Midea Group Co., Ltd.
The 2017 Annual Report
31 March 2018
The 2017 Annual Report of Midea Group Co., Ltd.
Letter to Shareholders
Fifty years ago, in 1968, Midea founder, He Xiangjian, sowed the seeds of Midea's
enterprises with the goal of improving lives. After half a century, Midea has prospered into a
towering presence and become a technology group with operations in consumer appliances,
HVAC systems, robotics and industrial automation systems, and smart supply chain
(logistics) as it takes the lead in grasping new opportunities brought forth by industrial
networks, digitalization, artificial intelligence, and human-machine collaboration.
Each momentous advancement in human history is dependent on the grand context of the
era; we must salute and express our gratitude to this vibrant time, for it was in these 40
years of economic reforms in China that gave birth to entrepreneurship and propagated the
nation's revival. Each generation of Midea people has fought through dire times, and their
unwavering resolve and courage to embrace changes and innovation has advanced Midea's
glorious transformation from that small rural workshop 50 years ago.
Midea achieved some remarkable results in 2017, boasting a 51.35% growth in revenue to
RMB241.92 billion, while net profit attributable to shareholders of the company rose by 17.70%
to RMB17.28 billion. Midea ranked 450th in the Fortune 500 rankings of 2017, moving up
31 places from the previous year. Midea also ranked 335th in the Forbes 2017 Global 2000,
an improvement of 67 ranks. According to the \"BrandZ Top 100 Most Valuable Chinese
Brands 2018\", Midea rose to the 26th spot in their rankings and maintained its lead as the
highest-ranking home appliance brand in three consecutive years. Midea was featured
among the Top 10 companies of CCTV's \"National Brands Plan” and it has been selected
as one of the top ten public companies in China by CCTV for two consecutive years. As of
the end of 2017, Midea's market value reached RMB 363 billion after an annual growth of
more than 100%.
By the age of fifty, people must be able to understand and accept their place in the world,
give up on superficial complaints, and be free of idle thoughts. To be an evergreen enterprise,
we should keep up with the times, set high goals, restore confidence in entrepreneurship
and the creative spirit, and undertake tasks set forth by the times.
This era’s changes have been beyond imaginable. Half of the top Fortune 500 companies
from 2000 have disappeared from the rankings. A large group of companies that were once
great have fallen from grace in 2017. Under the swift current of changes of this era, Midea
The 2017 Annual Report of Midea Group Co., Ltd.
must remain humble and respectful while embracing changes and innovation in order to
keep up with the times. We must always keep a progressive mind and an entrepreneurial
spirit to fulfill our dreams and abandon mediocrity. Today, Midea must progress with
simultaneous grace and vigor; much like the flowing Amazon River, still waters run deep.
Today, Midea must look to the stars while keeping its feet planted firmly on the ground in
order to strike forward thousands of miles with small steps.
Our past is merely a preface to our future achievements. In 2018, Midea will be moving
forward with a new transformative phase and reform with greater courage and resolve. We
shall boldly choose what is right; only by abandoning the alluring sights before us can we
make long-term plans for the future and attain our renaissance. Our struggles inside our
cocoon shall give birth to a beautiful butterfly embodied in yet another glorious era for Midea.
This year, Midea shall initiate a new round of change based on user-centric core values as
we reconstruct the value chain, corporate structure, and corporate culture to improve user
experience and create value for users.
We shall continue to focus on fostering internal growth within the company and seize market
opportunities in consumptive and structural upgrades. We shall build a user-centric business
model and management system to expand investment in innovation, improve the R&D
environment, innovate incentive systems, recruit top R&D talents, and improve R&D layout.
We shall also continue to improve user experience and build high-quality products to
improve the overall core competitive ability of our products.
We shall further promote transformation of corporate digitalization and use software and
data to construct and drive high-performance operations in the value chain, including R&D,
planning, manufacturing, procurement, quality, logistics, customer service, and installation.
We aim to implement an end-to-end synergy, advance flexible customization, production
platformization and modularization, digitalized craftsmanship, smart logistics, smart
customer services, and other in-depth reforms to strengthen the foundation of industrial
internet.
We shall continue to advance the integration and business development in robotics and
automation and speed up our preparation for the entire industrial automation and robotics
sectors. We shall seize opportunities in the robotics market in China and advance the
integration and rapid growth of domestic robots in China. We shall improve our capabilities
The 2017 Annual Report of Midea Group Co., Ltd.
in developing core robotic parts and software systems as well as integrate artificial
intelligence and sensory and visual technologies for expansion into new sectors such as
smart manufacturing, smart logistics, smart home, and medical and recovery.
We shall advance the integration and synergy of global operations and M&A projects and
advance Midea's global presence to establish a framework for different sectors, different
market spaces and regions, and different cultural backgrounds and mindsets. We shall
promote our global sales operations and increase the growth of our own brand as we
strengthen risk controls overseas and establish a comprehensive overseas corporate
governance and compliance system.
Midea is standing at the forefront of the era, but only by actively seeking changes and rapid
reforms can it fulfill its mission in the midst of the great rejuvenation of the Chinese nation,
resonate with the nation, and write a more beautiful chapter.
The path towards transformation is still long and arduous. In 2018, the Midea team shall
demonstrate resolve and courage for reforms in every opportunity and make unremitting
efforts. The peak may be steep but we must climb.
Hereby, we would like to thank all shareholders for their company, support and trust, and
pay tribute to all shareholders and investors who are committed to our value creation!
Board of Directors, Midea Group Co., Ltd.
March 2018
The 2017 Annual Report of Midea Group Co., Ltd.
Section I Important Statements, Contents and Definitions
The Board of Directors, the Supervisory Committee, directors, supervisors and senior
management of Midea Group Co., Ltd. (hereinafter referred to as the “Company”) hereby
guarantee that the information presented in this report is free of any misrepresentations,
misleading statements or material omissions, and shall together be wholly liable for the
truthfulness, accuracy and completeness of its contents.
All directors of the Company attended the Board meeting to review this Annual Report. There
are no directors, supervisors, or senior management who do not warrant or who dispute the
truthfulness, accuracy and completeness of the contents of this Annual Report.
The financial statements for 2017 have been audited by PricewaterhouseCoopers China
(LLP) and have obtained a standard unqualified audit report.
Mr. Fang Hongbo, Chairman of the Board and President of the Company and Mr. Xiao
Mingguang, Director of Finance of the Company, have represented and warranted that the
financial statements in this report are true and complete.
The Board has considered and approved the following dividend payout plan for the year
2017: based on the Company's total existing shares of 6,584,022,574, it is proposed that
the Company should distribute a cash dividend of RMB12 (tax inclusive) per 10 shares to
all the shareholders.
The future plans and some forward-looking statements mentioned in this report shall not be
considered as virtual promises of the Company to investors. Therefore, investors are kindly
reminded to pay attention to possible investment risks.
This report has been prepared in both Chinese and English. Should there be any
discrepancies or misunderstandings between the two versions, the Chinese version shall
prevail.
The 2017 Annual Report of Midea Group Co., Ltd.
Contents
SECTION I IMPORTANT STATEMENTS, CONTENTS AND DEFINITIONS ....................... 5
SECTION II COMPANY PROFILE AND KEY FINANCIAL RESULTS .................................. 8
SECTION III BUSINESS PROFILE.................................................................................... 16
SECTION IV PERFORMANCE DISCUSSION AND ANALYSIS ........................................ 27
SECTION V SIGNIFICANT EVENTS................................................................................. 70
SECTION VI CHANGES IN SHARES AND INFORMATION ABOUT SHAREHOLDERS.113
SECTION VII PREFERENCE SHARES .......................................................................... 124
SECTION VIII INFORMATION ABOUT DIRECTORS, SUPERVISORS, SENIOR
MANAGEMENT AND EMPLOYEES ................................................................................ 125
SECTION IX CORPORATE GOVERNANCE ................................................................... 140
SECTION X FINANCIAL REPORT .................................................................................. 149
SECTION XI DOCUMENTS AVAILABLE FOR REFERENCE ......................................... 268
The 2017 Annual Report of Midea Group Co., Ltd.
Definitions
Term Definition
The “Company”, “Midea”, “Midea
Midea Group Co., Ltd.
Group” or the “Group”
Midea Holding Midea Holding Co., Ltd.
Little Swan Wuxi Little Swan Company Limited
Toshiba Toshiba Corporation
TLSC Toshiba Lifestyle Products & Services Corporation
KUKA KUKA Aktiengesellschaft
SMC Servotronix Motion Control Ltd. and its subsidiaries
MECCA MECCA International (BVI) Limited
In RMB yuan, in RMB thousand yuan, in RMB ten
RMB, RMB’000, RMB’0,000
thousand yuan
Reporting Period 1 January 2017 to 31 December 2017
The 2017 Annual Report of Midea Group Co., Ltd.
Section II Company Profile and Key Financial Results
1. Corporate Information
Stock abbreviation Midea Group Stock code 000333
Stock exchange where the shares of the
Shenzhen Stock Exchange
Company are listed
Name of the Company in Chinese 美的集团股份有限公司
Abbr. of the Company name in Chinese 美的集团
Name of the Company in English (if any) Midea Group Co., Ltd.
Abbr. of the Company name in English (if
Midea Group
any)
Legal representative Fang Hongbo
Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town,
Registered address
Shunde District, Foshan City, Guangdong Province, China
Postal code
Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town,
Business address
Shunde District, Foshan City, Guangdong Province, China
Postal code
Company website http://www.midea.com
E-mail IR@midea.com
The 2017 Annual Report of Midea Group Co., Ltd.
2. Contact Us
Company Secretary Representative for Securities Affairs
Name Jiang Peng Ou Yunbin
Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District,
Address
Foshan City, Guangdong Province, China
Tel. 0757-22607708 0757-23274957
Fax 0757-26605456
E-mail IR@midea.com
3. Information Disclosure and Place Where the Annual Report Is Kept
Newspaper designated by the Company for China Securities Journal, Securities Times and Shanghai
information disclosure Securities News
Website designated by the China Securities
Regulatory Commission (CSRC) for the http://www.cninfo.com.cn
publication of the Annual Report
Place where the Annual Report of the
Office of the Board of Directors of the Company
Company is kept
4. Company Registration and Alteration
Organization code 91440606722473344C
Changes in main business activities
None
since the Company was listed (if any)
Changes of controlling shareholder of
None
the Company (if any)
The 2017 Annual Report of Midea Group Co., Ltd.
5. Other Relevant Information
Accounting firm engaged by the Company
Name of the accounting firm PricewaterhouseCoopers China (LLP)
Business address of the 11/F., PricewaterhouseCoopers Center, 2 Corporate Avenue, 202 Hu Bin
accounting firm Road, Huangpu District, Shanghai 200021, PRC
Name of accountants writing
Huang Meimei and Qiu Xiaoying
signatures
Sponsor engaged by the Company to continuously perform its supervisory function during
the Reporting Period
□ Applicable √ N/A
Financial advisor engaged by the Company to continuously perform its supervisory function
during the Reporting Period
√ Applicable □ N/A
Representative
Name of the financial
Business office of the financial advisor of the financial Supervisory period
advisor
advisor
CITIC Securities Tower, No. 8 Zhong Xin San
CITIC Securities Co., Wu Renjun and 2017.1.6-
Road, Futian District, Shenzhen City, Guangdong
Ltd. Li Wei 2018.12.31
Province 518040
Note: Upon the receipt of a personnel change notice from CITIC Securities Co., Ltd. on 8 March 2018, the
Company issued an announcement stating that Mr. Lin Junjian of CITIC Securities was no longer responsible
for relevant work during the supervisory period due to his personal reasons. Mr. Li Wei would replace him to
work with Mr. Wu Renjun as a representative of the financial advisor during the supervisory period.
6. Key Accounting Data and Financial Indicators
Whether the Company performed a retroactive adjustment to or restatement of accounting
The 2017 Annual Report of Midea Group Co., Ltd.
data
□ Yes √ No
2017-over-2016
2017 2016
change (%)
Operating revenues (RMB'000) 240,712,301 159,044,041 51.35% 138,441,226
Net profits attributable to
shareholders of the Company 17,283,689 14,684,357 17.70% 12,706,725
(RMB'000)
Net profits attributable to
shareholders of the Company before
15,614,103 13,492,866 15.72% 10,911,341
non-recurring gains and losses
(RMB'000)
Net cash flow from operating
24,442,623 26,695,009 -8.44% 26,764,254
activities (RMB'000)
Basic earnings per share
2.66 2.29 16.16% 2.00
(RMB/share)
Diluted earnings per share
2.63 2.28 15.35% 1.99
(RMB/share)
Weighted average ROE (%) 25.88% 26.88% -1.00% 29.06%
Change of 31
31 December 31 December December 2017 31 December
2017 2016 over 31
December 2016
Total assets (RMB'000) 248,106,858 170,600,711 45.43% 128,841,935
Net assets attributable to
shareholders of the Company 73,737,437 61,126,923 20.63% 49,201,852
(RMB'000)
The 2017 Annual Report of Midea Group Co., Ltd.
Notes: 1. According to an international professional evaluation agency and Chinese accounting standards, the
amortization of the M&A expense on KUKA and TLSC for 2017 was recognized at RMB2,413,944,000.
2. As of the end of 2017, as per Chinese accounting standards, the share-based payments for the Company’s
equity incentive schemes were recognized at RMB841,566,000 for 2017.
3. For 2017, KUKA achieved operating revenue of RMB26,722,910,000, up 18% YoY.
Total share capital of the Company on the last trading session before disclosure:
Total share capital of the Company on the last
6,584,022,574
trading session before disclosure (share)
Fully diluted earnings per share based on the latest
2.63
share capital above (RMB/share)
Whether there are any corporate bonds
□ Yes √ No
7. Differences in Accounting Data under Domestic and Overseas Accounting
Standards
7.1 Differences in the net profits and net assets disclosed in the financial reports
prepared under China Accounting Standards (CAS) and International Financial
Reporting Standards (IFRS)
□ Applicable √ N/A
No such differences for the Reporting Period.
7.2 Differences in the net profits and net assets disclosed in the financial reports
prepared under CAS and foreign accounting standards
□ Applicable √ N/A
No such differences for the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd.
7.3 Reasons for the differences
□ Applicable √ N/A
8. Key Financial Results by Quarter
RMB'000
2017 Q1 2017 Q2 2017 Q3 2017 Q4
Operating revenues 59,755,914 64,694,151 62,498,801 53,763,435
Net profits attributable to
shareholders of the 4,352,587 6,458,735 4,186,853 2,285,514
Company
Net profits attributable to
shareholders of the
4,263,125 5,628,641 4,078,172 1,644,165
Company before non-
recurring gains and losses
Net cash flow from operating
7,008,571 6,887,361 6,171,710 4,374,981
activities
Whether there are any material differences between the financial indicators above or their
summations and those which have been disclosed in the Company’s quarterly or semi-
annual reports
□ Yes √ No
9. Non-recurring Profits and Losses
√ Applicable □ N/A
RMB'000
Item 2017 2016 2015 Note
Profit or loss from disposal of non-current 1,363,041 -134,258 -242,814
The 2017 Annual Report of Midea Group Co., Ltd.
assets
Government grants accounted for, in the
profit or loss for the current period (except
for the government grants closely related to
1,332,301 1,330,065 1,348,652
the business of the Company and given at
a fixed amount or quantity in accordance
with the State's uniform standards)
Profit generated for the costs of the
Company in the acquisition of subsidiaries,
associates or joint ventures are lower than 19,513
the fair value of the Company’s share in the
identifiable net assets of the investees
Profit or loss from entrusted investments or
1,008,770
entrusted asset management
Corporate restructuring costs (e.g. staff
replacement costs and expenses for
consolidation)
Except for effectively hedging business
related to normal business operations of
the Company, profit or loss arising from the
change in the fair value of held-for-trading
financial assets and liabilities, as well as 77,484 -25,408 369,806
investment profit or loss produced from the
disposal of held-for-trading financial assets
and liabilities and available-for-sale
financial assets
Impairment provision reversal of the
45,752
accounts receivable on which
The 2017 Annual Report of Midea Group Co., Ltd.
the impairment test is carried out
separately
Other non-operating income and
expenditure except above-mentioned -238,243 246,361 -16,398
items
Less: Corporate income tax 702,139 272,925 505,642
Minority interests (after tax) 162,858 -47,656 232,255
Total 1,669,586 1,191,491 1,795,384 --
Explain the reasons if the Company classifies an item as a non-recurring profit/loss
according to the definition in the , or classifies any non-recurring profit/loss item mentioned in the said explanatory
announcement as a recurring profit/loss item
□ Applicable √ N/A
No such cases for the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd.
Section III Business Profile
1. Business Scope in the Reporting Period
1.1 Summary of business scope
Midea is a technologies group in HVAC systems, consumer appliances, robotics & industrial
automation systems, and smart supply chain (logistics). Midea offers diversified products
and services, including HVAC centered on residential air-conditioning, commercial air-
conditioning, heating & ventilation systems; consumer appliances centered on kitchen
appliances, refrigerators, laundry appliances, and various small home appliances; robotics
and industrial automation systems centered on KUKA and joint ventures with YASKAWA;
and smart supply chain (logistics) centered on Annto Logistics Technology Co., Ltd. as a
service platform providing integrated solutions.
Upholding the principle of “Creating Value for Customers”, Midea is committed to improving
lives for consumers. Midea focuses on continuous technological innovation to improve
products and services, and to make life more comfortable and pleasant for around 300
million users, major customers and strategic partners from all fields across the globe every
year.
Midea, a global operating company, has now established a global platform of over 135
thousand employees, around 200 subsidiaries, more than 60 overseas branches and 12
strategic business units, as well as being the majority shareholder of KUKA, a Germany-
based world-leading company in robotics and automation, with a stake of approximately
95%.
1.2 Position in the household appliance industry
Midea has been given excellent credit ratings by the three major international credit rating
agencies, Standard & Poor’s, Fitch Ratings and Moody’s. The Ratings are in leading position
among home appliance manufacturers worldwide as well as among Chinese non State-
owned enterprises.
The 2017 Annual Report of Midea Group Co., Ltd.
Midea ranks No. 450 on the 2017 Fortune Global 500 list, a big step forward compared to
No. 481 in 2016. On the Forbes 2017 Global 2000 list, Midea ranks No. 335, beating down
another 67 competitors on the list from where it was last year. In addition, Midea has climbed
to No. 26 on the WPP 2018 BrandZ Top 100 Most Valuable Chinese Brands list, making
it the highest-ranking among home appliances brands for 3 consecutive years. Also, in the
“National Brands Plan” launched by CCTV, China’s national state-run television broadcaster,
Midea is selected again as one of the top 10 brands and has been recognized by CCTV as
one of China’s Top 10 Listed Companies for two years in a row. At the end of 2017, the
market value of Midea reached RMB363 billion, an incresse of more than 100% for 2017.
Over 20% of it shares are held by international institutional investors.
According to data from AVC, the table below shows the offline market shares and rankings
of the Company’s primary household appliance products (by retail sales) in 2017:
Product category Market share Ranking
Air conditioners 24.6%
Laundry appliances 24.6%
Refrigerators 10.7%
Rice cookers 44.8%
Electric pressure cookers 47.7%
Induction cookers 52.5%
Electric fans and heaters 45.0%
Microwave ovens 45.3%
Water purifiers 23.1%
Electric water heaters 19.6%
Gas water heaters 11.4%
Hobs 7.0%
Range hoods 8.5%
The 2017 Annual Report of Midea Group Co., Ltd.
Midea’s online sales during 2017 exceeded RMB40 billion, up 80% YoY and accounting for
30% of its total domestic sales, which means Midea remains the best-selling household
appliance maker online (by combined sales through major e-commerce channels of Tmall,
JD and Suning). The table below shows the online market shares and rankings of the
Company’s primary household appliance products (by retail sales) in 2017:
Product category Market share Ranking
Air conditioners 24%
Laundry appliances 29%
Refrigerators 15%
Range hoods 17%
Rice cookers 33%
Induction cookers 42%
Electric kettles 25%
Electric heaters 21%
Garment steamers 30%
Electric ovens 21%
Electric water heaters 34%
Gas water heaters 21%
Air to water heat pump 38%
Water dispensers 30%
Water purifiers 12%
1.3 Industry review and outlook
a. The industry of residential air conditioners
In 2017, benefiting from the stable operation of macro economy, the industrial structure and
consumption upgrading, the outburst of emerging market, and other comprehensive effects
The 2017 Annual Report of Midea Group Co., Ltd.
achieved by various positive factors, the household appliance enterprises have made
unremitting effort to perform the supply-side structural reform, enhance the technical
innovation and the product structure optimization, and seize the opportunities for the
consumption and product structure upgrading. In despite of the rise in raw material costs
and the pressure caused by corresponding regulatory policies, main operation indices
realized their steady growth. According to the data from the State Statistics Bureau, the total
output of household refrigerators achieved 86.703 million from January to December in 2017,
up 13.6% year on year; residential air conditioners 180.398 million, up 26.4% YoY; and
domestic washing machines 75.009 million, up 3.2% YoY. From January to December in
2017, the revenue of the household appliance industry amounted to RMB 1513.57 billion
(with a cumulative year-on-year increase of 18.7%), and the total profit RMB 116.93 billion
(with a cumulative year-on-year increase of 6.1%). In 2017, the overall market scale of
kitchen appliance achieved nearly RMB 100 billion and maintained its rapid growth trend.
As indicated by the monitoring data from AVC, the market terminal retail sales of the kitchen
appliances in 2017 achieved RMB 69.4 billion with a year-on-year increase of 9.0%, of which,
the retails sales of range hoods achieved RMB 41.44 billion with a year-on-year increase of
9.7%, gas hobs RMB 21.53 billion with 8.1%, sterilizer RMB 5.38 billion with 7.6%, and
dishwashers RMB 4.4 billion with 129.2%.
In 2017, the online sales in the household appliance industry still maintained its high-speed
growth, and the scale of the B2C domestic household appliance’s online market (including
the mobile terminal) amounted to RMB 490.6 billion with a year-on-year increase of 27.6%.
In addition, the penetration rate of the online market of the household appliance industry
also reached a high record (26.5%), and the online sales of traditional major appliances
(including air conditioners, refrigerators and washing machines etc.) achieved a year-on-
year increase of 70%. As the high-end upgrading of online market, domestic brands begin
to occupy the dominant position.
In 2017, the development of the household appliance industry demonstrated the following
features: 1) due to the rise in raw material costs and the consumption and industrial
upgrading, various home appliance enterprises accelerated the product upgrading and
The 2017 Annual Report of Midea Group Co., Ltd.
updating and improved their high-end layout; 2) while the e-commerce maintained its high-
speed growth, the integration of various retail channels would speed up , and the business
mode of “online+offline+logistics+service” is changing the market; 3) based on the Internet
of Things Technology, with the overall platform of hardware, software and cloud computing, ,
the smart home ecosphere would become the mainstream, including of the remote control,
the ineterconnection of household appliances, and the self-learning; 4) the
“hardware+service” age would come, and the sales of both hardware and services would
become an important feature of the entire household appliance industry; 5) the health
concept would be accepted by more and more people, as people are inclined to pursue the
healthy life, the way to keep human health would be an important factor while designing
various household appliances. Household appliances or various functions positioned to diet
and health, home environment and personal care would become the consumption hot topics;
6) the intelligent manufacturing era of the household appliance industry would gradually
come. As driven by applicable national policies, various household appliance enterprises
would speed up their transformation and intelligentizing process, and the intelligent
ecosystem would thus be established in the future integrating R&D, manufacturing, sales,
user interaction and post-sale services; 7) the development of kitchen appliances and
domestic appliances would drive the increase fo entire industry . As the improvement of the
living standard, demand for the improvement of life quality would become higher, and the
growth rate of kitchen appliances and domestic appliances were expected to be higher than
that of other traditional household appliances.
b. The industry of robotics and industrial automation
As predicted by International Federation of Robotics (IFR), the global sales of industrial
robots would achieve 347,000 units in 2017, year-on-year increase of 18%. In the next three
years, the annual sales of the global industrial robots will maintain the growth rate of 15%,
and the sales of that will exceed 500,000 units in 2020, and the newly-increased total sales
will reach about 1.7 million units. Since 2013, China has consecutively beenthe world’s top
1 robots consumption country, and the growth rate of Chinese robots industrial scale has
basically maintained above 20%, playing an important role in the steady increase of the
The 2017 Annual Report of Midea Group Co., Ltd.
global robots industrial scale. According to the relevant data, the amount of industrial robots
reached 136,600 units in the Chinese market in 2017 with a year-on-year increase of 60%,
accounting for 1/3 of the total output in the world. As stated by IFR, the reason for the rapid
increase of the robots in China is that the robots density in China is relatively low. In China,
robots density is only about 68 robots per every 10,000 workers, and the robots density in
Korea is 10 times of that in China. In terms of robots usage density, Korea now occupies the
dominant position (every 10,000 workers own 631 robots) and is followed by Singapore (488
robots) and Germany (309 robots). In the world, the average robots density is 74 robots per
10,000 workers.
As predicted by the World Health Organization, in 2050, 35% of Chinese people will be over
60 years old, and China will become one of the severest aging countries in the world. The
labor shortage and the rise in labor costs will also propel the rapid growth of demands for
automation and intelligent devices including industrial robots, and the development space
of the domestic robots industry will be broad. Meanwhile, robots will also be widely applied
to various manufacturing processes, and the general equipment manufacturing industry, the
household appliance manufacturing industry, the electronic equipment manufacturing
industry, the rubber and plastics manufacturing industry (expect the motor industry) will
become more and more dependent of the large-scale industrial robots, and such
dependence is also expected to extend to the textile industry and logistics industry (high
labor intensity), the defense and military industry & the civil explosive industry (high risk),
the pharmacy, semiconductor and food industry (high requirements in the clean production
environment), and the ceramics and brick-making industry (harmful to human health).
Therefore, the Chinese industrial robots market in the future is promising, and the market
scale is expected to reach RMB 100 billion.
2. Significant Changes in the Main Assets
2.1 Significant changes in the main assets
Main assets Reasons for any significant change
The 2017 Annual Report of Midea Group Co., Ltd.
Equity assets Up 19% YoY, primarily driven by acquisition of subsidiaries
Intangible assets Up 121% YoY, primarily driven by acquisition of subsidiaries
Construction in progress Up 51% YoY, primarily driven by acquisition of subsidiaries
2.2 Main assets overseas
□ Applicable √ N/A
3. Core Competitiveness Analysis
3.1 As one of the leaders among the global household appliance makers and a
dominator in the major appliance sectors, Midea Group provides high-quality, one-
stop home solutions through its wide product range, complete with full specifications.
As a white goods and HVAC enterprise with a whole industrial chain and full product line,
Midea Group has developed a complete industrial chain combining R&D, manufacturing and
sales of key components and finished products, supported by an industry-leading R&D
centre and the manufacturing technology of core components (such as compressors,
electrical controls and magnetrons), and ultimately based on its powerful capabilities in
logistics and services. Midea is widely known as a top appliance and HVAC brand in China.
Its dominance in the major appliance and HVAC markets means that it can provide a wide
range of competitive product sets. It also means internal synergies in brand awareness,
price negotiation as a whole, customers’ needs research and R&D investments.
Compatibility, coordination and interaction among household appliances have become
increasingly important since smart home is gaining popularity. With a full product line, Midea
has had a head start in providing a combined and compatible e-home platform with
integrated home solutions for customers.
3.2 Global R&D resource integration capabilities, continuing lead in R&D and
technical innovation
The 2017 Annual Report of Midea Group Co., Ltd.
The Group is focused on building a competitive, multi-layered global R&D system centering
on user experience and product functions, which represents world-class R&D input and
strength. With more than RMB20 billion invested in R&D over the past five years, the Group
has set up a total of 20 research centers in nine countries including China, with its R&D
employees over 10,000 and senior foreign experts over 300. As shown in The State of
Innovation Report 2017 released by Clarivate Analytics, Midea Group has processed the
most invention patents in the global household appliance sector for the past three years in
a row. While establishing its own research centers around the world, the Group has also
signed technical cooperation agreements with domestic and foreign scientific research
institutions, such as MIT, UC Berkeley, UIUC, Stanford, Purdue University, Tsinghua
University and the Chinese Academy of Sciences, in order to establish joint labs and build
a global innovation ecosystem. The Group’s long-term focus on building technology,
marketing, product and open innovation systems, building a cutting-edge research system
and building reserves in technology for the mid/long term, has provided a solid foundation
for the Group to maintain technical superiority across the globe.
3.3 A stronger network of global operations developed and designed with Midea’s
continual global resource allocation and investments, globally-advanced
manufacturing capabilities and advantage of scale
The success of a series of global acquisitions and new business expansion moves has
further solidified Midea’s global operations and leading advantages in robotiscs and
automation. With the world’s leading production capacity and experience, and a wide variety
of products as well as its production bases all over the world, the Group has been able to
expand rapidly into the emerging overseas markets and is becoming a stronger competitor
in those mature overseas markets. The Group is one of the biggest manufacturers in the
world for many product categories, which gives it competitive edges in efficiency and cost
that its overseas competitors are unable to obtain. Overseas sales of the Group’s accounts
for close to 50% of the total sales revenue. Its products have been exported to over 200
countries and it owns 18 overseas manufacturing bases and dozens of overseas marketing
units. In addition, with a deep knowledge and understanding on product characteristics and
The 2017 Annual Report of Midea Group Co., Ltd.
product demands in overseas market, Midea is promoting world-wild branding and
expanding through global collaboration and cooperation set up. In this way, the global
competitiveness of Midea is increased steadily.
3.4 Broad channel networks and a well-established smart supply chain system
ensuring the steady growth of Midea’s online and off-line sales
By virtue of years of development and investments, Midea Group has formed an all-
dimensional market coverage. In the mature first and second-tier markets, the Company has
developed and maintained good partnerships with large home appliance retail chains. While
in the broad third and fourth-tier markets, the Company uses flagship stores, specialty shops,
traditional channels and new channels as effective supplements. Already, the Company has
achieved 100% coverage in first and second-tier markets, as well as over 95% coverage in
third and fourth-tier markets. Additionally, the Company's dominance in branding, products,
offline channels and logistics distribution have also created powerful guarantees for the
Company's rapid expansion of its e-commerce business and channels. Achieving the
highest online sales among China’s household appliance manufacturers, Midea’s online
sales exceeded RMB40 billion (around 30% of Midea’s total domestic sales) in 2017.
With advanced smart equipment technology, Annto Logistics Technology Co., Ltd. (Annto),
a subsidiary of Midea, has possessed core competitiveness and advantages in logistics
automation. Annto has established an efficient, customer-oriented and quick response
nationwide warehouses and direct distribution network, which covers 118 logistics centers
nationwide and can offer fast delivery which can be finished in 24 hours within 100 kilometers
and in 48 hours within 200 kilometers. Annto increases its investments in logistics
automation, warehousing robotics, etc. Annto made in-depth research in smart logistics
equipment, smart logistics solutions, big data analysis and artificial intelligence has achieved
remarkable results. Automatic guided vehicles (AGVs) with visual navigation and laser
guiding system developed by Annto has an industry-leading technical performance.
Additionally, the mobile terminal system, the smart tracking equipment and the 3D visual
technology developed by Annto all promote the efficiency of logistics intelligentization.
3.5 A solid foundation for digitalization-driven Industrial Internet operations
The 2017 Annual Report of Midea Group Co., Ltd.
Midea has been promoting a strategy of “Smart Home + Smart Manufacturing”. With
continual research and investment in artificial intelligence (AI), chip, sensor, big data, cloud
computing and other new technologies, Midea has built the biggest AI team in the household
appliance industry, which is committed to enabling products, machines, production
processes and systems to sense, perceive, understand and make decision with the
combination of big data and AI, in order to reduce intermediaries for man-machine
interaction to the minimum and create truly smart appliances without any assistance in
interaction.
Upon years of a digitalized reform characterized by “One Midea, One System, One
Standard”, Midea has successfully materialized operations driven by software and data
through its value chain, connecting end to end and covering R&D, PO, scheduling, flexible
manufacturing, procurement, follow-up of product quality, logistics, installation & post-sale
services, etc. The Group’s cloud platform has made come true C2M flexible manufacturing,
platform-based, modularized and digitalized production techniques, logistics simulation,
intelligent logistics, digital marketing, digital customer service, etc. In addition to applying
these cloud platform solutions to its manufacturing bases across the world and tens of
thousands of its products, the Group also markets these solutions to other companies and
sectors. Therefore, it is safe to say that Midea has built a solid foundation regarding industrial
internet systems.
3.6 Sound corporate governance mechanism and effective incentive mechanism to
provide a solid foundation for Midea’s sustained and steady development
Paying close attention to the construction of a governance framework, regarding its
corporate control, centralization and decentralization systems, the Group formed a mature
management system for professional managers. The divisional system has been in
operation for many years, and its performance-oriented evaluation and incentive mechanism
featuring full decentralization has become a training and growth platform for the Group's
professional managers. The Group's senior management team consists of professional
managers who have been trained and forged in the operational practices of Midea Group.
They have been working for Midea on average for more than 15 years, so they all have rich
The 2017 Annual Report of Midea Group Co., Ltd.
industry and professional experience, a deep understanding of the home appliance industry
throughout both China and the world, and an accurate understanding of the industry’s
functioning environment and corporate operations management. The Company's
advantages in systems and mechanisms have laid a solid foundation for the efficient and
effective business operations, as well as the promising, stable and sustainable future
development of the Company.
So far, the Company has launched four stock option incentive schemes, one restricted share
incentive scheme and three “partner” stock ownership schemes for key managerial and
technical personnel, marking the establishment of a governance structure aligning the
interests of management and shareholders, as well as the formulation of an incentive
scheme comprising long and short-term incentives and restrains.
The 2017 Annual Report of Midea Group Co., Ltd.
Section IV Performance Discussion and Analysis
1. Overview
In the first half of 2017, guided by the three core strategies of “Leading Products, Operational
Efficiency and Global Operations”, Midea focused on improving products, investigating
users’ needs, increasing input to technology, and promoting lean management and excellent
performance through the value chain. As a result, the business objectives set for the year
were successfully fulfilled, sales revenue of each product categories reached fast growth,
and product quality and reputation kept improving. Meanwhile, the integration of the global
acquisitions proceeded well, further strengthening Midea’s competitiveness in various
product categories and global operation synergies. For 2017, Midea achieved, on a
consolidated basis, total revenue of RMB241.919 billion, up 51.35% YoY; and net profits
attributable to Midea Group shareholders of RMB17.284 billion, up 17.70% year-on-year.
In 2017, the Company carried out the following tasks:
a. Focused on users, continuously optimized the product structure and steadily improved
product competitive advantages
—— Residential Air Conditioners: by virtue of the powerful and solid technical advantages
and aggresive and bold innovations, Midea residential air conditioners have won many
honors and wide recognition of all sectors from home and abroad. During the IF Award
appraisal campaign, three kinds of Midea residential air conditioners won the IF Design
awards; during the conference of EU Energy Efficiency Standard Upgrading, Midea actively
participated in establishing corresponding EU standards, advocated the upgrading of the
industrial energy efficiency and improved its global influences; in 2017, Midea won two
awards conferred by the Ministry of Science and Technology--Outstanding Private Science
and Technology Enterprise and First Prize for Innovative Product; during the appraisal
campaign of The 14th Top China Real Estate, Midea residential air conditioners was
awarded “The First-choice Powerful Brand for China Real Estate”; under the organization of
The 2017 Annual Report of Midea Group Co., Ltd.
China National Light Industry Associations, two projects completed by Midea (High IQ Room
Air Conditioner Key Technology Research and Industrialization and Integral-type Air
Conditioner Mute Key Technology Research and Industrialization) were unanimously
authenticated to achieve a leading level in the world by the authoritative expert panel. In the
list of the 19th Chinese Outstanding Patented Invention & Industrial Design published by the
State Intellectual Property Bureau of China, the patents of “the floor air conditioner air duct
structure and indoor unit” and “the intelligent power module and the manufacturing method”
won the Excellence Awards. In 2017-2018 China Air Conditioning Industry Summit Forum,
Midea Air Conditioners won four industrial awards, including Leader Brand on Health &
Comfort Technology of 2017-2018 Air Conditioner Industry, Star of Comfort Technology of
2017-2018 Air Conditioner Industry, King of High Temperature of 2017-2018 Air Conditioner
Industry and Outstanding Chinese Air Conditioner Installer of 2017-2018 Air Conditioner
Industry.
—— Commercial Air Conditioners: depending on its rich technology accumulated in many
years, Midea holds over 1,000 patents. By virtue of its remarkable product advantages and
brand influence, Midea has won more than 50,000 important projects in the world (including
the FIFA World Cup stadiums in Brazil, Rio Olympic Games stadiums,, Singapore Changi
International Airport, the UAE Government Residential Villa, Exhibition halls of the EXPO
2010 and the EXPO 2015 etc.) providing various world-level air solutions, relating to various
fields such as hotels, real estate, education, sports and transportation etc.. In 2017, Midea
won the bidding of 2018 FIFA World Cup Russia Venues Air Conditioner Project, proving its
global competitiveness again. According to relevant monitoring data collected by
Commercial Air Conditioner Market, the share occupied by Midea Air Conditioners in the
Chinese commercial air conditioner market reached 15.4%, ranking first in this industry. The
new-generation MDVS Full-DC Inverter Intelligent Multi-link air conditioner is driven by the
M-Ai Full Frequency Conversion quasi two-stage compression technology and can enable
the 24-hour real-time monitoring, the remote diagnosis, and the automatic repairing
application. As a matter of fact, it has realized an all-round upgrading from three aspects—
energy-saving, comfortableness and intelligence, and won the Golden Prize of The 7th Hong
The 2017 Annual Report of Midea Group Co., Ltd.
