Midea Group Co., Ltd.
The 2019 Annual Report
30 April 2020
Section I Important Statements, Contents and DefinitionsThe Board of Directors, the Supervisory Committee, directors, supervisors and seniormanagement of Midea Group Co., Ltd. (hereinafter referred to as the “Company”)hereby guarantee that the information presented in this report is free of anymisrepresentations, misleading statements or material omissions, and shall togetherbe 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 orwho dispute the truthfulness, accuracy and completeness of the contents of thisAnnual Report.The financial statements for 2019 have been audited by PricewaterhouseCoopersChina (LLP) and have obtained an unqualified audit report.Mr. Fang Hongbo, Chairman of the Board and CFO of the Company and Ms. ZhongZheng, Director of Finance of the Company, have represented and warranted that thefinancial statements in this report are true and complete.The Board has considered and approved the following dividend payout plan for theyear 2019: based on the 6,957,181,058 shares at the disclosure date of this report (thetotal share capital of 6,999,467,315 shares minus the repurchased 42,286,257 sharesin the repo securities account at that date), it is proposed that the Company shoulddistribute a cash dividend of RMB16 (tax inclusive) per 10 shares to all theshareholders and should not convert capital surplus into share capital. When theprofit distribution plan is implemented, if any change occurs to the total shareseligible for profit distribution, the profit distribution plan shall be based on the totalshares eligible for profit distribution at the book closure date of the profit distribution,and the dividend per share shall be adjusted under an unchanged total distribution
amount.The future plans and some forward-looking statements mentioned in this report shallnot 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 anydiscrepancies or misunderstandings between the two versions, the Chinese versionshall prevail.
Letter to Shareholders
While a heart-shaking fight against the pandemic is now on globally, this once-in-a-century“black swan” incident has casted tremendous changes to the lives of everyone. We sincerelyhope everyone stays safe and healthy. And we have strong belief that the haze willeventually disappear and there will always be bright light.In this nationwide operation, Midea was amongst the first companies to respond andparticipate in frequent support missions, reflecting the heritage of utmost importance fromMidea's development history of 50 years—taking rapid actions amid crises and changes,bearing responsibilities amid challenges and chaos.Now, as the world is faced with changes that have not been seen for a century, history-making global economic fluctuations and a continuous stream of uncertainties come thickand fast. In light of this unprecedented time, by committing to its unhesitating strategies andresponsibilities, Midea has managed to maintain steady growth in business performance. In2019, Midea achieved revenue of RMB279.381 billion, marking a year-on-year increase of
6.71%; and achieved RMB24.211 billion in net profit attributable to shareholders of theCompany, recording a year-on-year increase of 19.68%. Midea was ranked 312th amongFortune Global 500 in 2019, moving up by 169 places since its debut in 2016. As for FortuneChina 500, Midea was ranked 36th, topping the industry chart for 5 consecutive years. Inaddition, Midea was ranked 33rd among BrandZ? Top 100 Most Valuable Chinese Brandsin 2019 with an increase of brand value by 20%. Midea ranked 27th on the list of BrandFinance Tech 100 in 2019, moving up 16 places in comparison to the year before, leadingits industry peers throughout the country.2019 was yet another year that gave us the feeling that time flies. As market iteration cyclesbecome more rapid, one may say this is a tempestuous era with so many tides. Thingschange drastically, yet vision, dreams, perspectives and ambitious setup will always persist.No one could stay young forever, but young people will always be there. Companies declineand fall, but there are always some firms which are thriving. For us, nothing is more critical
than upholding our long-term perspective mindset and adapting to external uncertaintieswith determined strategic focus.We are devoted to the three strategic focuses of "Product Leadership, Efficiency Driven,Global Operations" to continue to set the stage for our business. Today, such three strategicfocuses have already become our guidelines for daily business and operations. Businessperformance is, therefore, said to be continuously improving. Moreover, we increasedinvestments in weaker product categories and made bold moves on new product categoriesand new business models in 2019. Whereas our international layout increases in clarity overtime, we do look forward to business prosperity in the days to come.We uphold our user-centric strategy and promote business reforms. We continued to breakthrough stereotype in 2019 and placed interests and needs of users first in the top-downsystematic and comprehensive business model reforms across the Group to enhanceconnections between our services and products and users.We are committed to building future-oriented innovation capabilities and R&D scalingadvantages. In 2019, we kicked off our plan to build a global R&D network of “4+2” ,promoting the Shanghai Global Innovation Center, Midea America Research Center, MideaGermany Research Center and Midea Japan Research Center as comprehensivetechnology R&D centers, and Midea Milan Design Center as Industrial Design Center. Weprogressed in promoting global R&D resources integration and enhancing the world’s R&Dlayout plus innovation mechanisms.We insist that human capital is the most essential component for an enterprise, taking furthersteps to strengthen employee rights and interests and invest in employee care. Over thepast year, the core management and all employees have maintained an excellent fightingspirit, learning ability, as well as accountability. With rapid growth in the mid-level youngmanagers and non-stop inflow of fresh blood, we have created a diverse internal culture thatfuels the Company’s long-term development.
These long-term layouts and investments, together with the unwavering commitment tosticking to and promoting Midea’s culture, are all Midea's wealth of tomorrow. They alsoprovide the confidence for us to believe in Midea’s achievement in long-term steady growthand safeguard the interests of our shareholders.Actually it is not the changing world, but how we interpret the changing that affects us most.With merely past knowledge, we will never be able to reach further future. The manufacturingindustry’s underlying logic for achieving growth from the past has been profoundly altered.The most active business pulse in the digitalization era is the speed and ability to createvalue.Like the stirring melody in a grand and complex symphony, Midea will renew and refocusour strategies amidst the vast changing world. We will launch and strengthen the next roundtransformation of comprehensive digitalization and intellectualization. As we have learnedfrom the past, every successful transformation requires the courage to risk life, throughdevotion, persistence and perseverance. By promoting comprehensive digitalization andintellectualization, Midea’s product models and business value chain are going to observegroundbreaking changes, whereas Midea will evolve from a hardware-based company to adata-driven innovative technology group that takes affirmative steps forward.We shall strive to achieve changes in the format of products and thus transform ourtraditional business of simply selling hardware to a software-driven business, intensifyingcontents and services at the same time.It is in our list to achieve changes in business methodology and promote reforms in research,production and sales. And with digitalization tools and approaches, we are going to promoteonline and offline integration, decentralization and flat management.The goals are to foster changes in business models, achieve direct communication, directcontact and high-frequency interaction with users, in order to uncover user value andtransform to an Internet mindset.
When the going gets tough, the tough get going. In the face of a series of challenges broughtforth by the coronavirus epidemic, we shall remain true to our original aspiration and carryour dreams through long distances. Let us be prepared for strategic deployment, resourceinvestments and team building efforts—all in the long term. They do not have to bemagnificent fireworks that echo down in history but can still become the sparkling lights inour unique stories!Future is defined by the path we’ve been through! At this moment, Midea is flourishing andthe most shining Midea is still ahead of us and far from being achieved.We hereby express our gratitude for all shareholders’ support all the way along.
Board of Directors, Midea Group
April 2020
Contents
SECTION I IMPORTANT STATEMENTS, CONTENTS AND DEFINITIONS ...... 2
SECTION II COMPANY PROFILE AND KEY FINANCIAL RESULTS ...... 10
SECTION III BUSINESS PROFILE ...... 15
SECTION IV PERFORMANCE DISCUSSION AND ANALYSIS ...... 24
SECTION V SIGNIFICANT EVENTS ...... 73SECTION VI CHANGES IN SHARES AND INFORMATION ABOUT SHAREHOLDERS ...... 136SECTION VII INFORMATION ABOUT DIRECTORS, SUPERVISORS, SENIORMANAGEMENT AND EMPLOYEES ...... 148
SECTION VIII CORPORATE GOVERNANCE ...... 160
SECTION IX FINANCIAL REPORT ...... 167
SECTION X DOCUMENTS AVAILABLE FOR REFERENCE ...... 280
Definitions
| Term | Definition |
| The “Company”, “Midea”, “Midea Group” or the “Group” | Midea Group Co., Ltd. |
| Midea Holding | Midea Holding Co., Ltd. |
| Little Swan | Wuxi Little Swan Company Limited |
| TLSC | Toshiba Lifestyle Products & Services Corporation |
| KUKA | KUKA Aktiengesellschaft |
| Reporting Period | 1 January 2019 to 31 December 2019 |
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 Company are listed | Shenzhen Stock Exchange | ||
| 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 any) | Midea Group | ||
| Legal representative | Fang Hongbo | ||
| Registered address | Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District, Foshan City, Guangdong Province, China | ||
| Postal code | 528311 | ||
| Business address | Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District, Foshan City, Guangdong Province, China | ||
| Postal code | 528311 | ||
| Company website | http://www.midea.com | ||
| IR@midea.com | |||
| Company Secretary | Representative for Securities Affairs | |
| Name | Jiang Peng | Ou Yunbin |
| Address | Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District, Foshan City, Guangdong Province, China | |
| Tel. | 0757-22607708 | 0757-23274957 |
| Fax | 0757-26605456 | |
| IR@midea.com | ||
3. Information Disclosure and Place Where the Annual Report Is Kept
| Newspaper designated by the Company for information disclosure | China Securities Journal, Securities Times and Shanghai Securities News |
| Website designated by the China Securities Regulatory Commission (CSRC) for the publication of the Annual Report | http://www.cninfo.com.cn |
| Place where the Annual Report of the Company is kept | Company Investor Relations Department |
| Organization code | 91440606722473344C |
| Changes in main business activities since the Company was listed (if any) | None |
| Changes of controlling shareholder of the Company (if any) | None |
| Name of the accounting firm | PricewaterhouseCoopers China (LLP) |
| Business address of the accounting firm | 11/F., PricewaterhouseCoopers Center, 2 Corporate Avenue, 202 Hu Bin Road, Huangpu District, Shanghai 200021, PRC |
| Name of accountants writing signatures | Huang Meimei and Qiu Xiaoying |
| Name of the financial advisor | Business office of the financial advisor | Representative of the financial advisor | Supervisory period |
| CITIC Securities Co., Ltd. | CITIC Securities Tower, No.8 Zhongxin 3rd Road, Futian District, Shenzhen, 518048, PRC | Wu Renjun, Chen Jianjian, Li Haoran, Li Chang, Li Wei and Liu Kun | 2019.6.21-2020.12.31 |
6. Key Accounting Data and Financial Indicators
Whether the Company performed a retroactive adjustment to or restatement of accounting data
□Yes √No
| 2019 | 2018 | 2019-over-2018 change (%) | 2017 | |
| Operating revenue (RMB'000) | 278,216,017 | 259,664,820 | 7.14% | 240,712,301 |
| Net profit attributable to shareholders of the Company (RMB'000) | 24,211,222 | 20,230,779 | 19.68% | 17,283,689 |
| Net profit attributable to shareholders of the Company before non-recurring gains and losses (RMB'000) | 22,724,392 | 20,058,155 | 13.29% | 15,614,103 |
| Net cash flows from operating activities (RMB'000) | 38,590,404 | 27,861,080 | 38.51% | 24,442,623 |
| Basic earnings per share (RMB/share) | 3.60 | 3.08 | 16.88% | 2.66 |
| Diluted earnings per share (RMB/share) | 3.58 | 3.05 | 17.38% | 2.63 |
| Weighted average ROE (%) | 26.43% | 25.66% | 0.77% | 25.88% |
| 31 December 2019 | 31 December 2018 | Change of 31 December 2019 over 31 December 2018 | 31 December 2017 | |
| Total assets (RMB'000) | 301,955,419 | 263,701,148 | 14.51% | 248,106,858 |
| Net assets attributable to shareholders of the Company (RMB'000) | 101,669,163 | 83,072,116 | 22.39% | 73,737,437 |
| Total share capital of the Company on the last trading session before disclosure (share) | 6,999,467,315 |
| Dividend paid to preference shareholders | 0 |
| Fully diluted earnings per share based on the latest share capital above (RMB/share) | 3.46 |
7.Differences in Accounting Data under Domestic and Overseas AccountingStandards
7.1 Differences in the net profit and net assets disclosed in the financial reports prepared underChina 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 profit and net assets disclosed in the financial reports prepared underCAS and foreign accounting standards
□Applicable √N/A
No such differences for the Reporting Period.
7.3 Reasons for the differences
□Applicable √N/A
8.Key Financial Results by Quarter
RMB'000
| 2019 Q1 | 2019 Q2 | 2019 Q3 | 2019 Q4 | |
| Operating revenue | 75,205,780 | 78,564,520 | 67,147,862 | 57,297,855 |
| Net profit attributable to shareholders of the Company | 6,129,026 | 9,058,043 | 6,128,898 | 2,895,255 |
| Net profit attributable to shareholders of the Company before non-recurring gains and losses | 6,084,881 | 8,470,793 | 6,042,274 | 2,126,444 |
| Net cash flows from operating activities | 11,842,782 | 9,945,108 | 8,002,389 | 8,800,125 |
Whether there are any material differences between the financial indicators above or their summationsand 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 | 2019 | 2018 | 2017 | Note |
| Profit or loss from disposal of non-current assets | -131,131 | 222,204 | 1,363,041 | |
| 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 financial assets held for trading, derivative financial assets, financial liabilities held for trading, derivative financial liabilities, other non-current financial assets and available-for-sale financial assets, as well as investment profit or loss produced from the disposal of the aforesaid financial assets and liabilities | 676,430 | -842,408 | 77,484 | |
| Other non-operating income and expenses except above-mentioned items | 1,347,788 | 1,091,473 | 1,094,058 |
| Less: Corporate income tax | 394,095 | 207,870 | 702,139 | |
| Minority interests (after tax) | 12,162 | 90,775 | 162,858 | |
| Total | 1,486,830 | 172,624 | 1,669,586 | -- |
Explain the reasons if the Company classifies an item as a recurring profit/loss item, which is defined asa non-recurring profit/loss according to the definition in the <Explanatory Announcement No. 1 onInformation Disclosure for Companies Offering Their Securities to the Public—Non-Recurring Profits andLosses>, or is enumerated as a non-recurring profit/loss in the said explanatory announcement
□Applicable √N/A
No such cases for the Reporting Period.
Section III Business Profile
1. Business Scope in the Reporting Period
1.1 Summary of business scope
Midea is a global technologies group in HVAC systems, consumer appliances, robotics & industrialautomation systems, and digital business. Midea offers diversified products and services, including HVACcentered on residential air-conditioning, commercial air-conditioning, heating & ventilation systems;consumer appliances centered on laundry appliances, refrigerators, kitchen appliances, and varioussmall home appliances; robotics and industrial automation systems centered on KUKA and GuangdongMidea Intelligent Robotics Co., Ltd.; and the digital business centered on smart supply chains, IndustrialInternet of things (IIOT) and silicon chips.With “Bring Great Innovations to Life” as its corporate vision, “Integrate with the World, to Inspire YourFuture” as its mission, and “Embrace what’s next - Aspiration、Dedication、Collaboration、Innovation”as its values, Midea integrates global resources and promotes technological innovation to create a betterlife for over 400 million users, major customers and strategic partners in different areas worldwide everyyear with satisfying products and services.Midea, a global operating company, has now established a global platform with around 200 subsidiaries,28 R&D centers, 34 major manufacturing bases, and approximately 150,000 employees. Its businesscovers more than 200 countries and regions. Overseas, Midea has 18 R&D centers and 17 manufacturingbases in more than ten countries, with over 30,000 employees. 22 currencies are used by Midea insettlement. In addition, Midea is the majority shareholder of KUKA, a Germany-based world-leadingcompany in robotics and automation, with a stake of approximately 95%.
1.2 Position in the household appliance industry
Midea ranks No. 312 on the 2019 Fortune Global 500 list, moving up 169 places since its debut on thelist in 2016, and ranks No. 36 on the 2019 Fortune China 500 list, the highest-ranking among the home
appliance industry in the country for five consecutive years. It also ranks highly on the Top 500 MostCredible Chinese Enterprises list, the Top 100 Most Credible Chinese Manufacturers list, the Top 100Most Credible Chinese Private Enterprises list and the Top 500 Most Credible Chinese Listed Companieslist of 2018 released by the 2019 China Enterprise Credit Development Forum & the 10th Good FaithPublic Welfare Ceremony. In addition, Midea ranks No. 33 on the 2019 BrandZ? Top 100 Most ValuableChinese Brands list, with its brand value up 20%. Also, Midea takes the lead among domestic homeappliance makers by ranking No. 27 on the 2019 Brand Finance Tech 100 list released by Brand Finance,a British brand assessment institution, moving up 16 places from last year. Midea has been givenexcellent credit ratings by the three major international credit rating agencies, Standard & Poor’s, FitchRatings and Moody’s. The ratings are in a leading position among home appliance manufacturersworldwide as well as among Chinese non-state-owned enterprises.According to data from AVC, Midea’s major home appliances all took up a larger share in the domesticmarket 2019. Its residential air-conditioners, in particular, saw a much bigger share in all channels, withan online market share of 30% and an offline market share of nearly 29%.The table below shows the offline market shares and rankings of the Company’s primary home applianceproducts (by retail sales) in 2019:
| Product category | Market share | Ranking |
| Residential air conditioners | 28.9% | 2 |
| Laundry appliances | 27.4% | 2 |
| Refrigerators | 12.6% | 2 |
| Rice cookers | 43.9% | 1 |
| Electric pressure cookers | 44.3% | 1 |
| Electric kettles | 38.6% | 1 |
| Induction cookers | 48.5% | 1 |
| Blender | 37.7% | 1 |
| Electric fans | 39.3% | 1 |
| Electric radiators | 42.9% | 1 |
| Water dispensers | 42.3% | 1 |
| Gas water heaters | 11.6% | 2 |
| Water purifiers | 22.2% | 2 |
| Countertop microwave ovens | 44.5% | 2 |
| Countertop electric ovens | 36.2% | 2 |
| Dishwashers | 9.2% | 3 |
| Electric water heaters | 20.7% | 3 |
| Range hoods | 8.7% | 4 |
| Gas stoves | 7.0% | 4 |
| Robot vacuum cleaners | 4.6% | 4 |
| Push-rod vacuum cleaners | 3.4% | 4 |
| Product category | Market share | Ranking |
| Residential air conditioners | 30.0% | 1 |
| Commercial air conditioners | 50.0% | 1 |
| Laundry appliances | 31.2% | 2 |
| Refrigerators | 17.7% | 2 |
| Microwave ovens | 53.0% | 1 |
| Pressure cookers | 41.0% | 1 |
| Rice cookers | 29.6% | 1 |
| Electric ovens | 22.7% | 1 |
| Induction cookers | 39.0% | 1 |
| Electric water heaters | 30.6% | 1 |
| Gas water heaters | 18.0% | 1 |
| Electric kettles | 23.0% | 1 |
| Electric fans | 19.2% | 1 |
| Electric radiators | 16.9% | 1 |
| Vacuum cleaners | 10.3% | 2 |
| Water dispensers | 18.9% | 2 |
| Water purifiers | 13.1% | 2 |
| Dishwashers | 24.6% | 2 |
| Sterilizing cabinets | 10.8% | 2 |
| Range hood + stove suites | 10.4% | 4 |
| Main assets | Reasons for any significant change |
| Construction in progress | Down 42% YoY, primarily driven by the completion of construction projects |
| Cash at bank and on hand | Up 154% YoY, primarily driven by an increase in fixed deposits |
| Notes receivable | Down 62% YoY, primarily driven by the reclassification to receivables financing |
| Available-for-sale financial assets | Down 100% YoY, primarily driven by the reclassification to financial assets held for trading and other non-current financial assets |
| Long-term receivables | Up 3,370% YoY, primarily driven by an increase in finance lease |
| Other non-current assets | Up 799% YoY, primarily driven by an increase in structural deposits with a maturity of over one year |
As a white goods and HVAC enterprise with a whole industrial chain and full product line, Midea Grouphas developed a complete industrial chain combining R&D, manufacturing and sales of key componentsand finished products, supported by an industry-leading R&D center and manufacturing technologies ofcore components (such as compressors, electrical controls, magnetrons and controllers), and ultimatelybased on its powerful capabilities in logistics and services. Midea is widely known as a top brand ofhousehold appliance and HVAC in China. Its dominance in the major appliance and HVAC markets meansthat it can provide a wide range of competitive product sets. It also means internal synergies in brandawareness, price negotiation as a whole, customer needs research and R&D investments. Compatibility,coordination and interaction among household appliances have become increasingly important sincesmart home is gaining popularity. With a full product line, Midea has had a head start in providing acombined and compatible smart home platform with integrated home solutions for customers.
