Ltd.
417,550,000.00--417,550,000.00- 417,550,000.00Wuxi Filin Electronics Co. , Ltd.25,660,308.10--25,660,308.10- -Wuxi Little Swan General ElectricAppliances Co. , Ltd.
89,062,000.00--89,062,000.00- -Little Swan (Jing Zhou) SanjinElectronic Appliances Limited.
11,869,431.12--11,869,431.12- -Little Swan International(Singapore) Limited.
681,050.00--681,050.00- -Hefei Midea Washing MachineLimited.
830,962,252.35--830,962,252.35- -Total 1,433,285,041.57--1,433,285,041.57 475,050,000.00
As at 31 December 2018, the Company provided credit guarantee for Hefei Midea Washing Machine Limitedamounted to RMB 25 4,0 23 ,80 0.00 (as at 31 De cember 2017: 291,079,100.00 ).(4) Revenue and cost of sales
Item
Year ended 31 December 2018 Year ended 31 December 2017Income Cost of sales Income Cost of salesOperating income 15,800,363,329.03 12,020,471,056.1214,990,965,216.20 11,403,214,393.83Other operating income 1,144,032,287.21 1,101,507,038.901,236,979,706.39 1,172,951,944.14Total 16,944,395,616.24 13,121,978,095.0216,227,944,922.59 12,576,166,337.97
Other operating income and expenses:
Item
Year ended 31 December 2018 Year ended 31 December 2017Other operating income
Other operating
expenses
Other operating
income
Other operating
expensesSale of raw materials1,081,267,586.731,078,027,383.041,188,798,326.56 1,144,979,820.00Others 62,764,700.4823,479,655.86 48,181,379.83 27,972,124.14Total
1,144,032,287.211,101,507,038.901,236,979,706.391,172,951,944.14
(5) Investment income
Item Year ended 31 December 2018 Year ended 31 December 2017Income from available-for-sale financial assets 66,012,797.02154,998,651.47Income from disposal of financial assets measured at fairvalue through profits or losses
1,497,784.9714,206,795.00Total 67,510,581.99169,205,446.47
There is no significant restriction on the remittance of investment income to the Company and its subsidiaries.XIX. Supplementary information(1) Non-recurring profit or loss
Item Year ended 31 December 2018Year ended 31 December 2017Net gain/loss on disposal of non-current assets13,137,087.29-975,423.00Holding-period return on fianancial assets at fair value throughprofit or loss
-7,619,781.9722,954,813.04
Item Year ended 31 December 2018 Year ended 31 December 2017Other non-operating income and loss other than items above 44,275,866.7244,138,356.17Less: Effect of income tax-7,474,356.94-12,040,092.19Effect of minority interest -2,850,542.54-4,618,258.39Total 39,468,272.5649,459,395.63
Under requirements in Explanatory announcement No. 1 on information disclosure by companies offeringsecurities to the public – non-recurring profits or losses [2008] from CSRC, non-recurring profits or losses refer tothose arises from transactions and events that are not directly relevant to ordinary activities, or that are relevant toordinary activities, but are extraordinary and not expected to recur frequently that would have an influence onusers of financial statements making economic decisions on the financial performance and profitability of anenterprise.(2) Return on equity and earnings per share
Profit of the year
Weighted averagereturn on equity(%)
Earnings per shareBasic earnings per share
(RMB yuan per share)
Diluted earnings per share
(RMB yuan per share)Net profit attributable to ordinary shareholders ofthe Company
24.42%2.94 2.94Net profit attributable to owners of the Company,excluding non-recurring profit or loss
23.90%2.88 2.88
Part XII Documents Available for Reference
I This Annual Report carrying the signature of the legal representative;II The financial statements signed and sealed by the legal representative, the CFO and the Financial Manager forthis Report;III The original Auditor’s Report signed and sealed by the CPAs, as well as sealed by the CPAs firm; andIV The originals of all the Company’s documents and announcements which were disclosed on Securities Timeand Ta Kung Pao (HK) during this Reporting Period.
Wuxi Little Swan Company Limited
Legal Representative: Fang Hongbo30 March 2019