Kong Innovative Science and Technology Achievements; in the real estate market, Midea
has developed various commercial air conditioners, including the MDV X series of
commercial air conditioners for the exclusive use of villas, the TR series of residential air
conditioners dedicated to the duplex apartments and the large apartments, the air-water
heat pump as the solution of domestic hot water, the fresh air processing machine as the
indoor air quality solution, the gas boiler for the household heating, the household
appliances dedicated to the “coal to electricity” conversion projectin northern China, and the
air source heat pump, and is able to offer various complete and professional air conditioning,
hot water, fresh air and heating solutions. During the appraisal campaign of The 14th Top
China Real Estate, Midea was awarded “The First-choice Powerful Brand for China Real
Estate”; in the field of rail traffic, Midea commercial air conditioner has occupied the majority
share in the domestic high-speed railway market. According to relevant statistics, Midea has
served 650 high-speed train stations, covering more than 300 cities and involved in more
than 50% of national high-speed train heating and ventilation projects. In 44 cities obtaining
the approval for the construction of metro, Midea has earned orders from 20 cities for their
urban metro engineering, and covered 18 provinces, occupying 45% of all cities with metros.
Midea is also reputed as the brand involving the most cities, covering the longest metro
mileage and receiving the most orders.
—— Laundry Appliances: since the Company has owned the world-leading frequency
conversion technology and various core technologies including the intelligent drive control,
the structural design and the industrial design, it has obtained more than 2,000 patents
related to laundry appliances, and developed its own technical advantages in the industry.
Adhering to the high-quality principle, the Company made great effort to continuously
promote various boutique engineering projects, enhanced the technical innovation and R&D
investment, improved the product structure and enriched the medium and hi-end product
layout. Through strengthening research on consumers’ needs and having an insight into the
users’ pain points and the market demands, the Company has solved the users’ pain points
and further optimized the product structure by various innovative solutions including the i-
Add, the water magic cube, the i-WIFI, the cold wash, the nanometer silver disinfection, the
The 2017 Annual Report of Midea Group Co., Ltd.
anti-allergy, the ultrasonic wash and the classified wash etc. Little Swan has won the AWE
Award, and the Beverly washing machine the Household Appliance Innovation Award. In
addition, the Little Swan Washing & Drying AIO machine has obtained the anti-allergic
testing certificate, and the wall-mounted washing machine the Golden Prize of the 10th
China Outstanding Patented Technology and Industrial Design in Jiangsu Province.
Meanwhile, the Little Swan Testing Center has been authenticated by German CTF
Accredited Laboratory. In 2017 China Washing Machine & Clothes Dryer Industry Summit
Forum, Midea washing machines won six awards. As the technical advantages are further
strengthened and the product’s competitiveness arecontinuously improved, Midea laundry
appliances win wide recognition from the customers and the markets.
—— Refrigerators: the Company will continuously manufacture innovative first-class
products and usher in the product upgrading in the refrigerator industry. Midea BCD-629
Frequency Conversion Air-cooled Refrigerator can present the customers with a new
intelligent experience by means of 360-degree sensitive temperature sensing and various
intelligent settings such as the timely cooling adjustment, the remote temperature control,
the expiry reminder, the online report to repair etc.; Midea Vandelo BCD-532 French
Refrigerator has dug deep into the user’s needs, and won 2017 Red Dot Design Award by
virtue of various delicate designs including 90-degree Door Opening, independent
multifunctional area, cosmeceuticals container on the indoor, the precise control of
temperature and humidity, the full-open drawer, and the curved surface light source in
association with the breathing lights for dynamic disinfection. In 2017 China Refrigerator
Industry Summit Forum, Midea was entitled as Leading Brand on Innovative Technology of
2016-2017 China Refrigerator Industry, 532 Golden Refrigerator won the award of Leading
Fresh Refrigerator of 2016-2017 China Refrigerator Industry, andBCD-525 Refrigerator
obtained the award of Hi-end Intelligent Best-seller Product of 2016-2017 China Refrigerator
Industry.
—— Small Household Appliances: the Company has relied on its continuous technical
innovations to drive the improvement of product, and many small household appliances
have won various authoritative awards at home and abroad for consecutive years, including
The 2017 Annual Report of Midea Group Co., Ltd.
the IF Design Award, the Red Dot Award, and the AWE Award etc., which has manifested
the international first-class product competitiveness of Midea. Midea “Polar Light” range
hood adopted the “Sky-eye Monitoring” system to monitor the real-time temperature
changes and automatically adjust corresponding working conditions without any manual
operation, With the large air flow of 20m/min, the technology of high temperature steam-
cleaning completely solve the user’s trouble; Midea M-BOX “Cooking Robot” Electric Cooker
has won the AWE Award (Golden Award) by virtue of various intelligent functions including
rice identification, rice placement, rice washing, watering and cooking etc.; Midea Vacuum
Transformer IH Electric Cooker has made many breakthroughs in the IH Heating Technology
and is able to intelligently identify the type of rice and match the cooking curve of each rice
type to satisfy different needs of consumers, and it also won the golden prize of the multi-
stage IH Heating Technology at the IFA exhibition; Midea 105kpa High-speed Aroma Electric
Pressure Cooker is able to finish cooking in 19 minutes and perform sterilization at the high-
temperature of 121℃, and steadily ranks the first in the pressure cooker industry; Midea Hi-
end High-speed Blenders of “Gangtiexia” and “Xiaogangpao” have taken the initiative in
applying the eccentric disturbed flow technology and their diversified functions and the high
efficiency in boiling have won positive comments from the world, ranking the first in this
industry; Midea buuilt-in dishwasher has integrated the functioins of Chinese washing
machine, fruit & vegetable cleaner, food waste grinder and kitchen sink to completely solve
various kitchen problems, with one button for disposal of food wastein, and create a cleaning,
comfortable and high-end experience for the customers; Midea free-installation dishwasher
has broken through the restriction of installation and has the diversified cleaning modes,
including 29 minutes cleaning mode, which is specially designed for small families; Midea
Qingyu Smart Fan has applied the biomimetic feather blade design to blow softly and satisfy
the needs of children and the aged, and it can also be linked with the air conditioner to
provide different work programs under different temperature conditions; Midea wireless
hand-held cleaner POWER P75 has applied the fast charging technology and equipped with
the multiple-cone filtering system and the powerful motor to maintain the powerful suction
and the long-lasting electric quantity, and it has won the award of Annual Innovative Product
The 2017 Annual Report of Midea Group Co., Ltd.
at the IFA; Midea Beverly G400E Water Purifier has a compact volume with the 1L/min net
water flux to provide customers the diversified high-quality experience; Midea Beverly I8
Water Heater has applied various innovative technologies including the 3.0T zero-cold water,
an adaptive constant-temperature system and the sine sonic noise reduction technology,
and won 2017 AWE Award.
b. Continuously increased the R&D investment, focused on the innovative R&D, promoted
the global R&D layout and established the leading technology-driven Hi-tech company.
Emphasis has been placed to increase the R&D investment, construct the innovation system
and steadily improve various products. Various platforms including Technical Innovation,
User Innovation and Product Innovation etc. are also applied to support the overall technical
breakthroughs. Meanwhile, special effort is also made tocontinuously perfect Midea 4-grade
R&D System Management Mode, systematically establish the technical innovation planning
system from the product strategic planning to the technical planning, improve the standards
of high-quality project system, simplify and optimize the product platform, focus on
breakthrough in the advenced technology research and the generic technology research,
highlight the overall arrangement of the medium and long-term technical reserves and the
long-term competitiveness improvement, and develop the core selling points of product.
In 2017, great effort was made to continuously improve the global R&D layout of Midea
Group, and the company indeed made progress in speeding up corresponding technical
research and materializing the localized development both in scope and in depth through
integrating the global R&D resources: in Apri, the Emerging Technology Center (ETC) in
Silicon Valley opened, and the America Research Center in Louisville moved to a new office;
in May, the Japan Research Center was established, and Midea European R&D and
Innovation Center was founded in Graz, Austria; in June, Midea User Experience &
Innovation (Shanghai) Lab was formally open for business; in July, Singapore R&D Center
was established, and Germany R&D Center was in preparation. At the end of 2017, Midea
Group established 20 R&D Centers all over the world, covering 9 countries (China included).
While enhancing the global R&D Center layout, Midea has also signed the technical
cooperation agreements with various first-class scientific research institutions at home and
The 2017 Annual Report of Midea Group Co., Ltd.
abroad, including MIT, UC Berkeley, UIUC, Stanford, Purdue University, Tsinghua University
and Chinese Academy of Sciences etc. in order to set up the united lab, deepen the technical
cooperation and create the global innovative ecosystem.
While carrying out the core technology research, Midea has attached great importance to
the transformation of R&D achievements, and continuously won many awards and
certificates. Midea Smart Technology Co., Ltd. was recognizedas Guangdong Provincial
Internet of Things Smart Home Engineering and Technological Research Center, and
Guangdong Provincial White Household Appliances Technical Innovation Center by the
Department of Science and Technology of Guangdong Province. In 2017, 16 technologies
were identified by the authoritative expert panel to achieve the international leading level,
including High IQ Room Air Conditioner Key Technology Research and Industrialization,
Eccentric Disturbed Flow and Multi-layer Steady Fire IH Technology-based High-speed
Blender Research and Industrialization, M-Ai Full Frequency Conversion Quasi Two-stage
Compression Technology and its application to MDVS, the application of spray technology
in the ultra-wide circumstance temperature high-temperature backwater distributed central
heating system, the research and application of household kitchen ventilator intelligent
steam cleaning technology, the research and industrialization of the new-generation
variable-frequency power source applied to the micro-wave oven, the modular easy-to-clean
materials and their application in kitchen appliances, and the AC No-polar Frequency
Conversion Technology etc.. In the field of industrial design, the Company won 72
international design awards in 2017, including 20 German Red Dot Awards, 26 American
IDEA Awards, 17 German IF Awards, 5 Janpanese GMARK Awards and 4 Korean GD
Awards etc.
In 2017, Midea applied for 16,934 patents in total, including 7,714 patents for invention. At
the end of 2017, the number of domestic patents applied by Midea exceeded 70,000 in total
and 35,000 patents were effective. According to The State of Innovation Report 2017 issued
by Clarivate Analytics, the number of patents obtained by Midea in the field of household
appliances has ranked the first in the world for three consecutive years, and also ranked the
first in domestic appliances and kitchen appliances.
The 2017 Annual Report of Midea Group Co., Ltd.
c. Continued with the marketing reform and the channel transformation, improved the
channel efficiency and promoted the rapid growth of e-commerce business.
The Company continued with the transformation of channel, simplified the tiers of offline
channels, canceled the 2-tier dealers, focused on the core channels, completely propelled
the optimization and integration of agents and the empowerment construction, connected
the commodities, capital, information and logistics, promoted the direct sales on various e-
commerce platforms, decreased the channel inventory, largely improved the channel
efficiency, and strengthened the full-category synergy of the domestic sales terminals. In
2017, the Company set up 29 business centers in China in charge of undertaking the full-
category synergy in various regions. Through clearly defining the responsibilities and rights,
the energy and vitality of various business centers can thus be stimulated. Meanwhile, the
united promotion activities in diversified forms were frequently held in line with the actual
situation, achieving remarkable results. About 1,000 core shop managers were employed to
strengthen the shop’s full-category synergy, the shopping guide ordering, the purchase
package and the sharing of shopping guide, further promote the synergistic basic
construction, propel the improvement and upgrading of the domestic sales synergy
proceeding in the aspects of the organizational system, the institutional rules, the methods
and abilities and the resources incentive mechanism, and enhance the channel’s long-term
sustainable development.
Efforts were also made to continuously deepen the channel layout. In 2017, by making use
of Midea multi-category synergistic advantages, the Company continued to develop and
expand six major sales channels including flagship stores, Suning, Gome, Regional Chains
(TOP Clients), micro-region chains (VIP Clients) and township exclusive shops so as to
realize the channel layout at different levels from the villages and towns, the counties to the
first-tier cities. The cooperation with Gome and Suning would be deepened, and it’s also
necessary to actively promote the cooperation with TOP Club and strengthen the
construction of VIP medium and small-sized chain clubs. In the meantime, special effort was
made to cooperate with various house fittings chain platforms. In 2017, Midea took the
initiative to establish the Whole House Appliances Experience Hall, and in line with the
The 2017 Annual Report of Midea Group Co., Ltd.
consumer’s home decoration style and life style, the most suitable intelligent household
appliances package could be customized for the customers. In this case, the consumers
only need to place an order and their demands for all needed appliances could thus be
satisfied without worrying about any installation problem because the Company would
provide the consumers with the one-stop services (including the pre-sales service, the post-
sales service and the installation and delivery service) and devoted to providing more
comfortable home life experience for the users. Moreover, the Company also expanded new
channels, successively developed corresponding platform-based reward points
accumulation business (including banks, communication and aviation), continuously
broadened new retail channels and diversified the cross-industry cooperation.
The e-commerce supply chain system efficiency was enhanced thorough focusing on the
user experience. By taking advantage of Midea’s omni-channel layout featuring “Online User
and Order+Offline Flagship Store+Logistics and Storage”, the Internet-based big data
platform was established by depending on the full-category products. Besides, it’s also
necessary to improve the user operation system, explore the digital precision marketing
based on the user and big data, and promote the omni-channel project through linking the
online products, the offline products, orders and users together. In 2017, the whole online
sales exceeded RMB 40 billion with a year-on-year increase of 70%.
d. Relying on the advanced technology and the intelligent equipment technology, developed
the core competitiveness and capacity advantages based on the automation of logistics.
Relying on Annto Logistics Platform, the Company has established the high-efficiency
integrated storage and delivery service, and continued improving the delivery network based
on the warehouses, strengthened the trunk movement allocating capacity and the system’s
flexibility, integrated the online and offline marketing activities and the logistics, warehousing
and delivery resources, reduced corresponding operating cost, and enhanced the entire
link’s response and the customer experience. In 2017, the Company completed the layout
of the quick-response nationwide direct delivery network to satisfy the customer’s needs.
Since such network covered 118 cities in China, delivery could be finished in 24 hours within
100km, and 48 hours 200km. In the same year, the revenue from the end-to-end integrated
The 2017 Annual Report of Midea Group Co., Ltd.
warehousing and delivery business reached 20% of the total revenue of Annto.
Unremitting effort will be made to develop the core competitiveness based on the automation
of logistics, continuously increase the investment into the automation of logistics and the
warehousing robots, and deepen relevant researches and output favorable results from
various aspects such as the intelligent logistics equipment, the intelligent logistics solutions,
the big data analysis and the artificial intelligence. In 2017, AGV products with proprietary
intellectual property rights of Annto, equipped with AIR-PICK Visual Navigation system and
SLAM laser guiding system, featured advanced and outstanding technical performance, and
corresponding multi-agent robot control program was also worked out and put into use;
through researching, developing and applying the 4GRF mobile terminal, the digitized and
paperless field management could thus be realized with high efficiency and rapid
deployment; the whole logistics process was visible by developing and applying intelligent
tracking devices; the logistics system could be intelligentized by researching and applying
the 3D visual technology.
In 2017, Annto developed its external partners and made concerted effort to establish the
advanced and high-efficiency logistics service system, obviously improving its influences in
this industry. During the Double Eleven period (November 11), Annto efficiently undertook
the Double Eleven Project for Tmall, and various operating indice were in the front rank
among Cainiao Alliance Large Transport Partners. As a result, Annto won the Jinhong Award
of Cainian Alliance, and received wide recognition from the entire industry. In October 2017,
Annto and Jingdong Logistics cooperated with each other to establish the 300,000 m2 cloud
warehouse project (five warehouses in four places), integrating relevant regional logistics
resources, linking corresponding data platform, effectively reducing the operating cost of the
industrial chain, warehousing and delivery, and providing various e-commerce platforms and
brand owners with professional, standardized and high-efficiency e-commerce logistics
services.
e. Implemented the “Digitization 2.0” Project and promoted the whole value chain operating
management by means of digitization.
It’s necessary to actively implement the “Digitization 2.0” Project, and drive the linking of the
The 2017 Annual Report of Midea Group Co., Ltd.
end-to-end business by means of the software and data with the C2M (Customization) as
the guiding principle. Meanwhile, all links (R&D, the supply chain, manufacturing, finance,
and customer service) will be driven by orders and data to realize the flexible delivery. A
digital planning platform has been established, in which way, all data from the value chain
throughout the process will be collected and analyzed by means of the big data platform.
The product concept database is also built to complete the analysis of the product life cycle
data and accordingly support the product digitization planning; in terms of the product
development, Midea propelled the product design of parameterization, standardization,
modularization and platformization, and by implementing the super BOM, sales stimulated
and determined the platform architecture, the module division, and the solidification and
optimization of the modular interface; the digital process management system would be
established to realize the electronization and structuralization of the process management
data. However, C2M Phase I has made a breakthrough in the channel customization.
Namely, the customers can directly customize their products on the selection and matching
platform, which means that Midea has entered into the age of customization.
In addition, great importance shall be attached to promote the digitization of the channel
terminal business and the online management and upgrade the CCS2.0 System. The Midea
Cloud Sales System is newly launched to support and guarantee the customer’s basic
information maintenance, the buying and selling relationship management, the purchase-
sell-stock data management, the price/order/sales management and the implementation of
policies so as to largely enhance the channel inventory’s authenticity control, realize the
information transparency and sharing, and provide corresponding data support and system
guarantee for various sales strategies. In 2017, the RMS System (Retail Management
System) was released to enable two major functions with the improvement of the terminal
marketing efficiency as the core, including the realization of Service Terminal Management
(including the terminal inspection, work diary, promotion management, purchase-sell-stock
data search) and the improvement of shopping guide (including retail reporting, salary
calculation and payment, and live class). CCS, Midea Cloud Sales System and RMS served
as the three fundamental management systems to support the sales in domestic market,
The 2017 Annual Report of Midea Group Co., Ltd.
covering the whole channel, the information management of terminal stores, the delivery,
the distribution and the retail. As a result, all business processes can be completed online,
the information will be visualized and the efficiency improved.
The customer service system has completely combined with the mobile terminals in order
to fully improve the work efficiency of all information staffs and various management levels.
Meanwhile, electronic bills are also available now, including Electronic Invoice and
Electronic Contract, and the electronic signature technology is also introduced. Besides, the
legal person’s identity information and three major certificates can also be authenticated
online. Further, the signing of contract is visualized in real time, which will not only improve
the contract signing efficiency and correctness, but also save corresponding costs.
By means of the integrated planning and purchasing project, the supply chain’s upstream
and downstream can thus be connected; the production can be stimulated and the seamless
connection between the planning and the implementation will be realized. The production
scheduling will be optimized in line with the actual production performance, and the 2-4 hour
scheduling and stock system has also been established to realize the intensive production
scheduling and the intensive delivery, preparing a high-efficiency supply system for the
flexible manufacturing and increasing 83% production scheduling efficiency. Special
attention is also paid to implement the supplier planned production synergy, the logistics
synergy and the full coverage of the vehicle entry booking system, strengthen the capacity
visualization synergy efficiency and the system’s usability, and support the order tracking
throughout the process. By means of the prior order scheduling, it is possible to realize the
quick appraisal of the factory’s orders received based on T+3 Mode, the precise positioning
and efficient analysis of corresponding resources gaps, which will promote the systematical
implementation of the general collecting mode and effectively reduce corresponding product
costs.
It’s also required to expand the big data technology platform, improve the enterprise-level
indicator system and the data operation mechanism in order to visualize the whole process
and drive the full-field data. Related data will be collected based on various products,
materials, techniques and projects for the purpose of data research, and two kinds of R&D
The 2017 Annual Report of Midea Group Co., Ltd.
data sub-products have also been developed including Product Cube and R&D Steward; in
terms of the data from domestic sales and export sales, the omni-channel data monitoring
system shall be established to focus on the product sales structure, the price system and
the market layout, visualizing all data ranging from the order placement to the after-sales
service; the big manufacturing data shall regard the visualization of capacity as the core
objective, and completely improve the digital management on the manufacturing field; big
financial and economic data shall be analyzed and applied to measure the profit and loss,
the profitability and the costs indicators so as to provide a valid data support for the
enterprise’s endogenous growth.
f. Efficiently promoted Midea’s globalized business layout and business growth;
strengthened the operation organization and the compliance management; and accelerated
the cooperative integration of Toshiba Household Appliances Project.
Midea has become a company involved in global operations, and will strictly adhere to its
global business strategies and improve its global layout from various aspects such as R&D,
manufacturing and sales to enhance its ability in global operations. Midea’s global
businesses involve more than 200 countries and regions, and it has established 18 overseas
production bases with more than 35,000 employees from 21 countries. In addition, its
overseas businesses also involve 22 settlement currencies; Midea has successfully set up
its global R&D Center respectively in the U.S.A., Japan, Italy, Germany, India, Singapore,
Austria and Israel etc. In 2017, Midea initiated the “Green Space” Project in India, which will
further enlarge the localized layout of air conditioners, refrigerators, washing machines and
other household appliances in India. Midea has established 24 sales and operation agencies
all over the world, covering the Northern America, the South America, the Europe, the Asia,
the Africa and the Oceania in order to stimulate and strengthen its localized operations
overseas. In 2017, the business revenue from Midea’s overseas companies increased
rapidly, and the exports of residential air conditioners, micro-wave ovens, refrigerators,
dishwasher, water heaters, fans, washing machines and induction cookers continued
keeping ahead of other domestic household appliances enterprises. Midea’s brand
awareness is promoted steadily and continuously.
The 2017 Annual Report of Midea Group Co., Ltd.
Special measures are taken to strengthen the control of overseas risks; the governance,
legal affairs and compliance system framework geared to overseas companies is also
established; proceeding from the board operation, the license management, the internal
control mechanism, the anti-monopoly policy, the anti-corruption policy, the export control
and the product liability, various mechanisms will be promoted and implemented including
the affiliate transactions, the internal loan, the transnational capital transfer and the
protection of the shareholder’s equity. By establishing the regional headquarters of Midea
Group, corresponding internationalized corporate governance principles will be further
implemented in line with the actual local conditions and applicable laws and regulations.
In 2017, emphasis was placed to speed up the restructuring of core businesses, value chain,
business flow and other structural adjustments, continue implementing the Toshiba
Household Appliances Global Operating Strategy, cooperate with Toshiba to finish the cross
licensing between brand and technology, the arrangement of internal and external supply
chain, the channel licensing and the integration of corporate management, and create
corresponding environment to support the self-owned brand strategy of Midea Group. In
2017, Toshiba took effective measures to conduct and deepen the reform and pay special
attention to the structural adjustment. Firstly, Toshiba completely cooperated with
corresponding Midea Household Appliances Business Department to enhance the product
layout of Toshiba Brand in the global market and accelerate the realization of cooperative
effect throughout the value chain covering the brand, channel, innovative R&D, supply chain
and quality manufacturing together with Midea Product & Business Department. In 2017,
there were over 75 cooperative projects. Secondly, through introducing the international 632
business system, the global IT basic platform and the internal system process were further
established and the operation efficiency was also improved. Thirdly, the strategy of “Further
Expand the Japanese Market and Focus on Overseas Countries” was firmly implemented,
and various measures were also taken to arrange the e-commerce business in order to
make comprehensive preparations for turning losses into gains in 2018 from such aspects
as market, product, system and mechanism. However, Toshiba realized an annual revenue
of over RMB 15 billion in 2017. Although Toshiba did not make profit on in the year due to
The 2017 Annual Report of Midea Group Co., Ltd.
various external factors (including the YEN Exchange Rate, the rise of raw material prices
and the complicated global economic situation), its core household appliances business
increased. Especially in the intensely competitive Japanese market, the shares ofToshiba
Refrigerators, washing machines and air conditioners still rosesteadily.
g. Seized the opportunity of global development for robotics and automation system
business, and cooperatively promote the rapid growth of the business.
Concerted effort was made to promote the rapid growth of KUKA Robotics business. In 2017,
the revenue of KUKA Robotics business achieved a year-on-year increase of 18%, reaching
the highest level in history, and new orders were obtained from time to time as well. The
company took effective measures to expand its businesses in China from various aspects
such as the application of intelligent manufacturing, the customer resources sharing, the
development of logistics and medical automation business, the collaboration of
governmental resources and the support.
KUKA Robotics has always maintained its investment into R&D, and explored corresponding
market expansion and layout. A transition will also be finished from the hardware advantages
to the software, intelligent manufacturing data system, cloud platform and the overall
solutions for the purpose of enhancing the upgrading of Industry 4.0. In terms of networking,
the Cloud-based software platform KUKA Connect developed by KUKA can enable the
customers to access to relevant robotic data at any place in the world, in which way, the
production performance and efficiency can thus be improved; in light of Human and Robot
Collaboration, KUKA Sensing System can narrow or even remove the security fence
between operators and robots. In 2017, KUKA invested in the Cloud Technology and the
Internet of Things, and strengthened the cooperative development with various partners.
Visual Components merged by KUKA is specialized in the 3D simulation software solutions
geared to the factory planning, and such simulation technology will effectively enhance the
application ability based on the KUKA simulation ecosystem. Besides, KUKA also invested
Device Insight GmbH (an Internet of Things company in Munich) which is a leading IoT
company specialized in the IoT platform, the automation industry and the network products.
Based on such investment, KUKA is expected to strengthen and broaden its professional
The 2017 Annual Report of Midea Group Co., Ltd.
knowledge and domains related to the Internet of Things and improve its innovation ability
in the field of Industry 4.0. Meanwhile, KUKA has also deepened the strategic partnership
with Volkswagen Enterprise Research Company to jointly develop the creative robotics
concept geared to vehicles in the future. The company has planned and built a production
system applied to manufacture various battery modules and high-tension batteries that are
suitable for the electric automobiles produced by leading manufacturers in Europe. In the
field of service robots, KUKA and Volkswagen cooperated with each other to research the
CarLa, the charging robot for electric automobiles.
Further efforts are made to integrate the Midea Robotics and automation business platform
and the drive control business. The Robotics Platform of Midea is capable of working out
corresponding design standards and customizing motion control solutions for the
automation system suppliers, and contains a series of products including the hardware servo
motor, the controller and the encoder etc. Through integrating corresponding drive control
business and investing the development of ASR, AI and visual and sensing technology,
Midea further expands the application of Robotics & automation system and such as
Intelligent Manufacturing, Intelligent Logistics, Smart Home and Rehabilitation Therapy etc.
Meanwhile, Midea has also cooperated with others to research and develop the intelligent
logistics robotics system, and now 40 sets are put into production in commission, which has
been continuously tested for more than 1,400 hours, and 21 patents for invention and 12
patents for utility models in total has been applied. As a result, the traditional work mode will
be overturned and replaced by a brand-new mode, which will satisfy the demand for small
batches & rich varieties, largely improve the order picking efficiency and the warehouse
utilization rate, reduce the error rate and decrease the overall logistics costs.
The robotic platform team construction is accelerated. In 2017, Midea Automation Business
Platform newly introduced a professional team consisting of 120 talents in charge of
coordinating with various units to work out the medium and long-term automation planning,
implementing the standardized management geared to the robotic and professional
equipment, integrating internal and external resources, carrying out the key automation
demonstration project, and gradually establishing Midea’s ability and influences in
The 2017 Annual Report of Midea Group Co., Ltd.
formulating the overall solutions in the field of 3C Household Appliances and Automation.
The product application of Midea Yaskawa Service Robotics Co., Ltd. is also accelerated.
At present, several products have obtained corresponding ISO13485 Medical Equipment
Authentication, and 5 new products have obtained CFDA Medical Equipment Authentication.
In 2017, 3 of the 5 new rehabilitation exercise products were put into volume production.
h. Deepen the industrial layout for Smart Home Appliance and promote the implementation
of Smart Home Appliance Strategy.
In 2017, Midea Smart Technology would continue and strengthen the implementation of the
M-Smart Strategy, optimize the Cloud Platform, Meiju, Communication Module, Intelligent
Security System and the post-sales service, and continuously improve the customer
satisfaction. Meanwhile, special effort is also made to expand the overseas Internet of
Things+ Business, improve the integration of Echo/Alexa ecology. The Smart Home Layout
can provide strong support for Midea’s Globalization Strategy.
The Company has always increased the investment into the R&D and market resources of
intelligent household appliances, and continuously enhanced the market competitiveness of
various intelligent household appliances. In March 2017, Midea Smart Technology launched
the Internet of Things Security Wi-Fi Security Chip which was designed in conformity with
the national financial security demand standards and reached the highest security level
standard set by China Information Security Evaluation Center in the field of USBKEY. In May
2017, Midea Smart Technology passed corresponding security products testing conducted
by PICC, and various intelligent products were insured by PICC. In fact, Midea is the first
manufacturer in this industry to purchase corresponding product liability insurance for its
products. In December 2017, Midea Smart Technology released Meiju APP 4.0 with the new
and upgraded page and simplified operation procedures. Having an insight into various
frequently-used functions, it is able to design corresponding intelligent services for the user
according to the specific scenario. In 2017, Midea Smart Technology obtained 7 international
industrial design awards (including IF, Red Dot, and IDEA etc.), and its patent for invention
won the Excellence Award of The 19th Chinese Outstanding Patented Invention & Industrial
Design.
The 2017 Annual Report of Midea Group Co., Ltd.
The Company has also made great effort to propel the construction of M-Smart big platform
ecosphere, developed the third-party IoT platform Meizhi by adhering to the concept of M-
Smart Inside, promoted the cooperation with Hengda, Country Garden, Vanke and other real
estate companies, and realized the combination of Smart Community with Smart Home. In
the meantime, it’s also necessary to completely open the M-Smart system to the public, and
strengthen the external cooperation from such aspects as Cloud-to-Cloud Docking, the third-
party mobile terminal control, the intelligent hardware access and the introduction of the
third-party content resources. As a result, 105 partners have been introduced in total, and
corresponding strategic partnerships are also established with China Mobile, Huawei,
SGCC, COFCO, HONYAR, OnStar, Whaley, Ayla Networks, DOOYA and Hutlon etc.
Midea Smart Technology has taken the lead in establishing its systematical service capacity.
In 2017, Midea Smart Technology launched a series of independently-developed new
products and new technologies, including the intelligent gateway, intelligent door lock, the
combustible gas detector, the smoke detector and the smart panel etc. for the purpose of
creating a safe, convenient and cozy living environment for the users. As a matter of fact, it
is not easy for Midea Smart Technology to become a provider that is able to offer the overall
smart home solutions including chips, Cloud and Terminal.
i. Improved the corporate governance level and enhanced the long-term incentive schemes.
In 2017, Midea launched the first restricted share incentive scheme and the fourth stock
option incentive scheme for its medium and top management and core business backbones
as well as the third Midea Group “Partner” scheme for its core management posennel that
play a significant role in the Company’s overall business performance and medium and long-
term development in order to encourage the management to take responsibility for the
Company’s long-term value and growth. The incentive schemes have helped to align the
long-term interests of senior management and key personnel with that of all shareholders,
and the corporate governance has been further improved.
The 2017 Annual Report of Midea Group Co., Ltd.
2. Analysis of Main Business
2.1 Overview
Same with the contents presented in “1. Overview” of this section
√ Yes □ No
See “1. Overview” of this section.
2.2 Revenues and Costs
2.2.1 Breakdown of operating revenues
Unit: RMB’000
2017
As a percentage As a percentage
YoY Change (%)
Amount of total operating Amount of total operating
revenues (%) revenues (%)
Total 240,712,301 100% 159,044,041 100% 51.35%
By business segment
Manufacturing 221,137,529 91.87% 145,266,238 91.34% 52.23%
By product category
HVAC 95,352,449 39.61% 68,726,349 43.21% 38.74%
Consumer
98,748,018 41.02% 76,539,889 48.12% 29.02%
appliances
Robotics and
automation 27,037,062 11.23% - - -
systems
By geographical segment
The 2017 Annual Report of Midea Group Co., Ltd.
PRC 136,756,269 56.81% 94,943,776 59.70% 44.04%
Outside PRC 103,956,032 43.19% 64,100,265 40.30% 62.18%
Note: Consumer appliances in the table above primarily include refrigerators, laundry equipment, kitchen
appliances and small domestic appliances.
2.2.2 Business segments, products or geographical segments contributing over 10%
of the operating revenues or profits
√ Applicable □ N/A
Unit: RMB’000
YoY change of YoY change of YoY change of
Operating Gross profit
Operating cost operating operating cost gross profit
Revenue margin
revenue (%) (%) margin (%)
By business segment
Manufacturing 221,137,529 162,510,418 26.51% 52.23% 57.40% -2.42%
By product category
HVAC 95,352,449 67,664,335 29.04% 38.74% 40.94% -1.11%
Consumer
98,748,018 71,722,720 27.37% 29.02% 29.85% -0.46%
appliances
Robotics and
automation 27,037,062 23,123,363 14.48% - - -
systems
By geographical segment
PRC 136,756,269 97,432,060 28.75% 44.04% 44.48% -0.22%
Outside PRC 103,956,032 83,028,492 20.13% 62.18% 72.34% -4.71%
Under the circumstances that the statistical standards for the Company's main business
data adjusted in the Reporting Period, the Company's main business data in the recent year
The 2017 Annual Report of Midea Group Co., Ltd.
is calculated based on adjusted statistical standards at the end of the Reporting Period
□ Applicable √ N/A
2.2.3 Whether revenue from physical sales is higher than service revenue
√ Yes □ No
Business
Item Unit 2017 2016 YoY Change (%)
segment
In thousand
Sales 408,024.5 317,277.2 28.60%
units/sets
Home appliances
Output Ditto 420,739.3 327,127.4 28.62%
Inventory Ditto 47,235.0 34,732.3 36.02%
Note: The aforementioned statistics about output, sales and inventory were calculated based on internal
standards. Lighting products and robotics and automation systems are excluded.
Reason for any over 30% YoY movements in the data above
√ Applicable □ N/A
The 36.02% YoY increase in the inventory was mainly due to an increase in orders.
2.2.4 Execution of significant sales contracts in the Reporting Period
□ Applicable √ N/A
2.2.5 Breakdown of operating cost
By product category
Unit: RMB’000
2017
Product YoY Change
Item As a As a
category Amount Amount (%)
percentage of percentage of
The 2017 Annual Report of Midea Group Co., Ltd.
total operating total operating
cost (%) cost (%)
Raw materials 119,259,564 85.56% 87,868,769 85.11% 35.72%
Home Labor costs 8,502,610 6.10% 6,267,030 6.07% 35.67%
appliances Depreciation 2,495,028 1.79% 2,330,741 2.26% 7.05%
Energy 2,090,806 1.50% 1,574,007 1.52% 32.83%
2.2.6 Changes in the scope of the consolidated financial statements for the Reporting
Period
√ Yes □ No
For the main subsidiaries included in the consolidated financial statements of the current
year, please refer to Note 5 and Note 6 to the Financial Statements herein. For the newly
consolidated companies, see Note 5, 5.1 and 5.2, (a), and they primarily include:
Guangdong Midea Electric Co., Ltd., Guangdong Midea Smart Robots Co., Ltd., Chongqing
Midea Microcredit Co., Ltd., Guangdong Midea GiMAY Technology Co., Ltd., Hefei Midea
Smart Technology Co., Ltd., Guangdong Midea Kafei Coffee Machine Manufacturing Co.,
Ltd., Midea Electric Netherlands (I) B.V., KUKA Aktiengesellschaft, SMC, Dongguan Kafei
Electric Manufacturing Co., Ltd. and Fujitsu (Guangdong) Technology Service Co., Ltd. For
the companies deconsolidated in the current year, see Note 5, 5.2, (b).
2.2.7 Major changes in the business, products or services in the Reporting Period
□ Applicable √ N/A
2.2.8 Main customers and suppliers
Major customers of the Company
Total sales to top five customers (RMB'000) 23,812,870
Total sales to top five customers as a percentage of 9.89%
The 2017 Annual Report of Midea Group Co., Ltd.
the total sales for the year (%)
Total sales to related parties among top five
customers as a percentage of the total sales for the
year (%)
Information on top five customers
As a percentage of the total sales
No. Customer Sales revenue (RMB'000)
revenue (%)
1 Customer A 12,027,783 5.00%
2 Customer B 4,847,226 2.01%
3 Customer C 3,135,444 1.30%
4 Customer D 2,001,579 0.83%
5 Customer E 1,800,838 0.75%
Total -- 23,812,870 9.89%
Major suppliers of the Company
Total purchases from top five suppliers (RMB'000) 9,800,909
Total purchases from top five suppliers as a
5.73%
percentage of the total purchases for the year (%)
Total purchases from related parties among top five
suppliers as a percentage of the total purchases for
the year (%)
Information on top five suppliers of the Company
As a percentage of the total
No. Supplier Purchase (RMB'000)
purchases (%)
1 Supplier A 2,464,169 1.44%
2 Supplier B 2,106,841 1.23%
3 Supplier C 1,892,036 1.11%
The 2017 Annual Report of Midea Group Co., Ltd.