3.2 Global R&D resource integration capabilities, continuing lead in R&D and technical innovationThe Group is focused on building a competitive, multi-layered global R&D system centering on userexperience and product functions, which represents world-class R&D input and strength. With close toRMB40 billion invested in R&D over the past five years (over RMB10 billion in 2019), the Group has setup a total of 28 research centers in 11 countries to gradually build up a “4+2” global R&D network andgain the advantage of scale in this respect. Domestically, with the core being Midea Global InnovationCenter in Shunde District, Foshan City, Midea has also started to build a global innovation center inShanghai. Overseas, with Midea America Research Center, Midea Germany Research Center, MideaJapan Research Center and Midea Milan Design Center as the cores, Midea makes use of the regionaladvantages, integrates global R&D resources and refines its global R&D network. It has over 10,000 R&Demployees and over 500 senior foreign senoir experts. While establishing its own research centersaround the world, the Group has also cooperated with domestic and foreign scientific research institutions,such as MIT, UC Berkeley, UIUC, Stanford, Purdue University, University of Maryland, The University ofSheffield, Polytechnic University of Milan, Tsinghua University, Shanghai Jiao Tong University, ZhejiangUniversity, the Chinese Academy of Sciences, Harbin Institute of Technology, Xi’an Jiaotong University,Huazhong University of Science and Technology and South China University of Technology, in order toestablish joint labs for deepening technological innovation. The Group also carries out strategic
cooperation with tech giants such as BASF and Honeywell to build a global innovation ecosystem. TheGroup’s long-term focus on building technology, marketing, product, design and open innovation systems,building a cutting-edge research system and building reserves in technology for mid/long term, hasprovided 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 globalresource allocation and investments, globally-advanced manufacturing capabilities andadvantage of scaleThe success of a series of global acquisitions and new business expansion moves has further solidifiedMidea’s global operations and leading advantages in robotics and automation. With the world’s leadingproduction capacity and experience, and a wide variety of products as well as its production bases allover the world, the Group has been able to expand rapidly into the emerging overseas markets and isbecoming a stronger competitor in those mature overseas markets. The Group is one of the biggestmanufacturers in the world for many product categories, which gives it competitive edges in efficiencyimproving and cost reducing that its overseas competitors are unable to achieve. Overseas sales of theGroup accounts for more than 40% of the total sales revenue. Its products have been exported to over200 countries and regions, and it owns 17 overseas manufacturing bases and 24 overseas operatingagencies. Midea’s global operations system has been further improved through the reform of internationalbusiness organizations changing from a platform unit to a business entity. It also increases investmentsin overseas business operations, focuses on the needs of the local customers and enhances productcompetitiveness in a bid to promote growth in its Own Branding & Manufacturing (OBM) business. Inaddition, with a deep knowledge and understanding on product characteristics and product demands inoverseas market, Midea is promoting worldwide branding and expansion through global collaborationand cooperation. In this way, the global competitiveness of Midea is increasing steadily.
3.4 Broad channel networks and a well-established smart supply chain system ensuring thesteady growth of Midea’s online and off-line salesBy virtue of years of development and investments, Midea Group has formed an all-dimensional marketcoverage. 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, theCompany uses flagship stores, specialty shops, traditional channels and new channels as effectivesupplements. Currently, the Company has already covered the markets at all tiers. Additionally, theCompany's dominance in branding, products, offline channels and logistics distribution have also createdpowerful 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 onlineretail sales were close to RMB70 billion in 2019, up by over 30% YoY, maintaining the highest sales onChina’s mainstream e-commerce platforms such as JD, Tmall and Suning in various home appliancecategories.Making full use of the digital technology, Annto Logistics Technology Co., Ltd. (Annto), a subsidiary ofMidea, refines its offline logistics network through the big data technology to build a smart and digitaldistribution platform. Relying on nearly 140 urban distribution centers nationwide, Annto concentrates itsresources on urban distribution. It is able to provide fully visualized direct distribution services coveringevery town and village of the country. It can finish the delivery to 19,692 (or 46%) towns and villageswithin 24 hours and to 35,944 (or around 85%) towns and villages within 48 hours in the country.Additionally, Annto works closely with Midea’s post-sale service network to provide one-stop services ofdelivery and installation, which has effectively improved user experience.
3.5 A user experience-oriented reform of “Comprehensive Digitalization and ComprehensiveIntellectualization” to make Midea an icon in digitalizationMidea has put forward a user experience-oriented strategic objective of “Comprehensive Digitalizationand Comprehensive Intellectualization”. On one hand, it promotes deep integration of the digitaltechnology and business in the whole value chain, with the view to becoming an icon in digitalization. Onthe other hand, with foresight, it plans for whole new products, services and business models centeringon smart technologies, products and scenes, so as to outcompete Internet companies. With continualinvestment and research in artificial intelligence (AI), silicon chip, sensor, big data, cloud computing andother new technologies, Midea has built the biggest AI team in the household appliance industry, whichis committed to enabling products, machines, production processes and systems to sense, perceive,understand and judge, driven by the combination of big data and AI, in order to reduce obstacles for man-
machine interaction to the minimum and create smart appliances without any assistance in interaction.Focusing on “people and their family”, Midea builds a whole value chain of IoT. Breakthroughs have beenmade in user data protection, content operation for smart scenes, smart connection technology, the smarthome ecosystem, cloud platforms, the smart voice function, the big data-based cloud housekeeperservices, etc. By doing so, Midea is able to offer complete smart home solutions for users, as well as toempower its business partners.Upon years of a digitalized reform characterized by “One Midea, One System, One Standard”, Midea hassuccessfully materialized operations driven by software and data through its value chain, connecting endto end and covering R&D, PO, scheduling, flexible manufacturing, procurement, follow-up of productquality, logistics, installation & post-sale services, etc. The Group’s cloud platform has made come trueC2M flexible manufacturing, platform-based and modularized R&D, digitalized production techniques andsimulation, intelligent logistics, digital marketing, digital customer service, etc. “M.IoT”, the Midea IIOTPlatform, has become China’s first complete IIOT platform provider covering industrial knowledge,software and hardware. M.IoT focuses on building the SCADA platform, the industrial cloud platform, theindustrial big data platform and the industrial SaaS service to provide the standardized, cloud-based andplatform service, including C2M, supply coordination and solutions. It has developed over 20 platformproducts so far. In addition to applying these IIOT platform solutions to its manufacturing bases acrossthe world and various products, the Group has also provided these solutions for over 200 customers indifferent industries. Therefore, it is safe to say that Midea has built a solid foundation regarding IIOTsystems.
3.6 Sound corporate governance mechanism and effective incentive mechanism to provide a solidfoundation for Midea’s sustained and steady developmentPaying close attention to the construction of a governance framework, regarding its corporate control,centralization and decentralization systems, the Group formed a mature management system forprofessional 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 andgrowth platform for the Group's professional managers. The Group's primary senior management teamconsists 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, all with rich professionaland industrial experience, deep understanding of the home appliance industry throughout both China andthe world, and accurate understanding of the industry environment and corporate operationsmanagement. The Company's advantages in such systems and mechanisms have laid a solid foundationfor the efficient and effective business operations, as well as the promising, stable and sustainable futuredevelopment of the Company. At present, the Company has launched six Stock Option IncentiveSchemes, three Restricted Share Incentive Schemes, five Global Partner Stock Ownership Schemes andtwo Business Partner Stock Ownership Schemes for key managerial and technical personnel, markingthe establishment of a governance structure aligning the interests of senior management and corebusiness backbones with that of all shareholders, as well as the formulation of an incentive schemecomprising long and short-term incentives and restrains.
Section IV Performance Discussion and Analysis
1.Overview
1.1 Industry Overview
A. Home Appliance IndustryAccording to the statistics published by the China Household Electric Appliance Research Institute(CHEARI) and the National Household Electrical Appliance Industry Information Center, in 2019, thedomestic retail sales of home appliances was RMB803.2 billion, down 2.2% year-on-year; and the exportsof home appliances reached RMB303.4 billion, up 0.9% year on year. This was primarily driven by internaland external factors such as a steep slowdown in global economic and trade growth, the full-scaleescalation of the China-U.S. trade conflict, a slowdown in domestic economic growth and the sluggishreal estate market. Affected by the COVID-19 outbreak, 2020 is expected to see increasing uncertaintiesand fluctuations at home and abroad. Nevertheless, in the medium and long run, upgrading of theindustrial structure, stable increase of household income, diversified consumption, the national policysupport for the green and smart industries, as well as upgrading of the standards for home applianceswill create new opportunities and growth points. According to the 2019 Annual Report of China’sHousehold Electrical Appliance Industry published by CHEARI and the National Household ElectricalAppliance Industry Information Center together, in terms of market size, the growth of traditionalcategories of home appliances slowed down while new categories were still burgeoning. Manufacturerscontinued to pursue high-end, smart and healthy home appliances in upgrading their products. Meanwhile,consumer needs for healthy home appliances were intensified because of the COVID-19 outbreak. Airpurifiers and fresh air systems, washing machines with sterilization and drying function, as well asdishwashers and light-wave stoves with an emphasized function of sterilization, etc. gained increasingmarket attention.In 2019, the domestic retail sales of air conditioners was RMB191.2 billion, down 3.4% year-on-year. Interms of product performance, the market shares of variable-frequency and high energy-efficiency air
conditioners kept growing. On one hand, the market share of variable-frequency air conditioners rose toover 85%, among which the market share of variable-frequency air conditioners with AFP Level I EnergyEfficiency increased by 8% to reach 57.3%. On the other hand, the higher energy efficiency standards in2020 will boost energy efficiency upgrading and integration in the air conditioning industry.In 2019, the domestic retail sales of laundry appliances was RMB70.5 billion, up 1.2% year-on-year. Theslight growth was attributed to significant product upgrading. In regard to product performance, the marketshare of high-end products was increasing in a steady way, of which the market share of laundryappliances with a unit price of above RMB6,000 was beyond 23%; clothes dryers were gaining consumerattention, of which heat-pump clothes dryers took up a much bigger share in retail sales.In 2019, the domestic retail sales of refrigerators was RMB95.7 billion, down 1.2% year-on-year.Nevertheless, product upgrading was prominent. The sales of multi-door refrigerators continued to growwith the market share being over 50% for the first time, and the functions such as sterilization, fresh-keeping and odor-removing attracted attention in the industry. In the background of full-scale consumptionupgrading, innovative smart refrigerators represented by Midea’s Pesticide-Residue-Free Series (the firstof its kind in the world) that can degrade pesticide residue, Odor-Free Series that feature fast odorremoval and sterilization, and Micro-Crystalline Series are leading the market towards high-end, high-quality and smart refrigerators.In 2019, the domestic retail sales of kitchen appliances was RMB175.9 billion, down 0.6% year-on-year.By product category, the sales of traditional products such as range hoods, stoves and water heatersdeclined, while dishwashers excelled in sales. Driven by policies, the sales of kitchen waste disposersrose evidently with great growth potential. The retail sales of dishwashers amounted to RMB6.8 billion,up 21.5%, of which the built-in dishwashers were the mainstream with the function upgraded from"cleaning" to "cleaning and drying". Functions such as "sterilization" and "drying" have emerged as thenew upgrading trends. Although the retail sales of water heaters slightly went down 1.7%, thetechnological upgrading trend was still prominent. For instance, the remote control function of electricwater heaters and the zero cold water function of gas water heaters, among others, have becomeincreasingly popular on the market.
In 2019, the domestic retail sales of small domestic appliances was RMB128.9 billion, up 3.6% year-on-year. As new product categories kept popping up, the overall sales of small domestic appliancesmaintained a steady growth. Vacuum cleaners, rice cookers and blenders increased 3.2%, 3.5% and 1.4%respectively in retail sales from last year. Meanwhile, both online and offline retail sales of handheldvacuum cleaners recorded growth in the technological re-upgrading trend featuring intelligent recognition,intelligent display and sweeping-mopping integration. With people’s increasing awareness for a healthylife, the sales of hair-related and personal-care appliances also saw a remarkable growth.In 2019, the online sales of home appliances continued to expand and squeeze the offline sales.According to the data from the National Household Electrical Appliance Industry Information Center, theonline retail sales of home appliances in China amounted to RMB310.8 billion, up 4.2% year-on-year,accounting for a market share of 38.7%; while the offline retail sales amounted to RMB492.4 billion, down
5.8% year-on-year, accounting for 61.3%. In light of the changes in the channel retail sales, most productcategories achieved growth in the online market, while various categories declined in the offline market.Therefore, the online market is playing an important role in the consumer market of China. However, theoffline market still has superiority for high-end products and product suites, and remains the mainstreamchannel for air conditioners, refrigerators, laundry appliances, kitchen and bathroom appliances, etc.While e-commerce platforms are setting up offline physical stores one after another, traditional offlinechannels are trying to develop their own business through e-commerce. The accelerated integration ofonline and offline channels will gradually form a relatively stable channel structure.B. Robotics and Industrial Automation IndustryAccording to the World Robotics Report 2019 published in September 2019 by the InternationalFederation of Robotics (IFR), global installations of industrial robotics slowed down in growth in 2018 forthe first time since 2012 and installations in 2019 were expected to be flat with the level in 2018.Meanwhile, analyzing from distribution in different countries and regions, China remained the largestmarket of industrial robotics, accounting for 36% of global installations, which was more than theinstallations in Europe and America combined. Installations in the U.S. reached a record high for theeighth consecutive year, with the installations in 2018 up 22% year-on-year. In 2018, the installations inGermany, the fifth largest robotics market in the world, increased 26%. By product category, installations
of AGV robotics were up by 60% from the 111,000 units in 2018. And installations of medical robotics alsorose 50% year-on-year. Although there may be fluctuations in the global market of industrial robotics inthe short run, IFR predicts that the total installations of industrial robotics worldwide will increase by 12%per year from 2020 to 2022 and reach up to 584,000 units in 2022 with the growing trend of automationand technological upgrading.According to GGII, the output of industrial robotics reached 186,900 units in China in 2019, down 6.1%year-on-year. It is worth mentioning that the operating environment for the manufacturing industry hasimproved and China’s output of industrial robotics kept increasing for the three months of Q4 2019, endinga string of year-on-year declines in the last 13 months. By product category, delta robotics grew nearly20% in unit sales in 2019, with breakthroughs in food, pharmaceuticals, household chemicals, logisticsand other industries; and collaborative robotics saw a growth of approximately 30% in unit sales againstthe headwind in 2019. In terms of policy support, MIIT issued the 2019 Work Plan for the Task Force ofIndustrial Internet to further promote the popularization and application of industrial internet and intelligentmanufacturing technology; NDRC and the Ministry of Commerce issued the Catalogue of EncouragedIndustries for Foreign Investment (2019) on June 30, in which the manufacturing sector remains a keyorientation for encouraging foreign investment, with more than 80% of added or amended items in thenational catalogue being within the manufacturing sector, and foreign investment in high-end, intelligentand green manufacturing is encouraged. On November 15, 15 government departments including theNational Development and Reform Commission jointly released the Implementation Opinions onDeepening the Integrated Development of Advanced Manufacturing and Modern Service Industries, withthe objectives of fostering new business models by integrating the two said industries, propelling theconstruction of smart factories, accelerating innovative application of the Industrial Internet and promotingflexible customization while at the same time deepening the integrated development of the manufacturing,service and Internet industries, as well as promoting efficient integration of modern logistics andmanufacturing.According to the latest statistics of IFR, in terms of industrial robotic density (the average number ofindustrial robotics per 10,000 workers), Singapore ranks No.1 in the world with 831 robotics while SouthKorea drops to second place. The robotic density of China has risen to 140, up 30% compared with that
in 2017 and far beyond the global average of 99, indicating great potential and prospects. Supported bydiverse factors such as flexible demands of the manufacturing sector, declining demographic dividend,emerging markets and the development of innovative technologies, industrial robotics will be applied tomore and more areas.
1.2 Analysis of the Company’s Main Business
In 2019, guided by the core strategic objectives of “Leading Products, Efficiency Driven and GlobalOperations” in a complicated political and economic environment at home and abroad, Midea focused onimproving products, implementing the core strategy of “Comprehensive Digitalization and ComprehensiveIntellectualization”, promoting high-performance operations in the whole value chain, continuouslyoptimizing its product mix according to the consumption upgrade trends, and constructing sustainablecompetitiveness for the future through internal growth. As a result, the business objectives set for 2019were successfully fulfilled, with higher profitability, further improving indicators such as own funds andchannel inventories, better product quality and reputation, as well as strengthened competitiveness invarious product categories and global operation synergies. For 2019, Midea achieved, on a consolidatedbasis, total revenue of RMB279.381 billion, up 6.71% YoY; and a net profit attributable to shareholders ofthe Company of RMB24.211 billion, up 19.68% YoY.In 2019, the Company carried out the following main tasks:
A. Focused on users, developed innovative products and improved user experience,strengthened product competitive advantagesIn order to bring about the “customer-oriented” strategic reform, Midea focuses on product, service andmarket touchpoints for users and markedly improves user experience in all the links. It builds a customer-oriented innovative R&D system, involves customers in the whole R&D process, taps potential demandof customers in different scenes, and offers customers better-than-expected product experience throughinnovation. A digital user experience management system and an experience information platform havebeen put in place to connect experience information and data at all touchpoints of a product life cycle,boost customer satisfaction and loyalty, and achieve leadership in product experience. The system of
customers with membership has been reformed. Through continual online and offline operation ofcustomer groups, Midea encourages its existing customers to introduce new customers as a way toachieve fission expansion of the customer base. Online platforms provide individualized shoppingexperience by way of refining shopping paths and improving online consultation, while offline stores adoptnew retail, electronic and smart technologies to build whole-new flagship, home decoration, combo, newretail and other stores. Meanwhile, by means of digital service, as well as platform-based and modularizedR&D and production, Midea takes the lead to explore the C2M model for its home appliance products,offering single product customization and product suite customization for the whole house with the housedecoration considered. In terms of service, with the help of Internet tools, Midea goes beyond thetraditional service model to build a “service + Internet” platform, enhance the entire service team andimprove smart product experience, so as to increase customer satisfaction. In terms of innovation inindustrial design, Midea won a total of 93 international design awards during 2019, including 27 Red DotAwards, 34 iF Awards, 20 IDEA Awards and 12 G-mark Awards.—— Residential Air Conditioners: Midea DF Air Conditioner Series, characterized by Dual Flow Tech- counter-rotating airflow technology originating from aviation turbine, is another major innovativebreakthrough in the breezeless technology field, which has won the 2019 AWE Top Award. Through astudy on user demands for breezeless air experience tailored to “multiple family members and largeresidential space”, and based on the application of three unique technologies, including disrotatoryturbine multi-vector softened disturbance, double-layer distance circulating air, and rectification andsupercharging, it achieves lower power consumption than conventional air conditions, free adjustment ofbreezeless zones, and uniform room temperature up to 20 meters. Midea Freshness Air ConditionerSeries offers coziness in four dimensions, namely, air temperature, sensation, cleanness and freshness.This product features intelligent dual washing technology and dual hybrid power new wind technology,which enable the dust intercepted by the natural water dust filter to go through the dual cleaning bywashing and brushing, so as to keep the filter clean and achieve intelligent control of the room air quality;it achieves large-range circulation of indoor air and enables room temperature to reach the set degreequickly by using a high-performance heat exchanger system and carrying an independent double ductstructure; and it ensures slightly higher indoor air pressure than outdoor by adopting an innovative micropositive pressure new wind approach to prevent outdoor air from coming into the room without being
processed. In 2019, Midea launched the first All-Time (Offline) Voice-Based Floor-Standing AirConditioner without a remote controller. Equipped with the pioneering Edge Intelligence Interaction (EII)technology, this product can be controlled and connected through Local Area Network (LAN) when theInternet is off, with a response time of only 1/4 of the industry average.——Commercial Air Conditioners: As a leading HVAC provider worldwide, Midea Commercial AirConditioners is a leader in R&D strength, product technology and market performance. And the largestdomestic market share remained with Midea Commercial Air Conditioners in 2019 according toChinaIOL.com and the Mechanical and Electrical Information-Central Airconditioning Market magazine.In recent years, Midea Commercial Air Conditioners have won the bids for a significant number of majorprogrammes. These programmes include the Beijing Daxing International Airport, Terminal 3 of BeijingCapital International Airport, Terminal 2 of Guangzhou Baiyun International Airport, Shanghai Metro, JilinRailway Station, etc.In 2019, Midea Commercial Air Conditioners showcased in Shanghai its technological innovationachievements in the green airport area. Midea SR Residential Central Air Conditioner unveiled at thesame time has multiple industry-wide advanced key indicators, improving user experience with its keyfunctions of fast warm air, strong heating, temperature and humidity control, cozy wind sensation, strongcoolness in a high temperature and convenient control. In April 2019, Midea Commercial Air Conditionerscompleted the production of its homegrown Maglev Variable Frequency Centrifugal Unit, which makesMidea the first AC maker in China who is able to manufacture the maglev bearing, the maglev compressorand the high power inverter all by itself. This marks the industrialization of yet another independentinnovation achievement by Midea Commercial Air Conditioners. In October 2019, Midea unveiled MDV7Series All DC Variable Frequency Smart Cloud VRF featuring the first adoption of a homegrown large-displacement DC variable-frequency enhanced vapor injection scroll compressor. This means that Mideahas once again broken the technology monopoly of foreign brands over key components of high-endcommercial VRF. In addition, Midea Commercial Air Conditioners’ “Wide-Ambient-Temperature Energy-Efficient Air-Source Heat Pump Technology and Its Industrialization” won China Machinery IndustryFederation Sci-Tech Progress Award (Second Prize), “Efficient Air-Source Heat Pump-Based HeatingSystem and Its Application” won Ministry of Education of the People’s Republic of China Scientific
Progress Award (First Prize), “Research and Application of the Energy-Efficient Technology for the MideaBuilding Management System (M-BMS)” won China Energy Conservation Association Sci-Tech ProgressAward in Energy Conservation and Emission Reduction (Second Prize), “Efficient Centrifugal Heat PumpUnit” and “Research of the Dual-Tube Heating and Heat Recovery Technology and Its Application to VRF”are both recognized as “Innovation Achievement in the HVAC and Refrigeration Industry at the 70
th
Anniversary of the Founding of the People’s Republic of China” by Chinese Association of Refrigeration.Midea is also given an Outstanding Contribution Award in the air-source heat pump industry during the“Clean Winter Heating” program for its excellent performance in the heat pump market. In addition, byvirtue of its outstanding product and technological strength and market influence, Midea wins the title ofthe “First-Choice Central Air-Conditioner Brand for Procurement by Chinese Real Estate Enterprises”.——Laundry Appliances: Little Swan under Midea has launched Water Magic Cube II Washing Machine,which adopts the unique “Ultra Fine Bubble” technology. Its unique Ultra Fine Bubble generatortransforms water and air into billions of nano bubbles, which permeate into fiber and release huge energyto peel off dirt. This approach helps reduce the consumption of chemical detergent through greatermicromechanical force while removing dirt in an efficient and fast manner. It has been proved by anauthoritative national testing institution to be able to save around 50% detergent. Little Swan haslaunched the “One-Tub Tech (OTT)” Top-Loading Washing Machine, featuring the revolutionary “One-Tub Tech (OTT)” + “No-Hanger-Rod Damping Pyramid System”. The no-outer-tub design goes beyondthe inner-and-outer-tub structure of a conventional top-loading washing machine, offers a big capacity ina compact size, and saves energy and 30% water for the same capacity. With the entire inner tub madefrom stainless steel, the no-outer-tub design, the UV sterilization technology and the nano silver iontechnology, it creates a 100% clean washing environment. As the first of its kind in China, Beverley HeatPump Washer-Dryer adopts intelligent sterilization breathing light technology and has passed theauthoritative certification of SGS, a world-leading testing and certification institution. The ultra lowtemperature heat pump washing-drying technology applied in this product has passed the German VDEcertification, which is considered the Nobel Prize in the electrical appliance sector. It offers professionalwashing of clothes made from high-end fabrics. Beverly Household Washing Care Center is the world’sfirst heat pump intelligent washing care center with separate drying and washing sections and the washer-dryer with the largest capacity (12KG for the upper dryer+ 12KG for the lower washer). While the upper
dryer is a maximum heat pump washer-dryer that works efficiently, saves water, performs drying in lowtemperature and effectively removes acarids and bacteria, the lower washer adopts the “Ultra Fine Bubble”technology. Midea Chujian Front-Loading Washing Machine Series adopts the revolutionary ventilation,Toshiba direct drive and micro steam air washing technologies to solve consumers’ pain point of beingunable to wear the clothes immediately after washing. Meanwhile, the Water Magic Cube cold washingtechnology protects clothes from wear and tear through smart control of the washing pace, and canautomatically put in the right amount of detergent by sensing the water volume and the weight of clothesin a smart manner.——Refrigerators: In June 2019, Midea unveiled three whole-new refrigerator series. The Micro-Crystalline Series adopts the V-Tech Smart Fresh-Keeping Chip, as well as the “Five-Dimensional RadarTemperature Sensing” and “Light Freezing Smart Cool Air Distribution” technologies. Meanwhile, theupgraded micro-crystalline technology it carries can do better in freshness preservation for different foodcharacteristics. It also features better technique and quality, as well as a more stylish appearance,satisfying different needs of more families. The Pesticide-Residue-Free Series is the first refrigerator withboth functions of fresh keeping and pesticide residue degradation. It adopts the core technologies of“Space Deep UV Light Wave” and “Titanium Photolyase” with massive active photoions to achievethorough degradation of pesticide residue. It can remove hundreds of pesticides in 13 major categories.According to the laboratory test result of the authoritative institution SGS, it can degrade 98.5% pesticideresidue at the most. The Ultra Odor-Free Series features the globally pioneering PST + super magneticelectrolysis odor-free technology, which is the third-generation technology of its kind jointly developed byMidea and a research institute of China State Shipbuilding Co., Ltd. It releases more active ions to quicklydegrade and kill odor and bacteria with a groundbreaking super magnetic induction electrolysis device,and quickens the degradation of odor through high-activity metal catalyst, which takes only 19 minutes.——Kitchen Appliances: In 2019, Midea Variable Frequency Smart Smoke Control Series Range Hood(E62S/E88) made its debut in China. Its Smart Smoke Control system can automatically identify smokechanges and provide a right exhaust mode, saving the trouble of manual operation in the middle ofcooking. Also, the AI chip it carries is able to automatically adjust the fan system to reduce the noisebased on its smoke curve algorithm, so as to offer a better cooking environment. Meanwhile, Midea has
launched the first smart gas stove featuring automatic cooking in China. It can automatically fry, makesoup, steam, etc. The technology to match the right duration and degree of heating with the food, togetherwith the before-boiling heating switch and bipolar emulsion technologies, can help increase nutritionalcontent such as protein, amino acid and sarcosine in the food. Midea Storm Series P30 Dishwasher isthe first smart combo of washing, sterilization, drying and storage with a large capacity. Supported by keypatented technologies such as hot air drying and silver ion anti-bacteria storage, its 72-hour anti-bacteriastorage function is VDE certified. Midea has successfully developed a universal global dishwasherplatform with the pioneering 5MAX deep cleaning system, as well as key innovative technologiesincluding separate washing, UV multi-sterilization, double-pump hot air drying, long-term anti-bacteriastorage of tableware, etc. This platform is dedicated to developing Chinese-style dishwashers integratingwashing, sterilization, drying and storage. Midea MRO1890-600G Reverse Osmosis Water Purifier withthe pioneering “Large-Capacity Integrated Filter Technology” features a 5-times larger capacity,representing another technological breakthrough subsequent to the small-capacity integrated filtertechnology. Also, it can show water quality, distribution and the status of filter life, as well as automaticallychange the filter without interrupting the normal water purification process. It has won the AnnualTechnological Innovation Award at the 15
thChina Household Appliances Innovation Award. The industry’sfirst Purifier-Dishwasher E500B with the micro nano bubble function released by Midea uses a doublepressure transducer system to generate pure physical micro nano bubble water, which removes dirt andpesticide residue from fruits and vegetables in a more thorough manner. Its tank-free large capacity of500 gallons satisfies the whole family’s demand for healthy water. Midea MNF1979-50G, the firstcountertop pump-free power-free water purifier, adopts the ultra-low pressure hydrophilic film that needsno power. It also features an innovative 180°rotatable base, super-low noise, convenient installation, asuper-large capacity of 2.5L, etc. Midea Magnetic Purification Water Heater 32QE6 is the first of its kindto have a full-star certificate. It displays the inner tank cleaning time on the screen in real time and remindsof timely cleaning. Meanwhile, its function of intelligent power conservation of 40% is VDE certified. MideaT3 Series Gas Water Heater is the first water heater with a dual-duty pump that enables instant heating.In addition to instant heating, it features smart pressurization, which solves the waiting and not enoughhot water problems for users in a disruptive manner. It has won China Household Appliance IndustryJinshi Award. Beverly Constant Temperature I8 Water Heater can maintain a constant water temperatureduring a shower with its temperature buffering technology. It also features TFT big-screen smart control
and an outstanding appearance. It has won the AWE Product Award and the IFA Technical InnovationAward. Midea Intelligent Micro Combi Steamer PG2310 Cooking Oven has been released into marketintegrating the functions of microwave, steamer and oven. The ZOPPAS direct-spray steam technologyit uses enables quick generation of plentiful steam and the five-switch intelligent variable frequencyheating technology brings precision heating. It also carries a smart menu. On top of the aforesaid, Mideahas been making breakthroughs in key component technologies including the magnetron, the heater-vent-air module and the steam generator.——Small Domestic Appliances: In 2019, Midea unveiled a variety of disruptive lifestyle applianceswith the brand value concept of “technology, fashion, convenience and durability”. The products includethe industry’s first low-sugar rice cooker specifically designed for people with hyperglycemia, which iscertified by China Household Electric Appliances Research Institute (CHEAR). It adopts the innovativesugar leaching technology to reduce the reducing sugar by 50%. The fuzzy logic algorithm techniquebased on precise temperature control and the multi-staged pressure regulation technology based onprecise pressure control carried in this product help offer a healthy cooking system. Midea High-SpeedVariable Pressure Boiling Series Pressure Cooker with Midea’s innovative maglev air compressingtechnology offers 12 pressure choices to enable continuous boiling under different pressures for differentfood. Midea’s unique Ultra Thin Noise-Free Blender carries three key technologies, namely, eccentricblending (a homegrown technology that has won the China Patent Gold Award), smart frequency blendingand high-power three-dimensional uniform heating. It blends food ingredients thoroughly and finely tohelp release more nutrition. Midea Seasons Fan Heater is an innovative combo of fan, humidifier andheater for all seasons. It is equipped with the patented heating-and-cooling switching technology. It cancover a large space and rapidly increase the sensible temperature by over 20% through“heating+humidification” and a wide-angle swing. Meanwhile, supported by the Archimedes spiral airchannel and a 90mm ultra-large cross-flow rotor, it can reach a speed of 185m/min, which is five timesfaster than the ordinary fan heaters. The humid wind enabled by its humidification function can bringmuch more coolness than an ordinary tower fan. Midea P6 Wireless Handheld Vacuum Cleaner adoptsa high-power digital motor and a large-capacity lithium battery pack to enable it to continuously work for60 minutes. The exclusive fallout system in the dirt cup equipped with the patented two-stage single-conefiltration technology can apply micropressure on the indrawn dust and hair so that they will fall on the
bottom of the dirt cup instead of intertwining. Midea Smart Robot Cleaner i5E features a strong suctionof 4000Pa, G-SLAM autonomous path planning, a wet-mopping function with three water volumes, anti-bumping, anti-falling and automatic recharging. Carrying a 360° HD camera, it is capable of smart control,video recording and voice communication through a mobile App for smart cleaning planning for the entirehouse.B. Continued to invest in R&D to build a global R&D platform and a responsive innovatoin R&DsystemMidea continued to invest in R&D, made innovations with respect to mechanism, and developed moreleading products through both excellent user experience and differentiated technologies. It kept reformingits product development model according to the strategic objective of “Leading Products”. An innovativeR&D model of “Three Generations” has been put in place, namely, “Generation I product development,Generation II platform research, Generation III technologies and product concepts research”. Innovationresearch is carried out on innovative product development, cutting-edge platforms, key components,differentiated selling points and basic product performance improvement. Through development ofproduct groups across the world and building of a global product platform, Midea is building “LeadingProducts”.While carrying out the core technology research, Midea has attached great importance to thetransformation of R&D achievements. In 2019, 25 scientific and technological achievements made underthe leadership of Midea were all certified as “Internationally Advanced” upon authoritative technical review,including “the Research and Industrialization of Key Technology of Body Sensing and Interaction of RoomAir Conditioners”, a key R&D project under the national 13th Five-Year Plan - “the Integrated Technologyof High Seasonal Energy Efficiency Heat Pump Room Air Conditioners for Areas with Hot Summers andCold Winters and the Application”, “the Research and Application of the Monolithic Highly-IntegratedIntelligent Power Module”, “the Research and Application of Key Technology of the R290 Room AirConditioner Working in an Ultra-High Temperature”, “the Research and Application of Key Technology ofBreezy Room Air Conditioners”, “the Research and Application of Key Technology of Smart Cleaning andVentilation of Room Air Conditioners”, “the Research and Application of Technology of High EfficiencyOpposed Variable Frequency Centrifugal Compressors”, “the Research and Application of Micro Channel
Refrigerant Heat Dissipation Variable Frequency Technology”, “the Research and Industrial Applicationof the Big-Inch Integral Axial Flow Fan for Central AC”, “the Research of the Three-Tube Heating andHeat Recovery Technology and Its Application to VRF”, “Midea Vandelo Strong-Drive Fast-CleaningFront-Loading Washing Machine”, “the Research and Industrial Application of Key Technology of CookingHealthy Food to Control Blood Sugar”, “the Research on the Precision Diet Management System and itsApplication in Intelligent Household Appliances”, “the Application of Electromagnetic Isolation Technologyin Power Frequency Microwaves”, “the Application of Micro Perforated Plate Noise Reduction Technologyin Household Appliances”, “the Research and Application of Key Technology of Vision Inspection andClothes Washing of Smart Washing Machines”, “the Research and Application of the Food Sensing andDirected Heating Technologies of Smart Ovens”, “the Research and Application of the Voice InteractionTechnology of Smart Household Appliances”, “the Research of Galvano-Cautery Inhibition Technologyfor Bearings of Brushless DC Motor”, “the Research and Application of the Energy-Efficient TechnologyFeaturing Self-Learning Based on Water Using Habits for Household Electric Water Heaters”, “TheResearch of the Electronic Thermostatic Technology and Its Application to Household Electric WaterHeaters”, “the Research and Application of Key Technology for Exhausting Steam, Removing Fog andReducing Humidity in Steaming, Baking and Cooking Products”, “the Research and Application ofVacuum Cleaner High Speed BLDC Drive Technology and Integrated Master Controller”, “the Researchand Application of Technology for the Quality of Microwaved Food”, and “the Research and Applicationof Miniaturized Hot Air Technology Based on Baking Uniformity”. Additionally, Midea has 12 scientificresearch projects winning the China Light Industry Association Sci-Tech Progress Award, the ChinaAssociation for Promotion of Private Sci-Tech Enterprises Sci-Tech Progress Award, the China MachineryIndustry Federation Sci-Tech Progress Award, the China Energy Conservation Association Sci-TechProgress Award in Energy Conservation and Emission Reduction, the Ministry of Education of thePeople’s Republic of China Sci-Tech Progress Award, and certain provincial sci-tech awards. At the 41stMeeting of the Parties to the Montreal Protocol in July 2019, the UN agency highly praised Midea’s R290air conditioner technology for promoting the implementation of the Kigali Amendment, which has madeimportant contributions towards enhancing the role of the air conditioner industry in global environmentalprotection.In 2019, against the backdrop of the patent quality improvement campaign, the Company focused on the
quality instead of quantity in terms of patents and achieved remarkable results. 2,704 invention patentswere granted to Midea by the Chinese patent office during the year, the largest number among homeappliance makers. Also in the year, Midea lodged 13,525 patent applications at home and abroad, ofwhich over 50% were invention-related and overseas applications more than doubled the number of lastyear. By the end of 2019, the total number of patent applications of Midea (inclusive of TLSC) exceeded140,000 and 57,000 patents were granted. As shown in the “Public Announcement on the Results of the21st China Patent Awards” issued in 2019, Midea’s “High-Frequency Fast Cooling and Heating ACTechnology” won a China Patent Gold Award. In addition, the “Intelligent Power Module” and othertechnologies of Midea won 2 China Patent Silver Awards and 15 China Patent Excellence Awards, aswell as 2 Invention Gold Awards at the 6th Guangdong Patent Awards. These awards signify that Midea’sstrong capability of innovation is widely recognized.Midea Group has been sticking to the double drivers of “product innovation + standard innovation” andmaking active steps towards contributing to the standardization of industrial technologies. In 2019, MideaGroup took part in the formulation/revision of 554 standards, including 21 international standards, 213national standards, 128 industry standards and 192 group standards. These standards include thenational standard of the Minimum Allowable Value of the Energy Efficiency and Energy Efficiency Gradesfor Room Air Conditioners which brings about a new round of energy efficiency upgrade in the airconditioning industry, as well as national and industry standards such as the Interoperability of SmartHousehold Appliances System—Parts 1~5, the Technical Specifications of Voice Module, the TechnicalSpecifications of WiFi Module, the Safe Service Life Standard for Air Conditioners, the Installation Rulesfor Protective Tubes of Room Air Conditions, the Clothes Washing Machines for Household Use -Methods for Measuring the Performance (IEC 60456), the Tumble Dryers for Household Use-Methodsfor Measuring the Performance (GB/T 20292-2019), the Micro-Bubble Washing Machine (T/CAS 367-2019), the Technical Requirement and Test Method for Low Temperature Washing Performance ofWashing Machines (T/CAQI 84—2019), the Technical Requirement and Test Method for Non-WashingPesticide Residue Removing Appliances, the Technical Requirement and Test Method for FreshnessPreservation in High Humidity in the Freezing Chamber of Refrigerator, the Requirement and Test Methodfor Freshness Preservation of Meat in Refrigerator, the Proposal on Electric Dishwashers for HouseholdUse–Methods for Measuring the Performance for Asian Tableware (IEC 60436), the Household Electric
Cooking Appliances—Part 2 (GB/T 38051.2-2019), the Residential Gas-Fired Heating and Hot WaterAppliances with Auxiliary Energy (GB/T 38350-2019), the Minimum Allowable Values of the Energy, WaterConsumption and Grades for Dishwashers (GB 38383-2019), and the Technical Requirements and TestMethods of Household and Similar Saving Water Dishwasher (QB/T 5428-2019). Meanwhile, Mideaworks with China Electric Apparatus Research Institute to establish an IEC/TC72/WG13 smart homeappliance controller workgroup to push forward the formulation and implementation of the relevantinternational standards. Additionally, Midea and China Household Electric Appliances Research Institutetogether have completed the upgrade and implementation of the new technical specifications for thecertification of breezeless air conditioner.C. Deepened the channel transformation, further improved the channel efficiency and rebuilt theretail service abilityMidea continued to promote channel reform and transformation, flatten offline channel hierarchies,propelled the optimized integration and empowerment of distributors, firmly continued to reduceinventories, optimize structure and streamline SKU, and substantially improve channel efficiency. Itstrengthened the synergy of domestic sales of full product categories; Midea has established over 30regional market operation centers nationwide; by carrying out more precise joint promotional activities fordiverse categories, it drove the synergy of domestic sales towards improvements and upgrading andreinforced the long-term sustainable development capacity of channels. Midea strove to expand the salesin the engineering channel and enhance its B2B competitiveness. To better cater to the needs ofcorporate users, it has established long-term strategic cooperation for procurement with the domestic top50 companies in the real estate industry, long-term leasing apartment chain operators and financial andinsurance companies. Midea aims to provide corporate customers with one-stop smart product solutions.At the same time, Midea attaches great importance to improving the service quality of strategicprocurement projects. Through the systemic management of “Selection, Appointment, Cultivation andRetainment” over regional service providers, Midea builds a localized service network for all of its productcategories covering the entire China. It integrates installation service resources, identifies user needs inan accurate manner, boosts customer satisfaction and builds up its core competitiveness for the B2Bbusiness.