4 Supplier D 1,747,344 1.02%
5 Supplier E 1,590,519 0.93%
Total -- 9,800,909 5.73%
2.3 Expense
Unit: RMB'000
YoY Change
2017 2016 Reason for any significant change
(%)
Selling and
Sales increase and consolidation of KUKA and
distribution 26,738,673 17,678,451 51.25%
TLSC
expenses
General and
Sales increase and consolidation of KUKA and
Administrative 14,780,236 9,620,777 53.63%
TLSC
expenses
Finance costs 815,949 -1,005,979 181.11% exchange losses and loan interest increase
2.4 R&D investment
√ Applicable □ N/A
In the Reporting Period, Midea continued to build a “customer-oriented” operating system.
It promoted technological innovation and product improvement through improving its global,
open R&D system covering four links from prior study to product development. Also, a world-
class R&D team has been set up and R&D investment has been increased to work on core
technology, basic technology and future technology. In this way, Midea is able to develop
advanced, quality products with unique selling points appealing to customers and create
differential competitive edges. For more details about R&D investment and product
competitiveness improvement, please refer to the relevant contents presented in “Core
Competitiveness Analysis” under “Section III Business Profile” and “Overview” under
The 2017 Annual Report of Midea Group Co., Ltd.
“Section IV Operating Performance Discussion and Analysis”.
Information about R&D input
2017 2016 YoY Change (%)
Number of R&D personnel 10,520 8,741 20.35%
R&D personnel as a
10.33% 9.07% 1.26%
percentage in total employees
R&D input (RMB’000) 8,500,000 6,045,800 40.59%
R&D input as a percentage in
3.53% 3.80% -0.27%
operating revenues
Capitalized R&D input (RMB
- - -
Yuan)
Capitalized R&D input as a
percentage in total R&D - - -
investment
Note: The data in the table above excludes those of TLSC and KUKA.
Reason for any significant YoY change in the percentage of the R&D investment in the
operating revenues
□ Applicable √ N/A
Reason for any sharp variation in the percentage of the capitalized R&D investment and
rationale
□ Applicable √ N/A
2.5 Cash flow
Unit: RMB'000
Item 2017 2016 YoY Change (%)
Subtotal of cash inflows from
207,315,612 162,658,812 27.45%
operating activities
Subtotal of cash outflows due to
182,872,989 135,963,803 34.50%
operating activities
The 2017 Annual Report of Midea Group Co., Ltd.
Net cash flow from operating
24,442,623 26,695,009 -8.44%
activities
Subtotal of cash inflows from
89,296,086 76,323,327 17.00%
investing activities
Subtotal of cash outflows due to
124,035,694 96,104,411 29.06%
investing activities
Net cash flow from investing
-34,739,608 -19,781,084 -75.62%
activities
Subtotal of cash inflows from
63,838,091 35,236,372 81.17%
financing activities
Subtotal of cash outflows due to
44,186,446 35,076,460 25.97%
financing activities
Net cash flow from financing
19,651,645 159,912 12,189.04%
activities
Net increase in cash and cash
9,317,923 7,326,413 27.18%
equivalents
Explanation of why the data above varied significantly
√ Applicable □ N/A
a. Primarily driven by increase in net cash paid to acquire subsidiaries, net cash flow from
investing activities decreased 75.62% from last year.
b. Primarily driven by increase in borrowings obtained, net cash flow from financing activities
increased 12,189.04% from last year.
Explanation of main reasons leading to the material difference between net cash flow from
operating activities during the Reporting Period and net profit for the year
□ Applicable √ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
3. Analysis of Non-Core Business
□ Applicable √ N/A
4. Assets and Liabilities
4.1 Material changes of asset items
Unit: RMB'000
31 December 2017 31 December 2016
As a As a Change in
Explanation about any
percentage of percentage percentage
Amount Amount material change
total assets of total (%)
(%) assets (%)
Cash at bank
48,274,200 19.46% 27,169,118 15.93% 3.53%
and in hand
Accounts
17,528,717 7.06% 13,454,511 7.89% -0.83%
receivable
Inventories 29,444,166 11.87% 15,626,897 9.16% 2.71%
Investment
420,802 0.17% 494,122 0.29% -0.12%
properties
Long-term
equity 2,633,698 1.06% 2,211,732 1.30% -0.24%
investments
Fixed assets 22,600,724 9.11% 21,056,791 12.34% -3.23%
Construction
879,576 0.35% 580,729 0.34% 0.01%
in progress
Short-term
2,584,102 1.04% 3,024,426 1.77% -0.73%
borrowings
The 2017 Annual Report of Midea Group Co., Ltd.
Long-term
32,986,325 13.30% 2,254,348 1.32% 11.98%
borrowings
4.2 Assets and liabilities measured at fair value
√ Applicable □ N/A
Unit: RMB'000
Profit or
Cumulative
loss from
fair value Purchased
Opening change in Sold in the Closing
Item change Other in the
balance fair value period balance
charged to period
during the
equity
period
Financial assets
1. Financial assets
with fair value
changes included in
profit or loss
(excluding derivative
financial assets)
2. Derivative financial
424,163 -119,132 349,508 59,646 714,185
assets
3. Financial assets
33,627,760 - 147,634 -10,128 26,517,841 38,069,681 22,213,426
available for sale
Sub-total of financial
34,051,923 -119,132 497,142 49,518 26,517,841 38,069,681 22,927,611
assets
Investment
properties
The 2017 Annual Report of Midea Group Co., Ltd.
Productive living
assets
Others
Sub-total of the
34,051,923 -119,132 497,142 49,518 26,517,841 38,069,681 22,927,611
above
Financial liabilities 96,102 -94,087 -4,387 94,680 92,308
Whether there were any material changes on the measurement attributes of major assets
of the Company during the Reporting Period
□ Yes √ No
4.3 Restricted asset rights as of the end of this Reporting Period
As of the end of this Reporting Period, there were no such circumstances where any main
assets of the Company were sealed, distrained, frozen, impawned, pledged or limited in any
other way.
5. Investment made
5.1 Total investment amount
√ Applicable □ N/A
Total investment amount of Total investment amount of last
YoY Change (%)
Reporting Period (RMB’000) year (RMB’000)
124,035,694 96,104,411 29.06%
5.2 Significant equity investment made in the Reporting Period
√ Applicable □ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
Unit: RMB'000
Invest Inde
Main The Return
Sour ment x to
busine Compa on Discl
Way ce of Join Term Type progre Proje Litiga discl
ss ny’s invest osure
Invest of Amount of inves t of of ss as cted tion osed
scope stake ment in date
ee invest investment tment inve inves inves of earni invol infor
of in Reporti (if
ment capit stor tment tment balanc ngs ved mati
invest investe ng any)
al e sheet on (if
ee e Period
date any)
Smar
Acqui Long
Smart t
sition 81.04 Borro Non - Compl 675,41
KUKA autom 27,001,856 auto N/A None - -
in % wing e lastin eted
ation matio
cash g
n
675,41
Total -- -- 27,001,856 -- -- -- -- -- -- - -- -- --
5.3 Significant non-equity investments ongoing in the Reporting Period
□ Applicable √ N/A
5.4 Financial investments
5.4.1 Securities investments
□ Applicable √ N/A
No such cases in the Reporting Period.
5.4.2 Derivatives investments
√ Applicable □ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
Unit: RMB'0,000
Closin
g
invest
Rel
ment
atio Purc Amoun
Rel Sold amoun
nshi hase t Actual
ate Type Initial Opening in Closing t as a
Oper p d in provid gain/loss
d of investm Starting Ending investm Repo investm percen
ating with Repo ed for in
tran deriv ent date date ent rting ent tage of
party the rting impair Reporting
sact ative amount amount Perio amount the
Co Perio ment (if Period
ion d Compa
mp d any)
ny’s
any
closing
net
assets
Futur No Futur
es es 01/01/20 31/12/ 10,096.9
No -11.5 -11.5 - - - 6,588.20 0.09%
comp contr 17 2017
any acts
No Forw
ard
32,817.6 01/01/20 31/12/ 32,817.6 55,599.5 107,061.
Bank No forex - - - 0.75%
0 17 2017 0 0
contr
acts
32,806.1 32,806.1 62,187.7 117,157.
Total -- -- - - - 0.84%
0 0 0
Source of derivatives
All from the Company’s own money
investment funds
The 2017 Annual Report of Midea Group Co., Ltd.
Litigation involved (if
N/A
applicable)
Disclosure date of
theannouncement
about the board’s
31/03/2017
consent for the
derivative investment
(if any)
Disclosure date of the
announcement about
the general meeting’s
22/04/2017
consent for the
derivative investment
(if any)
For the sake of eliminating the cost risk of the Company's bulk purchases of raw
materials as a result of significant fluctuations in raw material prices, the Company not
Risk analysis of
only carried out futures business for some of the materials, but also made use of bank
positions held in
financial instruments and promoted forex funds business, with the purpose of avoiding
derivatives during the
the risks of exchange and interest rate fluctuation, realizing the preservation and
Reporting Period and
appreciation of forex assets, reducing forex liabilities, as well as achieving locked-in
explanation of control
costs. The Company has performed sufficient evaluation and control against
measures
derivatives investment and position risks, details of which are described as follows:
(Including but not
1. Legal risk: The Company's futures business and forex funds businesses shall be
limited to market risk,
conducted in compliance with laws and regulations, with clearly covenanted
liquidity risk, credit
responsibility and obligation relationship between the Company and the agencies.
risk, operational risk,
Control measures: The Company has designated relevant responsible departments to
legal risk, etc.)
enhance learning of laws and regulations and market rules, conducted strict
examination and verification of contracts, defined responsibility and obligation well,
The 2017 Annual Report of Midea Group Co., Ltd.
and strengthened compliance check, so as to ensure that the Company's derivatives
investment and position operations meet the requirements of the laws and regulations
and internal management system of the Company.
2. Operational risk: Imperfect internal process, staff, systems and external issues may
cause the Company to suffer from loss during the course of its futures business and
forex funds business.
Control measures: The Company has not only developed relevant management
systems that clearly defined the assignment of responsibility and approval process for
the futures business and forex funds business, but also established a comparatively
well-developed monitoring mechanism, aiming to effectively reduce operational risk by
strengthening risk control over the business, decision-making and trading processes.
3. Market risk: Uncertainties caused by changes in the prices of bulk commodity and
exchange rate fluctuations in foreign exchange market could lead to greater market
risk in the futures business and forex funds business. Meanwhile, inability to timely
raise sufficient funds to establish and maintain hedging positions in futures operations,
or the forex funds required for performance in forex funds operations being unable to
be credited into account could also result in loss and default risks.
Control measures: The futures business and forex funds business of the Company
shall always be conducted by adhering to prudent operation principles. For futures
business, the futures transaction volume and application have been determined strictly
according to the requirements of production & operations, and the stop-loss
mechanism has been implemented. Besides, to determine the prepared margin
amount which may be required to be supplemented, the futures risk measuring system
has been established to measure and calculate the margin amount occupied, floating
gains and losses, margin amount available and margin amount required for intended
positions. As for forex funds business, a hierarchical management mechanism has
been implemented, whereby the operating unit which has submitted application for
funds business should conduct risk analysis on the conditions and environment
affecting operating profit and loss, evaluate the possible greatest revenue and loss,
The 2017 Annual Report of Midea Group Co., Ltd.
and report the greatest acceptable margin ratio or total margin amount, so that the
Company can update operating status of the funds business on a timely basis to
ensure proper funds arrangement before the expiry dates.
Changes in market
prices or fair value of
derivative products
during the Reporting
1. Gain from futures contracts during the Reporting Period was RMB100,969,000.
Period,
2. Gain from forward forex contracts during the Reporting Period was
specific methods
RMB1,070,610,000.
used and relevant
3. Public quotations in futures market or forward forex quotations announced by the
assumption and
Bank of China are used in the analysis of derivatives fair value.
parameter settings
shall be disclosed for
analysis of fair value
of derivatives
Explanation of
significant changes in
accounting policies
and specific financial
accounting principles
in respect of the
Company's No change
derivatives for the
Reporting Period as
compared to the
previous Reporting
Period
The 2017 Annual Report of Midea Group Co., Ltd.
Special opinions The Company's independent directors are of the view that the futures hedging
expressed by business is an effective instrument for the Company to eliminate price volatility and
independent directors implement risk prevention measures through enhanced internal control, thereby
concerning the improving the operation and management of the Company; the Company's foreign
Company's exchange risk management capability can be further improved through the forex funds
derivatives business, so as to maintain and increase the value of foreign exchange assets and
investment and risk the abovementioned investment in derivatives can help the Company to fully bring out
control its competitive advantages. Therefore, it is practicable for the Company to carry out
derivatives investment business, and the risks are controllable.
5.5 Use of funds raised
□ Applicable √ N/A
No such cases in the Reporting Period.
6. Sale of Major Assets and Equity Interests
6.1 Sale of major assets
□ Applicable √ N/A
No such cases in the Reporting Period.
6.2 Sale of major equity interests
□ Applicable √ N/A
7. Analysis of Major Subsidiaries
Main subsidiaries and joint stock companies with an over 10% influence on the
Company’s net profit
Register Operatin Operatin
Company name Company Business Total Net Net
ed g g profit
The 2017 Annual Report of Midea Group Co., Ltd.
type scope capital assets assets Revenu (in RMB profit
(in RMB (in RMB e (in million) (in RMB
million) million) RMB million)
million)
Guangdong Midea
Manufacturing
Kitchen Appliances USD72 10,658.7 15,562.2
Subsidiary of home 2,908.31 1,961.87 1,717.38
Manufacturing Co., million 6
appliances
Ltd.
Guangdong Midea
Air- Manufacturing
RMB854 35,569.5 38,027.7
conditioning Equip Subsidiary of air 3,803.92 625.60 685.67
million 9
ment Co., Ltd. conditioners
Foshan Shunde
Midea Electric Manufacturing
USD42
Appliance Subsidiary of home 7,146.71 3,252.45 8,661.41 1,336.89 1,148.25
million
Manufacturing Co., appliances
Ltd.
Wuhu Midea
Kitchen &
Manufacturing
Bathroom Electric RMB60
Subsidiary of water 5,883.87 771.54 6,895.77 681.61 608.60
Appliances million
heaters
Manufacturing Co.,
Ltd.
Acquisition and disposal of subsidiaries during the Reporting Period
√ Applicable □ N/A
For the main subsidiaries included in the consolidated financial statements of the current
year, please refer to Note 5 and Note 6 to the Financial Statements herein. For the newly
The 2017 Annual Report of Midea Group Co., Ltd.
consolidated subsidiaries, see Note 5, 5.1 and 5.2, (a), and they primarily include:
Guangdong Midea Electric Co., Ltd., Guangdong Midea Smart Robots Co., Ltd., Chongqing
Midea Microcredit Co., Ltd., Guangdong Midea GiMAY Technology Co., Ltd., Hefei Midea
Smart Technology Co., Ltd., Guangdong Midea Kafei Coffee Machine Manufacturing Co.,
Ltd., Midea Electric Netherlands (I) B.V., KUKA Aktiengesellschaft, SMC, Dongguan Kafei
Electric Manufacturing Co., Ltd. and Fujitsu (Guangdong) Technology Service Co., Ltd. For
the newly deconsolidated subsidiaries, see Note 5, 5.2, (b).
8. Structured Bodies Controlled by the Company
□ Applicable √ N/A
9. Outlook for the Future Development of the Company
9.1 Development strategies of the Company
The Company will deepen its transformation towards a strategic vision of “becoming a world-
leading technologies group in consumer appliances, HVAC systems, robotics and industrial
automation systems, and smart supply chain (logistics)”. It will keep developing advanced
products based on the customer’s needs by way of technological innovation, quality
improvement and quality product programs. It will promote efficiency-driven growth by
improving management, manufacturing and asset efficiency to create more cost efficiency.
It will also promote global operations and try to lay a solid foundation in this regard through
promoting its own branded products and strengthening law compliance. Additionally, it will
strengthen its robotics and industrial automation operations to create new business and
growth points. Meanwhile, it will push forward its Digitalization 2.0 program to improve
operation and management through the entire value chain by way of digitalization, so as to
construct its own industrial internet ecosystem.
9.2 Key operation points in 2018
a. It will focus on endogenous growth by further improving operation and management
through the entire value chain. It will launch a new round of transformation and upgrading
centered on the customer’s needs to rebuild its corporate structure, culture and value chain
The 2017 Annual Report of Midea Group Co., Ltd.
so that it can create more value for the customer. It will optimize its inventory mix, reduce
the cash-to-cash cycle and overheads, improve profitability, create more cost efficiency and
leverage synergies among operations. Seizing opportunities arising from consumption
upgrading, it will increase R&D investment to improve its product mix and functions to
maintain differential and large scale competitive edges in a changed domestic market.
b. It will further promote digitalization to improve business and management flows. All the
links must be digitalized and driven by software, and all business and core management
flows must be accessible online around the clock. Through such digitalization through the
entire value chain, it is laying a foundation for smart manufacturing and Industrial Internet.
c. It will effectively push forward global operations and improve management and control in
this respect. It will strengthen coordination among its business units and improve the
operating capability of overseas branch companies for better operating results and better
performance through the entire value chain. It is pushing forward business integration and
synergies regarding newly acquired subsidiaries in an effective manner. TLSC has returned
to profit; and a trial operational model for overseas operations characterized by proper
centralization and well-organized decentralization has been launched in the ASEAN area
and India. In the meantime, it will continue to strengthen corporate governance and law
compliance in overseas operations and lay a more solid foundation in this respect. It will
also increase investment in infrastructure of overseas operations to improve their logistics
and after-sales service systems by setting up customer service hotlines for overseas
customers.
d. It will further reform marketing by promoting flattening and optimization to increase
channel efficiency and improve user experience. It will promote better connectivity among
products, money, information and logistics. It will promote direct distribution and also use
central distribution to build a shared inventory system for all channels so as to increase
inventory and capital turnover.
e. Seizing opportunities arising from the development of the industrial automation and smart
manufacturing sector, it will continue to work on industrial robots, commercial robots, service
robots and AI. It will try to develop more key industrial automation components, as well as
The 2017 Annual Report of Midea Group Co., Ltd.
strengthen coordination and integration in its general industrial robots, warehousing
automation and medical automation operations in China, so as to promote its fast expansion
and growth in the domestic market.
9.3 Key capital expenditure plan in future
To adapt to changes in the industry environment, the Company will focus its 2018
investments on technological innovation, product quality improvement, robotics and
industrial automation systems, digitalization, e-commerce channel expansion and new retail
channels construction, global operation capability improvement and the smart home strategy.
Meanwhile, the Company will strictly control investment in infrastructure and capacity
expansion, as well as expenditures not associated with production. The money to be spent
will primarily come from the Company’s own money.
9.4 Main risks in future development
a. Risk of macro economy fluctuation
The market demand for the Company’s consumer appliances and HVAC equipment, among
other products, can be easily affected by the economic situation and macro control. If the
global economy encounters a heavy hit, or the domestic economy consumer demand slows
down in growth, the growth of the household appliance industry, to which the Company
belongs, will slow down accordingly, and as a result, this may affect the product sales of
Midea Group.
b. Risks in the fluctuation of production factors
The raw materials required by Midea Group to manufacture its consumer appliances and
core components primarily include different grades of copper, steel, aluminum, and plastics.
At present, the household appliance manufacturing sector belongs to a labor intensive
industry. If the price of raw materials fluctuate largely, or there is a large fluctuation in the
cost of production factors (labor, water, electricity, and land) caused by a change to the
macroeconomic environment and policy change, or the cost reduction resulted from lean
production and improved efficiency, as well as the sale prices of end products cannot offset
the total effects of cost fluctuations, the Company’s business will be influenced to some
The 2017 Annual Report of Midea Group Co., Ltd.
degree.
c. Risk in global asset allocation and overseas market expansion
Internationalization and global operations is a long-term strategic goal of the Company. The
Company has built joint-venture manufacturing bases in many countries around the world.
Progress has been made day by day regarding the Company’s overseas operations and
new business expansion. However, its efforts in global resource integration may not be able
to produce expected synergies; and in overseas market expansion, there are still
unpredictable risks such as local political and economic situations, significant changes in
law and regulation systems, and sharp increases in production costs.
d. Risk in product export and foreign exchange losses caused by exchange rate fluctuation
As Midea carries on with its overseas expansion plan, its export revenue has accounted for
nearly 50% of the total revenues. Any sharp exchange rate fluctuation might not only bring
negative effects on the export of the Company, but could also lead to exchange losses and
increase its finance costs.
e. Market risks brought by trade barriers
With trade protectionism on the rise around the world, besides the tariff barriers, the non-
tariff barriers among countries have become increasingly distinctive. These can mainly be
seen on compulsory safety certificates, international standards and requirements, and
product quality and management systems certification, energy-saving requirements, the call
for increasingly strict environmental protection requirements, as well as with rigorous
requirements for recycling household appliances waste. Trade protectionism and trade
frictions caused by anti-dumping measures implemented by some countries and regions
aggravate the burden in costs and expenses for household appliance enterprises, and have
brought about new challenges to market expansion for enterprises.
The 2017 Annual Report of Midea Group Co., Ltd.
10. Visits Paid to the Company for Purposes of Research, Communication, Interview,
etc.
10.1 In the Reporting Period
√ Applicable □ N/A
Date of visit Way of visit Type of visitor Index to main inquiry information
Log Sheet of Investor Relations Activities for
One-on-one
4~21 January 2017 Institution 4~21 January 2017 disclosed on
meeting
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for 20
20 February 2017 Ditto Ditto
February 2017 disclosed on www.cninfo.com.cn
Log Sheet of Investor Relations Activities for
22~24 February 2017 Ditto Ditto 22~24 February 2017 disclosed on
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for 31
31 March 2017 Ditto Ditto
March 2017 disclosed on www.cninfo.com.cn
Log Sheet of Investor Relations Activities for 4
4 May 2017 Ditto Ditto
May 2017 disclosed on www.cninfo.com.cn
Log Sheet of Investor Relations Activities for
10~12 May 2017 Ditto Ditto 10~12 May 2017 disclosed on
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for 18
18 May 2017 Ditto Ditto
May 2017 disclosed on www.cninfo.com.cn
Log Sheet of Investor Relations Activities for 5
5 June 2017 Ditto Ditto
June 2017 disclosed on www.cninfo.com.cn
Log Sheet of Investor Relations Activities for
7~9 June 2017 Ditto Ditto
7~9 June 2017 disclosed on www.cninfo.com.cn
The 2017 Annual Report of Midea Group Co., Ltd.
Log Sheet of Investor Relations Activities for
14~16 June 2017 Ditto Ditto 14~16 June 2017 disclosed on
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for
21~23 June 2017 Ditto Ditto 21~23 June 2017 disclosed on
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for 31
31 August~1 September
Ditto Ditto August~1 September 2017 disclosed on
2017
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for 8
8 September 2017 Ditto Ditto September 2017 disclosed on
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for 31
31 October~3 November
Ditto Ditto October~3 November 2017 disclosed on
2017
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for
23~24 November 2017 Ditto Ditto 23~24 November 2017 disclosed on
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for
14~15 December 2017 Ditto Ditto 14~15 December 2017 disclosed on
www.cninfo.com.cn
Log Sheet of Investor Relations Activities for
25~27 December 2017 Ditto Ditto 25~27 December 2017 disclosed on
www.cninfo.com.cn
The 2017 Annual Report of Midea Group Co., Ltd.
Times of visit
Number of visiting institutions 1,880
Number of visiting individuals
Number of other visitors
Significant undisclosed information No
disclosed, revealed or leaked
The 2017 Annual Report of Midea Group Co., Ltd.
Section V Significant Events
1. Profit Distribution and Converting Capital Reserves into Share Capital for Common
Shareholders
Formulation, execution or adjustments of profit distribution policy, especially cash dividend
policy, for common shareholders in the Reporting Period
□ Applicable √ N/A
Plans (or preliminary plans) for profit distribution and converting capital reserves into share
capital for common shareholders for the past three years (including the Reporting Period)
For 2015, based on its total of 4,267,391,228 shares, the Company distributed a cash
dividend of RMB12 (tax inclusive) and a share dividend of 5 additional shares (converted
from capital reserves) per 10 shares to all shareholders. The book closure day was 5 May
2016 and the ex-right & ex-dividend day 6 May 2016.
For 2016, based on its total of 6,465,677,368 shares, the Company distributed a cash
dividend of RMB10 (tax inclusive) per 10 shares to all shareholders. The book closure day
was 9 May 2017 and the ex-dividend day 10 May 2017.
For 2017, based on its total of 6,584,022,574 shares, it is proposed that the Company should
distribute a cash dividend of RMB12 (tax inclusive) per 10 shares to all shareholders. The
proposal has been considered and approved by the 30th Meeting of the 2nd Board of the
Company and will later be submitted to a general meeting of shareholders for further
consideration.
Midea Group has attached great importance to returns to investors ever since its holistic
listing in 2013. Its accumulated cash dividend payouts have reached RMB27 billion, with the
cash dividend payout accounting for at least 40% of the net profit attributable to Midea Group
shareholders every year. And the Company reviews its plans for returns to shareholders at
least every three years to ensure a consistent dividend payout policy.
The 2017 Annual Report of Midea Group Co., Ltd.
Cash dividend to common shareholders in the past three years (including the Reporting
Period)
Unit: RMB
Ratio to net
Net profit
profit
attributable to
attributable to
common
common Ratio of cash
Cash dividends shareholders of Cash dividends
Year shareholders dividends in
in other forms
(tax included) the Company in other forms
in the
the consolidated
consolidated
statement in the
statement in
year
the year
2017 7,900,827,088.80 17,283,689,000.00 45.71% 0.00 0.00
2016 6,465,677,368.00 14,684,357,000.00 44.03% 0.00 0.00
2015 5,120,869,473.60 12,706,725,000.00 40.30% 0.00 0.00
The Company made a profit in the Reporting Period and the profit distributable to common
shareholders of the Company (without subsidiaries) was positive, but it did not put forward
a preliminary plan for cash dividend distribution to its common shareholders
□ Applicable √ N/A
2. Preliminary Plan for Profit Distribution and Converting Capital Reserves into Share
Capital for the Reporting Period
√ Applicable □ N/A
Bonus shares for every 10 shares (share)
Dividend for every 10 shares (RMB) (tax 12
The 2017 Annual Report of Midea Group Co., Ltd.
included)
Additional shares converted from capital
reserves for every 10 shares (share)
Total shares as the basis for the
preliminary plan for profit distribution
6,584,022,574
(share)
Total cash dividends (RMB) (tax inclusive) 7,900,827,088.80
Distributable profits (RMB) 16,613,224,000
Percentage of cash dividends in the total
distributed profit (%) 100%
Cash dividend policy
Other
Details about the preliminary plan for profit distribution and converting capital reserves into share capital
As audited by PricewaterhouseCoopers China (LLP), the Company realized net profit of RMB10,777,631,000
for 2017. Pursuant to the relevant provisions under the Articles of Association, it provided 10% as statutory
surplus reserves, namely RMB1,077,763,000. Plus undistributed profit at the beginning of the year of
RMB13,379,033,000 and minus the profit distributed in the year of RMB6,465,677,000, the actual
distributable profit would be RMB16,613,224,000.
For 2017, based on its total of 6,584,022,574 shares, it is proposed that the Company should distribute a
cash dividend of RMB12.00 (tax inclusive) per 10 shares to all shareholders, representing a total cash
The 2017 Annual Report of Midea Group Co., Ltd.
dividend payment of RMB7,900,827,088.80. The remaining undistributed profit shall carry forward for future
distribution.
The said plan shall be submitted to the Company’s 2017 annual general meeting of shareholders for further
consideration.
The 2017 Annual Report of Midea Group Co., Ltd.
3. Performance of Undertakings
3.1 Undertakings of the Company’s actual controller, shareholders, related parties and acquirer, as well as the Company
and other commitment makers fulfilled in the Reporting Period or ongoing at the period-end
√ Applicable □ N/A
Undert Type of
Underta Undertakin
aking undertak Details of undertaking Term Particulars on the performance
king g date
giver ing
Underta 1. Midea Holding and He Xiangjian have undertaken as
king follows: He Xiangjian, Midea Holding and their controlled
Control
made in enterprises will remain independent from Midea Group in
ling
offering respect of personnel, finance, assets, business and
shareh Mainten
docume institutions, in accordance with relevant laws and
older ance of Long- 1. There has been no violation of this
nts or regulations and regulatory documents. They will faithfully 28/03/2013
and indepen standing undertaking.
sharehol fulfill the above undertaking, and assume the
actual dence
ding corresponding legal liability. If they fail to fulfill their
controll
alternati obligations and responsibilities conferred by the
er
on undertaking, they will bear the corresponding legal
docume liabilities according to relevant laws, rules, regulations
The 2017 Annual Report of Midea Group Co., Ltd.
nts and regulatory documents.
2. In order to avoid possible competition within the
industry between Midea Group and Midea Holding and its
controlled enterprises as well as He Xiangjian, his
immediate family and his controlled companies, Midea
Holding and He Xiangjian have undertaken as follows:
(1) None of the entities or individuals mentioned above is
Control
or will be engaged in the same or similar business as the
ling Avoiding
existing main business of Midea Group and its controlled
shareh competit
companies. They are not or will not be engaged or
older ion Long- 2. There has been no violation of this
participate in such business that is competitive to the 28/03/2013
and within standing undertaking.
existing main business of Midea Group and its controlled
actual the
companies by controlling other economic entities,
controll industry
institutions or economic organizations;
er
(2) If Midea Group and its controlled companies expand
their business on the basis of the existing ones to those
where the above mentioned related entities or individuals
are already performing such production and operations,
as long as He Xiangjian is still the actual controller of
Midea Group, and Midea Holding the controlling
The 2017 Annual Report of Midea Group Co., Ltd.
shareholder, they will agree on solving the problem of
competition within the industry arising therefrom within a
reasonable period;
(3) If Midea Group and its controlled companies expand
their business scope on the basis of the existing ones to
those where the above mentioned related subjects have
not gone into production or operation, as long as He
Xiangjian is still the actual controller of Midea Group, and
Midea Holding the controlling shareholder, they would
undertake as not to engage in competitive business to the
new ones of Midea Group and its controlled companies;
(4) In accordance with effective laws, regulations or other
regulatory documents of People's Republic of China, as
long as Midea Holding is identified as the controlling
shareholder of Midea Group, and He Xiangjian the actual
controller, they will not change or terminate this
undertaking.
(5) Midea Holding and He Xiangjian shall faithfully fulfill
the above undertaking, and assume the corresponding
legal responsibilities. If they fail to fulfill their obligations
The 2017 Annual Report of Midea Group Co., Ltd.
and responsibilities conferred by the undertaking, they
would bear the corresponding legal responsibilities
according to relevant laws, rules, regulations and
regulatory documents.
3. In order to regulate matters of related transactions that
may occur in the future between Midea Group and Midea
Holding and its controlled companies as well as He
Xiangjian, his immediate family and his controlled
Control companies, Midea Holding and He Xiangjian have
ling undertaken as follows:
Regulati
shareh (1) They will regulate any related transactions with Midea
on of
older Group and its controlled companies using their utmost Long- 3. There has been no violation of this
related 28/03/2013
and efforts to reduce them. For unavoidable related standing undertaking.
transacti
actual transactions with Midea Group and its controlled
ons
controll companies, including but not limited to commodity trading,
er providing services to each other or as agent, they will sign
legal normative agreements with Midea Group, and go
through approval procedures in accordance with related
laws, regulations, rules, other regulatory documents, and
relevant provisions of the Articles of Association of Midea
The 2017 Annual Report of Midea Group Co., Ltd.
Group. They guarantee to offer fair prices for related
transactions, and fulfill the information disclosure
obligations in respect of the related transactions
according to related laws, regulations, rules, other
regulatory documents, and relevant provisions of the
Articles of Association of Midea Group. They also
guarantee not to illegally transfer the funds or profits from
Midea Group, or damage the interests of its shareholders
at their advantages during the related transactions.
(2) They shall fulfill the obligation of withdrawing from
voting that involves the above mentioned related
transactions at the general meeting of Midea Group;
(3) The related subject mentioned above shall not require
Midea Group to offer more favorable conditions than
those to any independent third party in any fair market
transactions.
(4) In accordance with effective laws, regulations or other
regulatory documents of People's Republic of China, as
long as Midea Holding is identified as the controlling
shareholder of Midea Group, and He Xiangjian the actual
The 2017 Annual Report of Midea Group Co., Ltd.
controller, they shall not change or terminate this
undertaking.
(5) Midea Holding and He Xiangjian will faithfully fulfill the
above undertaking and assume the corresponding legal
liabilities. If they fail to fulfill their obligations and
responsibilities conferred by the undertaking, they will
bear the corresponding legal responsibilities according to
relevant laws, rules, regulations and regulatory
documents.
On 4. On 4 January 2001, the Midea Trade Union Committee
Midea signed the \"Equity Transfer Contract\" with five people,
Control
Trade namely He Xiangjian, Chen Dajiang, Feng Jingmei, Chen
ling
Union Kangning and Liang Jieyin, where it transferred all its
shareh 4. So far, this shareholding transfer has not
Committ limited equity of Midea Group (22. 85%) respectively to
older Long- brought about any loss caused by any
ee those five people. According to the confirmation letter 28/03/2013
and standing dispute or potential disputes. There has
transferri issued by members of the Midea Trade Union Committee
actual been no violation of this undertaking.
ng its at that time, the equity transfer price was determined after
controll
limited mutual discussion on the basis of their true opinions,
er
equity of therefore there was no dispute or potential dispute.
Midea On 28 June 2013, Foshan Shunde Beijiao General Union,
The 2017 Annual Report of Midea Group Co., Ltd.
Group superior department of Midea Trade Union Committee,
issued a confirmation letter to the fact that the Midea
Trade Union Committee funded the establishment of
Midea Group Co., Ltd. In addition the letter also confirmed
that the council of Midea Trade Union Committee is
entitled to dispose any property of the committee, and
such property disposal does not need any agreement
from all staff committee members.
Midea Holding and He Xiangjian, respectively the
controlling shareholder and actual controller of Midea
Group Co., Ltd. have undertaken as follows: For any loss
to Midea Group caused by any dispute or potential dispute
arising from the matters of equity transfer mentioned
above, they are willing to assume full liability for such loss.
Control Issues 5. Midea Holding and He Xiangjian have undertaken to be
5. So far, the payment of the staff social
ling about liable for (1) paying such expenses and related expenses
insurance and the housing provident fund
shareh Payment on time based on the requirements of relevant state Long-
28/03/2013 has not brought about any controversy or
older of the departments if Midea Group is required to be liable for the standing
potential disputes. There has been no
and Staff payment of staff social insurance, housing provident fund
violation of this undertaking.
actual Social and the payment required by relevant state authorities
The 2017 Annual Report of Midea Group Co., Ltd.
controll Insuranc prior to this merger, (2) paying corresponding
er e and compensation for all direct and indirect losses incurred by
the Midea Group and its subsidiaries due to this merger, (3)
Housing indemnifying and holding harmless Midea Group and its
Providen subsidiaries in time from such expenses when Midea
t Fund Group and its subsidiaries are required to pay them in
involved advance.
in Midea
Group's
Overall
Listing
Issues 6. Undertakings on issues about asset alteration, asset
Control 6. So far, the issues about asset alteration,
about flaw and house leasing of Midea Group and its
ling asset flaw and house leasing of Midea
asset subsidiaries
shareh Group and its subsidiaries have not
alteratio Midea Holding and He Xiangjian have undertaken as
older Long- brought about any controversy or potential
n, asset follows: 28/03/2013
and standing disputes. There has been no violation of
flaw and (1) Midea Holding will do its utmost to assist and urge
actual this undertaking. And Midea Holding shall
house Midea Group (including its subsidiaries) to complete
controll honor this undertaking before its
leasing renaming procedures of related assets, such as land,
er expiration.
of Midea housing, trademarks, patents and stock rights, declared
The 2017 Annual Report of Midea Group Co., Ltd.
Group in the related files of this merger. Midea Holding will be
and its liable for all compensations of losses caused by issues
subsidia about renaming procedures of related assets mentioned
ries above to Midea Group.
(2) Midea Holding shall do its utmost to assist Midea
Group (including its subsidiaries) to apply for ownership
certificates of land and housing or property declared in
related files of this merger.
(3) Midea Holding shall assist Midea Group (including its
subsidiaries) to re-apply for corresponding construction
procedures and apply for their ownership certificates for
houses without complete procedures, as happened in the
past, to apply for the ownership certificate. If the
competent authorities requires Midea Group to dismantle
buildings that cannot acquire the re-application for real
estate registration procedures, Midea Holding shall do its
utmost to provide assistance and be liable for any related
expenses used in dismantling such buildings by Midea
Group (including its subsidiaries).
(4) Under any circumstances that Midea Group suffers
The 2017 Annual Report of Midea Group Co., Ltd.
from losses incurred from no longer using these
properties or presently using the land or house above due
to failing to obtain or collect in time the ownership
certificates of the land or house above or any losses
caused by any other reasons, Midea Holding shall
compensate any loss for these reasons in time and in full.
Midea Holding shall compensate the actual loss Midea
Group suffers from any circumstances above resulting in
penalties subjected to from competent authorities or
through claims from any other third party.
(5) Based on issues of defective house leasing declared
in related files of this merger, Midea Holding shall provide
sufficient compensations for all economic losses incurred
by Midea Group (including its subsidiaries) where the
leasehold relations above become invalid or other
disputes occur, which are caused by rights claims from a
third party or by means of an administrative authority
exercising a right and therefore results in any economic
losses due to eviction from rental houses, or any penalties
subjected to by competent government departments or
The 2017 Annual Report of Midea Group Co., Ltd.
any recourse from related parties.