With the rising of different consumer circles and fragmented communication, online and offline marketsintegrate at a faster speed, and Midea rebuilds its retail and service capabilities to meet different userneeds. With user demands driving the retail transformation, Midea speeds up the integration of onlineand offline networks, focuses on the demands of different user groups, and restructures the retailoperations system. This mainly involves three aspects. Firstly, it provides one-stop, intelligent productand service solutions for users with house decoration demands. It has opened more than 260 MideaSmart Life Experience Centers in China and upgraded over 770 flagship stores into Midea Smart LifeExperience Centers, providing products and services for more than 200,000 families. Secondly, Mideastudies the whole new lifestyles of young consumers and develops a more efficient service deliveryapproach for the Millennial Generation. It provides products featuring both good experience and functionsby better understanding user demands through data platforms. Meanwhile, it focuses on user dataanalysis, opens up the channel for converting entrance products to related products throughadvertisement placement on new media, steadily increases the ratio of packaged purchase, and buildsthe ability to market home appliance packages. Thirdly, by identifying the characteristics of differentmarkets and distributing more resources, Midea builds a full-coverage and high-penetration retail networktargeting users in different cities and regions to enhance the retail service experience, renew and upgradeits retail system and extend the reach of its network. Specifically, on one hand, it promotes the project ofdeep collaboration of supply chains together with e-commerce platforms, achieves accurate prediction,intelligent distribution of inventory and automatic restocking through data support and system connectivity,and develops smart supply chains for fast response to user demands. On the other hand, in terms of theoffline channels, it brings one-stop services to users by closely cooperating with large chains andshopping malls in various first- and second-tier cities. In the vast third- and fourth-tier cities, in addition toproviding full-category products and services through flagship store and exclusive store systems, Mideabuilds over 1,000 new multi-category exclusive stores to further improve the market coverage of its retailsystem. In less developed markets, it offers convenient products and services to users through a networkof nearly 100,000 retail stores.Midea enhances the quality of its user service system. On one hand, it builds an operations platforminternally based on user data assets, develops a layered operations system facing users, links online andoffline data, unifies Midea members’ identity, entitlement and assets, establishes unified member profiles,
provides more member privilege services and strengthens members’ identity awareness. Differentoperations for different levels and scenes are made possible based on user data integration, and jointservices for multiple scenes are realized through targeted introduction of customers and acquisition ofcustomers by way of live streaming. In 2019, the cumulative number of Midea members exceeded 35million, contributing over RMB5.5 billion of sales. On the other hand, it further improves the delivery-installation integrated service network, which offers users one-stop after-sales service solutions in respectof all household appliances. By 2019, it has completed the delivery-installation integrated service networkwhich covers over 2,600 districts and counties across the country. In addition to the existing traditionaldoor-to-door service and delivery-installation service, Midea has also launched various individualizedservices including send-for-repair, exchange and pick-an-engineer-for-door-to-door-service in an effort tosatisfy differentiated needs of customers in different scenes. Meanwhile, it beefs up its effort in eliminatingpoor services by publicizing service standards and fees and establishing channels for usercommunication and feedback to ensure fast response to and closed-loop processing of user needs.In 2019, under the background of Midea Group promoting the T+3 business model deep reform, Anntofurther promoted the logistics reform and completed the implementation of the unified warehousing anddistribution strategy across the country, which has provided a strong support for the improvement ofcirculation efficiency of the sales channels. Focusing on the construction of the e-commerce logisticsnetwork, Annto established 99 pre-warehouses for e-commerce and completed the basic work for anonline and offline stock sharing system, which has greatly improved its distribution capability. In terms ofbusiness expansion outside Midea Group, Annto closely focused on its core business of integratedwarehousing and distribution services. With warehousing networks at different levels being connected,Annto can distribute from one warehouse and multiple warehouses to anywhere in the country for clientsoutside Midea Group. A logistics service platform covering various industries, product categories andscenes has been put in place. Meanwhile, client service experience has further improved throughenhancing direct purchase of transport capacity. In 2019, the urban distribution and home distributionbusiness scale of Annto saw a year-on-year increase of nearly 350%, with a steadily increasing marketshare. During its engagement in the Double 11 project of Tmall, Annto ranked among the top large piecedelivery cooperators of Cainiao in the ratings by Tmall buyers, ranked first among these large piecedelivery cooperators of Cainiao in all the five service indicators, and won the “Double 11 Top Award”. In
addition, due to its excellent services, Annto was granted the 2019 Red-Top Award—“Excellent High-EndHome Appliances Logistics Service Provider”.D. Steadily promoted Midea’s globalized business layout, enhanced localized operationsoverseas and accelerated the cooperative integration of Toshiba ProjectMidea further promoted its global business layout to solidify its global competency. It formulated a globalsupply cooperative mechanism, strengthened localized operations overseas, and promoted productglobalization. Its overseas business spans more than 200 countries and regions in North America, SouthAmerica, Europe, Asia, Africa and Oceania. Meanwhile, guided by the market and focusing on users,Midea builds a global user research network with foresight. Midea Germany Research Center is newlyestablished to strengthen research on the needs of European users. And more resources have beenprovided for user research centers in the U.S., Italy, Brazil, India and Singapore. In 2019, Midea continuedto advance international corporate governance by adjusting measures to local conditions, reinforced theintegration of R&D, production and sales systems in regional markets, and further strengthened cohesioneffects. Midea proactively expanded and reasonably planned overseas production layout, beefed up themanagement of overseas production bases and the enhancement of efficiency, enriched the productportfolio for overseas markets, improved local manufacturing capacity to deal with uncertainties in globaltrade. Meanwhile, it strengthened its ability of allocating resources to production bases worldwideaccording to global trade changes. Continuous efforts were made to expand marketing channels andreinforce the retail capability. The number of retail outlets overseas has surpassed 30,000. Meanwhile,digital management has been achieved at the retail end through the IRMS system and shopping guideshave been trained for 12,000 person-times cumulatively, with an increasing retail channel share. Aportfolio of Midea’s own brands for overseas markets comprising COLMO, TOSHIBA, MIDEA andCOMFEE has been established. Each brand has their positioning, target users and product portfolio.They enter major markets and channels, boost consumer recognition and expand their influence in theoverseas markets. The construction of the overseas e-commerce network was completed, and themiddle- and back-end systems have taken shape. Midea keeps working on the traditional American andEuropean markets, carries out planning for emerging markets in a swift manner and fully prepares fordevelopment in the overseas e-commerce market. Midea has successfully launched popular products for
all major categories of home appliances, some of which have become the most popular of their respectivekinds and have been granted the “Bestseller” and “Amazon Choice” marks. Based on the “International632 Project”, Midea integrated overseas business systems and processes to build a digital data platformfor operating decision-making, which can help improve the abilities to seize business opportunities andidentify risks through data connection and sharing on the platform. It strengthened the consistency ofsuch processes as the PSI (Purchase Sales Inventory) management model, the management of productlife cycle, and spare parts management and services of overseas branches and promoted the consistencyand collaboration of Midea’s commercial languages and systems to increase its operational efficiency. Itset up the global service platform and accelerated the building of overseas service capacity. A globalplatform integrating the call center, service quality tracking, spare parts deployment and technical traininghas been put in place as a way to improve the global service response capability and the proactive servicecapability.In 2019, TLSC continued to focus on the core white goods business, promoted the synergy and unificationof value chains with the business divisions of Midea Group on all fronts, optimized product structure toincrease gross profits and continually improved profitability. It recorded a considerable year-on-yeargrowth in the profit before tax and a profit for two consecutive years. In particular in the Japanese marketwith fierce competition, TLSC saw continual increases in its market shares of air conditioners,refrigerators and washing machines. It implements a business division system to further simplifyfunctional departments, boost management flexibility and enhance the matching of powers andresponsibilities. Meanwhile, it works with relevant business divisions of Midea in global market planningand strengthens their synergistic effects in brand building, channel development, R&D and innovation,integration of supply chain and quality improvement. The revenue generated by these cooperationprojects worldwide saw a remarkable growth in 2019.E. Stepped up the industrial internet and digitalization programmes to thoroughly improveoperational efficiency of the whole value chainFocusing on users and user experience, Midea continued to promote industrial digitalization, deepenedC2M and the T+3 business model in the whole value chain, promoted innovation synergy of 5G and theIndustrial Internet platform “M.IoT”, and built iconic Industrial Internet factories. It kept promoting digital
transformation in the 3D digital model, Digital Twin, intelligent scheduling, self-developed MRP, intelligentlogistics, EHS, energy management, etc. M.IoT supports equipment access, protocol analysis and edgedata processing through the SCADA system to provide data support for production management,production process refinement, equipment maintenance, etc. Based on the 5G, intelligent gateway andother technologies, M.IoT simplifies the underlying connection to be accessible to industrial equipment invarious scenes. A digital closed-loop management system—TPM has been put in place to enable fastresponse and upgrade, automatically analyze malfunctions, improve the fault database, effectivelyreduce the abnormal downtime of equipment, monitor the equipment status in real time, automaticallyremind about maintenance plans as well as the turn-on-and-off time, and increase the uptime and outputrate of equipment. So far, the M.IoT platform has been applied to Midea’s AC, laundry product andmicrowave oven production lines, among others.Midea continued to optimize and extend the applications of the Channel Collaboration System (CCS) 2.0,the Midea Cloud Sales and the Retail Management System (RMS) in its direct supply to retailers incounties and towns, KA/TOP, e-commerce platforms, home decoration stores, etc., so as to support theT+3 business model reform program. The WeChat mini app of “Midea Home Delivery” provides offlinestores with an instrument of online channeling, terminal sales and member operation, in order to facilitatethe digital transformation of terminal stores. Multiple digital system tools are used to support the retailcoordination program and improve user experience in every link. Transparent and uniform rates ofinstallation and repair are made possible by deepening the smart customer service application in a bid toimprove customer service experience. Meanwhile, to encourage repeat purchases, a “backpacker” modelis promoted in after-sales service through the WeChat mini app of “Midea Home Delivery”. The Companyintroduces house decoration design software, develops the suite design capacity of household scenario,and builds an app for one-stop buying needs of various household appliances to provide consumers withall household appliance solutions and one-stop shopping experience. In the user experience reformprogram, relying on tools such as CMS, big data, the Midea Engine app and CSS, Midea focuses onhome decoration store transformation, shopping guide reform and retail system building, after-salesservice innovation, product suite sales, and integration of the entire chain, so as to improve the businessmodel. Based on inventory transparency and synergy of physical goods on the whole channel, Mideaopens up the information flow of synergistic warehouse, establishes whole-channel inventory sharing and
digestion rules, and enables the automatic adjustment system of the channel inventory level, so as toimplement shared inventory management and increase inventory turnover ratio.Midea continues with international digitalization. With the “International 632 Project” as the core, fulldigitalization support is provided for finance, R&D, the supply chain, marketing, after-sales service andoperation. The “International 632 Project” was promoted in 17 overseas operating units in 2019 to boostthe efficiency of the whole value chain. Closed-loop management and budget control have been achievedin all the financial systems across the world, and financial and accounting standards in different regionshave been connected. Empowerment of overseas channels has been accelerated, with the channelmanagement system covering over 1,000 distributors overseas. The global big-data-based analysisplatform helps monitor more than 50 indicators in 8 major areas, which breaks the boundaries of spaceand time to provide operating service support around the clock. Meanwhile, the global order processingmechanism (OPM) was launched for test. Based on visualized production capacity, the mechanism cancarry out order scheduling through multi-dimensional computing and distribute orders to manufacturingbases across the world in a smart, efficient and accurate manner. It can also effectively connect overseasmarketing and manufacturing in a digitalized and visualized manner.Midea continues to further promote the business application of AI by fully covering the business scenariosof intelligent manufacturing, intelligent operations and intelligent offices based on the three AI platformsof quality testing, facial recognition and optical character recognition (OCR). While rapidly reproducingand promoting such pilot projects as PCB testing and ink-jet testing, it proactively explores the applicationof vocal print quality testing and digital fool-proof of accessories. The quality testing platform hasoptimized the efficiency and accuracy of quality testing through visual and auditory simulations. The facialrecognition platform has incubated a number of individualized applications, including multi-personrecognition sensor-free door access control, gate machine access control, key post recognition, intelligentconference room and facial recognition payment, empowering Midea’s business innovation in buildings,logistics and marketing. The OCR platform enables document digitization and office automation, in whichonly a few employees are required to efficiently and accurately process the notes that used to beprocessed by over 300 office centers nationwide, saving massive resources and manpower.Midea continues to deepen data application. It sets up the Group’s data decision-making center by
combining internal data and external internet data, and develops the digital operation platform and theoperations analysis module at the mobile terminal. It builds the data consistency platform for the entiregroup. Following the white paper for data operation, a data driven closed-loop system has been put inplace, which covers business breakdown, early warning, improvement and resumption. Midea achievesthe visualization of whole-range operations data through the digital operation platform to identifyoperational problems immediately. Meanwhile, it establishes the early warning and urging mechanism toprovide a powerful data driven tool for operation and management.Midea fully promotes the application of cloud computing. Through its platform cloud program, Mideaformulates clouds of Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as aService (SaaS) to support its strategy of digital transformation. Through the building of container cloudand hybrid cloud, with container cloud providing unified software delivery standards as well as theseparated application and running environment, the IaaS platform is able to transfer business applicationsseamlessly among container services of Nanhai Data Center and public clouds. As a result, multi-cloudservices are formed to reduce costs, increase stability and enhance the capacity of processing massivedata flow during business peak periods such as “Double 11” and “618”. Upon the integration andrefinement of Midea’s IT system technology and business capability, the PaaS platform with a uniformmicroservice framework and gateway, provides uniform services of 22 technology components and 11business components for Midea’s internal systems, which has successfully helped reduce costs andimprove quality. While extending to more components, the PaaS cloud also starts to provide serviceexternally through a developer program. The SaaS platform targets corporate customers. Based on IaaSand PaaS, the SaaS platform provides complete management of applications through their entire lifecycles and full customer service. It lowers the threshold for small- and medium-sized enterprises to gaincloud access. It also provides a one-touch function to active business applications. With purchasing cloudas a trial program, Midea has provided SRM cloud, sourcing cloud, risk control cloud and other SaaSservices for over 3,000 corporate customers.F. In view of consumption stratification, launched multiple new brands and product suites toempower retail sales, enhanced the retail performanceSince late 2018, Midea has launched a number of new brands, including COLMO targeting high-end
consumers, BUGU targeting online consumers, WAHIN targeting young consumers. Integrating cutting-edge technology and rational aesthetics, COLMO launched multiple new products for high-end customersin 2019. It released the BLANC product suite at Appliance&electronics World Expo (AWE) in March 2019,new AI-powered home appliances for various scenes including the TURING Air Conditioner, the MantleLava Series Refrigerator and the Phase Change Water Heater at Internationale Funkausstellung Berlin(IFA) in September 2019, and the TURING Commercial AC in Shanghai in November 2019. Cumulatively,COLMO has launched 23 new products for the high-end market, covering living room, laundry, kitchenand bathroom scenes to create a new smart life of connected home appliances for high-end consumers.COLMO equips its products with advanced technologies. All the five products of the BLANC product suiteare certified by China’s Ministry of Light Industry as internationally advanced, of which the BLANCWashing Machine has won the first Wu Wen Jun AI Science & Technology Award in the washing machineindustry, the top AI award. In 2019, COLMO won a significant number of design and technologicalinnovation awards at home and abroad, including the iF Award, the Red Dot Award, the AWE ProductAward, the AWE Innovation Award, the IDG Technical Innovation Gold Award, the IDEA Award, the GoodDesign Award and the Red Star Award. At the 2019 World Artificial Intelligence Conference (WAIC),COLMO unveiled the White Paper on AI-Powered Home Appliances, initiating a reform of the “AI-Powered Future”. In terms of channel expansion, COLMO made active efforts to explore online and offlinenew retail models in 2019. For online channels, it has established flagship stores on various platforms.For offline channels, it has put in place a national network with focus on the first- and second-tier cities,which comprises nearly 2,000 outlets including exclusive stores and flagship stores. By the end of 2019,these outlets had a total of nearly 100,000 members in approximately 80,000 families. In branding,COLMO keeps working on its target customers. Through sports event sponsorship and commercialevents, it aims to build a high-end brand image and convey its brand spirit. In 2020, upholding the brandphilosophy of “Technology Serve the Nature of Life and Design Maximize the Value of Rationalism”,COLMO will, on the basis of AI-powered home appliances, place more emphasis on design with rationalaesthetics and launch whole new product suites.To meet the needs of modern users in the Internet era, the internet brand BUGU was unveiled at AWEShanghai in March 2019, with its first batch of products launched in Beijing in April 2019. Upholding thebrand philosophy of “Technological Aesthetics, Smart and Fun-Filled Life”, BUGU builds up smart eco-
scenes primarily comprising three life scenes and two professional scenes. In order to expand the productportfolio and ecosystem, BUGU carries out strategic cooperation with Honor to jointly build smart lifescenes, and gradually introduces more quality resources to improve the eco-chain of scenes. BUGUpersists in taking the joint creation with users as its core strategy. Through the joint creation platform—the “BUGU Research Institute”, users can take part in the whole product process from conceptual designto public testing. It continues to win recognition for its product design in the industry. The Intelligent IHRice Cooker, Aesthetic Electric Kettle and Intelligent Sweeping and Mopping Robot of BUGU all won theiF Award 2020, and the Aesthetic Electric Kettle, which is a bestseller, was granted the DFA Design forAsia Excellence Award. In 2019, BUGU products achieved a remarkable market performance and werechosen for the 2019 Tmall “Emerging Brands” Program. During the 618 Shopping Festival in 2019, BUGUIntelligent Dishwasher ranked among the top ten list of dishwashers on JD.com; on JD.com’s AppliancesHigou Day on June 10, BUGU Intelligent Dishwasher won double championships in both sales volumeand sales, and BUGU Intelligent Rice Cooker (3L) ranked among the top ten in rice cooker sales; on June11, BUGU Intelligent Electric Fan won the championship in sales among electric fan products with a priceof above RMB300; on June 16, BUGU achieved over RMB1 million in sales on the Taobao shoppingsystem, and BUGU Intelligent Electric Fan ranked among the top three among electric fan products witha price of above RMB199. On its first “Double 11” shopping festival, BUGU saw a single day record salesof over RMB10 million, users increase by 50,000, limited star products sold out in 12 seconds, and salesexceed RMB10 million in the first 24 hours.Unveiled in 2019, WAHIN dedicates to offering surprises to young people with “Trendy Designs, PracticalFunctions and Fun Interactions”. It establishes connections through a diversity of marketing activities withthe young circles characterized by AGC and pop cultures. The brand stands out with its performances insales. Since its launch, WAHIN has been focusing on online channels. In 2019, WAHIN expandedcooperation from just one e-commerce platform to all the major e-commerce platforms. Its AC salesexceeded RMB400 million in the year, and ranked 7
th and 6
th
on JD.com during the “618” and “Double11” shopping festivals respectively.G. Promoted innovation in robotic product development, accelerated integration and expansionof the robotics business for the China market
KUKA, a subsidiary of Midea, is the first robotic manufacturer in the world to introduce sensitivelightweight robots into the production plant, as well as the first manufacturer with a product range coveringcooperative robots, mobile robots and industrial heavy-duty robots. In the automotive sector, KUKAcontinues to maintain its advantages and unveiled the world’s first industrial robot with digital motionmodel - the new-generation high-load versatile robot KR QUANTEC-2 in 2019. The robot can effectivelyreduce costs for customers and offers substantially enhanced performances, precision and speed. AtAMTS 2019, KUKA demonstrated its one-stop solutions consisting of electric drive assembly and testingmodel lines, square shell battery assembly model lines, LBR iiwa cell loading and testing, KUKA Connectbig data and virtual image systems. Meanwhile, it’s worth mentioning that KUKA took part in a large-scalejoint research platform program of Germany—ARENA2036 in 2019 for the first time. It is responsible fordeveloping and testing streamline production techniques of Industry 4.0 to explore streamline carfactories for the future. In the general industrial sector, KUKA has newly launched the KR IONTEC Seriesrobots with a load ranging from 30 kg to 70 kg, which can be used in traditional and digital productionenvironments. In addition to the largest working range of its kind (3,100 mm), it takes less floor spaceand interference contours, as well as boasts the lowest maintenance cost of its kind (average malfunctioninterval: about 400,000 running hours). Meanwhile, at K-Show 2019, KUKA showcased its KR10 R900-2robot designed to work with an injection molder and the robot-assisted thermoplastic elastomer (TPE)extrusion solution. In the logistics sector, targeting the industrial status where an increasing number oforders are placed online, the new-generation robot-based order sorting solution ItemPiQ, as a perfectexample of the integration of know-hows by KUKA and Swisslog, combines new robotic technology andintelligent visual system and features efficient sorting performances and machine-learning functions. Withregard to human-robot collaboration, KUKA’s Cobot LBR iisy is a sensitive, precise and easy-to-use robotwith more intuitive automation design, which has developed a new field for human-robot collaboration. Inthe electronics sector, KUKA launched a chip carrying solution in a clean-room environment in semi-conductor manufacturing, which is the world’s first one-stop solution for automatic carrying of semi-conductor boxes. In the medical sector, KUKA’s LBR Med Series robots have yielded remarkable results.Carrying LBR Med, medical devices Cold Ablation and Robot-guided Laser Ostetome developed by theSwiss company Advanced Osteotomy Tools AG were put into clinical practice for the first time, which isthe first robot-based osteotomy in the world. Additionally, equipped with the integrated sensitive seven-axis robot of KUKA’s LBR Med Series, SculpturaTM, a mobile robot assistance system developed by the
American company Sensus Healthcare, is the only medical device with which a doctor can apply targetedradiation to the tumor during a surgery. Additionally, KUKA makes active steps to explore robot applicationin new areas. The Brazilian company Bionicook uses KUKA’s KR3 AGILUS robot to cook, which canfinish an order in three minutes and 100 orders in an hour at the most. KUKA won a significant numberof awards and honors in 2019, including the renowned iF Award 2019 for KUKA LBR iisy and KUKA KMP1500, the German Design Award 2019 for KUKA smartPAD, KUKA AGILUS and LBR iisy, the 2019German Innovation Award and the Robotics Award (at HANNOVER MESSE 2019) for the car chargingassistant robot of which KUKA took part in the development, and the “Excellent Partner Award” grantedby Faw-Volkswagen as the customer’s recognition of KUKA for its persistence in providing efficient andstable products and automation solutions on a long-term basis.According to IFR statistics, 2019 saw a harsher market for the global industrial robotics industry ascompared with 2018. However, KUKA performed rather stable and continued to make breakthroughs innew areas. In 2019, KUKA received an order of tens of millions of euros from Faw-Volkswagen involvingassembly lines used to manufacture MEB platform batteries, which is KUKA’s first whole battery line orderin the Chinese market. In addition, KUKA obtained orders of automatic production equipment of weldingrobots used in electric vehicle production lines respectively from SAIC Volkswagen and Donghee Group(South Korea), with the respective amounts reaching tens of millions of euros and millions of euros. Inthe fourth quarter of 2019, KUKA won a contract worth as much as tens of millions of euros to supply abatter assembly line, which will be used to produce battery systems for high-end electric vehicles. KUKAalso received an order worth millions of euros from Guangdong Shaoneng Group for 300 units of KRQUANTEC Series robots and an automated handling solution for mechanical equipment. Furthermore, itsecured an order of 22 units of KMP 1,500 mobile platform equipment used to process body in white froman automobile manufacturer. In the healthcare sector, KUKA received an order from the North Americancustomer Restoration Robotics to supply LBR Med lightweight robots for their intelligent repair and hairtransplant system. In 2019, KUKA’s Swisslog business continued to expand, with an order ofapproximately 43 million euros from the Malaysian customer IKEA Supply Malaysia Sdn Bhd for anautomated logistics solution, and an order from the Finland customer Broman Group for an automatedlogistics system and the related software.
The integration of KUKA’s robotics business in China has been accelerated. On one hand, under KUKA’snew organizational structure, the KUKA China Division was established in 2019, covering robotics,flexible systems, general industrial automation, intelligent logistics automation and intelligent medicalautomation. On the other hand, the collaborative advantages of Midea and KUKA have started to showin various aspects, including development of business opportunities, technology sharing, customerservice, purchase collaboration and management improvement, laying a foundation for the fast growth ofthe industrial automation business on all fronts. In 2019, the KUKA China Division formulated the businessdevelopment planning for the next five years and established a 432+X product system for the domesticmarket, i.e. 4 product families, 3 digital platforms, 2 production lines for fast iteration and the whole newbusiness layout. With regard to business expansion, KUKA China maintains its leadership in the autosector and takes active steps to explore new areas including general industrial manufacturing, electronics,medical care and logistics, services, etc. Concerning internal management, it concentrates on R&D,supply chain management, high-performance operations and digitalization, among others, as well ascommits more resources to build the core competitiveness of Midea’s robotics and industrial automationbusiness in a faster manner. In 2019, KUKA China further improved its organizational structure byconnecting the R&D, production and marketing departments. It has put in place a “customer-oriented”system to promote high-performance operations in the whole value chain. Its R&D department focusedon new product development, product upgrade, localization, software development and digitalization. Andan OKR management tool has been introduced to build a matrix structure based on professionalism.Meanwhile, KUKA China completed the construction of the Product R&D and Testing Center covering anarea of nearly 5,000 ㎡, which has been put into operation to support R&D and testing.As an industrial robotic brand trusted by many auto makers around the world, KUKA China continued tosee the highest unit sales in the auto sector of China in 2019. In addition to continued cooperation with asignificant number of foreign-funded, Sino-foreign jointly funded and domestic traditional auto makers, itsecured orders from multiple renowned makers of new energy vehicles at home and abroad, furtherenlarging the market share. In the general industrial sector, automation orders kept increasing from thefood and beverage industry, the household chemicals and pharmaceuticals industry and other industries,and there were new customers from the glass industry. With respect to medical robotics, 2019 saw ayear-on-year growth of 200% and dozens of new customers in need of surgical robotics mostly.
Concerning logistics automation, KUKA won the logistics renovation projects of several notablecompanies, the fifth AutoStore system launched to e-commerce customers proved a great help in theirbusiness development, and KUKA is currently the only robotics maker in the area of logistics automationwho can integrate the six-axis mechanical arm with a mobile robot, with noticeable technologicalsuperiority. In 2019, KUKA enhanced development of localized products for the China market. It launchedthe AC-fin tube-inserting machine, and its homegrown fully automated bathroom appliance assembly line,which is the first of its kind in China, has been put into operation. KUKA’s application development teamlaunched a packaged robot polishing application and a packaged 3D sighted robot shoe-sole gummingapplication. And its Swisslog team has secured the first batch of orders of nearly RMB20 million for thepiler that the team has developed for the local market. Servotronix released a new rotary servo product—BDHD2, and a new linear servo product—CDHD2 STD. Mass production of both has commenced. Inaddition, KUKA has effectively helped enhance Midea Group’s intelligent manufacturing level. As of now,the robot density of Midea has exceeded 220 units per 10,000 persons. In the coming three years, thisnumber is expected to surpass 300 units per 10,000 persons.H. Created a new smart lifestyle with the MSmartLife App as the gatewayCapitalizing on the Group’s advantage of various household appliance categories, Midea IoT is able tocover various smart scenes. 68 smart scenes have been launched on Midea MSmartLife App, includingwhole-house scenes such as “Secure Home”, “Healthy Home”, “Convenient Home” and “PersonalizedHome”. “Healthy Home” provides complete smart healthy life solutions from three major aspects, namely,healthy food, healthy washing and healthy air. Supported by the AI technology, MSmartLife App 6.0 hasintroduced 18 new functions including AI-based voice control and recipe pictures and videos, built thefirst smart-scene AI-based interaction platform in the industry, and realized multi-screen smart voiceinteraction. Up to the end of 2019, Midea Group has sold a total of over 70,000,000 smart householdappliances across the globe. Tens of millions of household users receive smart services through theMSmartLife App, with interaction on smart equipment and cloud exceeding one trillion times. Meanwhile,Midea Smart Cloud Housekeeper App, which is based on the big data technology, is making homeappliances smarter through AI algorithms. It has provided more than ten million times of spontaneoussmart services for users.
Midea IoT keeps building its cloud capability. Upon system architecture refinement, hybrid clouddeployment, multi-address disaster preparedness, etc., its cloud platforms have reached an industry-wideadvanced level in availability and can be connected to more than 100 million pieces of devices. Meanwhile,the Company jointly develops chips for household appliances, and launches high-performance low-costsmart connection modules together with solutions. It joined hands with Ziroom, a notable long-term rentalapartment operator, in user operation and commercial promotion. Also, it cooperates with Alibaba, JD,Huawei, OPPO, VIVO, Baidu, Tencent, Google, Amazon, Apple, Skyworth, Bull, etc. to offer whole-housesmart solutions supported by a brand ecosystem.With respect to technological innovation in smart home, in order to solve pain points such as the difficultiesin network distribution and a long connecting time of smart appliances, Midea IoT has independentlydeveloped a series of connection modules including Wi-Fi, Bluetooth and NB-IoT. As such, it is the firstto shorten the time used from network distribution to a successful connection to 4.62 seconds. On top ofthat, it has materialized more stable connection and more efficient development through M-Smartagreement refinement, code refactoring, fixing compatibility bugs, etc. It also takes the lead in launchinghome appliances that can be directly connected to the 5G network. Protecting user privacy and datasecurity is a top priority in the application of smart technologies. Midea IoT takes the lead to pass theTRUSTe certification with respect to privacy data compliance. It also complies with the EU General DataProtection Regulation (“GDPR”) and other data protection regulations. Meanwhile, with regard to overallinformation security management, Midea IoT has passed the ISO27001 Certification for InformationSecurity Management Systems (ISMS). And the MSmartLife App App has been certified by the globallyrecognized ePrivacyApp due to the multiple layers of protection of user privacy data. Therefore, Mideahas reached an internationally advanced level in user data protection.I. Deepened the long-term incentive and protected the interests of shareholdersIn 2019, Midea continued to encourage the core management to take responsibility for the Company’slong-term development and growth by further enhancing its long-term incentive schemes. In this year,Midea launched the Sixth Stock Option Incentive Scheme, the Third Restricted Share Incentive Scheme,the Fifth Global Partner Stock Ownership Scheme and the Second Business Partner Stock OwnershipScheme, which have helped, in a more effective manner, to align the long-term interests of senior
management and core business backbones with that of all shareholders.Midea Group protects its shareholders’ interests by ensuring a consistent dividend policy. It shares itsgrowth with shareholders by putting forward cash dividend plans with a total amount of as much asRMB46.8 billion (2019 profit distribution plan included) since Group listing in 2013. In addition to theconsistent dividend payouts, the Company has carried out a string of share repurchase plans.Subsequent to a share repurchase of RMB4 billion in 2018, to further stabilize the market capitalizationand protect the shareholders’ interests, the Company launched another share repurchase plan in 2019.And the repurchased shares would be used for equity incentive schemes and/or employee stockownership schemes. As of 31 December 2019, Midea has used approximately RMB3.1 billion for theshare repurchase.