(6) Based on the issues of defective land leasing declared
in related files of this merger, when leasehold relations
become invalid caused by defects of land leasing or when
other disputes occur, resulting in any economic losses to
Midea Group (including its subsidiaries) or through any
penalties administered by competent government
departments. Likewise if the lessor cannot compensate
for losses caused by such defective leasing, Midea
Holding shall compensate Midea Group for losses caused
by such defective land leasing.
Midea Holding has further undertaken that where a
violation of guarantees and undertakings referred to
previously occurs or such guarantees and undertakings
are not consistent with the reality and Midea Group has
suffered any loss therefrom, Midea Holding shall
compensate in cash or make up for Midea Group’s loss
upon Midea Group’s notice in writing within 30 days when
the loss occurs and the loss amount is definite.
The 2017 Annual Report of Midea Group Co., Ltd.
Underta 36 months
kings Xiaomi Technology has given an undertaking that it shall from the
given in Xiaomi not transfer the shares that it had subscribed for in this listing date of There has been no violation of this
Private
time of Techno private placement with Midea Group within 36 months 26/06/2015 this private undertaking.
issue
IPO or logy from the completion date of this offering (26 June 2015, placement,
refinanci the listing date for this offering). i.e. to 26 June
ng
Whether
the
undertak
Yes
ing is
fulfilled
on time
Specific
reasons
for
N/A
failing to
fulfill any
undertak
The 2017 Annual Report of Midea Group Co., Ltd.
ing and
plan for
the next
step
The 2017 Annual Report of Midea Group Co., Ltd.
3.2 Where any earnings forecast was made for any of the Company’s assets or
projects and the Reporting Period is still within the forecast period, the Company
shall explain whether the performance of the asset or project reaches the earnings
forecast and why
□ Applicable √ N/A
4. Occupation of the Company’s Capital by the Controlling Shareholder or Its Related
Parties for Non-Operating Purposes
□ Applicable √ N/A
No such cases in the Reporting Period.
5. Explanation of the Board of Directors, the Supervisory Committee and Independent
Directors (If Any) Regarding the \"Non-standard Audit Opinion\" for the Reporting
Period
□ Applicable √ N/A
6. Reason for Changes in Accounting Policies, Accounting Estimates and Accounting
Methods as Compared to the Financial Report for the Prior Year
□ Applicable √ N/A
No such cases in the Reporting Period.
7. Reason for Retrospective Restatement of Major Accounting Errors during the
Reporting Period
□ Applicable √ N/A
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd.
8. Reason for Changes in Scope of the Consolidated Financial Statements as
Compared to the Financial Report for the Prior Year
√ Applicable □ N/A
For the main subsidiaries included in the consolidated financial statements of the current
year, please refer to Note 5 and Note 6 to the Financial Statements herein. For the newly
consolidated subsidiaries, see Note 5, 5.1 and 5.2, (a), and they primarily include:
Guangdong Midea Electric Co., Ltd., Guangdong Midea Smart Robots Co., Ltd., Chongqing
Midea Microcredit Co., Ltd., Guangdong Midea GiMAY Technology Co., Ltd., Hefei Midea
Smart Technology Co., Ltd., Guangdong Midea Kafei Coffee Machine Manufacturing Co.,
Ltd., Midea Electric Netherlands (I) B.V., KUKA Aktiengesellschaft, SMC, Dongguan Kafei
Electric Manufacturing Co., Ltd. and Fujitsu (Guangdong) Technology Service Co., Ltd. For
the newly deconsolidated subsidiaries, see Note 5, 5.2, (b).
9. Engagement and Disengagement of CPAs Firm
CPA firm at present
Name of the domestic CPA firm PricewaterhouseCoopers China (LLP)
The Company’s payment to the domestic CPA
RMB8.7 million
firm
Consecutive years of the audit service provided
Three years
by the domestic CPAs firm
Names of the certified public accountants from
Huang Meimei and Qiu Xiaoying
the domestic CPAs firm
Consecutive years of the audit service provided
by the certified public accountants from the Three years
domestic CPAs firm
Whether the CPAs firm was changed in the current period
□ Yes √ No
The 2017 Annual Report of Midea Group Co., Ltd.
Engagement of any CPAs firm for internal control audit, financial advisor or sponsor
√ Applicable □ N/A
The Company appointed PricewaterhouseCoopers China as the internal control auditor for
the current year. The total amount paid by the Company to PricewaterhouseCoopers China
for its financial statement and internal control audit services for 2017 was RMB8.7 million.
During the Company’s acquisition of KUKA in cash through tender offer via MECCA, one of
the Company’s wholly-owned foreign subsidiaries, CITIC Securities Co., Ltd. was hired as
the independent financial advisor for the said transaction. The transaction has been
concluded on 6 January 2017 and a financial advising fee of RMB6 million has been paid.
10. Possibility of Listing Suspension and Termination after Disclosure of this Annual
Report
□ Applicable √ N/A
11. Bankruptcy and Reorganization
□ Applicable √ N/A
No such cases in the Reporting Period.
12. Material Litigation and Arbitration
□ Applicable √ N/A
No such cases in the Reporting Period.
13. Punishments and Rectifications
□ Applicable √ N/A
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd.
14. Credit Conditions of the Company as well as Its Controlling Shareholder and
Actual Controller
□ Applicable √ N/A
15. Implementation of any Equity Incentive Scheme, Employee Stock Ownership
Scheme or Other Incentive Measures for Employees
√ Applicable □ N/A
A. Overview of the First Stock Option Incentive Scheme
a. The Company convened the 20th Meeting of the 2nd Board of Directors on 29 March 2017,
at which the Proposal for the Adjustments to the Incentive Receivers and Their Exercisable
Stock Options of the First Stock Option Incentive Scheme was reviewed and approved. As
such, it was agreed to adjust the incentive receivers and their exercisable stock options for
the First Stock Option Incentive Scheme due to the departure, positional changes, low
performance appraisals or other factors of some incentive receivers. Upon the adjustments,
the number of incentive receivers decreased from 562 to 518, and the number of locked-up
stock options granted to them was also reduced from 40,957,500 to 37,518,750.
The Proposal for Matters Related to the Stock Option Exercise for the Third Exercise Period
of the First Stock Option Incentive Scheme was also considered and approved. Because
the exercise conditions have grown mature for the third exercise period, a total of 514
incentive receivers who have been verified for the First Stock Option Incentive Scheme have
been allowed to exercise 37,518,750 stock options in the third exercise period (ended 17
February 2019).
b. On 3 May 2017, the Announcement on the 2016 Annual Profit Distribution was disclosed
by the Company, with a decision to distribute a cash dividend of RMB10.00 per 10 shares
to all the shareholders based on the total of 6,465,677,368 shares of the Company. The
book closure date was 9 May 2017 and the ex-dividend date was 10 May 2017.
The Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017, at
The 2017 Annual Report of Midea Group Co., Ltd.
which the Proposal for the Adjustments to the Exercise Price for the First Stock Option
Incentive Scheme was reviewed and approved. As the 2016 Annual Profit Distribution had
been carried out, the exercise price for the First Stock Option Incentive Scheme was revised
from RMB11.01 to RMB10.01 per share.
c. On 24 May 2017, the exercise conditions grew mature for the third exercise period of the
First Stock Option Incentive Scheme. Upon examination by the Shenzhen Stock Exchange
and the Shenzhen branch of China Securities Depository and Clearing Co., Ltd., the third
exercise period of the First Stock Option Incentive Scheme started on 24 May 2017. In the
Reporting Period, 28,395,770 stock options have been exercised.
B. Overview of the Second Stock Option Incentive Scheme
a. The Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017,
at which the Proposal for the Adjustments to the Exercise Price for the Second Stock Option
Incentive Scheme was reviewed and approved. As the 2016 Annual Profit Distribution had
been carried out, the exercise price for the Second Stock Option Incentive Scheme was
revised from RMB19.56 to RMB18.56 per share.
b. The Company convened the 23rd Meeting of the 2nd Board of Directors on 1 June 2017,
at which the Proposal for the Adjustments to the Incentive Receivers and Their Exercisable
Stock Options of the Second Stock Option Incentive Scheme was reviewed and approved.
As such, it was agreed to adjust the incentive receivers and their exercisable stock options
for the Second Stock Option Incentive Scheme due to the departure, positional changes,
low performance appraisals or other factors of some incentive receivers. Upon the
adjustments, the number of incentive receivers decreased from 639 to 583, and the number
of locked-up stock options granted to them was also reduced from 72,810,000 to 66,195,000.
The Proposal for Matters Related to the Stock Option Exercise for the Second Exercise
Period of the Second Stock Option Incentive Scheme was also considered and approved.
Because the exercise conditions have grown mature for the second exercise period, a total
of 577 incentive receivers who have been verified for the Second Stock Option Incentive
Scheme have been allowed to exercise 32,940,000 stock options in the second exercise
The 2017 Annual Report of Midea Group Co., Ltd.
period (ended 27 May 2019).
c. On 9 June 2017, the exercise conditions grew mature for the second exercise period of
the Second Stock Option Incentive Scheme. Upon examination by the Shenzhen Stock
Exchange and the Shenzhen branch of China Securities Depository and Clearing Co., Ltd.,
the second exercise period of the Second Stock Option Incentive Scheme started on 9 June
2017. In the Reporting Period, 28,342,341 stock options have been exercised.
C. Overview of the Third Stock Option Incentive Scheme
a. The Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017,
at which the Proposal for the Adjustments to the Exercise Price for the Third Stock Option
Incentive Scheme was reviewed and approved. As the 2016 Annual Profit Distribution had
been carried out, the exercise price for the Third Stock Option Incentive Scheme was revised
from RMB21.35 to RMB20.35 per share.
b. The Company convened the 24th Meeting of the 2nd Board of Directors on 29 June 2017,
at which the Proposal for the Adjustments to the Incentive Receivers and Their Exercisable
Stock Options of the Third Stock Option Incentive Scheme was reviewed and approved. As
such, it was agreed to adjust the incentive receivers and their exercisable stock options for
the Third Stock Option Incentive Scheme due to the departure, positional changes, low
performance appraisals or other factors of some incentive receivers. Upon the adjustments,
the number of incentive receivers decreased from 929 to 891, and the number of locked-up
stock options granted to them was also reduced from 127,290,000 to 121,485,000.
The Proposal for Matters Related to the Stock Option Exercise for the First Exercise Period
of the Third Stock Option Incentive Scheme was also considered and approved. Because
the exercise conditions have grown mature for the first exercise period, a total of 887
incentive receivers who have been verified for the Third Stock Option Incentive Scheme
have been allowed to exercise 40,395,000 stock options in the first exercise period (ended
27 June 2019).
c. On 6 July 2017, the exercise conditions grew mature for the first exercise period of the
Third Stock Option Incentive Scheme. Upon examination by the Shenzhen Stock Exchange
The 2017 Annual Report of Midea Group Co., Ltd.
and the Shenzhen branch of China Securities Depository and Clearing Co., Ltd., the first
exercise period of the Third Stock Option Incentive Scheme started on 7 July 2017. In the
Reporting Period, 22,609,862 stock options have been exercised.
D. Overview of the Fourth Stock Option Incentive Scheme
a. On 29 March 2017, the Fourth Stock Option Incentive Scheme (Draft) and its abstract
were reviewed and approved at the 20th Meeting of the 2nd Board of Directors, and the
incentive receiver list for the Fourth Stock Option Incentive Scheme (Draft) was examined
at the 14th Meeting of the 2nd Supervisory Committee.
b. On 21 April 2017, the Company convened the 2016 Annual Meeting of Shareholders, at
which the Fourth Stock Option Incentive Scheme (Draft) and its abstract, the Implementation
and Appraisal Measures for the Fourth Stock Option Incentive Scheme, the Proposal for
Asking the Meeting of Shareholders to Authorize the Board to Handle Mattes Related to the
Fourth Stock Option Incentive Scheme and other relevant proposals were reviewed and
approved.
For this Incentive Scheme, the Company intended to grant 98,982,000 stock options to
1,476 incentive receivers with the exercise price being RMB33.72 per share.
c. In light of the authorization given at the 2016 Annual Meeting of Shareholders, the
Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017, at which
the Proposal for the Adjustments to the Exercise Price, Incentive Receiver List and Number
of Stock Options to Be Granted for the Fourth Stock Option Incentive Scheme, the Proposal
for the Determination of the Grant Date for the Fourth Stock Option Incentive Scheme and
the Proposal for the Grant-Related Matters for the Fourth Stock Option Incentive Scheme
were reviewed and approved. As such, the Company agreed to grant 98,274,000 stock
options to 1,463 incentive receivers on 12 May 2017 with the exercise price being RMB32.72
per share. The incentive receiver list and the number of stock options to be granted were
revised by the Company’s Board of Directors because 13 incentive receivers were no longer
eligible due to their departure or positional changes.
The 2017 Annual Report of Midea Group Co., Ltd.
E. Overview of the First Employee Stock Ownership Scheme
According to the first and second Core Management and “Midea Group Partner” Stock
Ownership Schemes (draft) (“Employee Stock Ownership Schemes” for short), the number
of shares for every intended incentive receiver should be determined based on how well the
performance objectives of the Company, its business divisions and operating units for the
appraisal year are achieved and how much an intended incentive receiver contributes to
that. The shares will be vested in an intended incentive receiver by three installments (40%
for the first installment and 30% for the second and third respectively). The first 70% shares
(the first and second installments combined) vested in an incentive receiver will be locked
up when these shares are until the final 30% is put under the name of the incentive receiver,
and the third installment will not be subject to lock-up (tradable as soon as they are put under
the name of the incentive receiver).
Where an intended incentive receiver is no longer eligible during the period of such a stock
ownership Scheme due to positional changes or departure, the administrative committee for
the stock ownership plan will take back, with no compensation, those shares that have not
yet vested in the incentive receiver.
Because two such partners (Yuan Liqun and Wu Wenxin) had left the Company before the
second installment of the First Employee Stock Ownership Scheme could be vested in them,
their unvested shares of 216,000 and the corresponding dividends (if any) have been taken
back by the administrative committee for no compensation, and will be sold before the First
Employee Stock Ownership Scheme expires. The earnings on the sale will belong to the
Company.
A total of 774,900 shares (30% of the total shares to be vested for the First Employee Stock
Ownership Scheme) have been vested as the second installment, of which 335,250 shares
were vested in senior executives Fang Hongbo, Zhu Fengtao, Gu Yanmin and Wang Jinliang
while the remaining 439,650 shares in other nine core management personnel.
F. Overview of the Second Employee Stock Ownership Scheme
a. The company performance requirement for the Second Employee Stock Ownership
The 2017 Annual Report of Midea Group Co., Ltd.
Scheme is a weighted average ROE not lower than 20% for 2016. According to the 2016
Annual Auditor’s Report for Midea Group Co., Ltd. issued by PricewaterhouseCoopers
China (LLP), this ROE requirement has been met at 26.88%.
b. A total of 3,874,590 of the Company’s shares have been purchased for the Second
Employee Stock Ownership Scheme. As per the Second Employee Stock Ownership
Scheme (Draft), the administrative committee has confirmed the number of shares to be
granted to each intended incentive receiver, with the total shares to be granted being
3,248,790 shares (1,732,800 shares for senior executives Fang Hongbo, Gu Yanmin, Yin
Bitong, Zhu Fengtao and Wang Jinliang and the remaining 1,515,990 shares for other eight
core management personnel). The committee has also confirmed the first installment for this
employee stock ownership Scheme (1,299,516 in total).
c. There were 625,800 shares left due to the departure of two Midea Group Partners (Yuan
Liqun and Wu Wenxin) in the period of the Second Employee Stock Ownership Scheme. As
per the Second Employee Stock Ownership Scheme (Draft), these shares and their
dividends (if any) have been taken back by the administrative committee for no
compensation, and will be sold before the Second Employee Stock Ownership Scheme
expires. The earnings on the sale will belong to the Company.
G. Overview of the Third Employee Stock Ownership Scheme
a. The Proposal for the Third Core Management and “Midea Group Partner” Stock
Ownership Plan (Draft) of Midea Group Co., Ltd. & Its Abstract was considered and
approved at the 20th Meeting of the 2nd Board of Directors on 29 March 2017. As resolved
by a meeting of the intended incentive receivers of the Third Employee Stock Ownership
Scheme, China International Capital Corporation Limited (CICC) was entrusted to conduct
the “CICC Directional Asset Management Scheme for the Third Midea Group Partner Stock
Ownership Scheme” with Midea Group shares purchased from the secondary market.
b. On 18 May 2017, CICC, the stock ownership Scheme administrator, purchased a total of
2,846,445 Midea Group shares at an average price of RMB34.77/share from the secondary
market. The funds used for the share purchase were sourced from Midea Group’s special
The 2017 Annual Report of Midea Group Co., Ltd.
fund for the Third Employee Stock Ownership Scheme of RMB99 million. As such, the
shares needed by the Third Employee Stock Ownership Scheme have been purchased,
with a statutory lock-up period from 19 May 2017 to 18 May 2018.
H. Overview of the 2017 Restricted Share Incentive Scheme
a. On 29 March 2017, the 2017 Restricted Share Incentive Scheme (Draft) and its abstract
were reviewed and approved at the 20th Meeting of the 2nd Board of Directors, and the
incentive receiver list for the 2017 Restricted Share Incentive Scheme (Draft) was examined
at the 14th Meeting of the 2nd Supervisory Committee.
b. On 21 April 2017, the Company convened the 2016 Annual Meeting of Shareholders, at
which the 2017 Restricted Share Incentive Scheme (Draft) and its abstract, the
Implementation and Appraisal Measures for the 2017 Restricted Share Incentive Scheme,
the Proposal for Asking the Meeting of Shareholders to Authorize the Board to Handle
Mattes Related to the 2017 Restricted Share Incentive Scheme and other relevant proposals
were reviewed and approved.
For this restricted share incentive Scheme, the Company intended to issue, for the first
phase, 24,240,000 restricted shares to 140 incentive receivers at the price of RMB16.86 per
share, and issue another 5,550,000 restricted shares as reserve.
c. In light of the authorization given at the 2016 Annual Meeting of Shareholders, the
Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017, at which
the Proposal for the Adjustments to the Grant Price, Incentive Receiver List and Number of
Restricted Shares to Be Granted for the First Phase of the 2017 Restricted Share Incentive
Scheme, the Proposal for the Determination of the Grant Date for the First Phase of the
2017 Restricted Share Incentive Scheme and the Proposal for the Grant-Related Matters
for the First Phase of the 2017 Restricted Share Incentive Scheme were reviewed and
approved. As such, the Company agreed to grant 23,130,000 restricted shares to 133
incentive receivers on 12 May 2017 at the price of RMB15.86 per share. The incentive
receiver list and the number of restricted shares to be granted were revised by the
Company’s Board of Directors because seven incentive receivers were no longer eligible
The 2017 Annual Report of Midea Group Co., Ltd.
due to their departure or positional changes.
d. PricewaterhouseCoopers China (LLP) issued on 19 May 2017 the Capital Verification
Report PwC China CV (2017) No. 542, verifying the increase in the Company’s registered
capital and the payment thereof as of 18 May 2017 due to the Company’s issue of restricted
shares of its A-stock to 133 incentive receivers in the first phase of its 2017 Restricted Share
Incentive Scheme. As verified, as of 18 May 2017, the Company had received
RMB366,841,800 from 133 incentive receivers for restricted share subscription,
representing an increase of RMB23,130,000 in share capital and an increase of
RMB343,711,800 in capital reserves.
e. As per the CSRC’s Measures for the Administration of Equity Incentives of Listed
Companies, and as confirmed by the Shenzhen Stock Exchange and China Securities
Depository and Clearing Co., Ltd. (Shenzhen branch), the shares in the first phase of the
Company’s 2017 Restricted Share Incentive Scheme had been registered and were to go
public on 16 June 2017.
f. In light of the authorization given at the 2016 Annual Meeting of Shareholders, the
Company convened the 29th Meeting of the 2nd Board of Directors on 29 December 2017,
at which the Proposal on Grant of 2017 Reserved Restricted Shares to Incentive Receivers
was reviewed and approved. As such, the Company agreed to grant 5,475,000 reserved
restricted shares to 55 incentive receivers on 29 December 2017 at the price of RMB27.99
per share. And the incentive receiver list was examined at the 21st Meeting of the 2nd
Supervisory Committee.
g. The Company had intended to grant 5,475,000 reserved restricted shares to 55 incentive
receivers. However, after the date of grant, one incentive receiver left the Company and the
90,000 reserved restricted shares that had been granted to this incentive receiver were
cancelled. As such, the Company actually granted 5,385,000 reserved restricted shares to
54 incentive receivers. PricewaterhouseCoopers China (LLP) issued on 26 January 2018
the Capital Verification Report PwC China CV (2018) No. 0061, verifying the corresponding
increase in the Company’s registered capital and the payment thereof as of 24 January 2018.
As verified, as of 24 January 2018, the Company had received RMB150,726,150 from 54
The 2017 Annual Report of Midea Group Co., Ltd.
incentive receivers for reserved restricted share subscription, representing an increase of
RMB5,385,000 in share capital and an increase of RMB145,341,150 in capital reserves.
h. As per the CSRC’s Measures for the Administration of Equity Incentives of Listed
Companies, and as confirmed by the Shenzhen Stock Exchange and China Securities
Depository and Clearing Co., Ltd. (Shenzhen branch), the reserved shares in the Company’s
2017 Restricted Share Incentive Scheme had been registered and were to go public on 7
February 2018.
16. Significant Related Transactions
16.1 Related transactions arising from routine operation
√ Applicable □ N/A
Propor
tion in Obtain
the able
Approv Index
total market
Relate Conte Tran Trans- ed to the
Type amoun Mode price
d nts of Pricing s- action transa Over Disclo disclo
Relatio of the ts of of for the
transa the principl actio amount ction approv sure sed
n trans- transa settle transa
ction trans- e n (RMB’0, line ed line date infor
action ction ment ction
party action price 000) (RMB’ matio
of the of the
0,000) n
same same
kind kind
(%)
Infore Contro
Procur Payme www.
Enviro lled by
Procur ement Market 110,00 nt after 31/03/ cninf
nment family - 115,540 0.68% Yes -
ement of price 0 deliver 2017 o.co
Techn memb
goods y m.cn
ology er of
The 2017 Annual Report of Midea Group Co., Ltd.
Group Comp
Co., any’s
Ltd. actual
control
ler
Contro
lled by
family
Orinko memb Procur Payme www.
Plastic er of Procur ement Market nt after 31/03/ cninf
- 46,325 0.27% 40,000 Yes -
s Comp ement of price deliver 2017 o.co
Group any’s goods y m.cn
actual
control
ler
150,00
Total -- -- 161,865 -- -- -- -- -- --
Details of any sales return of a
Zero
large amount
Give the actual situation in the
Reporting Period (if any) In the year, the actual routine transaction amount between the Company and
where a forecast had been the related parties and its subsidiaries exceeded the total amount of routine
made for the total amounts of related transactions estimated by the Company by type. But it did not reach
routine related-party an amount which requires re-consideration of the Board as per the Stock
transactions by type to occur in Listing Rules.
the current period
Reason for any significant
difference between the N/A
transaction price and the
The 2017 Annual Report of Midea Group Co., Ltd.
market reference price (if
applicable)
16.2 Related transactions regarding purchase or sales of assets or equity interests
□ Applicable √ N/A
No such cases in the Reporting Period.
16.3 Related transitions arising from joint investments in external parties
□ Applicable √ N/A
No such cases in the Reporting Period.
16.4 Credits and liabilities with related parties
√ Applicable □ N/A
Whether there were any credits or liabilities with related parties for non-operating purposes
□ Yes √ No
No such cases in the Reporting Period.
16.5 Other significant related transactions
√ Applicable □ N/A
The Proposal for Related Transactions Regarding Making Deposits in and Obtaining Loans
from Shunde Rural Commercial Bank in 2017 was reviewed and approved at the 26 th
Meeting of the 2nd Board of Directors held on 29 August 2017 and later at the 2017 First
Extraordinary General Meeting of Shareholders held on 15 September 2017.
In 2017, the deposit balance of the Company in Shunde Rural Commercial Bank did not
exceed RMB5 billion and neither did the credit balance provided by the bank to the Company
exceed RMB5 billion.
Index to the announcement about the said related transactions disclosed
The 2017 Annual Report of Midea Group Co., Ltd.
Title of announcement Disclosure date Disclosure website
Announcement on Related Transactions Regarding
Making Deposits in and Obtaining Loans from Shunde 31/08/2017 www.cninfo.com.cn
Rural Commercial Bank in 2017
17. Significant Contracts and Their Execution
17.1 Trusteeship, contracting and leasing
17.1.1 Trusteeship
□ Applicable √ N/A
No such cases in the Reporting Period.
17.1.2 Contracting
□ Applicable √ N/A
No such cases in the Reporting Period.
17.1.3 Leasing
□ Applicable √ N/A
No such cases in the Reporting Period.
17.2 Major Guarantees
√ Applicable □ N/A
17.2.1 Guarantees provided
The 2017 Annual Report of Midea Group Co., Ltd.
Unit: RMB'0,000
Guarantees provided by the Company and its subsidiaries for external parties (excluding those for
subsidiaries)
Guar
Disclosure ante
Actual
date of e for
occurrenc Actual Term
the Due a
Guaranteed party Line of e date guarante Type of of
guarantee or relat
guarantee (date of e guarantee guar
line not ed
agreemen amount antee
announce party
t signing)
ment or
not
Misr Refrigeration And Air Joint One
2017-3-31 3,500 2017-1-1 0 No No
Conditioning Manufacturing CO. liability year
Joint One
Concepcion Midea INC 2017-3-31 600 2017-1-1 0 No No
liability year
Total actual external
Total external guarantee line approved during guarantee amount
4,100
the Reporting Period (A1) during the Reporting
Period (A2)
Total actual external
Total approved external guarantee line at the guarantee balance at
4,100
end of the Reporting Period (A3) the end of the
Reporting Period (A4)
Guarantees provided by the Company for its subsidiaries
Disclosure Actual Actual Term Due Guar
Line of Type of
Guaranteed party date of occurrenc guarante of or ante
guarantee guarantee
the e date e guar not e for
The 2017 Annual Report of Midea Group Co., Ltd.
guarantee (date of amount antee a
line agreemen relat
announce t signing) ed
ment party
or
not
Joint One
Midea Group Finance Co., Ltd. 2017-3-31 1,040,000 2017-1-1 0 No No
liability year
Guangdong Midea Refrigeration
2017-3-31 1,110,000 2017-2-9 56,925 Ditto Ditto Ditto Ditto
Equipment Co., Ltd.
Guangzhou Hualing Refrigeration
2017-3-31 150,000 2017-1-20 0 Ditto Ditto Ditto Ditto
Equipment Co., Ltd.
Foshan Midea Carrier
2017-3-31 9,500 - 0 Ditto Ditto Ditto Ditto
Refrigeration Equipment Co., Ltd.
Guangdong Midea Kitchen
Appliances Manufacturing Co., 2017-3-31 547,200 2017-1-10 44,587 Ditto Ditto Ditto Ditto
Ltd.
Guangdong Witt Vacuum
Electronics Manufacturing Co., 2017-3-31 5,000 2017-1-1 3,993 Ditto Ditto Ditto Ditto
Ltd.
Foshan Shunde Midea Washing
2017-3-31 146,200 2017-1-9 34,575 Ditto Ditto Ditto Ditto
Appliance Manufacturing Co., Ltd.
Guangdong Midea Heating &
2017-3-31 214,400 2017-1-12 41,151 Ditto Ditto Ditto Ditto
Ventilation Equipment Co., Ltd.
Midea Commercial Air
Conditioning Equipment Co., Ltd., 2017-3-31 55,000 2017-5-12 0 Ditto Ditto Ditto Ditto
Guangdong Province
Guangdong Midea-SIIX 2017-3-31 13,200 2017-1-1 37 Ditto Ditto Ditto Ditto
The 2017 Annual Report of Midea Group Co., Ltd.
Electronics Co., Ltd.
Guangdong Midea Consumer 2017-1-1
2017-3-31 27,500 570 Ditto Ditto Ditto Ditto
Electric Manufacturing Co., Ltd.
Foshan Shunde Midea Electric
2017-3-31 62,100 2017-1-15 12,933 Ditto Ditto Ditto Ditto
Appliance Manufacturing Co., Ltd.
Guangdong Midea Kitchen &
Bathroom Appliances 2017-3-31 10,600 2017-3-27 5 Ditto Ditto Ditto Ditto
Manufacturing Co., Ltd.
Foshan Shunde Midea Drinking
2017-3-31 28,100 2017-1-1 3,740 Ditto Ditto Ditto Ditto
Manufacturing Co., Ltd.
Foshan Midea Clear Lake Water
Purification Equipment 2017-3-31 6,000 - 0 Ditto Ditto Ditto Ditto
Manufacturing Co., Ltd.
Guangdong Midea Environment
Appliances Manufacturing Co., 2017-3-31 52,200 2017-3-24 5,050 Ditto Ditto Ditto Ditto
Ltd.
Guangdong GMCC Refrigeration
2017-3-31 45,500 2017-3-21 9,999 Ditto Ditto Ditto Ditto
Equipment Co., Ltd.
Guangdong GMCC Precise 2017-1-1
2017-3-31 34,000 3,395 Ditto Ditto Ditto Ditto
Manufacture Co., Ltd.
Guangdong Welling Motor Co., 2017-1-1
2017-3-31 46,900 106 Ditto Ditto Ditto Ditto
Ltd.
Foshan Welling Washer Motor
2017-3-31 78,200 2017-1-20 3,527 Ditto Ditto Ditto Ditto
Manufacturing Co., Ltd.
Ningbo Midea Joint Materials 2017-1-1
2017-3-31 66,000 0 Ditto Ditto Ditto Ditto
Supply Co. Ltd.
Foshan Welling Material Co., Ltd. 2017-3-31 6,000 2017-1-1 0 Ditto Ditto Ditto Ditto
The 2017 Annual Report of Midea Group Co., Ltd.
Guangzhou Kaizhao Trading Co., 2017-1-1
2017-3-31 18,000 0 Ditto Ditto Ditto Ditto
Ltd.
Guangdong Midea Group Wuhu
2017-3-31 122,300 - 0 Ditto Ditto Ditto Ditto
Refrigeration Equipment Co., Ltd.
Wuhu GMCC Air Conditioning
2017-3-31 111,000 2017-1-12 3 Ditto Ditto Ditto Ditto
Equipment Co., Ltd.
Hefei Midea Refrigerator Co., Ltd. 2017-3-31 34,000 2017-1-6 2,000 Ditto Ditto Ditto Ditto
Hubei Midea Refrigerator Co., Ltd. 2017-3-31 10,000 2017-3-24 95 Ditto Ditto Ditto Ditto
Hefei Hualing Co., Ltd. 2017-3-31 52,000 2017-1-10 83 Ditto Ditto Ditto Ditto
Guangzhou Midea Hualing
2017-3-31 20,000 2017-1-12 0 Ditto Ditto Ditto Ditto
Refrigerator Equipment Co., Ltd.
Hefei Midea Heating & Ventilation
2017-3-31 24,200 - Ditto Ditto Ditto Ditto
Equipment Co., Ltd.
Hefei Midea-Bosch Air
2017-3-31 5,000 - Ditto Ditto Ditto Ditto
Conditioning Equipment Co., Ltd.
Wuhu Midea Kitchen & Bathroom
2017-3-31 44,000 2017-5-5 4,591 Ditto Ditto Ditto Ditto
Electric Manufacturing Co., Ltd.
Wuhu Midea Kitchen Appliances
2017-3-31 4,000 - 0 Ditto Ditto Ditto Ditto
Manufacturing Co., Ltd.
Anhui GMCC Refrigeration
2017-3-31 10,000 2017-3-14 87 Ditto Ditto Ditto Ditto
Equipment Co., Ltd.
Anhui GMCC Precise
2017-3-31 25,200 2017-1-12 7,720 Ditto Ditto Ditto Ditto
Manufacture Co., Ltd.
Welling (Wuhu) Motor
2017-3-31 16,800 2017-5-18 2,702 Ditto Ditto Ditto Ditto
Manufacturing Co., Ltd.
Annto Logistics Technology Co., 2017-3-31 32,000 2017-1-1 610 Ditto Ditto Ditto Ditto
The 2017 Annual Report of Midea Group Co., Ltd.
Ltd.
Hefei Midea Washing Machine
2017-3-31 105,000 2017-2-21 28,350 Ditto Ditto Ditto Ditto
Co., Ltd.
Jiangsu Midea Cleaning
2017-3-31 22,000 2017-3-16 4,368 Ditto Ditto Ditto Ditto
Appliances Co., Ltd.
Jiangxi Midea Guiya Lighting Co.,
2017-3-31 7,700 - 0 Ditto Ditto Ditto Ditto
Ltd.
Chongqing Midea General
2017-3-31 7,700 - 0 Ditto Ditto Ditto Ditto
Refrigeration Equipment Co., Ltd.
Zhejiang GMCC Compressor Co.,
2017-3-31 80,000 2017-3-28 0 Ditto Ditto Ditto Ditto
Ltd.
Midea International Holdings Ltd. 2017-3-31 701,300 2017-1-1 197,212 Ditto Ditto Ditto Ditto
Midea International Trading Co., 2017-1-5
2017-3-31 83,350 21,990 Ditto Ditto Ditto Ditto
Ltd
Midea Electric Investment (BVI)
2017-3-31 80,780 - 0 Ditto Ditto Ditto Ditto
Limited
Midea Refrigeration (Hong Kong)
2017-3-31 3,500 - 0 Ditto Ditto Ditto Ditto
Ltd.
Calpore Macao Commercial
2017-3-31 22,500 - 0 Ditto Ditto Ditto Ditto
Offshore Ltd.
Welling International Hong Kong
2017-3-31 32,190 - 0 Ditto Ditto Ditto Ditto
Limited
Midea Investment and
2017-3-31 700,000 2017-1-1 485,436 Ditto Ditto Ditto Ditto
Development Co., Ltd.
Main Power Electrical Factory Ltd 2017-3-31 48,500 2017-1-20 5,324 Ditto Ditto Ditto Ditto
Midea Electric Trading
2017-3-31 439,000 2017-2-6 7,468 Ditto Ditto Ditto Ditto
(Singapore) Co. Pte. Ltd.
The 2017 Annual Report of Midea Group Co., Ltd.
Toshiba Lifestyle Products &
Services Corporation and its 2017-3-31 446,000 2017-1-1 56,544 Ditto Ditto Ditto Ditto
subsidiaries
Midea Consumer Electric
2017-3-31 6,860 - 0 Ditto Ditto Ditto Ditto
(Vietnam) Co., Ltd.
Springer Carrier Ltda. 2017-3-31 Ditto Ditto Ditto Ditto
130,000 2017-3-1 70,717
Climazon Industrial Ltda. 2017-3-31 Ditto Ditto Ditto Ditto
Carrier(Chile) S.A. 2017-3-31 3,900 2017-6-27 2,415 Ditto Ditto Ditto Ditto
Midea Electrics Netherlands B.V. 2017-3-31 6,860 - 0 Ditto Ditto Ditto Ditto
Midea America Corp. 2017-3-31 17,400 - 0 Ditto Ditto Ditto Ditto
PT.MIDEA Planet Indonesia 2017-3-31 15,100 - 0 Ditto Ditto Ditto Ditto
Midea Scott & English Electronics
2017-3-31 4,510 2017-1-17 2,132 Ditto Ditto Ditto Ditto
SDN BHD
Midea America (Canada) Corp. 2017-3-31 5,500 - 0 Ditto Ditto Ditto Ditto
Midea México, S. DE R.L. DE C.V. 2017-3-31 13,810 - 0 Ditto Ditto Ditto Ditto
Orient Household Appliances Ltd. 2017-3-31 10,290 - 0 Ditto Ditto Ditto Ditto
Midea Electric Netherlands（Ⅰ） 2,697,55
2017-3-31 3,000,000 2017-1-1 Ditto Ditto Ditto Ditto
B.V.
Midea India Private Limited 2017-3-31 6,900 - 0 Ditto Ditto Ditto Ditto
Midea Electric Trading (Thailand)
2017-3-31 6,900 2017-5-24 528 Ditto Ditto Ditto Ditto
Limited
Total actual
guarantee amount for
Total guarantee line for subsidiaries approved
10,289,650 subsidiaries during 6,330,614
during the Reporting Period (B1)
the Reporting Period
(B2)
The 2017 Annual Report of Midea Group Co., Ltd.
Total actual
guarantee balance
Total approved guarantee line for subsidiaries
10,289,650 for subsidiaries at the 3,818,523
at the end of the Reporting Period (B3)
end of the Reporting
Period (B4)
Guarantees between subsidiaries
Disclosure
Actual
date of
occurrence Guarantee
Guaranteed the Actual Due
Line of date Type of Term of for a
party guarantee guarantee or
guarantee (date of guarantee guarantee related
line amount not
agreement party or not
announce
signing)
ment
No such cases
Total guarantee amount (total of the above-mentioned three kinds of guarantees)
Total guarantee line Total actual guarantee
approved during the amount during the
10,293,750 6,330,614
Reporting Period Reporting Period
(A1+B1+C1) (A2+B2+C2)
Total approved guarantee Total actual guarantee
line at the end of the balance at the end of the
10,293,750 3,818,523
Reporting Period Reporting Period
(A3+B3+C3) (A4+B4+C4)
Proportion of the total actual guarantee amount
51.79%
(A4+B4+C4) in net assets of the Company
Of which:
Amount of guarantees provided for shareholders,
the actual controller and their related parties (D)
The 2017 Annual Report of Midea Group Co., Ltd.