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 revenue
Unit: RMB’000
| 2019 | 2018 | YoY Change (%) | |||
| Amount | As a percentage of total operating revenue (%) | Amount | As a percentage of total operating revenue (%) | ||
| Total | 278,216,017 | 100% | 259,664,820 | 100% | 7.14% |
| By business segment | |||||
| Manufacturing | 254,286,134 | 91.40% | 238,065,376 | 91.68% | 6.81% |
| By product category | |||||
| HVAC | 119,607,379 | 42.99% | 109,394,649 | 42.13% | 9.34% |
| Consumer appliances | 109,486,791 | 39.35% | 102,992,803 | 39.66% | 6.31% |
| Robotics and automation systems | 25,191,964 | 9.05% | 25,677,924 | 9.89% | -1.89% |
| By geographical segment | |||||
| PRC | 161,432,313 | 58.02% | 149,257,311 | 57.48% | 8.16% |
| Outside PRC | 116,783,704 | 41.98% | 110,407,509 | 42.52% | 5.78% |
| Operating Revenue | Cost of sales | Gross profit margin | YoY change of operating revenue (%) | YoY change of cost of sales (%) | YoY change of gross profit margin (%) | |
| By business segment | ||||||
| Manufacturing | 254,286,134 | 176,594,422 | 30.55% | 6.81% | 4.71% | 1.39% |
| By product category | ||||||
| HVAC | 119,607,379 | 81,626,941 | 31.75% | 9.34% | 7.56% | 1.12% |
| Consumer appliances | 109,486,791 | 75,014,044 | 31.49% | 6.31% | 2.82% | 2.33% |
| Robotics and automation systems | 25,191,964 | 19,953,437 | 20.79% | -1.89% | 0.72% | -2.06% |
| By geographical segment | ||||||
| PRC | 161,432,313 | 110,867,529 | 31.32% | 8.16% | 6.93% | 0.79% |
| Outside PRC | 116,783,704 | 87,046,399 | 25.46% | 5.78% | 3.04% | 1.98% |
2.2.3 Whether revenue from physical sales is higher than service revenue
√Yes □No
| Business segment | Item | Unit | 2019 | 2018 | YoY Change (%) |
| Home appliances | Sales | In thousand units/sets | 456,680.20 | 416,926.40 | 9.53% |
| Output | Ditto | 465,063.30 | 421,938.40 | 10.22% | |
| Inventory | Ditto | 59,169.30 | 50,972.20 | 16.08% |
| Business segment | Item | 2019 | 2018 | YoY Change (%) | ||
| Amount | As a percentage of total cost of sales (%) | Amount | As a percentage of total cost of sales (%) | |||
| Home appliances | Raw materials | 134,231,337 | 85.69% | 127,402,508 | 85.59% | 5.36% |
| Labor costs | 9,711,741 | 6.20% | 9,154,016 | 6.15% | 6.09% | |
| Depreciation | 2,673,507 | 1.71% | 2,599,999 | 1.75% | 2.83% | |
| Energy | 2,255,630 | 1.44% | 2,188,033 | 1.47% | 3.09% | |
Ltd., Guangdong Yueyun Industrial Internet Innovation Technology Co., Ltd., Midea RefrigerationEquipment (Thailand) Co., Ltd. and Tianjin Midea Commercial Factoring Co., Ltd. For the companiesdeconsolidated in the current year, see Note 5, 5.1, (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) | 35,762,605 |
| Total sales to top five customers as a percentage of the total sales for the year (%) | 12.86% |
| Total sales to related parties among top five customers as a percentage of the total sales for the year (%) | 0 |
| No. | Customer | Sales revenue (RMB'000) | As a percentage of the total sales revenue (%) |
| 1 | Customer A | 19,971,771 | 7.18% |
| 2 | Customer B | 8,257,101 | 2.97% |
| 3 | Customer C | 2,950,842 | 1.06% |
| 4 | Customer D | 2,450,884 | 0.88% |
| 5 | Customer E | 2,132,007 | 0.77% |
| Total | -- | 35,762,605 | 12.86% |
| Total purchases from top five suppliers (RMB'000) | 9,916,145 |
| Total purchases from top five suppliers as a percentage of the total purchases for the year (%) | 5.42% |
| Total purchases from related parties among top five suppliers as a percentage of the total purchases for the year (%) | 0 |
| No. | Supplier | Purchase (RMB'000) | As a percentage of the total purchases (%) |
| 1 | Supplier A | 3,134,243 | 1.71% |
| 2 | Supplier B | 1,730,001 | 0.95% |
| 3 | Supplier C | 1,717,144 | 0.94% |
| 4 | Supplier D | 1,671,119 | 0.91% |
| 5 | Supplier E | 1,663,638 | 0.91% |
| Total | -- | 9,916,145 | 5.42% |
| 2019 | 2018 | YoY Change (%) | Reason for any significant change | |
| Selling and distribution expenses | 34,611,231 | 31,085,879 | 11.34% | |
| General and administrative expenses | 9,531,361 | 9,571,639 | -0.42% | |
| Finance costs | -2,231,636 | -1,823,040 | -22.41% | |
| Research and development expenses | 9,638,137 | 8,377,201 | 15.05% |
Technology, Xi’an Jiaotong University, Huazhong University of Science and Technology and South ChinaUniversity of Technology, in order to establish joint labs for deepening technological innovation. TheGroup also carries out strategic cooperation with tech giants such as BASF and Honeywell to build aglobal innovation ecosystem. The Group’s long-term focus on building technology, marketing, product,design and open innovation systems, building a cutting-edge research system and building reserves intechnology for mid/long term, has provided a solid foundation for the Group to maintain technicalsuperiority across the globe.Information about R&D investment
| 2019 | 2018 | YoY Change (%) | |
| Number of R&D personnel | 13,727 | 12,321 | 11.41% |
| R&D personnel as a percentage of total employees | 10.18% | 10.74% | -0.56% |
| R&D expense (RMB’000) | 9,638,137 | 8,377,201 | 15.05% |
| R&D expense as a percentage of operating revenue | 3.46% | 3.23% | 0.23% |
| Item | 2019 | 2018 | YoY Change (%) |
| Subtotal of cash inflows from operating activities | 252,123,178 | 226,341,706 | 11.39% |
| Subtotal of cash outflows due to operating activities | 213,532,774 | 198,480,626 | 7.58% |
| Net cash flows from operating activities | 38,590,404 | 27,861,080 | 38.51% |
| Subtotal of cash inflows from investing activities | 89,004,610 | 67,998,046 | 30.89% |
| Subtotal of cash outflows due to investing activities | 112,112,311 | 86,640,334 | 29.40% |
| Net cash flows from investing activities | -23,107,701 | -18,642,288 | -23.95% |
| Subtotal of cash inflows from financing activities | 20,015,594 | 5,237,681 | 282.15% |
| Subtotal of cash outflows due to financing activities | 23,289,195 | 18,624,845 | 25.04% |
| Net cash flows from financing activities | -3,273,601 | -13,387,164 | 75.55% |
| Net increase in cash and cash equivalents | 12,489,478 | -3,879,371 | 421.95% |
√Applicable □N/A
a. Primarily driven by an increase in cash received from sales of goods or rendering of services, net cashflows from operating activities increased 38.51% from last year.b. Primarily driven by an increase in cash received from borrowings, net cash flows from financingactivities increased 75.55% from last year.c. Primarily driven by increases in net cash flows from operating and financing activities, net increase incash and cash equivalents increased 421.95% from last year.Explanation of main reasons leading to the material difference between net cash flows from operatingactivities during the Reporting Period and net profit for the year
□ Applicable √ N/A
3. Analysis of Non-Core Business
□Applicable √N/A
4. Assets and Liabilities
4.1 Material changes of asset items
The Company first adopted the new accounting standards governing financial instruments in 2019 andadjusted the relevant financial statement items at the beginning of the year accordingly.
Unit: RMB'000
| 31 December 2019 | 1 January 2019 | Change in percentage (%) | Explanation about any material change | |||
| Amount | As a percentage of total assets (%) | Amount | As a percentage of total assets (%) | |||
| Cash at bank and on hand | 70,916,841 | 23.49% | 27,888,280 | 10.58% | 12.91% | |
| Accounts receivable | 18,663,819 | 6.18% | 18,641,979 | 7.07% | -0.89% | |
| Inventories | 32,443,399 | 10.74% | 29,645,018 | 11.24% | -0.50% | |
| Other current assets | 65,011,027 | 21.53% | 74,952,820 | 28.42% | -6.89% | |
| Investment properties | 399,335 | 0.13% | 391,765 | 0.15% | -0.02% | |
| Long-term | 2,790,806 | 0.92% | 2,713,316 | 1.03% | -0.11% | |
| equity investments | ||||||
| Fixed assets | 21,664,682 | 7.17% | 22,437,212 | 8.51% | -1.34% | |
| Construction in progress | 1,194,650 | 0.40% | 2,077,621 | 0.79% | -0.39% | |
| Short-term borrowings | 5,701,838 | 1.89% | 870,390 | 0.33% | 1.56% | |
| Long-term borrowings | 41,298,377 | 13.68% | 32,091,439 | 12.17% | 1.51% |
| Item | Opening balance | Profit or loss from change in fair value during the period | Cumulative fair value change charged to equity | Amount provided for impairment in the period | Purchased in the period | Sold in the period | Other changes | Closing balance |
| Financial assets | ||||||||
| 1. Financial asset held for trading (excluding derivative financial assets) | 2,654,045 | -742 | - | - | 3,706,340 | 5,272,795 | 503 | 1,087,351 |
| 2. Derivative financial assets | 259,019 | 32,877 | -24,718 | - | 30,417 | - | -1,611 | 295,984 |
| 3. Receivables financing | 2,254,950 | - | - | - | 5,310,826 | - | - | 7,565,776 |
| 4. Other non-current financial assets | 784,269 | 418,219 | - | - | 593,234 | 68,418 | 22,803 | 1,750,107 |
| 5. Other investments | - | 491,232 | - | - | 62,310,000 | 12,243,714 | - | 50,557,518 |
| Sub-total of financial assets | 5,952,283 | 941,586 | -24,718 | - | 71,950,817 | 17,584,927 | 21,695 | 61,256,736 |
| Investment properties | ||||||||
| Productive living assets | ||||||||
| Others | ||||||||
| Sub-total of the above | 5,952,283 | 941,586 | -24,718 | - | 71,950,817 | 17,584,927 | 21,695 | 61,256,736 |
| Financial liabilities | 902,795 | -729,771 | -145,568 | - | - | - | -324 | 27,132 |
| Total investment amount of Reporting Period (RMB’000) | Total investment amount of last year (RMB’000) | YoY Change (%) |
| 112,112,311 | 86,640,334 | 29.40% |
| Type of securities | Code of securities | Abbreviation of securities | Initial investment cost | Measurement method | Opening carrying amount | Profit or loss from change in fair value | Cumulative fair value change charged to equity | Purchased in the period | Sold in the period | Profit or loss in the period | Closing carrying amount | Accounting title | Funding source |
| during the period | |||||||||||||
| Overseas listed stock | 1810 | XIAOMI-W | 1,272,584 | Fair value method | 1,122,609 | -186,754 | 503 | - | - | - | 936,358 | Financial asset held for trading | Own funds |
| Domestically listed stock | 688018 | Espressif Systems | 14,625 | Fair value method | - | 94,653 | - | 56,340 | - | - | 150,993 | Financial asset held for trading | Own funds |
| Total | 1,287,209 | -- | 1,122,609 | -92,101 | 503 | 56,340 | - | - | 1,087,351 | - | -- | ||
| Operating party | Relationship with the Company | Related transaction | Type of derivative | Initial investment amount | Starting date | Ending date | Opening investment amount | Purchased in Reporting Period | Sold in Reporting Period | Amount provided for impairment (if any) | Closing investment amount | Closing investment amount as a percentage of the Company’s closing net assets | Actual gain/loss in Reporting Period |
| Futures company | No | No | Futures contracts | 276 | 01/01/2019 | 31/12/2019 | 276 | - | - | - | 1,377 | 0.001% | 8,683 |
| Bank | No | No | FX derivatives | -644,052 | 01/01/2019 | 31/12/2019 | -644,052 | 30,417 | - | - | 267,475 | 0.263% | -419,519 |
| Total | -643,776 | -- | -- | -643,776 | 30,417 | - | - | 268,852 | 0.264% | -410,836 | |||
| Source of derivatives | All from the Company’s own funds | ||||||||||||
| investment funds | |
| Litigation involved (if applicable) | N/A |
| Disclosure date of the announcement about the board’s consent for the derivative investment (if any) | 20/04/2019 |
| Disclosure date of the announcement about the general meeting’s consent for the derivative investment (if any) | 14/05/2019 |
| Risk analysis of positions held in derivatives during the Reporting Period and explanation of control measures (Including but not limited to market risk, liquidity risk, credit risk, operational risk, legal risk, etc.) | 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 only carried out futures business for some of the materials, but also made use of bank financial instruments and promoted forex funds business, with the purpose of avoiding the risks of exchange and interest rate fluctuation, realizing the preservation and appreciation of forex assets, reducing forex liabilities, as well as achieving locked-in costs. The Company has performed sufficient evaluation and control against derivatives investment and position risks, details of which are described as follows: 1. Legal risk: The Company's futures business and forex funds businesses shall be conducted in compliance with laws and regulations, with clearly covenanted responsibility and obligation relationship between the Company and the agencies. Control measures: The Company has designated relevant responsible departments to enhance learning of laws and regulations and market rules, conducted strict examination and verification of contracts, defined responsibility and obligation well, 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, 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 Period, specific methods used and relevant assumption and parameter settings shall be disclosed for analysis of fair value of derivatives | 1. Gain from futures contracts during the Reporting Period was RMB8,683,000. 2. Loss from FX derivatives during the Reporting Period was RMB-419,519,000. 3. Public quotations in futures market or forward forex quotations announced by the Bank of China are used in the analysis of derivatives fair value. |
| Explanation of significant changes in accounting policies and specific financial accounting principles in respect of the Company's derivatives for the Reporting Period as compared to the previous Reporting Period | No change |
| Special opinions expressed by independent directors concerning the Company's derivatives | The Company's independent directors are of the view that the futures hedging business is an effective instrument for the Company to eliminate price volatility and implement risk prevention measures through enhanced internal control, thereby improving the operation and management of the Company; the Company's foreign exchange risk management capability can be further improved through the forex funds business, so as to maintain and increase the value of foreign |
| investment and risk control | exchange assets and the abovementioned investment in derivatives can help the Company to fully bring out its competitive advantages. Therefore, it is practicable for the Company to carry out derivatives investment business, and the risks are controllable. |
| Company name | Company type | Business scope | Registered capital | Total assets (in RMB million) | Net assets (in RMB million) | Operating revenue (in RMB million) | Operating profit (in RMB million) | Net profit (in RMB million) |
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | Subsidiary | Manufacturing of home appliances | USD72 million | 12,783.83 | 4,637.34 | 12,895.01 | 2,071.61 | 1,791.33 |
| GD Midea Air-Conditioning Equipment Co.,Ltd. | Subsidiary | Manufacturing of air conditioners | RMB854 million | 33,719.06 | 4,363.47 | 44,243.11 | 664.31 | 610.71 |
| Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd. | Subsidiary | Manufacturing of home appliances | USD42 million | 11,916.97 | 6,290.75 | 11,233.27 | 1,784.25 | 1,547.26 |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | Subsidiary | Manufacturing of water heaters | RMB60 million | 10,348.48 | 1,303.52 | 11,860.65 | 1,245.40 | 1,084.87 |
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, pleaserefer to Note 5 and Note 6 to the Financial Statements in “Section IX Financial Report”. For the newlyconsolidated companies, see Note 5, 5.1, (a), and they primarily include: Midea Electrics Egypt, AnhuiWelling Auto Parts Co. , Ltd., Wuxi Little Swan Electric Co., Ltd., Guangdong Swisslog Technology Co.,Ltd., Guangdong Yueyun Industrial Internet Innovative Technology Co., Ltd., Midea RefrigerationEquipment (Thailand) Co., Ltd. and Tianjin Midea Commercial Factoring Co., Ltd. For the companiesdeconsolidated in the current year, see Note 5, 5.1, (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
With “Bring Great Innovations to Life” as its corporate vision, “Integrate with the World, to Inspire yourFuture” as its mission, and “Embrace What’s Next - Aspiration、Dedication、Collaboration、Innovation”as its values, Midea adheres to its strategic objectives and focuses on the strategy of “ComprehensiveDigitalization and Intellectualization”. It integrates global resources, deepens its transformation, as wellas keeps developing leading products based on the customer’s needs by way of technological innovationand quality improvement. It will promote efficiency driven growth by improving management,manufacturing and asset efficiency to create more cost efficiency. It will also promote global operationsand try to lay a solid foundation in this regard through promoting its own branded products andstrengthening compliance management. Additionally, it will strengthen its robotics and industrialautomation operations to build new business platform and growth points. Meanwhile, it will deepen itsdigital business to improve operation and management through digitalization of the entire value chain, soas to construct its own IIoT ecosystem.
9.2 Key operation points in 2020
a. Midea will firmly increase R&D investment in basic technologies, digitalization and intellectualization inparticular. Driven by technology as the fundamental approach, it will beef up product innovation andefficiency improvement, and put in place a customer-oriented value chain system. It will deepen the R&Dmodel of “Three Generations” and implement the strategy of “being the Number One or the Only One” tobuild product leadership. In the meantime, top talent will be brought in to help refine the R&Dorganizational structure and build up an R&D-centric management model.b. Midea will keep a high-quality development direction and stick to internal, sustained and effectiveorganic growth. It will promote the T+3 business model reform and high-performance operations in thewhole value chain in every link from product planning to after-sales service, so as to increase profitability.In order to win in competition, it is important to develop high-end products to refine the product mix. It willalso maintain effective investments, control non-operating expenses, increase labor productivity, improvehuman resource allocation efficiency, promote lean management and provide fresh impetus for continualgrowth through relentless innovation.c. For the domestic market, Midea will enhance the basic systems to set up a unified business languageand rules, strengthen “One Midea, One System, One Standard”, make use of the advantages of synergies,reinforce the result-oriented process control and improve operating efficiency. It will also promotetransformation in domestic marketing to rebuild a user-oriented retail system, set up a standardized storemanagement system and improve the ability of offline stores to attract customers. it will enhance productsynergies, focus on the end market, lower the inventory level, streamline the channel hierarchy, andpromote better channel efficiency. By promoting interactive marketing ways based on scenes andexperience, as well as enhancing the operation of star products, it strives to build better recognition ofthe Midea brand among users. Making use of multi-category synergistic advantages, it will continuouslydeepen the channel layout, further promote e-commerce channel optimization and integration, work onsocial e-commerce, and proactively expand and build new retail channels. It will promote thetransformation of sales agents towards operators, and in the meantime materialize transparent andvisualized information through the whole trading process. It will also improve the after-sales serviceexperience, optimize the delivery-installation integration service, and improve the member service system.Meanwhile, it will continue to increase the efficiency of the supply chain system, enhance the advantage
of Midea’s all-channels coverage, rebuild business processes and push forward the construction of ashared inventory system.d. For the overseas market, Midea will adhere to the strategies of being user-oriented and productleadership. Leveraging its advantageous global R&D and user research networks, as well asbenchmarking to other top brands across the globe, Midea will continue to launch differentiated andinnovative products to solve users’ painpoints, enlarge the mainstream market share and give play to itsadvantage of various product categories. It will continue to improve the ability to operate multiple brandsin the overseas market, refine the differentiated product portfolios of the brands, and carry out global andregional branding activities through digital marketing to boost the brands’ presence and reputation. Also,it will promote retail transformation, further expand channels, improve the brand image and consumerexperience at the retail end, empower the retail end with digital tools, enable real-time tracking of retaildata, and improve the retail performance. A global system comprising the professional globalheadquarters, the coordinative regional hubs and the aggressive enterprises in various countries will beput in place, with clear responsibilities and positioning for each organization, as well as effective teamworkamong them. Meanwhile, Midea will improve its overseas infrastructure, and build the four major globaldelivery systems of manufacturing, services, components and logistics, so as to enable adequate contractfulfillment and service on a global basis. Both approaches of “China-Based Supply for the World” and“Local Supply” will help boost the competitiveness of Midea’s supply chain and its ability to deal withuncertainties in the market. Midea will also firmly promote transformation of TLSC’s business, focus onthe Japan market, as well as carry on with the work in user research, product development, channelreform, organizational management, etc.e. Midea will improve its multi-brand system according to different needs from different consumer groups.COLMO, the brand targeting high-end consumers, will launch whole new product suites and expand itschannel network in the first- and second-tier cities. BUGU, the brand targeting online consumers, willintegrate internal and external resources to provide individualized experience for users, and establish all-scene ecosystem cooperation with external manufacturers to create innovative marketing and businessmodels. Additionally, Midea will give play to its multi-category synergistic advantages and improve itsproduct suites and families, including the real-estate before-market product suites, to provide customized
and integrated home solutions with full categories of the household appliances.f. Midea will strengthen the building of Midea as a digitalized enterprise by improving the digitaloperational methods and systems to support the integration of every link of Midea’s value chain andoptimize efficiency, value creation and the fulfillment of operating objectives, as well as by further buildingand optimizing digitalized industrial Internet factories. And it will continue to promote and optimize theInternational 632 program to strengthen digital support for the “Global Operations” strategy.g. Following the integration of KUKA’s robotics business in China, Midea will beef up localized operationsin China, increase investment in the development and application of robotics, foster R&D innovation ofcore components and software systems, as well as promote the “432+X” product system. In terms ofmarketing, Midea will maintain leadership in the auto sector and take active steps to explore new areasincluding general industrial manufacturing, electronics, medical care and logistics, services, etc.Concerning internal management, it will concentrate on R&D, supply chain management, high-performance operations and digitalization, among others, so as to build the core competitiveness of therobotics and industrial automation business in a faster manner.h. Midea will continue to increase its investment in the R&D of IoT basic technology to improve userexperience and security. In the meantime, guided by the strategy of “Comprehensive Intellectualization”,it will build up a cooperation ecosystem to keep improving the performance of its smart home IoT modulesthrough cooperating with external parties. Guided by users’ thinking model, Midea will connect to moreusers through its MSmartLife App, carry out lean operations and provide safe, convenient and smart lifeexperience for users. Meanwhile, it will promote smart products by providing smart scene experience,upgrading the store network, providing training in relation to smart products, increasing the percentageof smart home appliances, etc.
9.3 Key capital expenditure plan in future
To adapt to changes in the industry environment, the Company will focus its 2020 investments ontechnological innovation, product quality improvement, robotics and industrial automation systems,digitalization, e-commerce channel expansion and new retail channels construction, new brand marketing,
global operations capability improvement and the smart home strategy. Meanwhile, the Company willstrictly control investment in infrastructure and capacity expansion, as well as non-operating expenditures.The capital expenditures will primarily come from the Company’s own funds.
9.4 Main risks in future development
a. Risk associated with the COVID-19 outbreakDomestic consumption and production are expected to be affected to some degree in the short run bythe COVID-19 outbreak in early 2020. Therefore, the offline retail stores of the Company are expected tosee lower footfall in the short run. Meanwhile, the COVID-19 has been spreading overseas since lateFebruary 2020. Should the epidemic last for a long time, the Company could face a challenge in 2020.b. Risk of macro economy fluctuationThe market demand for the Company’s consumer appliances and HVAC equipment, among otherproducts, can be easily affected by the economic situation and macro control. If the global economyencounters a heavy hit, or the domestic economy or consumer demand slows down in growth, the growthof the household appliance industry, to which the Company belongs, will slow down accordingly, and asa result, this may affect the product sales of Midea Group.c. Risks in the fluctuation of production factorsThe raw materials required by Midea Group to manufacture its consumer appliances and corecomponents primarily include different grades of copper, steel, aluminum, and plastics. At present, thehousehold appliance manufacturing sector belongs to a labor intensive industry. If the price of rawmaterials 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 thecost reduction resulted from lean production and improved efficiency, as well as the sale prices of endproducts cannot offset the total effects of cost fluctuations, the Company’s business will be influenced tosome degree.
d. Risk in global asset allocation and overseas market expansionInternationalization and global operations is a long-term strategic goal of the Company. The Companyhas built joint-venture manufacturing bases in many countries around the world. Progress has been madeday by day regarding the Company’s overseas operations and new business expansion. However, itsefforts in global resource integration may not be able to produce expected synergies; and in overseasmarket 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.e. Risk in product export and foreign exchange losses caused by exchange rate fluctuationAs Midea carries on with its overseas expansion plan, its export revenue has accounted for more than40% of the total revenues. Any sharp exchange rate fluctuation might not only bring negative effects onthe export of the Company, but could also lead to exchange losses and increase its finance costs.f. Market risks brought by trade frictions and tariff barriersDue to the rise of anti-globalization and trade protectionism, China will see more uncertainties in exportin 2020. The trade barriers and frictions of some major markets will affect the export business in the shortrun, as well as marketing planning and investment in the medium and long run. Political and compliancerisks are rising in international trade. 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 wellas with rigorous requirements for recycling household appliances waste. Trade frictions caused by anti-dumping measures implemented by some countries and regions aggravate the burden in costs andexpenses for household appliance enterprises, and have brought about new challenges to marketplanning and business expansion for enterprises.In face of the complicated and changeable environment and risks at home and abroad, Midea will strictlyfollow the Company Law, the Securities Law, the CSRC regulations and other applicable rules, keepimproving its governance structure for better compliance, and reinforce its internal control system so asto effectively prevent and control various risks and ensure its sustained, steady and healthy development.
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 |
| 14-15 January 2019 | One-on-one meeting | Institution | Log Sheet of Investor Relations Activities for 14-15 January 2019 disclosed on www.cninfo.com.cn |
| 17 January 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 17 January 2019 disclosed on www.cninfo.com.cn |
| 21-22 February 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 21-22 February 2019 disclosed on www.cninfo.com.cn |
| 15 May 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 15 May 2019 disclosed on www.cninfo.com.cn |
| 17 May 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 17 May 2019 disclosed on www.cninfo.com.cn |
| 23 May 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 23 May 2019 disclosed on www.cninfo.com.cn |
| 19 June 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 19 June 2019 disclosed on www.cninfo.com.cn |
| 27-28 June 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 27-28 June 2019 disclosed on www.cninfo.com.cn |
| 4-5 July 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 4-5 July 2019 disclosed on www.cninfo.com.cn |
| 22-26 July 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 22-26 July 2019 disclosed on www.cninfo.com.cn |
| 17-18 September 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 17-18 September 2019 disclosed on www.cninfo.com.cn |
| 24 September 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 24 September 2019 disclosed on www.cninfo.com.cn |
| 20-21 November 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 20-21 November 2019 disclosed on www.cninfo.com.cn |
| 4 December 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 4 December 2019 disclosed on www.cninfo.com.cn |
| 19 December 2019 | Ditto | Ditto | Log Sheet of Investor Relations Activities for 19 December 2019 disclosed on www.cninfo.com.cn |
| Times of visit | 240 |
| Number of visiting institutions | 2,540 |
| Number of visiting individuals | 130 |
| Number of other visitors | 0 |
| Significant undisclosed information disclosed, revealed or leaked | No |
Section V Significant Events
1. Profit Distribution and Converting Capital Surplus into Share Capital for CommonShareholdersFormulation, execution or adjustments of profit distribution policy, especially cash dividend policy, forcommon shareholders in the Reporting Period
□Applicable √N/A
Plans (or preliminary plans) for profit distribution and converting capital surplus into share capital forcommon shareholders for the past three years (including the Reporting Period)a. For 2017, based on the total share capital of 6,584,022,574 shares, the Company distributed a cashdividend of RMB12 (tax inclusive) per 10 shares to all the shareholders. The book closure day was 3 May2018 and the ex-dividend day 4 May 2018.b. For 2018, based on the 6,585,838,349 shares at the disclosure date of the 2018 Annual report (thetotal share capital minus the then repurchased shares in the repo securities account), it was proposedthat the Company should distribute a cash dividend of RMB13 (tax inclusive) per 10 shares to all theshareholders and should not convert capital surplus into share capital. When the profit distribution planwas implemented, if any change occurred to the total shares eligible for profit distribution, the profitdistribution plan should be based on the total shares eligible for profit distribution at the book closure dateof the profit distribution, and the dividend per share should be adjusted under an unchanged totaldistribution amount.When the profit distribution plan was implemented, based on 6,565,827,689 shares (the thenrepurchased 40,014,998 shares in the special securities account for repurchase subtracted from the totalshare capital of 6,605,842,687 shares), under an unchanged total distribution amount, the Companydistributed a cash dividend of RMB13.039620 (tax inclusive) per 10 shares to all the shareholders. Thebook closure day was 29 May 2019 and the ex-dividend day 30 May 2019.c. For 2019, based on the 6,957,181,058 shares at the disclosure date of this report (the total share
capital of 6,999,467,315 shares minus the repurchased 42,286,257 shares in the repo securities accountat that date), it is proposed that the Company should distribute a cash dividend of RMB16 (tax inclusive)per 10 shares to all the shareholders and should not convert capital surplus into share capital. When theprofit distribution plan is implemented, if any change occurs to the total shares eligible for profit distribution,the profit distribution plan shall be based on the total shares eligible for profit distribution at the bookclosure date of the profit distribution, and the dividend per share shall be adjusted under an unchangedtotal distribution amount.
Cash dividend to common shareholders in the past three years (including the Reporting Period)
Unit: RMB
| Year | Cash dividends (tax included) | Net profit attributable to common shareholders of the Company in the consolidated statement in the year | Ratio of cash dividends to net profit attributable to common shareholders in the consolidated statement in the year | Cash dividends in other forms (such as share repurchase) | Ratio of cash dividends in other forms to net profit attributable to common shareholders in the consolidated statement in the year | Total cash dividends (inclusive of those in other forms) | Ratio of total cash dividends (inclusive of those in other forms) to net profit attributable to common shareholders in the consolidated statement in the year |
| 2019 | 11,131,489,692.80 | 24,211,222,000.00 | 45.98% | - | - | 11,131,489,692.80 | 45.98% |
| 2018 | 8,561,589,853.70 | 20,230,779,000.00 | 42.32% | 4,000,000,000 | 19.77% | 12,561,589,853.70 | 62.09% |
| 2017 | 7,900,827,088.80 | 17,283,689,000.00 | 45.71% | - | - | 7,900,827,088.80 | 45.71% |
dividend distribution to its common shareholders
□Applicable √N/A
2. Preliminary Plan for Profit Distribution and Converting Capital Surplus into ShareCapital for the Reporting Period
√ Applicable □ N/A
| Bonus shares for every 10 shares (share) | 0 |
| Dividend for every 10 shares (RMB) (tax included) | 16 |
| Additional shares converted from capital surplus for every 10 shares (share) | 0 |
| Total shares as the basis for the preliminary plan for profit distribution (share) | 6,957,181,058 |
| Cash dividends (RMB) (tax inclusive) | 11,131,489,692.80 |
| Cash dividends in other forms (such as share repurchase) (RMB) | 0 |
| Total cash dividends (inclusive of those in other forms) (RMB) (tax inclusive) | 11,131,489,692.80 |
| Distributable profits (RMB) | 23,249,372,000.00 |
| Percentage of total cash dividends (inclusive of those in other forms) in the total distributed profit (%) | 100% |
| Details about the preliminary plan for profit distribution and converting capital surplus into share capital | |
| As audited by PricewaterhouseCoopers China (LLP), the Company realized a net profit of RMB13,685,619,000 for 2019. Pursuant to the relevant provisions under the Articles of Association, it provided 10% as statutory surplus reserve, namely RMB1,368,562,000. Plus undistributed profits at the beginning of the year of RMB19,486,212,000 and minus the profit distributed in the year of RMB8,553,897,000, the actual distributable profit would be RMB23,249,372,000. For 2019, based on the 6,957,181,058 shares at the disclosure date of this report (the total share capital of 6,999,467,315 shares minus the repurchased 42,286,257 shares in the repo securities account at that date), it is proposed that the Company should distribute a cash dividend of RMB16 (tax inclusive) per 10 shares to all the shareholders and should not convert capital surplus into share capital. When the profit distribution plan is implemented, if any change occurs to the total shares eligible for profit distribution, the profit distribution plan shall be based on the total shares eligible for profit distribution at the book closure date of the profit distribution, and the dividend per share shall be adjusted under an unchanged total distribution amount. The said plan shall be submitted to the Company’s 2019 annual general meeting of shareholders for further consideration. | |
3. Performance of Undertakings
3.1 Undertakings of the Company’s actual controller, shareholders, related parties and acquirer, as well as the Company and othercommitment makers fulfilled in the Reporting Period or ongoing at the period-end
√ Applicable □ N/A
| Undertaking | Undertaking giver | Type of undertaking | Details of undertaking | Undertaking date | Term | Particulars on the performance |
| Undertaking made in offering documents or shareholding alternation documents | Controlling shareholder and actual controller | Maintenance of independence | 1. Midea Holding and He Xiangjian have undertaken as follows: He Xiangjian, Midea Holding and their controlled enterprises will remain independent from Midea Group in respect of personnel, finance, assets, business and institutions, in accordance with relevant laws and regulations and regulatory documents. They will faithfully fulfill the above undertaking, and assume the corresponding legal liability. If they fail to fulfill their obligations and responsibilities conferred by the undertaking, they will bear the corresponding legal liabilities according to relevant laws, rules, regulations and regulatory documents. | 28/03/2013 | Long-standing | 1. There has been no violation of this undertaking. |
| Controlling shareholder and actual controller | Avoiding competition within the industry | 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 or will be engaged in the same or similar business as the existing main business of Midea Group and its controlled companies. They are not or will not be engaged or participate in such business that is competitive to the existing main business of Midea Group and | 28/03/2013 | Long-standing | 2. There has been no violation of this undertaking. |
| laws, rules, regulations and regulatory documents. | |||||
| Controlling shareholder and actual controller | Regulation of related transactions | 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 companies, Midea Holding and He Xiangjian have undertaken as follows: (1) They will regulate any related transactions with Midea Group and its controlled companies using their utmost efforts to reduce them. For unavoidable related transactions with Midea Group and its controlled companies, including but not limited to commodity trading, 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 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 | 28/03/2013 | Long-standing | 3. There has been no violation of this undertaking. |
| 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 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. | |||||
| Controlling shareholder and actual controller | On Midea Trade Union Committee transferring its limited equity of Midea Group | 4. On 4 January 2001, the Midea Trade Union Committee signed the "Equity Transfer Contract" with five people, namely He Xiangjian, Chen Dajiang, Feng Jingmei, Chen Kangning and Liang Jieyin, where it transferred all its limited equity of Midea Group (22. 85%) respectively to those five people. According to the confirmation letter issued by members of the Midea Trade Union Committee at that time, the equity transfer price was determined after mutual discussion on the basis of their true opinions, therefore there was no dispute or potential dispute. On 28 June 2013, Foshan Shunde Beijiao General Union, 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 | 28/03/2013 | Long-standing | 4. So far, this shareholding transfer has not brought about any loss caused by any dispute or potential disputes. There has been no violation of this undertaking. |
| 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. | |||||
| Controlling shareholder and actual controller | Issues about Payment of the Staff Social Insurance and the Housing Provident Fund involved in Midea Group's Overall Listing | 5. Midea Holding and He Xiangjian have undertaken to be liable for (1) paying such expenses and related expenses on time based on the requirements of relevant state departments if Midea Group is required to be liable for the payment of staff social insurance, housing provident fund and the payment required by relevant state authorities prior to this merger, (2) paying corresponding compensation for all direct and indirect losses incurred by Midea Group and its subsidiaries due to this merger, (3) indemnifying and holding harmless Midea Group and its subsidiaries in time from such expenses when Midea Group and its subsidiaries are required to pay them in advance. | 28/03/2013 | Long-standing | 5. So far, the payment of the staff social insurance and the housing provident fund has not brought about any controversy or potential disputes. There has been no violation of this undertaking. |
| Controlling shareholder and actual controll | Issues about asset alteration, asset flaw and | 6. Undertakings on issues about asset alteration, asset flaw and house leasing of Midea Group and its subsidiaries Midea Holding and He Xiangjian have undertaken as follows: (1) Midea Holding will do its utmost to assist and urge Midea | 28/03/2013 | Long-standing | 6. So far, the issues about asset alteration, asset flaw and house leasing of Midea Group and its subsidiaries have not brought about any controversy or potential disputes. There has been no violation of this undertaking. And Midea Holding shall honor this undertaking |
| er | house leasing of Midea Group and its subsidiaries | Group (including its subsidiaries) to complete renaming procedures of related assets, such as land, housing, trademarks, patents and stock rights, declared in the related files of this merger. Midea Holding will be liable for all compensations of losses caused by issues about renaming procedures of related assets mentioned 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 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 | before its expiration. |
| Undertaking made in time of asset restructuring | Actual controller | The Opinion in Principle on the Merger in a Share Swap & the Statement and Commitment Letter on any Shareholding Reduction Plan | 1. I agree to this merger in a share swap in principle. 2. I do not plan to and will not reduce my shareholding in Midea Group and/or Little Swan during the period from the share trading resumption date to the completion date of this merger in a share swap. 3. I’m legally bound by this commitment letter since the date of my signature. Where any loss occurs to Midea Group or Little Swan due to me violating any contents of this commitment letter, I shall bear the corresponding compensation liability according to law. | 23/10/2018 | 23/10/2018-21/06/2019 | This undertaking has been fulfilled and there has been no violation of this undertaking. |
| Controlling shareholder | The Opinion in Principle on the Merger in a Share Swap & the Statement and Commitm | 1. The company agrees to this merger in a share swap in principle. 2. The company does not plan to and will not reduce its shareholding in Midea Group during the period from the share trading resumption date to the completion date of this merger in a share swap. 3. The company is legally bound by this commitment letter since the date of signature. Where any loss occurs to Midea Group due to the company violating any contents of this commitment letter, the company shall bear the corresponding compensation | 23/10/2018 | 23/10/2018-21/06/2019 | This undertaking has been fulfilled and there has been no violation of this undertaking. |
| ent Letter on any Shareholding Reduction Plan | liability according to law. | ||||
| Statement on Irregularities Committed in the Past Five Years | Up to the issue date of this statement, none of the company or any of its incumbent senior management personnel received any administrative or criminal punishment (exclusive of those not related to the securities market), or was involved in any material civil lawsuit or arbitration in relation to any economic dispute, in the past five years; or is being investigated by a judicial authority for involvement in any criminal case or by the China Securities Regulatory Commission for any irregularity. | 23/10/2018 | 23/10/2018-21/06/2019 | This undertaking has been fulfilled and there has been no violation of this undertaking. | |
| The Company | Statement on any Shareholding Reduction Plan | 1. The Company does not plan to and will not reduce its shareholding in Little Swan during the period from the share trading resumption date to the completion date of this merger in a share swap. The shares held by the Company in Little Swan will be retired upon the completion of this merger in a share swap. 2. The Company is legally bound by this commitment letter since the date of signature. Where any loss occurs to Little Swan due to the Company violating any contents of this commitment letter, the Company shall bear the corresponding compensation liability according to law. | 23/10/2018 | 23/10/2018-21/06/2019 | This undertaking has been fulfilled and there has been no violation of this undertaking. |
| Commitment Letter on the | The Company will provide relevant information to the intermediary agencies hired for this merger in a share swap in a timely manner; warrant that the information provided is true, | 23/10/2018 | 23/10/2018-21/06/2019 | This undertaking has been fulfilled and there has been no violation of this undertaking. |
| Truthfulness, Accuracy and Completeness of the Information Provided | accurate, complete and free of any misrepresentations, misleading statements or material omissions; and shall together be wholly liable for the truthfulness, accuracy and completeness of such information. Where any loss occurs to any investor due to any misrepresentations, misleading statements or material omissions in the information provided, the Company shall bear the corresponding compensation liability according to law. | |||||
| Statement on Punishments Received and Credibility Issues | 1. Up to the issue date of this statement, the Company is not being investigated by a judicial authority for involvement in any criminal case or by the China Securities Regulatory Commission for any irregularity. 2. Up to the issue date of this statement, the Company received no administrative or criminal punishments (exclusive of those not related to the securities market) and was not involved in any material civil lawsuit or arbitration in relation to any economic dispute; nor did it receive any administrative supervision measures from the China Securities Regulatory Commission or disciplinary punishments from the stock exchange for failing to repay any debt of a large amount on time or fulfill any commitment, or have any other material credibility issue, in the past five years. | 23/10/2018 | 23/10/2018-21/06/2019 | This undertaking has been fulfilled and there has been no violation of this undertaking. | ||
| Whether the undertaking is | Yes | |||||
| fulfilled on time | |
| Specific reasons for failing to fulfill any undertaking and plan for the next step | N/A |
3.2 Where any earnings forecast was made for any of the Company’s assets or projects and theReporting Period is still within the forecast period, the Company shall explain whether theperformance 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 RelatedParties 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 IndependentDirectors (If Any) Regarding the "Non-standard Audit Opinion" for the ReportingPeriod
□Applicable √N/A
6. Reason for Changes in Accounting Policies, Accounting Estimates and AccountingMethods as Compared to the Financial Report for the Prior Year
√ Applicable □ N/A
For changes in accounting policies, accounting estimates and accounting methods, see Note 2, (32) in“Section IX Financial Report” of this report.