Amount of debt guarantees provided directly or
indirectly for entities with a liability-to-asset ratio 3,442,433
over 70% (E)
Portion of the total guarantee amount in excess of
50% of net assets (F)
Total amount of the three kinds of guarantees above
3,442,433
(D+E+F)
Joint responsibilities possibly borne or already
borne in the Reporting Period for undue guarantees N/A
(if any)
Provision of external guarantees in breach of the
N/A
prescribed procedures (if any)
17.2.2 Illegal provision of guarantees for external parties
□ Applicable √ N/A
No such cases in the Reporting Period.
17.3 Entrusted cash management
17.3.1 Entrusted asset management
√ Applicable □ N/A
Overview of wealth management entrustment
Unit: RMB'0,000
Unrecovered
Type Source of capital Amount Undue amount
overdue amount
Bank’s wealth The Company’s own 2,124,300 1,917,978
The 2017 Annual Report of Midea Group Co., Ltd.
management money
products
Asset management The Company’s own
1,046,082 0
plans money
Trust wealth The Company’s own
696,790 288,374
management money
The Company’s own
Private equity funds 370,000 0
money
The Company’s own
Entrusted bonds 50,000 3,120
money
Total 4,287,172 2,209,472
17.3.2 Entrusted loans
□ Applicable √ N/A
No such cases in the Reporting Period.
17.4 Other significant contracts
□ Applicable √ N/A
No such cases in the Reporting Period.
18. Social Responsibility (CSR)
18.1 Measures taken to fulfill CSR commitment
The Company has voluntarily disclosed its CSR work. Attaching great importance to
protecting the legal rights and interests of its shareholders, employees, consumers and
business partners, as well as the government, the community and other stakeholders, the
The 2017 Annual Report of Midea Group Co., Ltd.
Company sticks to harmonious common growth with them, honors its commitments, abides
by law and moral principles, and continue to contribute to the sustainable development of
the society and the environment. For further information, see the Company’s Corporate
Social Responsibility Report 2017 released on www.cninfo.com.cn.
18.2 Measures taken for targeted poverty alleviation
A. Summary of the work done for targeted poverty alleviation during the year
Midea Group has been making great efforts to help alleviate poverty in the Guangdong
Province. As it grows bigger and stronger, it willingly takes on social responsibility and gives
back to society. In 2017, Midea donated a total of RMB20.5 million, of which RMB10 million
was given for targeted poverty alleviation to the Guangdong government’s office for poverty
alleviation and development, and another RMB10 million was given to the Beijiao Town
Charity Federation for poverty alleviation and public welfare of the town. Additionally, it
supported the Foshan Municipal Government to help reduce poverty in Liangshan in the
Sichuan Province by donating 1,100 sets of small domestic appliances worth RMB0.5 million
to the people there in July 2017. With the donation receiving institutions knowing exactly
their responsibilities and how to use the donated money properly, all the donated money has
been made good use of and produced positive effects in the society.
B. Targeted poverty alleviation plans for the coming future
To follow the spirit of the 19th National Congress of the Communist Party of China, President
Xi Jinping’s ideology of socialism with Chinese characteristics in a new era, and the
decisions and plans made by the Guangdong provincial party committee and government
for poverty alleviation, Midea Group will stay down to earth and seek actual results in its
work done for the targeted poverty alleviation drive. It will accelerate such work and stick to
the basic strategy of targeted poverty alleviation in this regard. And it will continue to work
with the Guangdong government’s office for poverty alleviation and development to get to
know realities in the poor areas, draw up specific plans to help fight poverty and carry them
The 2017 Annual Report of Midea Group Co., Ltd.
out effectively.
18.3 Environmental protection
Neither the Company nor any of its subsidiaries is declared a heavily polluting business by
the environmental protection authorities.
19. Other Significant Events
√ Applicable □ N/A
The proposals for the tender offer to acquire shares of KUKA Aktiengesellschaft have been
considered and approved at the 11th and 12th meetings of the Second Board as well as the
Third Special Meeting of Shareholders in 2016. The Company intended to make a cash
tender offer of 115 euro/share to acquire KUKA shares via its wholly-owned foreign
subsidiary MECCA, with the funds needed sourced from syndicated loans and the
Company’s own funds.
The Company completed the transaction on 6 January 2017 after the fulfillment of all
statutory decision-making and approval procedures prior to completion. KUKA AG's
32,233,536 shares have been transferred to MECCA and MECCA has paid the total
transaction price of 3,706,856,640.
20. Significant Events of Subsidiaries
□ Applicable √ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
Section VI Changes in Shares and Information about
Shareholders
1. Changes in Shares
1.1 Changes in shares
Unit: share
Before Increase/decrease in Reporting Period (+/-) After
Shares
as
dividen
Shares as
d
dividend Perc
Perc conver
New converted enta
Shares entag ted Other Subtotal Shares
issue from ge
e (%) from
capital (%)
retaine
reserves
d
earnin
gs
- -
279,045,26 23,130 212,022,91
4.32 0 0 90,152 67,022,35 3.23
0 ,000
1. Restricted shares ,350 0
1.1 Shares held by the
0 0 0 0 0 0 0 0
state
1.2 Shares held by
state-owned 0 0 0 0 0 0 0 0
corporations
The 2017 Annual Report of Midea Group Co., Ltd.
1.3 Shares held by - -
279,045,26 22,380 211,272,91
other domestic 4.32 0 0 90,152 67,772,35 3.22
0 ,000
investors ,350 0
Among which: Shares
held by domestic 82,500,000 1.28 0 0 0 0 0 82,500,000 1.26
corporations
Shares held by - -
196,545,26 22,380 128,772,91
domestic 3.04 0 0 90,152 67,772,35 1.96
0 ,000
individuals ,350 0
1.4 Shares held by 750,00
0 0 0 0 0 750,000 750,000 0.01
foreign investors
Among which: Shares
held by foreign 0 0 0 0 0 0 0 0
corporations
Shares held by 750,00
0 0 0 0 0 750,000 750,000 0.01
foreign individuals
2. Non-restricted 6,179,721,5 79,156 90,152 169,308,8 6,349,030,4 96.7
95.68 0 0
shares 48 ,511 ,350 61 09
2.1 RMB common 6,179,721,5 79,156 90,152 169,308,8 6,349,030,4 96.7
95.68 0 0
shares 48 ,511 ,350 61 09
2.2 Domestically listed
shares for foreign 0 0 0 0 0 0 0 0
investors
2.3 Overseas listed
shares for foreign 0 0 0 0 0 0 0 0
investors
2.4 Other 0 0 0 0 0 0 0 0
The 2017 Annual Report of Midea Group Co., Ltd.
6,458,766,8 102,28 102,286,5 6,561,053,3
3. Total shares 100 0 0 0
08 6,511 11
Reasons for the changes in shares
√ Applicable □ N/A
a. 23,130,000 restricted shares were granted to 133 employees for the first phase of the
Company’s 2017 Restricted Share Incentive Scheme, of which 750,000 were granted to
foreign employees who work in China.
b. Director & Vice President Mr. Li Feide chose to exercise, on 24 May 2017, 375,000 share
options, which had been granted to him as incentives, and 75% of these shares, equal to
281,250 shares, were locked up due to his senior management position.
c. Company Secretary Mr. Jiang Peng chose to exercise, in September 2017, 465,000 share
options, which had been granted to him as incentives, and 75% of these shares, equal to
348,750 shares, were locked up due to his senior management position.
d. Ms. Yuan Liqun, a former director, vice president and the former CFO, left the Company
on 15 July 2016, and all her holdings of 90,750,000 shares in the Company were unlocked
after a lockup for six months from her departure.
e. Ms. Mai Yufen, a former employee supervisor, left the Company on 30 March 2017, and
all her holdings of 2,300 shares in the Company were unlocked after a lockup for six months
from her departure.
Approval of share changes
□ Applicable √ N/A
Transfer of share ownership
□ Applicable √ N/A
Effects of changes in shares on the basic EPS, diluted EPS, net assets per share attributable
to common shareholders of the Company and other financial indexes over the last year and
the last Reporting Period
The 2017 Annual Report of Midea Group Co., Ltd.
□ Applicable √ N/A
Other contents that the Company considers necessary or is required by the securities
regulatory authorities to disclose
□ Applicable √ N/A
1.2 Changes in restricted shares
√ Applicable □ N/A
Unit: share
Opening Unlocked in Increased Closing
Name of Reason for Date of
restricted current in current restricted
shareholder change unlocking
shares period period shares
Incentive
receivers of 2017
Lockup according
Restricted Share 0 0 23,130,000 23,130,000 12/05/2018
to the Plan
Incentive Plan
(first phase)
Lockup caused by
senior executive’s
Jiang Peng 110,000 0 348,750 458,750 -
exercise of share
options awarded
Lockup caused by
senior executive’s
Li Feide 562,500 0 281,250 843,750 -
exercise of share
options awarded
Unlocking caused
Yuan Liqun 90,750,000 90,750,000 0 0 by expiration of a 15/01/2017
six-month lockup
The 2017 Annual Report of Midea Group Co., Ltd.
from senior
executive’s
departure
Total 91,422,500 90,750,000 23,760,000 24,432,500 -- --
2. Issuance and Listing of Securities
2.1 Securities (excluding preference shares) issued in the Reporting Period
□ Applicable √ N/A
2.2 Changes in total shares of the Company and the shareholder structure, as well as
the asset and liability structures
√ Applicable □ N/A
The total shares of the Company were 6,458,766,808 at the beginning of the Reporting
Period. During the Reporting Period, 79,156,511 awarded stock options were exercised, and
23,130,000 restricted shares were granted in the first phase of the Company’s 2017
Restricted Share Incentive Plan. As such, the total shares rose to 6,561,053,319 at the end
of the Reporting Period.
2.3 Existing staff-held shares
□ Applicable √ N/A
3. Shareholders and Actual Controller
3.1 Total number of shareholders and their shareholdings
Unit: share
Total Total number Total number of Total number
number of 142,730 of common 155,890 preference 0 of preference 0
common shareholders shareholders shareholders
The 2017 Annual Report of Midea Group Co., Ltd.
shareholder at the prior with resumed with resumed
s at the end month-end voting rights at voting rights
of the before the the period-end at the prior
Reporting disclosure (if any) month-end
Period date of the before the
annual report disclosure
date of the
annual report
(if any)
5% or greater shareholders or top 10 shareholders
Shar Pledged or
Increase/d
ehold Total Number of Number of frozen shares
Nature of ecrease
ing shares held restricted non-
Name of shareholder sharehold during the
perce at the shares restricted Stat
er Reporting Shares
ntage period-end held shares held us
Period
(%)
Domestic
non-state- - Ple
2,212,046,6 2,212,046,6 706,565,00
Midea Holding Co., Ltd. owned 33.71 32,328,38 dge
13 13
corporatio 7 d
n
Foreign
Hong Kong Exchanges 626,947,49 573,763,9 626,947,49
corporatio 9.56
and Clearing Limited 5 80
n
State-
China Securities owned 222,677,65 42,637,77 222,677,65
3.39
Finance Co., Ltd. corporatio 5 5
n
The 2017 Annual Report of Midea Group Co., Ltd.
Domestic 136,990,49 102,742,8 34,247,623
Fang Hongbo 2.09
individual 2
Hillhouse Capital Foreign
113,891,13 113,891,13
Management Limited－ corporatio 1.74
8
HCM China Fund n
Ple
Domestic
Huang Jian 1.34 87,980,000 -20,000 87,980,000 dge 22,999,900
individual
d
Domestic
non-state-
Xiaomi Technology Co., 82,500,00
owned 1.26 82,500,000 0
Ltd.
corporatio
n
Central Huijin Asset State-
Management Ltd. owned
1.20 78,474,900 0 78,474,900
corporatio
n
Foreign
UBS AG corporatio 1.02 66,759,821 1,338,774 66,759,821
n
Ple
Domestic -
Li Jianwei 0.98 64,144,834 64,144,834 dge 5,400,000
individual 9,832,213
d
Strategic investors or general
corporations becoming top-ten
N/A
shareholders due to placing of new
shares (if any)
Related-parties or acting-in-concert N/A
The 2017 Annual Report of Midea Group Co., Ltd.
parties among the shareholders
above
Top 10 non-restricted shareholders
Number of non- Type of shares
Name of shareholder restricted shares held
Type Shares
at the period-end
Midea Holding Co., Ltd. 2,212,046,613 RMB common stock 2,212,046,613
Hong Kong Exchanges and Clearing
626,947,495 RMB common stock 626,947,495
Limited
China Securities Finance Co., Ltd. 222,677,655 RMB common stock 222,677,655
Hillhouse Capital Management Limited－
113,891,138 RMB common stock 113,891,138
HCM China Fund
Huang Jian 87,980,000 RMB common stock 87,980,000
Central Huijin Asset Management Ltd. 78,474,900 RMB common stock 78,474,900
UBS AG 66,759,821 RMB common stock 66,759,821
Li Jianwei 64,144,834 RMB common stock 64,144,834
Yuan Liqun 62,405,900 RMB common stock 62,405,900
Fu Xuan 58,594,833 RMB common stock 58,594,833
Related-parties or acting-in-concert
parties among the top ten non-restricted
shareholders and between the top ten N/A
non-restricted shareholders and the top
ten shareholders
Explanation on the top 10 common
shareholders participating in securities N/A
margin trading (if any)
Note: Mr. He Xiangjian, Midea Group’s actual controller, has declared on 25 July 2017 that he would donate
The 2017 Annual Report of Midea Group Co., Ltd.
100,000,000 Midea Group shares he holds via Midea Holding to charity. Midea Holding is currently unable to
transfer these shares to the charity trust it has set up because certain confirmations are needed regarding the
execution of the regulations for share transfers to charitable trusts and taxes on these share transfers. Midea
Holding will begin to deal with the formalities for the trust’s registration and the said shares’ transfer to the trust
as soon as the problems are solved. Before that, these shares will remain with Midea Holding.
Did any of the top 10 common shareholders or the top 10 non-restricted common
shareholders of the Company conduct any promissory repurchase during the Reporting
Period
□ Yes √ No
No such cases in the Reporting Period.
3.2 Controlling shareholder
Legal
representati Date of
Name of controlling
ve / establish Credibility code Main business scope
shareholder
company ment
principal
Manufacture and commerce investment;
domestic commerce and materials
supply and marketing industry
(excluding state-designated monopoly);
CP software and hardware
Midea Holding Co., He 2002-08- 9144060674299897
development; industrial product design;
Ltd. Xiangjian 05
information technology consulting
services, providing investment
consultant and consulting services;
installation, maintenance and after-sales
service of electric appliances; real estate
The 2017 Annual Report of Midea Group Co., Ltd.
intermediary service and forwarding
agent service.
Shareholdings of the
controlling
shareholder in other
controlled or non- Apart from a direct control over the Company, Midea Holding does not directly control
controlled listed or have shares in other listed companies at home or abroad.
companies at home
or abroad during the
Reporting Period
Change of the controlling shareholder during the Reporting Period
□ Applicable √ N/A
No such cases in the Reporting Period.
3.3 Actual controller
Name of the actual controller Nationality Right of residence in other countries or regions
The People's
He Xiangjian No
Republic of China
Main occupation and duty Incumbent board chairman of Midea Holding
Used-to-be-holding listed companies Midea Group (000333.SZ), Welling Holding (00382.HK), Little Swan
home and abroad in the last 10 years (A: 000418.SZ; B: 200418) and KUKA (KU2.DE)
Change of the actual controller during the Reporting Period
□ Applicable √ N/A
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd.
Ownership and control relations between the actual controller and the Company
He Xiangjian
94.55%
Midea Holding Co., Ltd. 0.69%
33.71%
Midea Group Co., Ltd.
The actual controller controls the Company via trust or other ways of asset management
□ Applicable √ N/A
3.4 Other corporate shareholders with a shareholding percentage above 10%
□ Applicable √ N/A
3.5 Limits on the Company’s shares held by its controlling shareholder, actual
controller, reorganizer and other commitment subjects
□ Applicable √ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
Section VII Preference Shares
□ Applicable √ N/A
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd.
Section VIII Information about Directors, Supervisors, Senior
Management and Employees
1. Changes in Shareholdings of Directors, Supervisors and Senior Management
Shares
increas Shares
Endin Other Shares
Startin ed at decreas
g date Shares held increas held at the
Incumbent Gend g date the ed at the
Name Office title Age of at the year- e/decre period-
/ Former er of Reporti Reportin
tenur begin (share) ase end
tenure ng g Period
e (share) (share)
Period (share)
(share)
Chairman
Fang of the 2012- 2018- 136,990,4
Incumbent Male 51 136,990,492 0 0
Hongbo Board and 8-25 9-18
President
He 2012- 2018-
Director Incumbent Male 51 0 0 0 0 0
Jianfeng 8-25 9-18
Director
Yin 2016- 2018-
and Vice Incumbent Male 50 2,109,655 0 0 0 2,109,655
Bitong 12-16 9-18
President
Director
Zhu 2014- 2018-
and Vice Incumbent Male 50 1,020,400 0 0 0 1,020,400
Fengtao 4-21 9-18
President
Gu Director 2014- 2018-
Incumbent Male 55 0 0 0 0 0
Yanmin and Vice 4-21 9-18
The 2017 Annual Report of Midea Group Co., Ltd.
President
Director
2012- 2018- 585,00
Li Feide and Vice Incumbent Male 41 750,000 0 0 1,335,000
8-31 9-18
President
Independ
Wu 2013- 2018-
ent Incumbent Male 62 0 0 0 0 0
Shinong 3-4 9-18
Director
Independ
Rui 2015- 2018-
ent Incumbent Male 51 0 0 0 0 0
Meng 9-18 9-18
Director
Independ
Guo 2013- 2018-
ent Incumbent Male 59 0 0 0 0 0
Xuejin 3-4 9-18
Director
Independ
Li 2013- 2018-
ent Incumbent Male 39 0 0 0 0 0
Wenjing 3-4 9-18
Director
Chairman
of the
Superviso Fem 2016- 2018-
Liu Min Incumbent 41 0 0 0 0 0
ry ale 2-1 9-18
Committe
e
Zhao Superviso 2014- 2018-
Incumbent Male 43 0 0 0 0 0
Jun r 4-21 9-18
Employee
Liang Fem 2017- 2018-
Superviso Incumbent 35 0 0 0 0 0
Huiming ale 3-30 9-18
r
The 2017 Annual Report of Midea Group Co., Ltd.
Wang Vice 2014- 2018-
Incumbent Male 51 0 0 0 0 0
Jinliang President 8-18 9-18
Wang Vice 2017- 2018-
Incumbent Male 42 0 0 0 0 0
Jianguo President 12-15 9-18
Hu Vice 2014- 2018-
Incumbent Male 61 0 0 0 0 0
Ziqiang President 8-18 9-18
Xiang Vice 2017- 2018-
Incumbent Male 52 0 0 0 0 0
Weimin President 7-20 9-18
Xiao
Director of 2016- 2018-
Minggu Incumbent Male 48 0 0 0 0 0
Finance 7-16 9-18
ang
Jiang Company 2013- 2018- 465,00
Incumbent Male 45 140,625 0 30,625 575,000
Peng Secretary 10-30 9-18
Director
Wu 2014- 2017-
and Vice Former Male 54 0 0 0 0 0
Wenxin 4-21 1-6
President
Employee
Mai Fem 2016- 2017-
Superviso Former 34 2,300 0 2,300 0 0
Yufen ale 1-16 3-30
r
Hu Fem 2012- 2017-
Director Former 48 0 0 0 0 0
Xiaoling ale 8-25 8-29
1,050,0 142,030,5
Total -- -- -- -- -- -- 141,013,472 0 32,925
00 47
2. Changes in Directors, Supervisors and Senior Management
√ Applicable □ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
Type of
Name Office title Date Reason
change
Director, Vice
Wu Wenxin Left 2017-01-06 Personal reason
President
Mai Yufen Employee Supervisor Left 2017-03-30 Personal reason
Liang Huiming Employee Supervisor Elected 2017-03-30 By-election
Yin Bitong Director Elected 2017-04-21 By-election
Zhu Fengtao Director Elected 2017-04-21 By-election
Hu Xiaoling Director Left 2017-08-29 Personal reason
Senior management
Xiang Weimin Vice President Appointed 2017-07-20
appointment
Senior management
Wang Jianguo Vice President Appointed 2017-12-15
appointment
3. Brief Biographies
Professional backgrounds, main work experience and current responsibilities in the
Company of the incumbent directors, supervisors and senior management
Mr. Fang Hongbo, holder of a Master's degree, is the Chairman and President of the
Company. He joined Midea in 1992 and previously served as the General Manager of the
Midea Air-Conditioning Business Department, the President of Midea Refrigeration Electric
Appliances Group, the Chairman and President of GD Midea Holding Co., Ltd. Mr. Fang
Hongbo is also the Chairman of the Company's subsidiary, Wuxi Little Swan Co., Ltd, and a
member of the Supervisory Committee of KUKA.
Mr. He Jianfeng, holder of a Bachelor's degree, is a Director of Midea Group. He is also the
Chairman of the Board and President of Infore Investments Holding Group Co., Ltd.
Mr. Yin Bitong, a Master's graduate, joined Midea in 1999 and served as GM Assistant and
Marketing Director of the Residential Air Conditioning Division as well as GM and Executive
The 2017 Annual Report of Midea Group Co., Ltd.
Director of Wuxi Little Swan Co. Ltd. He is now an Executive Director and Vice President of
Midea Group and GM of Midea Residential Air Conditioning Division.
Mr. Zhu Fengtao, holder of a Doctoral degree, joined Midea in 1993 and served as the
President of Midea Microwave Appliance Manufacturing Co., Ltd. He is currently an
Executive Director and Vice President of Midea Group and the General Manager of Midea
Kitchen Appliances Division.
Mr. Gu Yanmin, holder of a Doctoral degree, joined Midea in 2000 and has functioned as
the Head of Planning & Investment, Head of Overseas Strategy & Development, Vice
President and Head of Overseas Business Development of Midea Air-Conditioning &
Refrigeration Group, Head of Overseas Strategy of Midea Group. Currently he is an
Executive Director, Vice President of the Company as well as the Chairman of the
Supervisory Committee of KUKA.
Mr. Li Feide, holder of a Master's degree, joined Midea in 1999 and served as the Board
Secretary, the Strategic Operation Head, the Operational Management Head, and the
President’s Assistant. He is now an Executive Director and Vice President of the Company,
as well as a Vice General Manager of Annto Logistics Technology Co., Ltd.
Mr. Wu Shinong, holder of a Doctoral degree, is Professor and Tutor for doctoral students
at the Management School of Xiamen University. He is also involved as an Independent
Director of Midea Group, and a member of the National Natural Science Foundation of China
Mr. Rui Meng, holder of a Doctoral degree. He is now an independent director of the
Company, a professor of finance and accounting at China Europe International Business
School, a chaired professor of finance in Zhong Kun Group, a doctoral advisor, and
concurrently the director of a doctoral program, the head of the CEIBS Shoushan Wealth
Management Research Center, a member of the Risk Management Committee of the
Shanghai Clearing House.
Mr. Guo Xuejin, a Master's degree graduate, is the director of Guangdong Kings Law Firm,
a member of the Guangzhou 15th People's Congress, a member of Guangzhou Law
Committee of the NPC, the arbitrator of Guangzhou Arbitrator Committee, an expert
The 2017 Annual Report of Midea Group Co., Ltd.
consultant of Guangzhou Traffic Committee and is currently an independent director of
Midea Group.
Mr. Li Wenjing, holder of a Doctoral degree, is the Director of the Accounting Department,
professor and doctoral supervisor in the Accounting Department of the School of
Management at Jinan University, and at present is an independent director of Midea Group.
He also holds concurrent positions including being a member of the International Exchange
Committee & a director of the Branch Society of Financial Costs under the Accounting
Society of China, a director of Accounting Academy of Guangdong Province.
Ms. Liu Min, a Master’s degree graduate, joined Midea in 1998. She used to be the General
Manager of an overseas marketing company under Midea’s Household Air-Conditioning
Division and the Chief Operations Officer of Midea. She is now the Chairman of the
Supervisory Committee, the Chief HR Officer of Midea as well as a member of KUKA’s
Supervisory Committee.
Mr. Zhao Jun, a Master's degree graduate, joined Midea in 2000 and has functioned as the
Director and the CFO of GD Midea Holding Co., Ltd. He is now a Supervisor of the Company,
Vice President and CFO in Midea Holding Co., Ltd.
Ms. Liang Huiming, holder of a Bachelor’s degree, is the Employee Supervisor of Midea
Group. Joining Midea in 2007, she used to serve as the Chief Business Administration
Commissioner in Midea Group’s Administration and Human Resources Department.
Mr. Wang Jinliang, holder of a Master’s degree, joined Midea in 1995 and previously
worked as the Vice President of China Marketing in the Company, and was GD Midea
Holding’s Vice President and Marketing Head. He is now a Vice President in the Company.
Mr. Wang Jianguo, a Master’s degree holder, joined Midea in 1999. He was once the
Director of the Supply Chain Management Department of Midea Group’s Residential Air
Conditioner Division, the Director of the Administration and Human Resources Department
of Midea Group, and the General Manager of Midea Group’s Refrigeration Division.
Currently, he is a Vice President and the General Manager of Senior Brand of Midea Group.
Mr. Hu Ziqiang, holder of a Doctoral degree, joined Midea in 2012, and has formerly worked
The 2017 Annual Report of Midea Group Co., Ltd.
for GE and Samsung and as a Vice GM in Wuxi Little Swan Co., Ltd. At present he is a Vice
President and the Chief of the Central Research Institute of the Company
Mr. Xiang Weimin, holder of a Master’s degree, joined Midea in 1991. He used to serve as
the General Manager of Midea Group’s Compressor Division and the General Manager of
Midea Group’s Component Division. Currently, he is a Vice President and the Product &
Supply Chain Director of Midea Group.
Mr. Xiao Mingguang, a Master’s degree graduate, joined Midea in 2000. He once served
as a vice chief financial officer and the Chief Operational Officer of Midea Group, as well as
the Chief Audit Supervision Officer and a director of GD Midea Holding Co., Ltd. Currently,
he is the Director of Finance of Midea Group, in addition to being the Chairman of the Board
of Midea Group Finance Co., Ltd. and a Director of Wuxi Little Swan Co., Ltd.
Mr. Jiang Peng, holder of a Master’s degree, joined Midea in 2007 and used to be the
Representative for Securities Affairs and Company Secretary for GD Midea Holding Co., Ltd.
He is now the Company Secretary, the Investor Relations Director of Midea Group, as well
as a Director in Wuxi Little Swan Co., Ltd.
Posts held in shareholding entities
√ Applicable □ N/A
Allowance from
Beginning
Ending date of the
Name Shareholding entity Position date of office
office term shareholding
term
entity
Vice President and
Zhao Jun Midea Holding Co., Ltd. 2013-01-01 - Yes
CFO
Note N/A
Posts held in other entities
√ Applicable □ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
Beginning
Ending date Allowance
Name Other entity Position date of office
of office term from the entity
term
Chairman of the
Wuxi Little Swan Co., Ltd. 2008-05 2018-08 No
Board
Fang
Member of the
Hongbo
KUKA Supervisory 2017-03 2018-06 No
Committee
Chairman of the
He Infore Investments Holding
Board and 1995 - Yes
Jianfeng Group Co., Ltd.
President
Chairman of the
Gu
KUKA Supervisory 2017-01 2018-06 No
Yanmin
Committee
Fuyao Glass Industry Group
Director 2011-04 - Yes
Holding Co., Ltd.
Wu Independent
Xiamen ITG Group Co., Ltd. 2014-06 2017-06 Yes
Shinong Director
Independent
Industrial Securities Co., Ltd. 2017-11 - Yes
Director
COSCO SHIPPING Energy Independent 2018-06
2015-06 Yes
Transportation Co., Ltd. Director
ShangHai Winner Networks Independent 2019-06
Rui Meng 2016-06 Yes
Information Technology Co., Ltd. Director
Independent 2020-04
Shang Gong Group Co., Ltd. 2017-04 Yes
Director
Guo Donlinks International Independent 2018-03
2014-04 Yes
Xuejin Investment Co., Ltd. Director
The 2017 Annual Report of Midea Group Co., Ltd.
Guangzhou Devotion Thermal Independent
2013-12 2019-03 Yes
Technology Co., Ltd. Director
Independent
By-Heath Co., Ltd. 2017-09 Yes
Director
Li Wenjing
Independent
Zhuhai Huajin Capital Co., Ltd. 2017-12 Yes
Director
Guangzhou Longse Technology Independent
2015-11 - Yes
Co., Ltd. Director
Member of the
Liu Min KUKA Supervisory 2017-01 2018-06 No
Committee
Xiao
Mingguan Wuxi Little Swan Co., Ltd. Director 2010-01 2018-08 No
g
Jiang
Wuxi Little Swan Co., Ltd. Director 2017-04 2018-08 No
Peng
Note N/A
Punishments imposed in the recent three years by the securities regulators on the
incumbent directors, supervisors and senior management as well as those who left in the
Reporting Period
□ Applicable √ N/A
4. Remuneration of Directors, Supervisors and Senior Executives
The following describes the decision-making procedures, grounds on which decisions are
made and actual remuneration payment of directors, supervisors and senior executives.
The decision-making remuneration procedure for directors, supervisors and senior
executives: The remuneration is proposed by the Board Compensation Committee and
The 2017 Annual Report of Midea Group Co., Ltd.
approved by the Board. Decisions are made finally after the deliberation of shareholders'
meeting.
The remuneration of directors, supervisors and senior executives consist of basic annual
payments and performance-related annual payments according to the Salary Management
System for the Directors, Supervisors and Senior Executives which has been approved by
the Company. Basic payment is determined based on the responsibility, risk and pressure
of directors, supervisors and senior executives. The basic annual payment remains stable.
Performance-related annual payment is related to the completion rate of corporate profit,
the assessment result of target responsibility system and the performance evaluation
structure of their own department. The remuneration system for directors, supervisors and
senior executives serves the Company's strategy, and shall be adjusted with the Company's
operating conditions in order to meet the Company’s development requirements. The basis
for adjusting the remuneration of directors, supervisors and senior executives are as follows:
a. Wage growth in the industry
b. Inflation
c. Corporate earnings
d. Organizational structure adjustment
e. Individual adjustment due to a change in position
Remuneration of directors, supervisors and senior executives during the Reporting Period
Unit: RMB'0,000
Total before-
Remuneration
tax
Incumbent from related
Name Position Gender Age remuneration
/ Former parties of the
from the
Company
Company
Chairman of the Board
Fang Hongbo Male 51 Incumbent 719
and President
The 2017 Annual Report of Midea Group Co., Ltd.
He Jianfeng Director Male 51 Incumbent Yes
Director and Vice
Yin Bitong Male 50 Incumbent 420
President
Director and Vice
Zhu Fengtao Male 50 Incumbent 382
President
Director and Vice
Gu Yanmin Male 55 Incumbent 291
President
Director and Vice
Li Feide Male 41 Incumbent 196
President
Wu Shinong Independent Director Male 62 Incumbent 15
Rui Meng Independent Director Male 51 Incumbent 15
Guo Xuejin Independent Director Male 59 Incumbent 15
Li Wenjing Independent Director Male 39 Incumbent 15
Chairman of the
Liu Min Female 41 Incumbent 154
Supervisory Committee
Zhao Jun Supervisor Male 43 Incumbent Yes
Liang Huiming Employee Supervisor Female 35 Incumbent 17
Wang Jinliang Vice President Male 51 Incumbent 175
Wang Jianguo Vice President Male 42 Incumbent 317
Hu Ziqiang Vice President Male 61 Incumbent 429
Xiang Weimin Vice President Male 52 Incumbent 324
Xiao
Director of Finance Male 48 Incumbent 196
Mingguang
Jiang Peng Company Secretary Male 45 Incumbent 179
Director and Vice
Wu Wenxin Male 54 Former 249
President
The 2017 Annual Report of Midea Group Co., Ltd.
Mai Yufen Employee Supervisor Female 34 Former
Hu Xiaoling Director Female 48 Former No
Total -- -- -- -- 4,133 --
Share incentives for directors, supervisors and senior executives in the Reporting Period
√ Applicable □ N/A
Unit: share
Exercise
Exercis price for Market Restricte
Exercisa Grant Restricte
ed exercise price at d shares Restricte
ble Unlocke price of d shares
share d share the end held at d shares
share d shares the held at
options options of the the granted
Name Office title options in the restricte the end
in the in the Reportin beginnin in the
for the Reportin d shares of the
Reporti Reportin g Period g of the Reportin
Reportin g Period (RMB/sh Reportin
ng g Period (RMB / Reportin g Period
g Period are) g Period
Period (RMB / share) g Period
share)
Director and
Li
Vice 375,000 375,000 10.01 55.43 0 0 210,000 15.86 210,000
Feide
President
Hu 55.43
Vice
Ziqian 0 0 - 0 0 300,000 15.86 300,000
President
g
Xiao 55.43
Director of
Mingg 105,000 0 - 0 0 150,000 27.99 150,000
Finance
uang
Jiang Company 375,000 375,000 10.01 55.43 0 0 0 0
Peng Secretary 90,000 90,000 18.56 55.43 0 0 0 0
The 2017 Annual Report of Midea Group Co., Ltd.
Total -- 945,000 840,000 -- -- 0 0 660,000 -- 660,000
375,000 stock options of the first term of Mr. Li Feide were unlocked during the Reporting
Period, leaving no such stock options in lockup. Meanwhile, during the Reporting Period,
187,500 stock options of the first term of Mr. Jiang Peng were unlocked, leaving no such
Note (if any)
stock options in lockup; and for the second term, 90,000 stock options were unlocked,
leaving another 90,000 still in lockup. And Mr. Xiao Mingguang was awarded 150,000
restricted shares during the Reporting Period, which were listed on 7 February 2018.
5. Staff in the Company
5.1 Number, functions and educational backgrounds of the staff
Number of in-service staff of the Company 1,172
Number of in-service staff of main subsidiaries 100,654
Total number of in-service staff 101,826
Total number of staff with remuneration in the period 101,826
Number of retirees to whom the Company or its main
1,660
subsidiaries need to pay retirement pension
Functions
Function Number of staff
Production 84,889
Sales 4,250
Technical/R&D 10,520
Financial 1,311
Administrative
Total 101,826
Educational backgrounds
The 2017 Annual Report of Midea Group Co., Ltd.
Educational background Number of staff
Master and doctor 2,901
Bachelor 18,605
College, technical secondary school 44,990
Others 35,330
Total 101,826
Note: The data above have not yet included the global staff of majority-owned subsidiaries TLSC and KUKA,
which are around 35,000.
5.2 Staff remuneration policy
Staff remuneration shall be paid on time according to the Salary Management System. The
Company decides the regular salary of the employees according to the position’s value and
evaluation performances and decides the variable salary according to the Company's and
employee’s performance. The remuneration distribution shows more consideration for
strategic talent and ensures the market competitiveness in the salary of core talent. The
Company shall make dynamic adjustments to the staff remuneration policy according to
regional differences, number of employees, staff turnover, environment changes in the
industry and paying ability of the Company.
5.3 Staff trainings
The attendances at internal training sessions were 620,039 in the Reporting Period, of which
45,989 were management personnel, 252,361 technical and marketing personnel and
321,689 operational personnel. The trainings included:
a. Building a pilot Leadership Development Program and a High-Potential Leaders Training
system to facilitate talent management and training. 46 talent training programs were carried
out and 2,627 highly skilled managerial staff were trained with 81,263 man-hours.
b. Building a professionalism promotion system. 76 such programs were carried out and
The 2017 Annual Report of Midea Group Co., Ltd.
18,767 staff were trained with 93,135 man-hours.
c. Meike, a mobile app developed by Midea for online training, has extended its trainings to
all managerial personnel in Midea Group. An approximate total of 121,000 logins to this app
for training was recorded throughout the year.
d. Facilitating organizational learning by developing 461 internal trainers. Their annual
teaching time was 6,496 hours. And a total of 515 courses were designed in the year.
e. Continuous training for mid-level and senior managers. A total of 28 lectures on leadership
skills for mid-level management were given to 825 attendances, representing 10,725
teaching man-hours. Meanwhile, 6 such lectures for reserve high potential talent were given
to 200 attendances during 14 days, representing 4,796 teaching man-hours. And 4 such
lectures for senior management were given to 119 attendances during 6 days, which
consisted of 1,400 teaching man-hours.
f. Facilitating the training of key technical staff and working team leaders. The total training
time was 160,834 hours.
5.4 Labor outsourcing
□ Applicable √ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
Section IX Corporate Governance
1. Basic Situation of Corporate Governance
The Company is constantly improving its corporate governance in strict accordance with the
Company Law, the Securities Law and the relevant regulations of the China Securities
Regulatory Commission. There are four special committees under the Board, namely the
Strategy Committee, the Auditing Committee, the Nomination Committee as well as the
Remuneration and Appraisal Committee. They were designed to provide consultation and
advice to the Board and validate the professionalization and efficiency of discussions and
decision-making. The Company has established clear rules of procedure for its
shareholders' general meeting, board of directors, Supervisory Committee and special
committees under the board, as well as the Work Rules for Company Secretary. It has also
established a set of standard documents including Information Disclosure Management
System, Funds Raising Management System, Connected Transaction Management System,
Wealth Management Entrustment Management System, Insider Registration System,
External Guaranty Decision-making System, Foreign Investment Management System, and
Management System for Finance Flow with Connected Parties, Internal Auditing System.
The shareholders' meeting, the Board, Supervisory Committee and operations management
departments have clear authority and responsibility. Each performs its own functions and
maintains its stability effectively. Their scientific decision-making and coordinated operations
have laid a firm foundation for the sustained, healthy and steady development of the
Company.
The Company has also launched core management team shareholding plans and equity
incentive plans for core research, quality control, technical, production and management
staff, which helps to develop a sound shareholding structure for the future growth of the
Company.
In 2017, the Company won the following honors for its corporate governance:
The 2017 Annual Report of Midea Group Co., Ltd.
“The Best Board of Directors” at “The Golden Round Table Awards 2017” presented by the
Directors & Boards magazine; “China’s Top 10 Listed Companies in 2017” by CCTV; “2018
National Brand Plan Top Brand” by CCTV; “Golden Horse Award for Social Responsibility
2018” by Securities Daily; “Global Top 2,000 Listed Companies” by the Forbes; and “Global
Top 500” by the Fortune.
Any incompliance with the regulatory documents issued by the CSRC governing the
governance of listed companies
□ Yes √ No
No such cases in the Reporting Period.
2. Independency of businesses, personnel, assets, organizations, and finance which
are separate from the controlling shareholder
The Company is totally autonomous with respect to business, personnel, assets,
organizations, and finance from Midea Holding Co., Ltd., the controlling shareholder of the
Company, therefore maintaining integrity and independency in both business and operations.
2.1 Business independence:
The Company has a complete industrial chain for its manufacturing business, a completely
distinct purchase and sales system, and an independent and comprehensive business
operation capability.
2.2 Personnel independence:
The Company is completely autonomous from the controlling shareholder regarding its
personnel. The labor, personnel and remuneration management of the company are totally
unrelated. All senior management members received remuneration from the Company
except those that hold only a director’s position in the controlling shareholder.
2.3 Asset integrity:
The Company has its own independent production system as well as ancillary production
systems and facilities. Intangible assets such as industrial rights, trademark ownership and
The 2017 Annual Report of Midea Group Co., Ltd.
non-patent technology are held by the Company.
2.4 Organization independence:
The Company has set up an independent organizational structure which maintains its
independent operation. The Company has the right to appoint or remove any personnel so
there is no overlapping with the controlling shareholder.
2.5 Financial independence:
The Company's financial management is independent from the controlling shareholder. The
Company has its own accounting department, accounting system, financial management
system, and bank accounts and independently makes financial decisions and pays its own
taxes according to relevant laws.
3. Horizontal Competition
□ Applicable √ N/A
4. Annual Meeting of Shareholders and Special Meetings of Shareholders Convened
during the Reporting Period
4.1 Meetings of shareholders convened during the Reporting Period
Investor
Meeting Type participation Convened date Disclosure Date Disclosure Index
ratio
2016 Annual Annual Announcement No.
Meeting of meeting of 45.2524% 21/04/2017 22/04/2017 2017-017, disclosed
Shareholders shareholders on www.cninfo.com.cn
2017 First Special Announcement No.
Special meeting of 49.0821% 15/09/2017 16/09/2017 2017-053, disclosed
Meeting of shareholders on www.cninfo.com.cn
The 2017 Annual Report of Midea Group Co., Ltd.
Shareholders
4.2 Special meetings of shareholders convened at the request of preference
shareholders with resumed voting rights
□ Applicable √ N/A
5. Performance of Independent Directors during the Reporting Period
5.1 Attendance of independent directors in Board meetings and meetings of
shareholders
Attendance of independent directors in Board meetings
Presence due Absence for
Presence by Presence
Independent in the Presence on Absence two
telecommunic through a
director Reporting site (times) (times) consecutive
ation (times) proxy (times)
Period (times) times
Wu Shinong 10 1 9 0 0 No
Rui Meng 10 1 9 0 0 No
Guo Xuejin 10 1 9 0 0 No
Li Wenjing 10 1 9 0 0 No
Presence of independent
directors in meetings of 1
shareholders (times)
5.2 Objections from independent directors on related issues of the Company
Were there any objections on related issues of the Company from independent directors
□ Yes √ No
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd.
5.3 Other details about the performance of duties by independent directors
Were there any suggestions from independent directors adopted by the Company
√ Yes □ No
Details about advice of independent directors accepted or not accepted by the Company
During the Reporting Period, independent directors strictly followed related rules,
regulations and the Articles of Association. They focused on the Company operation, carried
out their duties independently and imparted lots of professional advice on perfecting the
Company’s systems, daily operations and decisions. They provided fair advice during the
Reporting Period and played an effective role in improving the Company supervisory
systems and protecting the legal rights of the Company and the shareholders as a whole.
6. Performance of Duties by Special Committees under the Board during the
Reporting Period
6.1 The Audit Committee under the Board convened four meetings in the Reporting Period,
at which the following proposals were considered and approved: The 2016 Final Account
Report, The 2016 Annual Report & Its Abstract, The Report of the Audit Committee on
Concluding and Appraising the 2016 Annual Audit Work, The Proposal for Appointing an
Auditor for the 2017 Annual Result, The Proposal for Appointing an Auditor for the Internal
Control in 2017, The Proposal for Writing off Asset Impairment Provisions, The Report on
the First Quarter of 2017, The 2017 Semi-Annual Report and The Report on the Third
Quarter of 2017.
6.2 The Strategy Committee under the Board convened one meeting in the Reporting Period,
at which The Mid-Term Development Planning (2017-2019) was considered and approved.
6.3 The Remuneration and Appraisal Committee under the Board convened one meeting in
the Reporting Period, at which The Proposal for the Payment of Remuneration to Senior
Executives for 2016 was considered and approved.
6.4 The Nomination Committee under the Board convened three meetings in the Reporting
The 2017 Annual Report of Midea Group Co., Ltd.
Period, at which the following proposals were considered and approved: The Proposal for
New Director and The Proposal for Vice President Appointment (twice).
7. Performance of Duties by the Supervisory Committee
Were there any risks to the Company identified by the Supervisory Committee when
performing its duties during the Reporting Period
□ Yes √ No
The Supervisory Committee of the Company had no objection to the matters of supervision
during the Reporting Period.
8. Assessment and Incentive Mechanism for the Senior Management
The Company established an appraisal system on the basis of its target-oriented
responsibility system and adopted an appraisal agreement for senior management
members, which determines the appraisal criterion, appraisal method and measures taken
based on the appraisal result. During the Reporting Period, the Company has carried out
appraisals of senior management members on the basis of its target-oriented responsibility
system and the appraisal result was reflected in the annual performance-based incentive
rewards. Meanwhile, the Company promoted the unification of interests between managers
and shareholders through high-level staff and core management teams' share holding
schemes as well as multiple stock option or restricted share incentive schemes, laying a
good foundation for the future growth of the Company.
9. Internal Control
9.1 Serious internal control defects found in the Reporting Period
□ Yes √ No
The 2017 Annual Report of Midea Group Co., Ltd.
9.2 Self-evaluation report on internal control
Disclosure date of the internal control self-evaluation report 31 March 2018
For details, please refer to the 2017 Self-
Index to the disclosed internal control self-evaluation report Evaluation Report on Internal Control, which has
been disclosed on www.cninfo.com.cn
Ratio of the total assets of the appraised entities to the
70%
consolidated total assets
Ratio of the operating revenues of the appraised entities to
70%
the consolidated operating revenues
Defect identification standards
Type Financial-report related Non-financial-report related
For details, please refer to “(c) Basis For details, please refer to “(c) Basis for
for internal control evaluation and internal control evaluation and
identification standards for internal identification standards for internal
control defects” under Section III of control defects” under Section III of The
Nature standard
The 2017 Self-Evaluation Report on 2017 Self-Evaluation Report on
Internal Control disclosed on Internal Control disclosed on
www.cninfo.com.cn dated 31 March www.cninfo.com.cn dated 31 March
2018. 2018.
For details, please refer to “(c) Basis For details, please refer to “(c) Basis for
for internal control evaluation and internal control evaluation and
identification standards for internal identification standards for internal
control defects” under Section III of control defects” under Section III of The
Quantitative standard
The 2017 Self-Evaluation Report on 2017 Self-Evaluation Report on
Internal Control disclosed on Internal Control disclosed on
www.cninfo.com.cn dated 31 March www.cninfo.com.cn dated 31 March
2018. 2018.
The 2017 Annual Report of Midea Group Co., Ltd.
Number of serious financial-
report-related defects
Number of serious non-
financial-report-related
defects
Number of important financial-
report-related defects
Number of important non-
financial-report-related
defects
10. Auditor’s Report on Internal Control
√ Applicable □ N/A
Opinion paragraph in the auditor’s report on internal control
The internal control auditor holds the view that on 31 December 2017, Midea Group maintained an effective
internal control of a financial report in all significant aspects based on the General Specifications of Company
Internal Control and relevant specifications.
Auditor’s report on internal
Disclosed on www.cninfo.com.cn
control disclosed or not
Date of disclosing the full text
of the auditor’s report on 31 March 2018
internal control
Index to the disclosed full text
For details, please refer to the 2017 Auditor’s Report on Internal Control, which
of the auditor’s report on
has been disclosed on www.cninfo.com.cn
internal control
Type of the auditor’s opinion Unmodified unqualified opinion
Serious non-financial-report-
No
related defects
The 2017 Annual Report of Midea Group Co., Ltd.
Whether any modified opinions are expressed by the accounting firm in its auditor’s report
on the Company’s internal control
□ Yes √ No
Whether the auditor’s report on the Company’s internal control issued by the accounting firm
is consistent with the self-evaluation report of the Board
√ Yes □ No
Section X Financial Report
1. Auditor’s report
Type of auditor’s opinion Standard & unqualified
Signing date of auditor’s report 29 March 2018
Name of auditor PricewaterhouseCoopers China (LLP)
No. of auditor’s report PwC ZT Shen Zi (2018) No. 10017
Names of certified public accountants Huang Meimei, Qiu Xiaoying
Auditor's Report
PwC ZT Shen Zi (2018) No. 10017
(Page 1 of 8)
To the shareholders of Midea Group Co., Ltd.,
Opinion
What we have audited
We have audited the accompanying financial statements of Midea Group Co., Ltd. (hereinafter
“Midea Group”), which comprise:
the consolidated and company balance sheets as at 31 December 2017;
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 Opinion
In our opinion, the accompanying financial statements present fairly, in all material respects, the
consolidated and company’s financial position of Midea Group as at 31 December 2017, and their
financial performance and cash flows for the year then ended in accordance with the requirements of
the Accounting Standards for Business Enterprises (“CASs”).
Basis for Opinion
We conducted our audit in accordance with China Standards on Auditing (“CSAs”). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the
Financial Statements section of our report. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our opinion.
We are independent of Midea Group in accordance with the Code of Ethics for Professional
Accountants of the Chinese Institute of Certified Public Accountants (“CICPA Code”), and we have
fulfilled our other ethical responsibilities in accordance with the CICPA Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in
our audit of the financial statements of the current period. These matters were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and
we do not provide a separate opinion on these matters.
Key audit matters identified in our audit are summarised as follows:
Revenue recognition of sales of home appliances
Fair value assessment of the identifiable net assets relating to the acquisition and recognition
of goodwill
Impairment testing of goodwill
PwC ZT Shen Zi (2018) No. 10017
(Page 2 of 8)
Key Audit Matter How our audit addressed the Key Audit Matter
Revenue recognition of sales of home
appliances
Refer to note 2(27) “Revenue” and note Regarding Midea Group’s revenue from sales of home
4(33) “Operating income” to the appliances, we performed the procedures as follows:
consolidated financial statements.
We interviewed management from operation and financial
Revenue is recognised when it’s probable departments in terms of sales processes of all distribution
that the economic benefits associated with channels to understand and evaluate the internal controls
the transaction will flow to Midea Group, of processes relating to sale of home appliances designed
the related revenue can be reliably by management and tested the operating effectiveness of
measured, and the specific criteria of key controls;
revenue recognition have been met for
each type of Midea Group’s activities. In We checked the sample sales contracts entered into by
2017, operating revenue of Midea Group Midea Group and its customers from all distribution
was RMB240,712,301,000, around 80% of channels, and analysed and evaluated Midea Group’s
which is from sales of home appliances. accounting policies on the revenue recognition of sales of
home appliances based on the interview with
We focused on revenue recognition of management, understanding of Midea Group’s business
sales of home appliances mainly due to and our audit experience.
Midea Group’s numerous customers and
sales volume at home and abroad Regarding the sales of home appliances through all
achieved by its varied distribution distribution channels, we performed the procedures as
channels. follows:
We performed risk assessment procedures, such as
analysis of fluctuation in monthly sales of home
appliances and analysis of fluctuation in gross profit
margin, etc.;
We checked supporting documents relevant to sales
of home appliances on sample basis, including sales
contracts, sales orders, sales invoices, shipping
orders, acknowledgement of goods receipts signed by
customers, etc.;
We checked sales of home appliances recognised
around the balance sheet date against
acknowledgement of goods receipts signed by
customers or billing agreements with customers or
other supporting documents to evaluate if the revenue
was recognised in appropriate period.
We concluded that the Midea Group’s revenue recognition
of sales of home appliances complied with its applicable
accounting policies based on the audit procedures
performed.
PwC ZT Shen Zi (2018) No. 10017
(Page 3 of 8)
Key Audit Matters(cont’d)
Key Audit Matter How our audit addressed the Key Audit Matter
Fair value assessment of the
identifiable net assets relating to the
acquisition and recognition of goodwill
Refer to note 2(5) (b) and note 5(1) Regarding the fair value assessment of identifiable net
“Business combination involving assets relating to the acquisition and recognition of
enterprises not under common control” to goodwill, we performed the procedures as follows:
the consolidated financial statements.
1. We evaluated competency, professional quality and
As at 6 January 2017 (the “Acquisition objectivity of the external valuer, obtained the valuation
Date”), Midea Group completed the results from the external valuer and interviewed
acquisition of 81.04% equity interests of management and the external valuer;
KUKA Aktiengesellschaft (hereinafter
referred to as “KUKA”) at a cash 2. We performed the following procedures with the
consideration of RMB27,001,856,000. assistance of our internal valuation specialists:
After that, Midea Group held
approximately 94.55% equity interests of 1) We evaluated the appropriateness of valuation
KUKA accounting for the 13.51% equity methodologies as adopted by management;
interests acquired in prior years. KUKA
and its subsidiaries (hereinafter referred to 2) We tested the accuracy of arithmetic applied in
as “KUKA Group”) was consolidated by calculating goodwill and the fair value of the identifiable
Midea Group from the Acquisition Date, assets and liabilities;
with identifiable net assets of
RMB10,412,360,000 and goodwill (the 3) We evaluated the completeness of the identifiable
difference between the consideration paid assets and liabilities by reference to the acquisition-
for the acquisition and the shares of the related announcements from the open market, external
fair value of the identifiable net assets) of analyst reports on KUKA Group and financial
RMB20,698,212,000 recognised. The information of KUKA Group;
increase of fair value of the identifiable net
4) We read the business development plan prepared by
assets of KUKA Group from its carrying
the management to evaluate the synergies achieved by
amount mainly represents the recognition
the Group in the acquisition and reassessed the overall
and valuation of intangible assets, such as
reasonableness of goodwill recognised in the
trademark right, technology, customer
acquisition;
relationship and order backlog.
Critical judgements were involved in the
fair value assessment of identifiable
assets and liabilities, particularly in
identifying and valuation of intangible
assets, which have impact on the
recognition of goodwill. External
independent valuer was engaged by
management to identify the intangible
assets and perform valuation of the
identifiable assets and liabilities.
PwC ZT Shen Zi (2018) No. 10017
(Page 4 of 8)
Key Audit Matters(cont’d)
Key Audit Matter How our audit addressed the Key Audit Matter
Fair value assessment of the identifiable net
assets relating to the acquisition and
recognition of goodwill (cont’d)
We focused on critical estimates and judgement 5) We evaluated the reasonableness of
with regard to valuation of identifiable assets management’s cash flows forecasts and
and liabilities, especially on the key weighted average cost of capital based on the
assumptions used to identify and valuate the interview with management and by reference to
intangible assets, such as revenue growth the historical operating data of KUKA Group,
rates, EBITDA (Earnings Before Interest, Taxes, external analyst reports of the industrial
Depreciation and Amortisation) margins, development trend, and risk factors and market
contributory asset charges, royalty rates, risk premium of comparable companies. We
residual useful lives of intangible assets evaluated the appropriateness of key
identified, discount rates, etc. assumptions adopted in the fair value
assessment of intangible assets based on the
reasonableness of the above analysis, such as
revenue growth rates, EBITDA margins,
contributory asset charges, royalty rates,
residual useful lives of intangible assets
identified, discount rates, etc.
We concluded that the audit evidence we have
obtained could support methodologies and key
assumptions adopted by management in the fair
value assessment of identifiable net assets and
recognition of goodwill based on the audit procedures
performed.
PwC ZT Shen Zi (2018) No. 10017
(Page 5 of 8)
Key Audit Matters(cont’d)
Key Audit Matter How our audit addressed the Key Audit Matter
Impairment testing of goodwill
Refer to note 4(13) “Goodwill”. Regarding the impairment testing of goodwill arising
from the acquisition of KUKA Group and TLSC, we
As at 31 December 2017, the goodwill recorded performed the procedures as followings:
in the consolidated balance sheet of Midea
Group is RMB28,903,785,000, of which 1. We understood and evaluated the internal
RMB22,202,569,000 and RMB2,695,355,000 controls relevant to the impairment testing of
arising from the acquisition of KUKA Group in goodwill, and tested the operating effectiveness
2017 and Toshiba Lifestyle Products & Services of key controls, including the internal controls of
Corporation (“TLSC”) in 2016, respectively. review and approval of key assumptions adopted
Management believed that it was not necessary and calculation of the recoverable amounts of the
to make impairment provision for the goodwill groups of assets containing the relevant
based on the impairment testing prepared in goodwill;
accordance with the accounting policies stated
in note 2(20) to the consolidated financial 2. We evaluated the appropriateness of
statements. The impairment testing is methodologies of impairment testing of goodwill
performed by assessing the recoverable adopted by management with the assistance of
amount of the groups of assets containing the of our internal valuation specialists, and
relevant goodwill, based on the present value of evaluated and recalculated the discount rates
cash flows forecasts. Key assumptions adopted adopted in the test by comparing industry or
in the impairment testing of goodwill included market data;
expected revenue growth rates, EBITDA
margins, perpetual annual growth rates, 3. We tested the accuracy of arithmetic applied in
discount rates, etc. which involved critical the calculating process of impairment testing of
accounting estimates and judgement. goodwill;
We focused on the impairment testing goodwill 4. We revaluated the accuracy of historical
of RMB 24,897,924,000 arising from acquisition estimates by comparing the actual financial
of KUKA Group and TLSC because the amount performance of current year with the forecasts of
was significant and the impairment testing of prior years or at the acquisition date, so as to
goodwill involved critical accounting estimates check whether there was any bias from
and judgement. management during the impairment testing of
goodwill;
5. We evaluated the reasonableness of key
assumptions adopted in the impairment testing of
goodwill, such as expected revenue growth
rates, EBITDA margins and perpetual annual
growth rates, by interviewing with management
and considering the market development.
We concluded that the audit evidence we have
obtained could support the accounting estimates and
judgement applied by management in the impairment
testing of goodwill based on the audit procedures
performed.
PwC ZT Shen Zi (2018) No. 10017
(Page 6 of 8)
Other Information
Management of Midea Group is responsible for the other information. The other information
comprises all of the information included in 2017 annual report of Midea Group other than the
financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express
any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information and, in doing so, consider whether the other information is materially inconsistent with the
financial statements or our knowledge obtained in the audit or otherwise appears to be materially
misstated. If, based on the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial
Statements
Management of Midea Group is responsible for the preparation and fair presentation of these financial
statements in accordance with the CASs, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing these financial statements, management is responsible for assessing Midea Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
using the going concern basis of accounting unless management either intends to liquidate Midea
Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing Midea Group’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 free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with CSAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with CSAs, we exercise professional judgement and maintain
professional scepticism throughout the audit. We also:
PwC ZT Shen Zi (2018) No. 10017
(Page 7 of 8)
Auditor’s Responsibilities for the Audit of the Financial Statements(Cont’d)
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 is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher than for one
resulting from error, as fraud may involve collusion, 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 or conditions that may cast significant doubt on Midea Group’s ability to
continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditor’s report to the related disclosures in these financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause Midea Group to cease to continue as a going concern.
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 a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within Midea Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
PwC ZT Shen Zi (2018) No. 10017
(Page 8 of 8)
Auditor’s Responsibilities for the Audit of the Financial Statements(Cont’d)
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.
From the matters communicated with those charged with governance, we determine those matters
that were of most significance in the audit of the financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.
PricewaterhouseCoopers Zhong Tian LLP Signing CPA Huang MeiMei
(Engagement Partner)
Shanghai, the People’s Republic of China Signing CPA Qiu XiaoYing
29 March 2018
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY BALANCE SHEETS
AS AT 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
ASSETS Note 31 December 31 December 31 December 31 December
2017 2016 2017
Consolidated Consolidated Company Company
Current assets
Cash at bank and on hand 4(1) 48,274,200 27,169,118 29,349,926 17,135,480
Derivative financial assets 353,327 412,813 - -
Notes receivable 4(2) 10,854,226 7,427,488 - -
Accounts receivable 4(3) 17,528,717 13,454,511 - -
Advances to suppliers 4(4) 1,672,248 1,587,366 23,877 8,252
Loans and advances 4(5) 12,178,953 10,273,397 - -
Dividends receivable - - 897,040 285,916
Other receivables 4(3), 18(1) 2,657,568 1,140,133 8,403,564 12,644,592
Inventories 4(6) 29,444,166 15,626,897 - -
Including: completed but
unsettled 4(6) 4,023,467 - - -
Other current assets 4(7) 46,847,271 43,529,597 27,311,464 24,165,141
Total current assets 169,810,676 120,621,320 65,985,871 54,239,381
Non-current assets
Available-for-sale financial assets 4(8) 1,831,051 5,187,732 56,868 28,931
Long-term receivables 362,248 33,868 - -
Long-term equity investments 4(9), 18(2) 2,633,698 2,211,732 24,540,601 23,058,980
Investment properties 420,802 494,122 597,200 604,881
Fixed assets 4(10) 22,600,724 21,056,791 1,245,998 984,666
Construction in progress 4(11) 879,576 580,729 36,313 467,053
Intangible assets 4(12) 15,167,036 6,868,538 231,154 236,083
Goodwill 4(13) 28,903,785 5,730,995 - -
Long-term prepaid expenses 859,106 625,971 121,452 46,090
Deferred income tax assets 4(14) 4,023,334 3,030,383 152,069 62,711
Other non-current assets 614,822 4,158,530 9,700 3,342,000
Total non-current assets 78,296,182 49,979,391 26,991,355 28,831,395
TOTAL ASSETS 248,106,858 170,600,711 92,977,226 83,070,776
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY BALANCE SHEETS (CONT’D)
AS AT 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
LIABILITIES AND SHAREHOLDERS'
EQUITY Note 31 December 31 December 31 December 31 December
2017 2016 2017
Consolidated Consolidated Company Company
Current liabilities
Short-term borrowings 4(17) 2,584,102 3,024,426 - -
Customer deposits and deposits from
108,926 36,708 - -
banks and other financial institutions
Derivative financial liabilities 90,432 89,838 - -
Notes payable 4(18) 25,207,785 18,484,939 - -
Accounts payable 4(19) 35,144,777 25,356,960 - -
Advances from customers 4(20) 17,409,063 10,252,375 - -
Including: Settled but not completed 4(20) 1,670,855 - - -
Employee benefits payable 4(21) 5,247,500 3,154,387 427,806 199,842
Taxes payable 4(22) 3,544,154 2,364,446 45,179 103,848
Interest payable 94,801 21,343 146,513 76,776
Dividends payable 95,317 105,641 - -
Other payables 4(23) 3,170,405 1,571,422 57,867,535 54,461,578
Current portion of non-current liabilities 136,605 158,545 - -
Other current liabilities 4(24) 26,257,990 24,562,970 40,830 140,264
Total current liabilities 119,091,857 89,184,000 58,527,863 54,982,308
Non-current liabilities
Long-term borrowings 4(25) 32,986,325 2,254,348 - -
Debentures payable 4(26) 4,553,054 4,818,769 - -
Long-term payable 248,036 366,881 - -
Payables for specific projects 2,500 2,405 - -
Provisions 330,736 325,217 - -
Deferred revenue 536,443 502,316 - -
Long-term Employee benefits payable 4(27) 2,465,854 1,449,954 - -
Deferred income tax liabilities 4(14) 3,972,823 1,831,973 - -
Other non-current liabilities 994,059 888,152 - -
Total non-current liabilities 46,089,830 12,440,015 - -
Total liabilities 165,181,687 101,624,015 58,527,863 54,982,308
Shareholders' equity
Share capital 4(28) 6,561,053 6,458,767 6,561,053 6,458,767
Capital surplus 4(29) 15,911,504 13,596,569 7,726,237 5,455,268
Less: Treasury stock 4(28) (366,842) - (366,842) -
Other comprehensive income 4(30) (244,692) 13,125 33,459 (9,069)
General reserve 366,947 148,602 - -
Surplus reserve 4(31) 3,882,232 2,804,469 3,882,232 2,804,469
Undistributed profits 4(32) 47,627,235 38,105,391 16,613,224 13,379,033
Total equity attributable to
73,737,437 61,126,923 34,449,363 28,088,468
shareholders of the parent company
Minority interests 9,187,734 7,849,773 - -
Total shareholders' equity 82,925,171 68,976,696 34,449,363 28,088,468
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY
248,106,858 170,600,711 92,977,226 83,070,776
The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department:
Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY INCOME STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2017 2016 2017 2016
Item Note Consolidated Consolidated Company Company
1. Total revenue 241,918,896 159,841,701 1,565,670 1,193,744
4(33),
Including: Operating revenue 18(3) 240,712,301 159,044,041 1,565,670 1,193,744
Interest income 4(34) 1,206,582 789,414 - -
Fee and commission income 13 8,246 - -
Less: Cost of sales 4(33) (180,460,552) (115,615,437) (38,819) (38,713)
Interest expenses 4(34) (250,925) (439,607) - -
Fee and commission expenses (2,717) (2,839) - -
Taxes and surcharges 4(35) (1,416,428) (1,077,119) (26,607) (29,741)
Selling and distribution expenses 4(36) (26,738,673) (17,678,451) - -
General and administrative
expenses 4(37) (14,780,236) (9,620,777) (694,314) (718,487)
Finance expenses-net value 4(38) (815,949) 1,005,979 (328,000) (740,586)
Asset impairment loss 4(39) (269,112) (380,812) (50) (475)
Add: Gains/(losses) on changes in fair
value 4(40) (25,045) 117,376 - 22,618
4(41),
Investment income 18(4) 1,830,221 1,285,961 10,214,403 9,853,358
Including: Share of profit of
associates 310,016 165,904 209,908 247,016
Gains/(losses) on disposal of
assets 4(42) 1,327,251 (111,874) (95) 9,573
Other income 4(43) 1,311,123 - 9,996 -
2. Operating profit 21,627,854 17,324,101 10,702,184 9,551,291
Add: Non-operating income 467,204 1,758,220 1,961 46,494
Less: Non-operating expenses (240,284) (167,718) (1,216) (2,139)
3. Total profit 21,854,774 18,914,603 10,702,929 9,595,646
Less: Income tax expenses 4(44) (3,243,584) (3,052,691) 74,702 (16,183)
4. Net profit 18,611,190 15,861,912 10,777,631 9,579,463
Classified by continuity of operations
Net profit from continuing operations 18,611,190 15,861,912 10,777,631 9,579,463
Net profit from discontinued operations - - - -
Classified by ownership of the equity
Attributable to equity owners of the
Company 17,283,689 14,684,357 10,777,631 9,579,463
Minority interests 1,327,501 1,177,555 - -
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY INCOME STATEMENTS (CONT'D)
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
Note 2017 2016 2017
Item Consolidated Consolidated Company Company
5. Other comprehensive income net of tax (310,628) 1,188,215 42,528 (30,075)
Attributable to shareholders of the parent
company (257,817) 1,084,276 42,528 (30,075)
(1) Other comprehensive income items which
will not be reclassified subsequently to
profit or loss (31,132) 82,223 - -
1)Remeasurements of post-employment
benefit obligations (31,132) 82,223 - -
2)Share of the other comprehensive
income of the investee accounted for
using equity method which will not be
reclassified subsequently to profit
and loss - - - -
(2) Other comprehensive income items which
will be reclassified subsequently to profit
or loss (226,685) 1,002,053 42,528 (30,075)
1)Share of the other comprehensive
income of the investee accounted for
using equity method which will be (36,017) (73,811) (24,431) (30,075)
reclassified
2)Changes in fairsubsequently to profit
value of available-for-
and loss
sale financial assets (240,597) 231,672 66,959 -
3)Effective portion of cash flow hedging
gains or losses 318,553 199,356 - -
4)Translation of foreign currency
financial statements (268,624) 644,836 - -
Attributable to minority shareholders (52,811) 103,939 - -
6. Total comprehensive income 18,300,562 17,050,127 10,820,159 9,549,388
Attributable to shareholders of the parent
company 17,025,872 15,768,633 10,820,159 9,549,388
Attributable to minority shareholders 1,274,690 1,281,494 - -
7. Earnings per share
Basic earnings per share (RMB Yuan) 4(45) 2.66 2.29 N/A N/A
Diluted earnings per share (RMB Yuan) 4(45) 2.63 2.28 N/A N/A
The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department:
Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2017 2016 2017
Item Note Consolidated Consolidated Company Company
1. Cash flows from operating activities
Cash received from sales of goods or rendering of
services 195,820,338 153,324,273 - -
Net increase in customer deposits and deposits from
banks and other financial institutions 72,218 - - -
Net decrease in deposits with central bank - 286,915 - -
Cash received from interest, fee and commission 1,175,477 783,936 - -
Refund of taxes and surcharges 5,476,543 5,124,402 - -
Cash received relating to other operating activities 4(46)(a) 4,771,036 3,139,286 9,432,057 11,327,292
Sub-total of cash inflows 207,315,612 162,658,812 9,432,057 11,327,292
Cash paid for goods and services (116,508,042) (89,440,654) - -
Net increase in loans and advances (1,933,348) (3,785,600) - -
Net decrease in customer deposits and deposits
from banks and other financial institutions - (15,292) - -
Net increase in deposits with central bank (1,158,040) - - -
Cash paid for interest, fee and commission (253,650) (442,446) - -
Cash paid to and on behalf of employees (22,740,541) (11,652,740) (117,436) (28,966)
Payments of taxes and surcharges (11,139,448) (8,824,342) (104,073) (57,284)
Cash paid relating to other operating activities 4(46)(b) (29,139,920) (21,802,729) (276,406) (5,370,055)
Sub-total of cash outflows (182,872,989) (135,963,803) (497,915) (5,456,305)
Net cash flows from operating activities 4(46)(c) 24,442,623 26,695,009 8,934,142 5,870,987
2. Cash flows from investing activities
Cash received from disposal of investments 85,127,382 73,905,220 49,824,940 37,846,031
Cash received from returns on investments 2,727,603 1,954,049 10,054,584 10,003,516
Net cash received from disposal of fixed assets,
intangible assets and other long-term assets 1,441,101 191,159 12,049
Net cash received from disposal of subsidiaries and
other business units - 272,899 - -
Sub-total of cash inflows 89,296,086 76,323,327 59,891,573 47,849,658
Cash paid to acquire fixed assets, intangible assets
and other long-term assets (3,218,402) (2,323,430) (246,073) (297,767)
Cash paid to acquire investments (94,967,122) (90,880,725) (45,264,526) (44,445,211)
Net cash paid to acquire subsidiaries and other
business units 4(46)(d) (25,850,170) (2,900,256) - -
Sub-total of cash outflows (124,035,694) (96,104,411) (45,510,599) (44,742,978)
Net cash flows from investing activities (34,739,608) (19,781,084) 14,380,974 3,106,680
3. Cash flows from financing activities
Cash received from capital contributions 1,668,205 814,845 1,625,153 782,252
Including: Cash received from capital contributions
by minority shareholders of subsidiaries 43,052 32,593 - -
Cash received from borrowings 62,169,886 32,422,027 1,600,000 1,800,000
Cash received from issuing short-term financing
bonds - 1,999,500 - 1,999,500
Sub-total of cash inflows 63,838,091 35,236,372 3,225,153 4,581,752
Cash repayments of borrowings (36,074,251) (26,961,143) (1,600,000) (3,090,000)
Cash payments for short-term financing bonds - (1,999,500) - (1,999,500)
Cash payments for interest expenses and
distribution of dividends or profits (7,908,056) (6,046,355) (7,136,641) (6,540,012)
Including: Cash payments for dividends or profit to
minority shareholders of subsidiaries (815,164) (563,320) - -
Cash payments relating to other financing activities (204,139) (69,462) - -
Sub-total of cash outflows (44,186,446) (35,076,460) (8,736,641) (11,629,512)
Net cash flows from financing activities 19,651,645 159,912 (5,511,488) (7,047,760)
4. Effect of foreign exchange rate changes on cash
and cash equivalents (36,737) 252,576 - -
5. Net decrease in cash and cash equivalents 9,317,923 7,326,413 17,803,628 1,929,907
Add: Cash and cash equivalents at beginning of year 12,513,730 5,187,317 8,174,915 6,245,008
6. Cash and cash equivalents at end of year 4(46)(e) 21,831,653 12,513,730 25,978,543 8,174,915
The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department:
Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
Minority Shareholders'
Attributable to shareholders of the parent company shareholders equity
Other
Share Capital Less: comprehensive General Surplus Undistributed
Item capital surplus Treasury stock income reserve reserve profits Equity Total
(Note4(28)(b))
Balance at 1 January 2016 4,266,839 14,511,190 - (1,071,151) 118,624 1,846,523 29,529,827 6,829,770 56,031,622
Movements for the year ended 31
December 2016
Total comprehensive income
Net profit - - - - - - 14,684,357 1,177,555 15,861,912
Other comprehensive income net
of tax - - - 1,084,276 - - - 103,939 1,188,215
Total comprehensive income - - - 1,084,276 - - 14,684,357 1,281,494 17,050,127
Capital contribution and withdrawal
by shareholders
Capital contribution form
shareholders 58,232 1,007,110 - - - - - 32,593 1,097,935
Business combinations - - - - - - - 339,543 339,543
Share-based payment included in
shareholders' equity - 228,634 - - - - - 72,957 301,591
Profit distribution
Appropriation to general reserve - - - - 29,978 - (29,978) - -
Appropriation to surplus reserve - - - - - 957,946 (957,946) - -
Profit distribution to shareholders - - - - - - (5,120,869) (550,321) (5,671,190)
Capital addition from capital surplus 2,133,696 (2,133,696) - - - - - - -
Others - (16,669) - - - - - (156,263) (172,932)
Balance at 31 December 2016 6,458,767 13,596,569 - 13,125 148,602 2,804,469 38,105,391 7,849,773 68,976,696
MIDEA GROUP CO., LTD.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONT'D)
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
Minority Shareholders'
Attributable to shareholders of the parent company shareholders equity
Other
Share Capital Less: comprehensive General Surplus Undistributed
Item capital surplus Treasury stock income reserve reserve profits Equity Total
(Note4(28)(b))
Balance at 1 January 2017 6,458,767 13,596,569 - 13,125 148,602 2,804,469 38,105,391 7,849,773 68,976,696
Movements for the year ended 31
December 2017
Total comprehensive income
Net profit - - - - - - 17,283,689 1,327,501 18,611,190
Other comprehensive income net
of tax - - - (257,817) - - - (52,811) (310,628)
Total comprehensive income - - - (257,817) - - 17,283,689 1,274,690 18,300,562
Capital contribution and withdrawal
by shareholders
Capital contribution from
shareholders 102,286 1,947,025 (366,842) - - - - 43,052 1,725,521
Business combinations - - - - - - - 647,230 647,230
Share-based payment included in
shareholders' equity - 326,005 - - - - - 106,263 432,268
Profit distribution
Appropriation to general reserve - - - - 218,345 - (218,345) - -
Appropriation to surplus reserve - - - - - 1,077,763 (1,077,763) - -
Profit distribution to shareholders - - - - - - (6,465,677) (733,274) (7,198,951)
Capital addition from capital surplus - - - - - - - - -
Others - 41,905 - - - - (60) - 41,845
Balance at 31 December 2017 6,561,053 15,911,504 (366,842) (244,692) 366,947 3,882,232 47,627,235 9,187,734 82,925,171
The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department:
Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
Other Total
Share Less: comprehensive Surplus Undistributed shareholders'
Item Note capital Capital surplus Treasury stock income reserve profits equity
Balance at 1 January 2016 4,266,839 6,370,934 - 21,006 1,846,523 9,878,385 22,383,687
Movements for the year ended 31
December 2016
Total comprehensive income
Net profit - - - - - 9,579,463 9,579,463
Other comprehensive income net of tax - - - (30,075) - - (30,075)
Total comprehensive income - - - (30,075) - 9,579,463 9,549,388
Capital contribution and withdrawal by
shareholders
Capital contribution from shareholders 58,232 1,007,110 - - - - 1,065,342
Share-based payment included in
shareholders' equity - 210,663 - - - - 210,663
Profit distribution
Appropriation to surplus reserve - - - - 957,946 (957,946) -
Profit distribution to shareholders - - - - - (5,120,869) (5,120,869)
Capital addition from capital surplus 2,133,696 (2,133,696) - - - - -
Others - 257 - - - -
Balance at 31 December 2016 6,458,767 5,455,268 - (9,069) 2,804,469 13,379,033 28,088,468
MIDEA GROUP CO., LTD.
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017 (cont’d)
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
Other Total
Share Less: comprehensive Surplus Undistributed shareholders'
Item Note capital Capital surplus Treasury stock income reserve profits equity
Balance at 1 January 2017 6,458,767 5,455,268 - (9,069) 2,804,469 13,379,033 28,088,468
Movements for the year ended 31
December 2017
Total comprehensive income
Net profit - - - - - 10,777,631 10,777,631
Other comprehensive income net of
tax - - - 42,528 - - 42,528
Total comprehensive income - - - 42,528 - 10,777,631 10,820,159
Capital contribution and withdrawal by
shareholders
Capital contribution from shareholders 102,286 1,947,025 (366,842) - - - 1,682,469
Share-based payment included in
shareholders' equity - 284,329 - - - - 284,329
Profit distribution
Appropriation to surplus reserve - - - - 1,077,763 (1,077,763) -
Profit distribution to shareholders - - - - - (6,465,677) (6,465,677)
Capital addition from capital surplus - - - - - - -
Others - 39,615 - - - - 39,615
Balance at 31 December 2017 6,561,053 7,726,237 (366,842) 33,459 3,882,232 16,613,224 34,449,363
The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department:
Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
1 General information
The operational activities of Midea Group Co. Ltd. (hereinafter referred to as the “Company”)
and its subsidiaries (collectively referred to as the “Group”) are principally engaged in the
manufacturing and sale of home appliances, design and implementation of scheme for
robots and industrial automation system. Other operations include sale, wholesale and
processing of raw materials of home appliances and financial business, which includes
customer deposits, interbank lending, consumption credit, buyer’s credit and finance lease.
The Company was promoted and set up by the Council of Trade Unions of GD Midea Group
Co. Ltd., and was registered in Market Safety Supervision Bureau of Shunde District,
Foshanon 7 April 2000, with its headquarters located in Shunde District, Foshan. On 30
August 2012, the Company was transformed into a limited liability company. On 29 July
2013, the Company was approved to acquire additional interests in Guangdong Midea
Electric Co., Ltd., a subsidiary listed on Shenzhen Stock Exchange. On 18 September 2013,
the Company’s shares became listed on Shenzhen Stock Exchange through share issuance
and share exchange.
As at 31 December 2017, the Company's registered capital is RMB6,561,053,319 and the
total number of shares in issue is 6, 561,053,319, of which 212,022,910 shares are restricted
tradable shares and 6,349,030,409 shares are unrestricted tradable shares.
The detailed information of major subsidiaries included in the consolidation scope in the
current year is set out in Note 5 and 6. Entities newly included in the consolidation scope in
the current year include Guangdong Midea Electric Co., Ltd., Guangdong Midea Intelligent
Robotics Co., Ltd., Chongqing Midea Microfinance Loan Co., Ltd., Guangdong Midea
Advanced Technologies Co., Ltd., Hefei Midea Advanced Technologies Co., Ltd.,
Guangdong Midea Kafei Coffee Machine Manufacturing Co., Ltd., Midea Electric
Netherlands (I) B.V., KUKA Aktiengesellschaft (“KUKA”) and its subsidiaries (“KUKA Group”),
Servotronix and its subsidiaries (“SMC”), Dongguan Alba Industries Co., Ltd., (“Dongguan
Kafei”) and Fujitsu South China Technology Services Limited (“Fujitsu”). Please refer to Note
5(1) and 5(2)(a) for details. The detailed information of subsidiaries no longer included in
the consolidation scope in the current year is set out in Note 5(2)(b).
These financial statements were authorised for issue by the Company’s Board of Directors
on 29 March 2018.
2 Summary of significant accounting policies and accounting estimates
The Group determines specific accounting policies and accounting estimates based on the
features of production and operation, mainly including the recognition method of provision
for bad debts of accounts receivable (Note 2(10)), valuation method of inventory (Note 2(12)),
depreciation of fixed assets and amortisation of intangible assets (Note (15) and (18)), and
recognition time of revenue (Note 2(27)).
Critical judgements applied by the Group in determining significant accounting policies are
set out in Note 2(33).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(1) Basis of preparation
The financial statements are prepared in accordance with the Accounting Standard for
Business Enterprises - Basic Standard, and the specific accounting standards and other
relevant regulations issued by the Ministry of Finance on 15 February 2006 and in
subsequent periods (hereafter collectively referred to as “the Accounting Standards for
Business Enterprises” or “CAS”) and the disclosure requirements in the Preparation
Convention of Information Disclosure by Companies Offering Securities to the Public No.15
– General Rules on Financial Reporting issued by the China Securities Regulatory
Commission.
The financial statements are prepared on a going concern basis.
(2) Statement of compliance with the Accounting Standards for Business Enterprises
The financial statements of the Company for the year ended 31 December 2017 are in
compliance with the Accounting Standards for Business Enterprises, and truly and
completely present the financial position of the consolidated and the Company as at 31
December 2017 and their financial performance, cash flows and other information for the
year then ended.
(3) Accounting period
The Company’s accounting year starts on 1 January and ends on 31 December.
(4) Functional currency
The functional currency of the Company is the Renminbi (“RMB”). The Company and its
subsidiaries determine their functional currency based on the primary economic
environment in which the business is operated, mainly including KUKA Group’s functional
currency-EUR and Toshiba lifestyle Products & Services Corporation (“TLSC”)’s functional
currency-JPY. The financial statements are presented in RMB.
(5) Business combinations
(a) Business combinations involving enterprises under common control
The consideration paid and net assets obtained by the absorbing party in a business
combination are measured at the carrying amount. If the absorbing party was bought by the
ultimate controller from a third party in prior years, the value of its assets and liabilities
(including goodwill generated due to the combination) are based on the carrying amount in
the ultimate controller’s consolidated financial statements. The difference between the
carrying amount of the net assets obtained from the combination and the carrying 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 profit or loss in the period in which they are
incurred. Transaction costs associated with the issue of equity or debt securities for the
business combination are included in the initially recognised amounts of the equity or debt
securities.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(5) Business combinations
(b) Business combinations involving enterprises not under common control
The cost of combination and identifiable net assets obtained by the acquirer in a business
combination are measured at fair value at the acquisition dates. Where the cost of the
combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable
net assets, the difference is recognised as goodwill; where the cost of combination is lower
than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the
difference is recognised in profit or loss for the current period. Costs directly attributable to
the combination are included in profit or loss in the period in which they are incurred.
Transaction costs associated with the issue of equity or debt securities for the business
combination are included in the initially recognised amounts of the equity or debt securities.
For business combinations achieved by stages involving enterprises not under common
control, previously-held equity in the acquiree is remeasured at its fair value at the
acquisition dates, and the difference between its fair value and carrying amount is included
in investment income for the current period in consolidated financial statements. Where the
previously-held equity in the acquiree involves other comprehensive income under equity
method and shareholders’ equity changes other than those arising from the net profit or loss,
other comprehensive income and profit distribution, the related other comprehensive
income and other shareholders' equity changes are transferred into income for the current
period to which the acquisition dates belongs, excluding those arising from changes in the
investee's remeasurement of net liability or net asset related to the defined benefit plan. The
excess of the sum of fair value of the previously-held equity and fair value of the
consideration paid at the acquisition dates over share of fair value of identifiable net assets
acquired from the subsidiary is recognised as goodwill.
(6) Preparation of consolidated financial statements
The consolidated financial statements comprise the financial statements of the Company
and all of its subsidiaries.
Subsidiaries are consolidated from the date on which the Group obtains control and are de-
consolidated from the date that such control ceases. For a subsidiary that is acquired in a
business combination involving enterprises under common control, it is included in the
consolidated financial statements from the date when it, together with the Company, comes
under common control of the ultimate controlling party. The portion of the net profits realised
before the combination date is presented separately in the consolidated income statement.
In preparing the consolidated financial statements, where the accounting policies and the
accounting periods of the Company and subsidiaries are inconsistent, the financial
statements of the subsidiaries are adjusted in accordance with the accounting policies and
the accounting period of the Company. For subsidiaries acquired from business
combinations involving enterprises not under common control, the individual financial
statements of the subsidiaries are adjusted based on the fair value of the identifiable net
assets at the acquisition dates.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(6) Preparation of consolidated financial statements (Cont’d)
All significant intra-group balances, transactions and unrealised profits are eliminated in the
consolidated financial statements. The portion of subsidiaries’ equity and the portion of a
subsidiaries’ net profits and losses and comprehensive incomes for the period not
attributable to Company are recognised as minority interests and presented separately in
the consolidated financial statements under equity, net profits and total comprehensive
income respectively. Unrealised profits and losses resulting from the sale of assets by the
Company to its subsidiaries are fully eliminated against net profit attributable to
shareholders of the parent company. Unrealised profits and losses resulting from the sale
of assets by a subsidiary to the Company are eliminated and allocated between net profit
attributable to shareholders of the parent and minority interests in accordance with the
allocation proportion of the parent in the subsidiary.
Unrealised profits and losses resulting from the sale of assets by one subsidiary to another
are eliminated and allocated between net profit attributable to shareholders of the parent
and minority interests in accordance with the allocation proportion of the parent in the
subsidiary. If the accounting treatment of a transaction which considers the Group as an
accounting entity is different from that considers the Company or its subsidiaries as an
accounting entity, it is adjusted from the perspective of the Group.
(7) Recognition criteria of cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits that can be readily drawn on
demand, and short-term and highly liquid investments that are readily convertible to known
amounts of cash and which are subject to an insignificant risk of changes in value.
(8) Foreign currency translation
(a) Foreign currency transaction
Foreign currency transactions are translated into functional currency using the exchange
rates prevailing at the dates of the transactions.
At the balance sheet date, monetary items denominated in foreign currencies are translated
into functional currency using the spot exchange rates on the balance sheet date. Exchange
differences arising from these translations are recognised in profit or loss for the current
period, except for those attributable to foreign currency borrowings that have been taken
out specifically for the acquisition or construction of qualifying assets, which are capitalised
as part of the cost of those assets. Non-monetary items denominated in foreign currencies
that are measured at historical costs are translated at the balance sheet date using the spot
exchange rates at the date of the transactions. The effect of exchange rate changes on
cash is presented separately in the cash flow statement.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(8) Foreign currency translation (Cont’d)
(b) Translation of foreign currency financial statements
The asset and liability items in the balance sheets for overseas operations are translated at
the spot exchange rates on the balance sheet date. Among the shareholders’ equity items,
the items other than “undistributed profits” are translated at the spot exchange rates of the
transaction dates. The income and expense items in the income statements of overseas
operations are translated at the spot exchange rates of the transaction dates. The
differences arising from the above translation are presented in other comprehensive income.
The cash flows of overseas operations are translated at the spot exchange rates on the
dates of the cash flows. The effect of exchange rate changes on cash is presented
separately in the cash flow statement.
(9) Financial instruments
(a) Financial assets
(i) Classification of financial assets
Financial assets are classified into the following categories at initial recognition: financial
assets at fair value through profit or loss, loans and receivables and available-for-sale
financial assets. The classification of financial assets depends on the Group’s intention and
ability to hold the financial assets.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for the
purpose of selling in the short term and Derivative financial instruments.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market, including cash at bank and on hand,
deposits with central bank, deposits with banks and other financial institutions, loans and
advances, interest receivable, dividends receivable, accounts receivable and structural
deposits with banks.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either
designated in this category or not classified in any of the other categories at initial
recognition. Available-for-sale financial assets are included in other current assets on the
balance sheet if management intends to dispose of them within 12 months after the balance
sheet date.
(ii) Derivative financial instruments
The derivative financial instruments held or issued by the Group are mainly used in
controlling risk exposures. Derivative financial instruments are initially recognised at fair
value on the day when derivatives transaction contract was signed, and subsequently
measured at fair value. The derivative financial instruments are recorded as assets when
they have a positive fair value and as liabilities when they have a negative fair value.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(9) Financial instruments (Cont’d)
(a) Financial assets (Cont’d)
(ii) Derivative financial instruments (Cont’d)
The recognition of changes in fair value of derivative financial instruments depends on
whether such derivative financial instruments are designated as hedging instruments and
meet requirements for hedging instruments, and depends on the nature of hedged items in
this case. For derivative financial instruments that are not designated as hedging
instruments and fail to meet requirements on hedging instruments, including those held for
the purpose of providing hedging against specific risks in interest rate and foreign exchange
but not conforming with requirements of hedge accounting, the changes in fair value are
recorded in gains or losses arising from changes in fair value in the consolidated income
statement.
At the inception of the transaction, the Group officially designates the hedging relations
between hedging instruments and hedged items and documents the hedging relations, risk
management objectives and hedging strategies. The Group also makes written assessment
of the effectiveness of hedging instruments in offsetting changes in the fair value or cash
flow of hedged items. These criteria should be met before hedging accounting is determined
as applicable to such hedges.
Cash flow hedge
Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable
to a particular risk associated with a recognised asset or liability (such as all or some future
interest payments on variable rate debt) or a highly probable forecast transaction that could
ultimately affect the profit or loss.
The effective portion of changes in the fair value of hedging instruments that are designated
and qualify as cash flow hedges is recognised in other comprehensive income in current
year and accumulated in equity in the “other comprehensive income”. The ineffective portion
is recognised immediately in the profit or loss.
Amounts accumulated in equity are reclassified to the profit or loss in the same periods
when the hedged item affects the profit or loss.
When a hedging instrument expires or is sold, or the hedge designation is revoked or when
a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss on
the hedging instrument existing in equity at that time remains in equity and is reclassified to
the profit or loss when the forecast transaction ultimately occurs. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss existing in equity is
immediately transferred to the profit or loss.
(iii) Recognition and measurement
Financial assets are recognised at fair value on the balance sheet when the Group becomes
a party to the contractual provisions of the financial instrument. In the case of financial
assets at fair value through profit or loss, the related transaction costs incurred at the time
of acquisition are recognised in profit or loss for the current period. For other financial assets,
transaction costs that are attributable to the acquisition of the financial assets are included
in their initially recognised amounts.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(9) Financial instruments (Cont’d)
(a) Financial assets (Cont’d)
(iii) Recognition and measurement (Cont’d)
Financial assets at fair value through profit or loss and available-for-sale financial assets are
subsequently measured at fair value. Investments in equity instruments are measured at
cost when they do not have a quoted market price in an active market and whose fair value
cannot be reliably measured. Receivables and held-to-maturity investments are measured
at amortised cost using the effective interest method.
Gains or losses arising from change in the fair value of financial assets at fair value through
profit or loss are recognised in profit or loss. Interests and cash dividends received during
the period in which such financial assets are held, as well as the gains or losses arising
from disposal of these assets are recognised in profit or loss for the current period.
Gains or losses arising from change in fair value of available-for-sale financial assets are
recognised directly in equity, except for impairment losses and foreign exchange gains and
losses arising from translation of monetary financial assets. When such financial assets are
derecognised, the cumulative gains or losses previously recognised directly into equity are
recycled into profit or loss for the current period. Interests on available-for-sale investments
in debt instruments calculated using the effective interest method during the period in which
such investments are held and cash dividends declared by the investee on available-for-
sale investments in equity instruments are recognised as investment income, which is
recognised in profit or loss for the period.
(iv) Impairment of financial assets
The Group assesses the carrying amounts of financial assets other than those at fair value
through profit or loss at each balance sheet date. If there is objective evidence that a
financial asset is impaired, an impairment loss is provided for.
Objective evidence indicating impairment of financial assets refers to the matter that actually
occurs after the initial recognition of financial assets, it will affect estimated future cash flows
of financial assets, and its impact can be reliably measured.
Objective evidence indicating impairment of available-for-sale investments in equity
instruments includes a significant or prolonged decline in the fair value of an investment in
an equity instrument. The Group reviews available-for-sale investments in equity
instruments on an individual basis at the balance sheet date. If the fair value of an equity
instrument investment at the balance sheet date is lower than 50% (inclusive) of its initial
cost for more than 12 months (inclusive), it indicates that the impairment has occurred. If
the fair value at the balance sheet date is lower than 20% (inclusive) but no more than 50%,
the Group considers other relevant factors, such as price fluctuation rate, to determine
whether an impairment of equity instrument investment occurs. The Group calculates the
initial investment cost of available-for-sale equity instruments by using weighted average
method.
When an impairment loss on a financial asset carried at amortised cost has occurred, the
amount of loss is provided for at the difference between the asset’s carrying amount and
the present value of its estimated future cash flows (excluding future credit losses that have
not been incurred). If there is objective evidence that the value of the financial asset
recovered and the recovery is related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is reversed and the amount of
reversal is recognised in profit or loss.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(9) Financial instruments (Cont’d)
(a) Financial assets (Cont’d)
(iv) Impairment of financial assets (Cont’d)
If an impairment loss on available-for-sale financial assets measured at fair value incurs,
the cumulative losses arising from the decline in fair value that had been recognised directly
in shareholders' equity are transferred out from equity and into impairment loss. For an
investment in debt instrument classified as available-for-sale on which impairment losses
have been recognised, if, in a subsequent period, its fair value increases and the increase
can be objectively related to an event occurring after the impairment loss was recognised
in profit or loss, the previously recognised impairment loss is reversed into profit or loss for
the current period. For an investment in an equity instrument classified as available-for-sale
on which impairment losses have been recognised, the increase in its fair value in a
subsequent period is recognised directly in equity.
If an impairment loss on an available-for-sale financial asset measured at cost incurs, the
amount of loss is measured at the difference between the asset’s carrying amount and the
present value of estimated future cash flows discounted at the current market rate of return
for a similar financial asset. The previously recognised impairment loss will not be reversed
in subsequent periods.
Please refer to Note 2(10) for accounting policies related to impairment of receivables.
(v) Derecognition of financial assets
A financial asset is derecognised when any of the below criteria is met: (1) the contractual
rights to receive the cash flows from the financial asset expire; (2) the financial asset has
been transferred and the Group transfers substantially all the risks and rewards of ownership
of the financial asset to the transferee; or (3) the financial asset has been transferred and
the Group has not retained control of the financial asset, although the Group neither
transfers nor retains substantially all the risks and rewards of ownership of the financial
asset.
On derecognition of a financial asset, the difference between the carrying amount and the
sum of the consideration received and the cumulative changes in fair value that had been
recognised directly in equity, is recognised in profit or loss.
(b) Financial liabilities
Financial liabilities are classified into two categories at initial recognition: financial liabilities
at fair value through profit or loss and other financial liabilities. The Group's financial
liabilities include derivative financial liabilities, accounts payable, notes payable, borrowings,
customer deposits and deposits from banks and other financial institutions, financial assets
sold under repurchase agreements and interest payable.
Payables comprise accounts payable, other payables and other current liabilities, and are
recognised at fair value at initial recognition. Payables are subsequently measured at
amortised cost using the effective interest method.
Borrowings and debentures payable are recognised initially at fair value, net of transaction
costs incurred, and subsequently measured at amortised cost using the effective interest
method.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(9) Financial instruments (Cont’d)
(b) Financial liabilities (Cont’d)
Other financial liabilities with maturities no more than one year are classified as current
liabilities. Other financial liabilities with maturities over one year but are due within one year
(inclusive) since the balance sheet date are classified as the current portion of non-current
liabilities. Others are classified as non-current liabilities.
A financial liability (or a part of a financial liability) is derecognised when all or part of the
obligation is extinguished. The difference between the carrying amount of the financial
liability or the derecognised part of the financial liability and the consideration paid is
recognised in profit or loss.
(c) Determination of fair value of financial instruments
The fair value of a financial instrument that is traded in an active market is determined at
the quoted price in the active market. The fair value of a financial instrument that is not
traded in an active market is determined by using a valuation technique. In valuation, the
Group uses a valuation technique that is applicable in the current situation and supported
by adequate available data and other information, selects inputs with the same
characteristics as those of assets or liabilities considered in relevant trade of assets or
liabilities by market participants, and maximises the use of relevant observable inputs. The
Group uses unobservable inputs when relevant observable inputs are not available or
feasible.
(10) Receivables
Receivables comprise accounts receivable, other receivables and notes receivable.
Accounts receivable arising from sales of goods or rendering of services are initially
recognised at fair value of the contractual payments from the buyers or service recipients.
(a) Receivables with amounts that are individually significant and subject to separate
assessment for provision for bad debts
Receivables with amounts that are individually significant are subject to separate
assessment for impairment. If there exists objective evidence that the Group will not be able
to collect the amount under the original terms, a provision for impairment of that receivable
is made.
The judgement standard for individually significant amount is an individual amount
exceeding RMB5,000,000 for accounts receivable and RMB500,000 for other receivables.
The Group makes provision for bad debts for those individually significant amounts based
on the amount by which the present value of the future cash flows expected to be derived
from the receivable is below its carrying amount.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(10) Provision for bad debts of receivables (Cont'd)
(b) Accounts receivable and other receivables that are subject to provision for bad debts on the
grouping basis
Receivables with amounts that are not individually significant and those receivables that
have been individually assessed for impairment and have not been found impaired are
classified into certain groupings based on their credit risk characteristics. The provision for
bad debts is determined based on the historical loss experience for the groupings of
receivables with similar credit risk characteristics, taking into consideration of the current
circumstances.
The Group assesses the recovery risk of receivables based on the characteristics of
different regions. No provision for bad debts of notes receivables was made because the
notes receivable are all bank-acceptance bills with low credit risk.
The Company's subsidiaries in Mainland China classify the credit risk groupings by taking
the ageing of receivables as the risk characteristics and determine different provision ratios
based on business features.
Within 6 6 months 1 to 2 2 to 3 3 to 5 Over 5
months to 1 year years years years years
Heating Ventilating & Air
Conditioning (“HVAC”) 0%, 5% 5% 10% 30% 50% 100%
Consumer appliances 0%, 5% 5% 10% 30% 50% 100%
Robots and automatic
5% 5% 10% 30% 50% 100%
system
Others 0%, 5% 5% 10% 30% 50% 100%
The Company's subsidiaries in Japan classify the credit risk groupings by taking the
overdue of receivables as the risk characteristics and make bad debts provision based on
the average percentage of bad debts during last three years by using percentage-of-
balance method. For the receivables that are overdue, they make bad debts provision on
an individual basis.
The Company's subsidiaries in Hong Kong, Macau, Singapore and Italy make bad debts
provision for receivables on an individual basis.
The Company's subsidiaries in Brazil make no bad debts provision for receivables with the
ageing within 1 year and adopt 100% provision ratio for those with the ageing over 1 year.
The Company's subsidiaries in Germany classify the credit risk groupings by taking the
expiring date of receivables as the risk characteristics.
The Company's subsidiaries in Israel classify the credit risk groupings by taking the ageing
of receivables as the risk characteristics.
(c) Accounts receivable and other receivables with amounts that are not individually significant
but subject to separate assessment for provision for bad debts
The reason for making separate assessment for provision for bad debts is that there exists
objective evidence that the Group will not be able to collect the amount under the original
terms of the receivable.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(10) Provision for bad debts of receivables (Cont'd)
(c) Accounts receivable and other receivables with amounts that are not individually significant
but subject to separate assessment for provision for bad debts (Cont'd)
The provision for bad debts is determined based on the amount by which the present value
of the future cash flows expected to be derived from the receivable is below its carrying
amount.
(d) When the Group transfers the accounts receivable to the financial institutions without
recourse, the difference between the proceeds received from the transaction and their
carrying amounts and the related taxes is recognised in profit or loss for the current period.
(11) Provision for bad debts of loans and advances
The provision for bad debts of loans and advances is provided by five-tier loan classification
of ending balances of loans and advances as follows:
The Five-class Classification Provision ratio
Pass Risk Assets 1.5%
Special mention Risk Assets 3.0%
Substandard Risk Assets 30.0%
Doubtful Risk Assets 60.0%
Loss Risk Assets 100.0%
(12) Inventories
(a) Classification of inventories
Inventories, including raw materials, consigned processing materials, low value
consumables, work in progress, completed but unsettled products and finished goods, etc.,
are measured at the lower of cost and net realisable value.
The amount of completed but unsettled works is determined on the basis of individual
contract at the cost of contract incurred plus profits thereof and less losses recognised and
amount settled. It is recognised as assets when the balance is positive and recognised as
liabilities when the balance is negative.
(b) Costing of inventories
Other than completed but unsettled products, cost is determined using the first-in first-out
method when issued. The cost of goods of finished goods and work in progress comprises
raw materials, direct labour and systematically allocated production overhead based on the
normal production capacity.
(c) Basis for determining net realisable values of inventories and method for making provision
for decline in the value of inventories
Inventories are initially measured at cost. The cost of inventories comprises purchase cost,
processing cost and other expenditures to bring the inventories to current site and condition.
On the balance sheet date, inventories are measured at the lower of cost and net realisable
value.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(12) Inventories (Cont'd)
(c) Basis for determining net realisable values of inventories and method for making provision
for decline in the value of inventories (Cont'd)
Net realisable value is determined based on the estimated selling price in the ordinary
course of business, less the estimated costs to completion and estimated costs necessary
to make the sale and related taxes.
Provision for decline in the value of inventories is determined at the excess amount of the
cost as calculated based on the classification of inventories over their net realisable value,
and are recognised in profit or loss for the current period.
(d) Inventory system
The Group adopts the perpetual inventory system.
(e) Amortisation methods of low value consumables and packaging materials
Low value consumables are expensed in full when issued and recognised in cost of related
assets or in profit or loss for the current period.
(13) Long-term equity investments
Long-term equity investments comprise the Company’s long-term equity investments in its
subsidiaries, and the Group’s long-term equity investments in its associates and joint
venture.
Subsidiaries are the investees over which the Company is able to exercise control. A joint
venture is a joint arrangement which is structured through a separate vehicle over which
the Group has joint control together with other parties and only has rights to the net assets
of the arrangement based on legal forms, contractual terms and other facts and
circumstances. Associates are the investees that the Group has significant influence on
their financial and operating policies.
Investments in subsidiaries are presented in the Company’s financial statements using the
cost method, and are adjusted to the equity method when preparing the consolidated
financial statements. Investments in a joint venture and associates are accounted for using
the equity method.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(13) Long-term equity investments (Cont'd)
(a) Determination of investment cost
For long-term equity investments acquired through a business combination: for long-term
equity investments acquired through a business combination involving enterprises under
common control, the investment cost shall be the absorbing party’s share of the carrying
amount of equity of the party being absorbed in the consolidated financial statements of the
ultimate controller at the combination date; for long-term equity investment acquired through
a business combination involving enterprises not under common control, the investment
cost shall be the combination cost.
For business combinations achieved by stages involving enterprises not under common
control, the initial investment cost accounted for using the cost method is the sum of carrying
amount of previously-held equity investment and additional investment cost. For previously-
held equity accounted for using the equity method, the accounting treatment of related other
comprehensive income from disposal of the equity is carried out on a same basis with the
investee's direct disposal of related assets or liabilities. Shareholders' equity, which is
recognised due to changes in investee’s shareholders’ equity other than those arising from
the net profit or loss, other comprehensive income and profit distribution, is accordingly
transferred into profit or loss in the period in which the investment is disposed.
For investment in previously-held equity accounted for using the recognition and
measurement standards of financial instruments, the initial investment cost accounted for
using the cost method is the sum of carrying amount of previously-held equity investment
and additional investment 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-term equity investments acquired by issuing equity
securities, the initial investment cost shall be the fair value of the equity securities issued.
(b) Subsequent measurement and recognition of related profit and loss
For long-term equity investments accounted for using the cost method, they are measured
at the initial investment costs, and cash dividends or profit distribution declared by the
investees are recognised as investment income in profit or loss.
For long-term equity investments accounted for using the equity method, where the initial
investment cost of a long-term equity investment exceeds the Group’s share of the fair value
of the investee’s identifiable net assets at the acquisition dates, the long-term equity
investment is measured at the initial investment cost; where the initial investment cost is
less than the Group’s share of the fair value of the investee’s identifiable net assets at the
acquisition dates, the difference is included in profit or loss and the cost of the long-term
equity investment is adjusted upwards accordingly.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(13) Long-term equity investments (Cont'd)
(b) Subsequent measurement and recognition of related profit and loss (Cont'd)
For long-term equity investments accounted for using the equity method, the Group
recognises the investment income according to its share of net profit or loss of the investee.
The Group discontinues recognising its share of net losses of an investee after the carrying
amount of the long-term equity investment together with any long-term interests that, in
substance, form part of the investor’s net investment in the investee are reduced to zero.
However, if the Group has obligations for additional losses and the criteria with respect to
recognition of provisions under the accounting standards on contingencies are satisfied, the
Group continues recognising the investment losses and the provisions. The changes in the
shareholders’ equity of the investee other than those arising from the net profit or loss, other
comprehensive income and profit distribution, are recognised in the Group’s equity and the
carrying amounts of the long-term equity investment are adjusted accordingly. The carrying
amount of the investment is reduced by the Group’s share of the profit distribution or cash
dividends declared by an investee. The unrealised profits or losses arising from the intra-
group transactions amongst the Group and its investees are eliminated in proportion to the
Group’s equity interest in the investees, and then based on which the investment gains or
losses are recognised. For the loss on the intra-group transaction amongst the Group and
its investees attributable to asset impairment, any unrealised loss is not eliminated.
(c) Basis for determining existence of control, jointly control or significant influence over
investees
Control is the power to govern an investee and obtain variable returns from participating the
investee's activities, and the ability to utilise the power of an investee to affect its returns.
Joint control is the contractually agreed sharing of control over an arrangement, and relevant
economic activity can be arranged upon the unanimous approval of the Group and other
participants sharing of control rights.
Significant influence is the power to participate in the financial and operating policy
decisions of the investee, but is not control or joint control over those policies.
(d) Impairment of long-term equity investments
The carrying amounts of long-term equity investments in subsidiaries, joint venture and
associates are reduced to the recoverable amounts when the recoverable amounts are
below their carrying amounts (Note 2(20)).
(14) Investment properties
Investment properties, including land use rights that have already been leased out, buildings
that are held for the purpose of leasing and buildings that are being constructed or
developed for future use for leasing, are measured initially at cost. Subsequent expenditures
incurred in relation to an investment property are included in the cost of the investment
property when it is probable that the associated economic benefits will flow to the Group
and their costs can be reliably measured; otherwise, the expenditures are recognised in
profit or loss in the period in which they are incurred.
The Group adopts the cost model for subsequent measurement of investment properties.
Buildings and land use rights are depreciated or amortised to their estimated net residual
values over their estimated useful lives. The estimated useful lives, the estimated net
residual values that are expressed as a percentage of cost and the annual depreciation
(amortisation) rates of investment properties are as follows:
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(14) Investment properties (Cont'd)
Estimated useful Estimated net Annual depreciation
lives residual value (amortisation) rates
Buildings 20 to 40 years 5% 2.38% to 4.75%
Land use rights 40 to 50 years - 2% to 2.5%
When an investment property is transferred to owner-occupied properties, it is reclassified
as fixed asset or intangible asset at the date of the transfer. When an owner-occupied
property is transferred out for earning rentals or for capital appreciation, the fixed asset or
intangible asset is reclassified as investment properties at its carrying amount at the date of
the transfer. At the time of transfer, the property is recognised based on the carrying amount
before transfer.
The investment properties' estimated useful lives, the estimated net residual values and the
depreciation (amortisation) methods applied are reviewed and adjusted as appropriate at
each year-end.
An investment property is derecognised on disposal or when the investment property is
permanently withdrawn from use and no future economic benefits are expected from its
disposal. The net amount of proceeds from sale, transfer, retirement or damage of an
investment property after deducting its carrying amount and related taxes and expenses is
recognised in profit or loss for the current period.
(15) Fixed assets
(a) Recognition and initial measurement of fixed assets
Fixed assets comprise buildings, land with permanent ownership, machinery and equipment,
motor vehicles, computers and electronic equipment and office equipment.
Fixed assets are recognised when it is probable that the related economic benefits will flow
to the Group and the costs can be reliably measured. The initial cost of purchased fixed
assets include purchase price, related taxes and expenditures that are attributable to the
assets incurred before the assets are ready for their intended use. The initial cost of self-
constructed fixed assets is determined based on Note 2(16).
Subsequent expenditures incurred for fixed assets are included in the cost of fixed assets
when it is probable that the associated economic benefits will flow to the Group and the
related cost can be reliably measured. The carrying amount of the replaced part is
derecognised. All the other subsequent expenditures are recognised in profit or loss in the
period in which they are incurred.
(15) Fixed assets
(b) Depreciation methods of fixed assets
Fixed assets are depreciated using the straight-line method to allocate the cost of the assets
to their estimated residual values over their estimated useful lives. For the fixed assets that
have been provided for impairment loss, the related depreciation charge is prospectively
determined based upon the adjusted carrying amounts over their remaining useful lives.
The estimated useful lives, the estimated residual values expressed as a percentage of cost
and the annual depreciation rates of the Group's fixed assets are as follows:
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(15) Fixed assets (Cont'd)
(b) Depreciation methods of fixed assets (Cont'd)
Estimated useful Estimated net residual Annual
Classes lives value depreciation rates
Buildings 15 to 60 years 0% to 10% 6.7% to 1.5%
0% to 10%
Machinery and equipment 2 to 18 years 50% to 5.0%
0% to 10%
Motor vehicles 2 to 20 years 50% to 4.5%
Electronic equipment and
other equipment 2 to 20 years 0% to 10% 50% to 4.5%
Land Permanent Not applicable Not applicable
The estimated useful lives and the estimated net residual values of the Group's fixed assets
and the depreciation methods applied to the assets are reviewed, and adjusted as
appropriate at each year-end.
(c) Basis for identification of fixed assets held under finance leases and related measurement
A lease that in substance transfers substantially all the risks and rewards incidental to
ownership of an asset is a finance lease. The leased asset is recognised at the lower of the
fair value of the leased asset and the present value of the minimum lease payments. The
difference between the recorded amount of the leased asset and the minimum lease
payments is accounted for as unrecognised finance charge.
Fixed assets held under a finance lease is depreciated on a basis consistent with the
depreciation policy adopted for fixed assets that are self-owned. When a leased asset can
be reasonably determined that its ownership will be transferred at the end of the lease term,
it is depreciated over the period of expected use; otherwise, the leased asset is depreciated
over the shorter period of the lease term and the period of expected use.
(d) The carrying amount of a fixed asset is reduced to the recoverable amount when the
recoverable amount is below the carrying amount (Note 2(20)).
(e) Disposal of fixed assets
A fixed asset is derecognised on disposal or when no future economic benefits are expected
from its use or disposal. The amount of proceeds from disposals on sale, transfer, retirement
or damage of a fixed asset net of its carrying amount and related taxes and expenses is
recognised in profit or loss for the current period.
(16) Construction in progress
Construction in progress is measured at actual cost. Actual cost comprises construction
costs, installation costs, borrowing costs that are eligible for capitalisation and other costs
necessary to bring the fixed assets ready for their intended use. Construction in progress is
transferred to fixed assets when the assets are ready for their intended use, and
depreciation begins from the following month. The carrying amount of construction in
progress is reduced to the recoverable amount when the recoverable amount is below the
carrying amount (Note 2(20)).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(17) Borrowing costs
The borrowing costs that are directly attributable to the acquisition and construction of a
fixed asset that needs a substantially long period of time for its intended use commence to
be capitalised and recorded as part of the cost of the asset when expenditures for the
asset and borrowing costs have been incurred, and the activities relating to the acquisition
and construction that are necessary to prepare the asset for its intended use have
commenced. The capitalisation of borrowing costs ceases when the asset under
acquisition or construction becomes ready for its intended use and the borrowing costs
incurred thereafter are recognised in profit or loss for the current period. Capitalisation of
borrowing costs is suspended during periods in which the acquisition or construction of a
fixed asset is interrupted abnormally and the interruption lasts for more than 3 months,
until the acquisition or construction is resumed.
For the specific borrowings obtained for the acquisition or construction of a fixed asset
qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is
determined by deducting any interest income earned from depositing the unused specific
borrowings in the banks or any investment income arising on the temporary investment of
those borrowings during the capitalisation period.
For the general borrowings obtained for the acquisition or construction of a fixed asset
qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is
determined by applying the weighted average effective interest rate of general borrowings,
to the weighted average of the excess amount of cumulative expenditures on the asset
over the amount of specific borrowings. The effective interest rate is the rate at which the
estimated future cash flows during the period of expected duration of the borrowings or
applicable shorter period are discounted to the initial amount of the borrowings.
(18) Intangible assets
Intangible assets include land use rights, patents and non-patent technologies, trademark
rights, trademark use rights, licensing rights and others, and are measured at cost.
(a) Land use rights
Land use rights are amortised on the straight-line basis over their approved use period of
40 to 50 years. If the acquisition costs of the land use rights and the buildings located
thereon cannot be reasonably allocated between the land use rights and the buildings, all
of the acquisition costs are recognised as fixed assets.
(b) Patents and non-patent technologies
Patents are amortised on a straight-line basis over the statutory period of validity, the
period as stipulated by contracts or the beneficial period.
(c) Trademark rights
The trademark rights is measured at cost when acquired and is amortized over the
estimated useful life of 30 years. The cost of trademark rights obtained in the business
combinations involving enterprises not under common control is measured at fair value.
(d) Trademark use rights
The trademark use rights is measured at cost when acquired. The cost of trademark use
rights obtained in the business combinations involving enterprises not under common
control is measured at fair value, and is amortized over the estimated useful life of 40 years.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(18) Intangible assets (Cont'd)
(e) Periodical review of useful life and amortisation method
For an intangible asset with a finite useful life, review of its useful life and amortisation
method is performed at each year-end, with adjustment made as appropriate.
(f) Research and development (“R&D”)
The expenditure on an internal research and development project is classified into
expenditure on the research phase and expenditure on the development phase based on
its nature and whether there is material uncertainty that the research and development
activities can form an intangible asset at end of the project.
Expenditure on the planned investigation, evaluation and selection for the R&D of production
processes or products is expenditure on the research phase, which is recognised in profit
or loss in the period in which it is incurred. Expenditure on design and test for the final
application of the R&D of production processes or products before mass production is
expenditure on the development phase, which is capitalised only if all of the following
conditions are satisfied:
The R&D of production processes or products has been fully justified by technical team;
The budget on the R&D of production processes or products has been approved by the
management;
It's been proved by previous market research analysis that the products produced by
the production processes have marketing capabilities;
There are sufficient technical and financial resources to support the R&D of production
processes or products and subsequent mass production; and
Expenditure attributable to the R&D of production processes or products can be
reliably measured.
Other development expenditures that do not meet the conditions above are recognised in
profit or loss in the period in which they are incurred. Development costs previously
recognised as expenses are not recognised as an asset in a subsequent period. Capitalised
expenditure on the development phase is presented as development costs in the balance
sheet and transferred to intangible assets at the date that the asset is ready for its intended
use.
(g) Impairment of intangible assets
The carrying amount of intangible assets is reduced to the recoverable amount when the
recoverable amount is below the carrying amount (Note 2(20)).
(19) Long-term deferred 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 one year in the current and subsequent periods.
Long-term prepaid expenses are amortised on the straight-line basis over the expected
beneficial period and are presented at actual expenditure net of accumulated amortisation.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(20) Impairment of long-term assets
Fixed assets, construction in progress, intangible assets with finite useful lives, investment
properties measured using the cost model and long-term equity investments in subsidiaries,
a joint venture and associates are tested for impairment if there is any indication that the
assets may be impaired at the balance sheet date. Intangible assets not ready for their
intended use and land with permanent ownership are tested at least annually for impairment,
irrespective of whether there is any indication that it may be impaired. If the result of the
impairment test indicates that the recoverable amount of an 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 is the higher of an asset’s fair value less costs to sell and the present value of the
future cash flows expected to be derived 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 group of assets to
which the asset belongs is determined. A group of assets is the smallest group of assets
that is able to generate independent cash inflows.
Goodwill that is separately presented in the financial statements is tested at least annually
for impairment, irrespective of whether there is any indication that it may be impaired. In
conducting the test, the carrying value of goodwill is allocated to the related asset groups or
groups of asset groups which are expected to benefit from the synergies of the business
combination. If the result of the test indicates that the recoverable amount of an asset group
or group of asset groups, including the allocated goodwill, is lower than its carrying amount,
the corresponding impairment loss is recognised. The impairment loss is first deducted from
the carrying amount of goodwill that is allocated to the asset group or group of asset groups,
and then deducted from the carrying amounts of other assets within the asset groups or
groups of asset groups in proportion to the carrying amounts of assets other than goodwill.
Once the above asset impairment loss is recognised, it will not be reversed for the value
recovered in the subsequent periods.
(21) Employee benefits
Employee benefits include short-term employee benefits, post-employment benefits,
termination benefits and other long-term employee benefits provided in various forms of
consideration in exchange for service rendered by employees or compensations for the
termination of employment relationship.
(a) Short-term employee benefits
Short-term employee benefits include employee wages or salaries, bonus, allowances and
subsidies, staff welfare, premiums or contributions on medical insurance, work injury
insurance and maternity insurance, housing funds, union running costs and employee
education costs, and short-term paid absences. The employee benefit liabilities are
recognised in the accounting period in which the service is rendered by the employees, with
a corresponding charge to the profit or loss for the current period or the cost of relevant
assets. Non-monetary benefits are measured at their fair value.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(21) Employee benefits (Cont'd)
(b) Post-employment benefits
The Group classifies post-employment benefit plans as either defined contribution plans or
defined benefit plans. Defined contribution plans are post-employment benefit plans under
which the Group pays fixed contributions into a separate fund and will have no obligation to
pay further contributions; and defined benefit plans are post-employment benefit plans other
than defined contribution plans. During the reporting period, the Group's defined contribution
plans mainly include basic pensions and unemployment insurance, while the defined benefit
plans are that TLSC and KUKA, the Group’s subsidiaries, provides supplemental retirement
benefits beyond the national regulatory insurance system.
Basic pensions
Employees of the Group participate in the defined basic pension insurance plan set up and
administered by local labour and social protection authorities. Basic pensions are provided
for monthly according to stipulated bases and proportions to local labour and social security
institutions. When employees retire, the relevant local authorities are obliged to pay the
basic pensions to them. The amounts based on the above calculations are recognised as
liabilities in the accounting period in which the service has been rendered by the employees,
with a corresponding charge to the profit or loss for the current period or the cost of relevant
assets.
Supplemental retirement benefits
The liability recognised in the balance sheet in respect of defined benefit pension plans is
the present value of the defined benefit obligation at the end of the reporting period less the
fair value of plan assets. The defined benefit obligation is calculated annually by
independent actuaries using the projected unit credit method. The present value of the
defined benefit obligation is determined by discounting the estimated future cash outflows
using interest rates of national debt that are denominated in the currency in which the
benefits will be paid, and that have terms to maturity approximating to the terms of the
related pension obligation. The charges related to the supplemental retirement benefits
(including current service costs, past-service costs and gains or losses on settlement) and
net interest costs are recognised in the statement of profit or loss or included in the cost of
an asset, and the changes of remeasurements in net liabilities or net assets arising from
the benefit plan are charged or credited to equity in other comprehensive.
(c) Termination benefits
The Group provides compensation for terminating the employment relationship with
employees before the end of the employment contracts or as an offer to encourage
employees to accept voluntary redundancy before the end of the employment contracts.
The Group recognises a liability arising from compensation for termination of the
employment relationship with employees, with a corresponding charge to profit or loss at
the earlier of the following dates: 1) when the Group cannot unilaterally withdraw the offer
of termination benefits because of an employment termination plan or a curtailment
proposal; 2) when the Group recognises costs or expenses related to the restructuring that
involves the payment of termination benefits.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(21) Employee benefits (Cont'd)
(c) Termination benefits (Cont'd)
Early retirement benefits
The Group offers early retirement benefits to those employees who accept early retirement
arrangements. The early retirement benefits refer to the salaries and social security
contributions to be paid to and for the employees who accept voluntary retirement before
the normal retirement date prescribed by the State, as approved by the management. The
Group pays early retirement benefits to those early retired employees from the early
retirement date until normal retirement date. The Group accounts for the early retirement
benefits in accordance with the treatment of termination benefits, in which the salaries and
social security contributions to be paid to and for the early retired employees from the off-
duty date to the normal retirement date are recognised as liabilities with a corresponding
charge to the profit or loss for the current period. The differences arising from the changes
in the respective actuarial assumptions of the early retirement benefits and the adjustments
of benefit standards are recognised in profit or loss in the period in which they occur.
The termination benefits expected to be paid within one year since the balance sheet date
are classified as current liabilities.
(22) Financial assets sold under repurchase agreements
Assets sold under agreements to repurchase at a specific future date are not derecognised
from the balance sheet. The corresponding proceeds are recognised on the balance sheet
under “Repurchase agreements”. The difference between the sale price and the repurchase
price is treated as interest expense and is accrued over the life of the agreement using the
effective interest method.
(23) General reserve
General reserve is the reserve appropriated from undistributed profits to cover part of
unidentified potential losses, on the basis of the estimated potential risk value of risk assets
assessed by the standardised approach, which is deducted from recognised provision for
impairment losses on loans. Risk assets include loans and advances, available-for-sale
financial assets, long-term equity investments, deposits with banks and other financial
institutions and other receivables of subsidiary engaged in financial business.
(24) Dividend distribution
Cash dividend is recognised as a liability for the period in which the dividend is approved
by the shareholders’ meeting.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(25) Provisions
Provisions for product warranties, onerous contracts etc. are recognised when the Group
has a present obligation, it is probable that an outflow of economic benefits will be required
to settle the obligation, 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 present obligation. Factors surrounding a contingency, such as the risks,
uncertainties and the time value of money, are taken into account as a whole in reaching
the best estimate of a provision. Where the effect of the time value of money is material, the
best estimate is determined by discounting the related future cash outflows. The increase in
the discounted amount of the provision arising 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 best estimate.
Provisions to be paid within one year since balance sheet date shall be categorised as
current liability.
(26) 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 for equity instruments of the entity or by incurring liabilities for amounts
based on the equity instruments. Equity instruments include equity instruments of the
Company, its parent company or other accounting entities of the Group. Share-based
payments are divided into equity-settled and cash-settled payments. The Group’s share-
based payments are equity-settled payments.
Equity-settled share-based payment
The Group’s share option plan is the equity-settled share-based payment in exchange of
employees' services and is measured at the fair value of the equity instruments at grant
date. The equity instruments are exercisable after services in vesting period are completed
or specified performance conditions are met. In the vesting period, the services obtained in
current period are included in relevant cost and expenses at the fair value of the equity
instruments at grant date based on the best estimate of the number of exercisable equity
instruments, and capital surplus is increased accordingly. If the subsequent information
indicates the number of exercisable equity instruments differs from the previous estimate,
an adjustment is made and, on the exercise date, the estimate is revised to equal the
number of actual vested equity instruments. On the exercise date, the recognised amount
calculated based on the number of exercised equity instruments is transferred into share
capital.
The Group’s restricted share plan is the equity-settled share-based payment in exchange
of employees' services and is measured at the fair value of the equity instruments at grant
date. The equity instruments are tradable after services in vesting period are completed or
specified performance conditions are met. In the vesting period, the services obtained in
current period are included in relevant cost and expenses at the fair value of the equity
instruments at grant date based on the best estimate of the number of tradable equity
instruments, and capital surplus is increased accordingly. If the subsequent information
indicates the number of tradable equity instruments differs from the previous estimate, an
adjustment is made and, on the desterilization date, the estimate is revised to equal the
number of actual vested equity instruments.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(26) Share-based payment (Cont'd)
(b) Determination of the fair value of equity instruments
The Group determines the fair value of share options using option pricing model, which is
Black - Scholes option pricing model.
The Group determine the fair value of restricted shares based on the market value of
restricted shares on the grant date and the price that incentive objects pay, taking into
account the effects of relevant clause of the Group’s restricted shares plan.
(c) Basis for determining best estimate of tradable or exercisable equity instruments
At the end of each reporting period, the group revises its estimates of the number of options
that are expected to vest based on the non-marketing performance and service conditions.
On the exercise or desterilization date, the final number of estimated exercisable or tradable
equity instruments is consistent with the number of exercised or tradable equity instruments.
(d) Accounting treatment related to the exercise of shared-based payment plans
When the options are exercised, the company issues new shares. The proceeds received
net of any directly attributable transaction costs are credited to share capital (and share
premium). At the same time, capital surplus recognised in the vesting period are carried
forward to share premium.
On the grant day of restricted shares, the Group debit bank deposit and increase equity and
capital reserves (equity premium) when receiving subscription paid by the employees. In
the meanwhile, recognize the debt for repurchase obligation (deem as acquisition of
treasury stock), debit treasury stock and credit other payables-repurchase obligations of
restricted share based on the number of restricted stocks issued and related repurchase
price.
On the desterilization day of restricted shares, the Group transfer capital reserves that was
confirmed during vesting period based on the desterilization condition.
(27) Revenue
The amount of revenue is determined in accordance with the fair value of the consideration
received or receivable for the sales of goods and services in the ordinary course of the
Group’s activities. Revenue is shown net of discounts, rebates and returns.
Revenue is recognised when the economic benefits associated with the transaction will
flow to the Group, the related revenue can be reliably measured, and the specific revenue
recognition criteria have been met for each type of the Group’s activities as described
below:
(a) Sales of goods
The Group are principally engaged in the manufacturing and sales of home appliances
(mainly HVAC and Consumer appliances), robots and automation systems (mainly Robots
and automatic system).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(27) Revenue (Cont'd)
(a) Sales of goods (Cont'd)
Revenue from domestic sales of home appliances is recognised when 1) the goods are
delivered to buyers by the Group pursuant to contracts; 2) the amount of revenue is
confirmed; 3) payments for goods are collected or receipts are acquired; and 4) the related
economic benefits will flow to the Group; and the related costs can be measured reliably.
Upon confirming the acceptance, the buyer has the right to sell the products at its discretion
and takes the risks of any price fluctuations and obsolescence and loss of the products.
Revenue from overseas sales of home appliances is recognised when 1) the goods have
left the port and obtain the bill of lading pursuant to contracts; 2) the amount of revenue is
confirmed; 3) payments for goods are collected or obtain related receipts; and 4) the related
economic benefits will flow to the Group and the related costs can be measured reliably.
For robots and automation systems, revenue is recognised when 1) the goods are delivered
to buyers by the Group pursuant to contracts; 2) the amount of revenue is confirmed; 3)
payments for goods are collected or receipts are acquired; and 4) the related economic
benefits will flow to the Group; and the related costs can be measured reliably.
(b) Rendering of services
Revenue from transportation service, storage service, distribution service and installation
service as provided by the Group is recognised when the services are completed.
Revenue from providing automation system business and intelligent logistics integration
solution is recognized according to the percentage of completion.
(c) The construction contract
Where the outcome of a construction contract can be estimated reliably, revenue and costs
thereof are recognised using the “percentage-of-completion” method as at the balance
sheet date, the stage of completion is measured by reference to the contract costs incurred
up to the end of the reporting period as a percentage of total estimated costs for each
contract.
The outcome of a construction contract can be estimated reliably when all of the following
conditions are concurrently met: (1) The total contract revenue can be measured reliably;
(2) It is highly probable that the economic benefits associated with the contract will flow to
the enterprise; (3) The contract costs incurred thus far can be clearly identified and
measured reliably; (4) Both the stage of completion and the costs necessary to complete
the contract can be reliably measured.
Where the outcome of a construction contract cannot be estimated reliably, contract
revenue is recognised to the extent that contract costs can be recovered actually. Contract
costs are recognised as expenses in the period in which they are incurred. Otherwise,
contract costs are recognised as expenses immediately, not as contract revenue. If the
unexpected factors no longer exist which make construction contract unable to be estimated
reliably, revenue and costs are recognised using the percentage-of-completion method.
When it is probable that total contract costs will exceed total contract revenue, the expected
loss is recognised as an expense immediately.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(27) Revenue (Cont'd)
(c) The construction contract (Cont'd)
As at the balance sheet date, the actual total contract revenue multiply the percentage of
completion less the total contract revenue recognised in previous accounting periods should
be recognised as the revenue for the current period. Similarly, the total contract costs
multiply the percentage of completion incurred less the total contract costs recognised in
previous accounting periods should be recognised as the expenses for the current period.
(d) Interest income
Interest income from financial instruments is calculated by effective interest method and
recognised in profit or loss for the current period. Interest income comprises premiums or
discounts, or the amortisation based on effective rates of other difference between the initial
carrying amount and the due amount of interest-earning assets.
The effective interest method is a method of calculating the amortised cost of a financial
asset or liability and the interest income or expense based on effective rates. Actual interest
rate is the rate at which the estimated future cash flows during the period of expected
duration of the financial instruments or applicable shorter period are discounted to the
current carrying amount of the financial instruments. When calculating the effective interest
rate, the Group estimates cash flows by considering all contractual terms of the financial
instrument (e.g. early repayment options, similar options, etc.), but without considering
future credit losses. The calculation includes all fees and interest paid or received that are
an integral part of the effective interest rate, transaction costs, and all other premiums or
discounts.
Interest income from impaired financial assets is calculated at the interest rate that is used
for discounting estimated future cash flow when measuring the impairment loss.
(e) Dividend income
Dividend income is recognised when the right to receive dividend payment is established.
(f) Rental income
Rental income from investment prosperities is recognised in the income statement on a
straight-line basis over the lease period.
(g) Fee and commission income
Fee and commission income is recognised in profit or loss for the current period when the
service is provided. The Group defers the initial charge income or commitment fee income
arising from the forming or acquisition of financial assets as the adjustment to effective
interest rate. If the loans are not lent when the loan commitment period is expired, related
charges are recognised as fee and commission income.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(28) Government grants
Government grants are transfers of monetary or non-monetary assets from the government
to the Group at nil consideration, including refund of taxes and financial subsidies, etc.
A government grant is recognised when the conditions attached to it can be complied with
and the government grant can be received. For a government grant in the form of transfer
of monetary assets, the grant is measured at the amount received or receivable. For a
government grant in the form of transfer of non-monetary assets, it is measured at fair value;
if the fair value is not reliably determinable, the grant is measured at nominal amount.
Government grants related to assets are grants that are acquired by an enterprise and used
for acquisition, construction or forming long-term assets in other ways. Government grants
related to income are government grants other than government grants related to assets.
Government grants related to assets could be offset the carrying amount of related assets,
or recognised as deferred income, and reasonably and systematically amortised to profit or
loss over the useful life of the related asset. For government grants related to income, where
the grant is a compensation for related expenses or losses to be incurred by the Group in
the subsequent periods, the grant is recognised as deferred income, and included in profit
or loss or offset the related cost over the periods in which the related costs are recognised;
where the grant is a compensation for related expenses or losses already incurred by the
Group, the grant is recognised immediately in profit or loss or offset the related cost for the
current period. The same kind of government grants are presented with the same method,
that is, those related to ordinary activities are recorded into operating profit while other in
non-operating income and expenses.
Loans to the Group at political preferential rate are recorded at the actual amount received,
and the related loan expenses are calculated based on the principal and the political
preferential rate. Finance discounts directly received offset related loans expenses.
(29) Deferred income tax assets and deferred income tax liabilities
Deferred income tax assets and deferred income tax liabilities are calculated and
recognised based on the differences arising between the tax bases of assets and liabilities
and their carrying amounts (temporary differences). Deferred income tax asset is
recognised for the tax losses that can be carried forward to subsequent years for deduction
of the taxable profit in accordance with the tax laws. No deferred income tax liability is
recognised for a temporary difference arising from the initial recognition of goodwill. No
deferred income tax asset or deferred income tax liability is recognised for the temporary
differences resulting from the initial recognition of assets or liabilities due to a transaction
other than a business combination, which affects neither accounting profit nor taxable profit
(or tax loss). At the balance sheet date, deferred income tax assets and deferred income
tax liabilities are measured at the tax rates that are expected to apply to the period when
the asset is realised or the liability is settled.
Deferred income tax assets are only recognised for deductible temporary differences, tax
losses and tax credits to the extent that it is probable that taxable profit will be available in
the future against which the deductible temporary differences, tax losses and tax credits can
be utilised.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(29) Deferred income tax assets and deferred income tax liabilities (Cont'd)
Deferred income tax liabilities are recognised for temporary differences arising from
investments in subsidiaries, associates and a joint venture, except where the Group is able
to control the timing of reversal of the temporary difference, and it is probable that the
temporary difference will not reverse in the foreseeable future. When it is probable that the
temporary differences arising from investments in subsidiaries, associates and a joint
venture will be reversed in the foreseeable future and that the taxable profit will be available
in the future against which the temporary differences can be utilised, the corresponding
deferred income tax assets are recognised.
Deferred income tax assets and liabilities are offset when:
The deferred income taxes are related to the same tax payer within the Group and the
same taxation authority; and,
That tax payer within the Group has a legally enforceable right to offset current tax
assets against current tax liabilities.
(30) Leases
(a) Operating lease
Rental expenses for assets held under operating leases are recognised as the cost of
relevant assets or expenses on a straight-line basis over the lease period. Contingent
rentals are recognised as profit and loss for the current period when incurred.
Fixed assets leased out under operating leases, other than investment prosperities (Note
2(14)), are depreciated in accordance with the depreciation policy stated in Note 2(15)(b)
and provided for impairment loss in accordance with the policy stated in Note 2(20). Rental
income from operating leases is recognised as revenue on a straight-line basis over the
lease period. Initial direct costs in large amount arising from assets leased out under
operating leases are capitalised when incurred and recognised as profit and loss for the
current period over the lease period on a same basis with revenue recognition; initial direct
costs in small amount are directly recognised as profit and loss for the current period.
Contingent rentals are recognised as profit and loss for the current period when incurred.
(b) Finance lease
The leased asset is recognised at the lower of the fair value of the leased asset and the
present value of the minimum lease payments. The difference between the recorded amount
of the leased asset and the minimum lease payments is accounted for as unrecognised
finance charge and is amortised using the effective interest method over the period of the
lease. A long-term payable is recorded at the amount equal to the minimum lease payments
less the unrecognised finance charge.
(31) Held for sale and discontinued operations
A non-current asset or a disposal group is classified as held for sale when all of the following
conditions are satisfied: (1) the non-current asset or the disposal group is available for
immediate sale in its present condition subject only to terms that are usual and customary
for sales of such non-current asset or disposal group; (2) the Group has entered a legally
enforceable sales agreement with other party and obtained relevant approval, and the sales
transaction is expected to be completed within one year.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(31) Held for sale and discontinued operations (Cont'd)
Non-current assets (excluding financial assets, investment properties measured at fair value
and deferred tax assets) that are stated at the lower of carrying amount and net realisable
value. Any excess of the carrying amount over the net realisable value is recognised as
impairment loss.
Assets and liabilities of a non-current asset or disposal group which is classified as held for
sale are classified as current assets and current liabilities, which are separately presented
in the balance sheet.
A discontinued operation is a component which has been disposed or classified as held for
sale of the group’s business and the operations and financial reporting of the discontinued
operation can be clearly distinguished from the rest of the group and can meet one of the
following criteria: (1) This component of the business represents a separate major line of
business or geographic area of operations; (2) This component of the business is part of a
single co-ordinated plan to dispose of a separate major line of business or geographical
area of operations; (3) This component of the business is a subsidiary acquired exclusively
with a view to resale.
The net profit from discontinued operations in the income statement includes operating
profit or loss and disposal gains or losses of discontinued operations.
(32) Segment information
The Group identifies operating segments based on the internal organisation structure,
management requirements and internal reporting system, and discloses segment
information of reportable segments which is determined on the basis of operating segments.
An operating segment is a component of the Group that satisfies all of the following
conditions: (1) the component is able to earn revenue and incur expenses from its ordinary
activities; (2) whose operating results are regularly reviewed by the Group’s management
to make decisions about resources to be allocated to the segment and to assess its
performance, and (3) 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 are aggregated into one single
operating segment.
(33) Critical accounting estimates and judgements
The Group continually evaluates the critical accounting estimates and key judgements
applied based on historical experience and other factors, including expectations of future
events that are believed to be reasonable.
Critical accounting estimates and key assumptions
The critical accounting estimates and key assumptions that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within the next
accounting year are outlined below:
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(33) Critical accounting estimates and judgements (Cont'd)
(i) The fair value assessment of identifiable net assets and recognition of goodwill related to
the acquisition
For business combinations not under common control (Note 5(1)(a)), the combination cost
and the identifiable net assets acquired in the combination should be measured at fair value
at the acquisition date. The Group shall allocate the cost of combination to the identifiable
assets and liabilities measured at fair value at the acquisition date. The excess of the cost
of combination over share of fair value of identifiable net assets acquired from the acquiree
is recognised as goodwill.
The Group needs to make critical judgements in identifying the identifiable assets and
liabilities, especially in identifying intangible assets and assessing their fair value, which
affect the recognition of goodwill. The key assumptions adopted in assessing fair value of
intangible assets include revenue growth, tax rates, EBITDA margins, contributory asset
charges, royalty rates, remaining useful lives of intangible assets and discount rate, etc.
(ii) Goodwill impairment provision
The Group conducts impairment testing on goodwill every year. The recoverable amount of
the asset group and the combination of asset group that contain the apportioned goodwill
is determined by the higher value between the use value and the net value that is calculated
by the fair value less the disposal costs. Accounting estimate is required for the calculation
of the recoverable amount. The impairment testing is performed by assessing the
recoverable amount of the groups of assets containing the relevant goodwill, based on the
present value of cash flows forecasts. Key assumptions adopted in the impairment testing
of goodwill included expected revenue growth rates, EBITDA margins, perpetual annual
growth rates, discount rates, etc. which involved critical accounting estimates and
judgement.
.
(iii) Income taxes
The Group is subject to income taxes in numerous jurisdictions. There are many
transactions and events for which the ultimate tax determination is uncertain during the
ordinary course of business. Significant judgement is required from the Group in
determining the provision for income taxes in each of these jurisdictions. Where the final
tax outcome of these matters is different from the amounts that were initially recorded, such
differences will impact the income tax and deferred income tax provisions in the period in
which such determination is made.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(34) Significant changes in accounting policies
In 2017, the Ministry of Finance released the ‘Accounting Standard for Business
Enterprises No. 42—Non-current Assets or Disposal Groups Held for Sale and Discontinued
Operations’, revised ‘Accounting Standard for Business Enterprises No. 16—Government
Grants’ and the ‘Circular on Amendment to Formats of Financial Statements of General
Industry’ and its interpretation (Cai Kuai [2017] 30). The financial statements are prepared
in accordance with the above standards and circular, and impacts are as follows:
The nature and the reasons of the changes The line items affected The amounts of 2016
in accounting policies affected
The Group recorded the VAT return Not applicable Not applicable
obtained in 2017 in other income. The
comparatives of 2016 were not restated.
The government grants related to income, Not applicable Not applicable
obtained in 2017 by the Group, were
recorded as a deduction of related costs,
expenses or losses (Note 7(29)). The
comparatives of 2016 were not restated.
The Group recorded the gains or losses on Gains on disposals of assets Decrease 111,874,000
disposals of fixed assets and intangible Non-operating income Decrease 60,789,000
assets, occurred in 2017, in gains on Non-operating expenses Decrease 172,663,000
disposals of assets. The comparatives of
2016 were restated accordingly.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
3 Taxation
(1) Main tax category and rate
Category Tax base Tax rate
Corporate income tax (a) Levied based on taxable income 5%, 14%, 15%, 16.5%,
17%, 25%, 19%, 20-
31.5%, 32%, 34% or
35%
Value-added tax (VAT) (b) Taxable value-added amount (Tax 5%、6%、11%、17%
payable is calculated using the or 19%
taxable sales amount multiplied by the
applicable tax rate less deductible
VAT input of the current period)
City maintenance and The amount of VAT paid 5% or 7%
construction tax
Educational surcharge The amount of VAT paid 3% or 5%
Local education surcharge The amount of VAT paid 2%
Property tax Price-based property is subject to a 1.2% or 12%
1.2% tax rate after a 30% cut in the
original price of property. Rental-
based is subject to 12% tax rate for
the rental income.
(a) Notes to the corporate income tax rate of the principal tax payers with different tax rates
(a-1) The following subsidiaries of the Company are subject to a corporate income tax rate of
15% in 2017 as they qualified as high-tech enterprises and obtained the High-tech
Enterprise Certificate.
No. of the Certificate of Effective
Name of tax payer the High-tech Enterprise Dates of issuance period
Jiangsu Midea Cleaning Appliance Company Limited GR201732001675 11 November 2017 3 years
Guangdong Midea Environmental Electric 3 years
Appliance Manufacturing Co., Ltd. GR201644002286 30 November 2017
3 years
Jiangxi Midea Guiya lighting Co., Ltd. GR201736000187 23 August 2017
Guangdong Midea Kitchen Appliances 3 years
Manufacturing Co., Ltd. GR201544000202 30 September 2015
Guangdong Witt Vacuum Electronics Manufacturing 3 years
Co., Ltd. GR201744000489 9 November 2017
Foshan Shunde Midea Washing Appliance 3 years
Manufacturing Co., Ltd. GR201744002837 9 November 2017
Foshan Shunde Midea Electric Appliance 3 years
Manufacturing Co., Ltd. GR201544001470 10 October 2015
Foshan Shunde century Tongchuang Technology 3 years
Co., Ltd. GR201644000331 30 November 2016
3 years
Foshan Shunde Midea Electric Technology Co., Ltd. GR201644000358 30 November 2017
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
3 Taxation (Cont’d)
(1) Main tax category and rate (Cont’d)
(a) Notes to the corporate income tax rate of the principal tax payers with different tax rates
(Cont’d)
(a-1) The following subsidiaries of the Company are subject to a corporate income tax rate of
15% in 2017 as they qualified as high-tech enterprises and obtained the High-tech
Enterprise Certificate. (Cont’d)
No. of the Certificate of the High- Effective
Name of tax payer tech Enterprise Dates of issuance period
Guangdong Midea Heating & Ventilation
Equipment Co., Ltd. GF201544000292 20 October 2015 3 years
Hefei Midea Heating & Ventilation Equipment
Co., Ltd. GR201734000207 21 October 2016 3 years
Anhui GMCC Precision Manufacturing Co., Ltd. GR201534000785 15 October 2015 3 years
Guangzhou Midea Hualing Refrigerator Co.,Ltd. GR201744002925 30 November 2016 3 years
Guangdong Welling Motor Manufacturing Co.,
Ltd. GR201744002062 9 November 2017 3 years
Foshan Welling Washer Motor Manufacturing
Co., Ltd. GR201744001025 9 November 2017 3 years
Huaian Weiling Motor Manufacturing Co., Ltd. GR201632004278 3 November 2016 3 years
Ander zhilian technology co. LTD. GR201534000356 19 June 2015 3 years
Wuxi Little Swan Company Limited. GR201532000606 6 July 2015 3 years
Wuxi Filin Electronics Co., Ltd. GR201532000917 6 July 2015 3 years
Wuxi Little Swan General Appliance Co., Ltd. GR201532000557 6 July 2015 3 years
Guangdong Midea Refrigeration Equipment Co.,
Ltd. GR201744000337 9 November 2017 3 years
Handan Midea Refrigeration Equipment Co.,
Ltd. GR201713000957 27 October 2017 3 years
Midea Wuhan Refrigeration Equipments Co.,
Ltd. GR201742002075 30 November 2017 3 years
Guangzhou Hualing Refrigeration Equipment
Co., Ltd. GR201744010610 11 December 2017 3 years
Wuhu Meizhi Air-Conditioning Equipment Co.,
Ltd. GR201734001246 7 November 2017 3 years
Chongqing Midea General Refrigeration
Equipment Co., Ltd. GR201751100113 28 December 2017 3 years
Guangdong GMCC Refrigeration Equipment
Co., Ltd. GR201744000895 9 November 2017 3 years
Hubei Midea Refrigerator Co., Ltd. GR201742001255 28 November 2017 3 years
Guangdong Midea Life Electric Appliance
Manufacturing Co., Ltd. GR201744006141 11 December 2017 3 years
Anhui GMCC Refrigeration Equipment Co., Ltd. GR201634000994 5 December 2016 3 years
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
3 Taxation (Cont'd)
(1) Main tax category and rate (Cont'd)
(a) Notes to the corporate income tax rate of the principal tax payers with different tax rates
(Cont’d)
(a-2) The application for corporate income tax preferential treatment of Chongqing Midea
Refrigeration Equipment Co., Ltd., the Company's subsidiary, was approved by the State
Administration of Taxation of Chongqing Economical and Technological Development Zone
on 3 June 2014. The subsidiary is subject to corporate income tax at the rate of 15% in
2017.
(a-3) The Company's subsidiaries in Mainland China other than those mentioned in (a-1) and (a-
2) are subject to corporate income tax at the rate of 25%.
(a-4) In August 2008, Midea Electric Appliance (Singapore) Co., Ltd., the Company's subsidiary,
was awarded with the Certificate of Honor for Development and Expansion (NO.587) by the
Singapore Economic Development Board, which approves that qualified income exceeding
a certain amount is subject to corporate income tax at the rate of 5% while the unqualified
income is subject to the corporate income tax at the rate of 17%. Midea Electric Appliance
(Singapore) Co., Ltd. and Little Swan International (Singapore) Co., Ltd., the Company's
subsidiary, is subject to corporate income tax at the rate of 17%.
(a-5) The Company's subsidiaries in Hong Kong are subject to Hong Kong profits tax at the rate
of 16.5%. Such subsidiaries include Midea International Trade Co., Ltd., Midea International
Co., Ltd., Midea Appliance Investment (Hong Kong) Ltd., Gold Emperor Enterprises Ltd.,
Chairing Holding Ltd., Century Carrier Household Air-conditioning Co., Ltd., Midea
Refrigeration (Hong Kong) Ltd., Welling Holding Limited (Hong Kong), Welling International
Hong Kong Ltd. (HK), and Midea Investment (Asia) Co., Ltd..
(a-6) The Company's subsidiaries in BVI and Cayman Islands are exempted from corporate
income tax. Such subsidiaries include Mecca International (BVI) Limited, Titoni Investments
Development Ltd., Midea Holdings (BVI) Ltd., Midea Electric Investment (BVI) Limited,
Welling Holding (BVI) Ltd., Midea Holding (Cayman Islands) Ltd. and Midea Investment
Development Ltd..
(a-7) Springer Carrier Ltd., the Company's subsidiaries in Brazil, is subject to Brazil corporate
income tax at the rate of 34%.
(a-8) TLSC and its subsidiaries, the Company's subsidiaries in Japan, is subject to Japan
corporate income tax at the rate of 30.81%.
(a-9) Clivet S.P.A and Clivet Espaa S.A.U. (“Clivet”), the Company's subsidiaries in Italy, is
subject to Italy corporate income tax at the rate between 20% and 31.4%.
(a-10) KUKA, the Company's subsidiaries in Germany, is subject to Germany corporate income
tax at the rate of 32%.
(a-11) SMC, the Company's subsidiaries in Israel, is subject to Israel corporate income tax at the
rate of 24%.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
3 Taxation (Cont'd)
(1) Main tax category and rate (Cont'd)
(b) Notes to the value-added tax rate of the principal tax payers with different tax rates
(b-1) According to The Programme for Comprehensively Implementing Transformation from
business tax to value-added tax (NO.36 of 2017) and related regulations published by
Ministry of Treasury and National Taxation Bureau, since 1 May 2017, revenue from rental
service, real estate management service, financial service, consulting service and logistics
service of the Company and its subsidiaries are subject to value-added tax, while these
service are subject to business tax at the rate of 5% before 1 May 2017.
(b-2) Sales of goods and provision of repairs and replacement service from part of subsidiaries
of the Company are subject to value-added tax at the rate of 17%.
(b-3) Rental service on real estate and distribution service provided by the Company and part of
its subsidiaries are subject to value-added tax at the rate of 11%.
(b-4) Financial service, consulting service and storage service provided by the Company and part
of its subsidiaries are subject to value-added tax at the rate of 6%.
(b-5) Rental revenue of Hefei Midea Refrigerator Co., Ltd., which is a subsidiary of the Company,
is subject to easy levy of value-added tax at the rate of 5%.
4 Notes to the consolidated financial statements
(1) Cash at bank and on hand
31 December 2017 31 December 2016
Cash on hand 4,589 2,315
Cash at bank (a) 21,954,206 16,151,724
Other cash balances (b) 267,259 1,042,031
Required reserves in the central bank(c) 1,835,051 677,011
Excess reserves in the central bank 305,963 58,172
Deposits in other banks(d) 23,907,132 9,237,865
48,274,200 27,169,118
Including: Cash abroad (including Hong
Kong, Macau, Singapore, Japan, Italy and
Brazil, Germany etc.) 10,685,588 4,234,153
(a) As at 31 December 2017, cash at bank includes fixed deposits with the term of over three
months, amounting to RMB3,540,237,000(31 December 2016: RMB9,136,346,000).
(b) Other cash balances mainly include security deposits, bank acceptance note and letter of
credit.
(c) Statutory reserves in the Central Bank represents the statutory reserve deposited in
People’s Bank of China by the financial enterprise in accordance with relevant regulations,
which are calculated at 7% and 5% for eligible RMB deposits and foreign currency deposits,
respectively, and are not available for use in the Group’s daily operations.
(d) As at 31 December 2017, deposits with banks and other financial institutions include time
deposits with the term of over three months, amounting to RMB20,800,000,000(31
December 2016: RMB3,800,000,000).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for reference only]
4 Notes to the consolidated financial statements
(1) Cash at bank and on hand (Cont'd)
(e) Reserves in the Central Bank and deposits with banks and other financial institutions are
listed below the item of cash at bank and on hand. Comparative data of prior year are
adjusted as well.
(2) Notes receivable
31 December 2017 31 December 2016
Bank acceptance notes 10,854,226 7,427,488
(a) As at 31 December 2017, the Group's notes receivable that are not mature but have been
endorsed to other parties, or that have been discounted are as follows:
Derecognised Recognised
Bank acceptance notes 28,725,219 -
(3) Receivables
(a) Accounts receivable
31 December 2017 31 December 2016
Accounts receivable 18,410,114 14,198,320
Less: Provision for bad debts (881,397) (743,809)
17,528,717 13,454,511
The ageing of other receivables is analysed as follows:
31 December 2017 31 December 2016
Within 1 year