7. Reason for Retrospective Restatement of Major Accounting Errors during theReporting Period
□Applicable √N/A
No such cases in the Reporting Period.
8. Reason for Changes in Scope of the Consolidated Financial Statements asCompared 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, pleaserefer to Note 5 and Note 6 to the Financial Statements in “Section IX Financial Report”. For the newlyconsolidated companies, see Note 5, 5.1, (a), and they primarily include: Midea Electrics Egypt, Anhui
Welling Auto Parts Co. , Ltd., Wuxi Little Swan Electric Co., Ltd., Guangdong Swisslog Technology Co.,Ltd., Guangdong Yueyun Industrial Internet Innovative Technology Co., Ltd., Midea RefrigerationEquipment (Thailand) Co., Ltd. and Tianjin Midea Commercial Factoring Co., Ltd. For the companiesdeconsolidated in the current year, see Note 5, 5.1, (b).
9. Engagement and Disengagement of CPA Firm
CPA firm at present
| Name of the domestic CPA firm | PricewaterhouseCoopers China (LLP) |
| The Company’s payment to the domestic CPA firm | RMB8.965 million |
| Consecutive years of the audit service provided by the domestic CPA firm | Five years |
| Names of the certified public accountants from the domestic CPA firm | Huang Meimei and Qiu Xiaoying |
| Consecutive years of the audit service provided by the certified public accountants from the domestic CPA firm | Five years |
10. Possibility of Listing Suspension and Termination after Disclosure of this AnnualReport
□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.
14. Credit Conditions of the Company as well as Its Controlling Shareholder andActual Controller
□Applicable √N/A
15. Implementation of any Equity Incentive Scheme, Employee Stock OwnershipScheme or Other Incentive Measures for Employees
√Applicable □N/A
A. Overview of the First Stock Option Incentive Schemea. The Company convened the 10th Meeting of the 3rd Board of Directors on 18 April 2019, at which theProposal for the Retirement of Unexercised Stock Options upon Expiry was reviewed and approved. Asthe First Stock Option Incentive Scheme expired on 17 February 2019, the Company agreed to retire the56,250 and 90,000 stock options that had been previously granted to Chen Lingzhi and Yang Huirespectively but was unexercised upon expiry.
During the Reporting Period, 2,666,976 shares were exercised under the First Stock Option IncentiveScheme.B. Overview of the Second Stock Option Incentive Schemea. The Company disclosed the Announcement on the 2018 Annual Profit Distribution on 23 May 2019.Based on the total 6,565,827,689 shares eligible for profit distribution (the total share capital of6,605,842,687 shares minus the repurchased 40,014,998 shares), and in accordance with the principleof an unchanged total profit amount to be distributed, the Company would distribute RMB13.039620 incash per 10 shares to shareholders. The record date was 29 May 2019 and the ex-date was 30 May2019.b. The Company convened the 12th Meeting of the 3rd Board of Directors on 30 May 2019, at which theProposal for the Adjustments to the Exercise Price for the Second Stock Option Incentive Scheme wasreviewed and approved. As the 2018 Annual Profit Distribution had been carried out, the exercise pricefor the Second Stock Option Incentive Scheme was revised from RMB17.36 to RMB16.06 per share.During the Reporting Period, 17,546,786 shares were exercised under the Second Stock Option IncentiveScheme.C. Overview of the Third Stock Option Incentive Schemea. The Company convened the 12th Meeting of the 3rd Board of Directors on 30 May 2019, at which theProposal for the Adjustments to the Exercise Price for the Third Stock Option Incentive Scheme wasreviewed and approved. As the 2018 Annual Profit Distribution had been carried out, the exercise pricefor the Third Stock Option Incentive Scheme was revised from RMB19.15 to RMB17.85 per share.b. The Company convened the 13th Meeting of the 3rd Board of Directors on 1 July 2019, at which theProposal for the Adjustments to the Incentive Receivers and Their Exercisable Stock Options of the ThirdStock Option Incentive Scheme was reviewed and approved. As such, it was agreed to adjust theincentive receivers and their exercisable stock options for the Third Stock Option Incentive Scheme dueto the departure, positional changes, low performance appraisals or other factors of some incentive
receivers. Upon the adjustments, the number of incentive receivers decreased from 848 to 735, and thenumber of locked-up stock options granted to them was also reduced from 38,070,000 to 32,905,000.The Proposal for Matters Related to the Stock Option Exercise for the Third Exercise Period of the ThirdStock Option Incentive Scheme was also considered and approved. Because the exercise conditionshave grown mature for the third exercise period, a total of 735 incentive receivers who have been verifiedfor the Third Stock Option Incentive Scheme have been allowed to exercise 32,905,000 stock options inthe third exercise period (ended 27 June 2021).The Proposal for the Retirement of Unexercised Stock Options upon Expiry was also reviewed andapproved. As the first exercise period of the Third Stock Option Incentive Scheme expired, the Companyagreed to retire the 59,999 and 65,000 stock options that had been previously granted to Yang Hui andYuan Dong respectively but was unexercised upon expiry.During the Reporting Period, 33,192,625 shares were exercised under the Third Stock Option IncentiveScheme.D. Overview of the Fourth Stock Option Incentive Schemea. The Company convened the 12rd Meeting of the 3rd Board of Directors on 30 May 2019, at which theProposal for the Adjustments to the Exercise Price, Incentive Receivers and Their Exercisable StockOptions for the Fourth Stock Option Incentive Scheme was reviewed and approved. As the 2018 AnnualProfit Distribution had been carried out, the exercise price for the Fourth Stock Option Incentive Schemewas revised from RMB31.52 to RMB30.22 per share. Meanwhile, it was agreed to adjust the incentivereceivers and their exercisable stock options for the Fourth Stock Option Incentive Scheme due to thedeparture, positional changes, low individual or business division performance appraisals or other factorsof some incentive receivers. Upon the adjustments, the number of incentive receivers decreased from1,354 to 1,196, and the number of locked-up stock options granted to them was also reduced from60,676,000 to 51,122,200.b. The Proposal for Matters Related to the Stock Option Exercise for the Second Exercise Period of theFourth Stock Option Incentive Scheme was also considered and approved. Because the exercise
conditions have grown mature for the second exercise period, a total of 1,152 incentive receivers whohave been verified for the Fourth Stock Option Incentive Scheme have been allowed to exercise24,382,200 stock options in the first exercise period (ended 11 May 2020).During the Reporting Period, 29,308,811 shares were exercised under the Fourth Stock Option IncentiveScheme.E. Overview of the Fifth Stock Option Incentive Schemea. In light of the authorization given at the 2017 Annual General Meeting of Shareholders, the Companyconvened the 8th Meeting of the 3rd Board of Directors on 11 March 2019, at which the Proposal onGrant of the Reserved Stock Options of the Fifth Stock Option Incentive Scheme to Incentive Receiverswas reviewed and approved. As such, the Company agreed to grant 5,540,000 reserved stock options to100 incentive receivers on 11 March 2019 at the exercise price of RMB47.17 per share.The Company originally intended to grant 5,540,000 reserved stock options to 100 incentive receivers.However, due to two incentive receivers failing to open a securities account on time and one incentivereceiver’s departure from the Company before the registration of the grant, they were no longer eligiblefor the Fifth Stock Option Incentive Scheme. Therefore, the number of incentive receivers who wereregistered for the reserved stock options of the Fifth Stock Option Incentive Scheme was 97, down from100, with 5,340,000 stock options, down from 5,540,000. On 10 May 2019, the Company completed theregistration of the grant of reserved stock options under the Fifth Stock Option Incentive Scheme.b. The Company convened the 12th Meeting of the 3rd Board of Directors on 30 May 2019, at which theProposal for the Adjustments to the Exercise Price for the Fifth Stock Option Incentive Scheme wasreviewed and approved. As the 2018 Annual Profit Distribution had been carried out, the exercise pricefor the first phase of the grant was revised from RMB56.34 to RMB55.04 per share, and the exerciseprice for the reserved stock options from RMB47.17 to RMB45.87 per share.F. Overview of the Sixth Stock Option Incentive Schemea. On 18 April 2019, the Sixth Stock Option Incentive Scheme (Draft) of Midea Group Co., Ltd (hereinafter
referred to as the “Sixth Stock Option Incentive Scheme (Draft)”) and its abstract were reviewed andapproved at the 10th Meeting of the 3rd Board of Directors, and the incentive receiver list for the SixthStock Option Incentive Scheme (Draft) was examined at the 7th Meeting of the 3rd SupervisoryCommittee.b. On 13 May 2019, the Company convened the 2018 Annual General Meeting of Shareholders, at whichthe Proposal on the Sixth Stock Option Incentive Scheme (Draft) and Its Abstract, the Proposal on theImplementation and Appraisal Measures for the Sixth Stock Option Incentive Scheme, the Proposal forAsking the Meeting of Shareholders to Authorize the Board to Handle Mattes Related to the Sixth StockOption Incentive Scheme and other relevant proposals were reviewed and approved.For this Incentive Scheme, the Company intended to grant 47,240,000 stock options to 1,150 incentivereceivers with the exercise price being RMB54.17 per share.c. In light of the authorization given at the 2018 Annual General Meeting of Shareholders, the Companyconvened the 12th Meeting of the 3rd Board of Directors on 30 May 2019, at which the Proposal for theAdjustments to the Exercise Price, Incentive Receiver List and Number of Stock Options to Be Grantedfor the Sixth Stock Option Incentive Scheme, the Proposal for the Determination of the Grant Date for theSixth Stock Option Incentive Scheme and the Proposal for the Grant-Related Matters for the Sixth StockOption Incentive Scheme were reviewed and approved. As such, the Company agreed to grant47,140,000 stock options to 1,146 incentive receivers on 30 May 2019 with the exercise price revisedfrom RMB54.17 per share to RMB52.87 per share.The Company originally intended to grant 47,140,000 stock options to 1,146 incentive receivers. However,due to 15 incentive receivers’ departure from the Company or position change, they were no longereligible for the Sixth Stock Option Incentive Scheme. Therefore, the Board adjusted the number ofincentive receivers from 1,146 to 1,131, and the number of stock options from 47,140,000 to 46,540,000.On 5 July 2019, the Company completed the registration of the grant of stock options under the SixthStock Option Incentive Scheme.
G. Overview of the 2017 Restricted Share Incentive Schemea. The Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2017 and 2018Restricted Share Incentive Schemes was approved at the 5th Meeting of the 3rd Board of Directors on21 January 2019. As such, it was agreed to repurchase and retire 1,775,917 restricted shares that hadbeen granted to 30 personnel but were still in lockup under the 2017 Restricted Share Incentive Scheme,for the reasons of their departure from the Company, violation of company rules, business unit’s 2017performance appraisal result being “just so-so”, position change or other factors.Also, the Proposal on the Satisfaction of the Conditions for the First Unlocking Period for the ReservedRestricted Shares of the 2017 Restricted Share Incentive Scheme was approved at the aforesaid meeting.A total of 50 personnel were eligible for this unlocking, with 1,629,000 restricted shares unlocked andallowed for public trading on 20 February 2019.b. The Company submitted the application to China Securities Depository and Clearing Co., Ltd.(Shenzhen branch) (hereinafter referred to as “CSDC Shenzhen”) for the retirement of the 1,775,917restricted shares under the 2017 Restricted Share Incentive Scheme that had been granted but were stillin lockup. On 3 April 2019, as confirmed by CSDC Shenzhen, the retirement of the said restricted shareshad been completed.c. The Company convened the 12th Meeting of the 3rd Board of Directors on 30 May 2019, at which theProposal for the Adjustments to the Repurchase Price for the 2017 Restricted Share Incentive Schemewas reviewed and approved. As the 2018 Annual Profit Distribution had been carried out, the repurchaseprice for the first phase of the grant was revised from RMB14.66 to RMB13.36 per share, and therepurchase price for the reserved restricted shares from RMB26.79 to RMB25.49 per share.Also, the Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2017Restricted Share Incentive Scheme was approved at the said meeting. As such, it was agreed torepurchase and retire 1,580,750 restricted shares that had been granted to 35 personnel but were still inlockup, for the reasons of their departure from the Company, business unit’s 2018 performance appraisalresult being “just so-so” or “bad”, position change, individual performance appraisal result being
“substandard” or other factors.Also, the Proposal on the Satisfaction of the Conditions for the Second Unlocking Period for the FirstPhase of the 2017 Restricted Share Incentive Scheme was approved at the aforesaid meeting. A total of100 personnel were eligible for this unlocking, with 5,564,583 restricted shares unlocked and allowed forpublic trading on 28 June 2019.d. The Company submitted the application to CSDC Shenzhen for the retirement of the 1,580,750restricted shares under the 2017 Restricted Share Incentive Scheme that had been granted but were stillin lockup. On 23 July 2019, as confirmed by CSDC Shenzhen, the retirement of the said restricted shareshad been completed.H. Overview of the 2018 Restricted Share Incentive Schemea. The Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2017 and 2018Restricted Share Incentive Schemes was approved at the 5th Meeting of the 3rd Board of Directors on21 January 2019. As such, it was agreed to repurchase and retire 2,237,500 restricted shares that hadbeen granted to 47 personnel but were still in lockup under the 2018 Restricted Share Incentive Scheme,for the reasons of their departure from the Company, position change or other factors.b. The Company submitted the application to CSDC Shenzhen for the retirement of the 2,237,500restricted shares under the first phase of the 2018 Restricted Share Incentive Scheme that had beengranted but were still in lockup. On 3 April 2019, as confirmed by CSDC Shenzhen, the retirement of thesaid restricted shares had been completed.c. In light of the authorization given at the 2017 Annual General Meeting of Shareholders, the Companyconvened the 8th Meeting of the 3rd Board of Directors on 11 March 2019, at which the Proposal onGrant of 2018 Reserved Restricted Shares to Incentive Receivers was reviewed and approved. As such,the Company agreed to grant 2,560,000 reserved restricted shares to 34 incentive receivers on 11 March2019 at the price of RMB23.59 per share.d. The Company had intended to grant 2,560,000 reserved restricted shares to 34 incentive receivers.
However, after the date of grant, two incentive receivers gave up subscription and the 140,000 reservedrestricted shares that had been granted to them were cancelled. As such, the Company actually granted2,420,000 reserved restricted shares to 32 incentive receivers. Zhonghui Certified Public AccountantsLLP issued on 27 April 2019 the Capital Verification Report ZHKY [2019] No. 2446, verifying thecorresponding increases in the Company’s registered capital and share capital and the payments thereofas of 23 April 2019, which resulted from the private placement of restricted A-shares as reserved restrictedshares to 32 personnel under the 2018 Restricted Share Incentive Scheme. As verified, as of 23 April2019, the Company had received RMB57,087,800.00 from 32 incentive receivers for reserved restrictedshare subscription, representing an increase of RMB2,420,000.00 in share capital and an increase ofRMB54,667,800.00 in capital reserves.e. As per the CSRC’s Measures for the Administration of Equity Incentives of Listed Companies, and asconfirmed by the Shenzhen Stock Exchange and CSDC Shenzhen, the reserved shares in theCompany’s 2018 Restricted Share Incentive Scheme had been registered and were allowed for publictrading on 10 May 2019.f. The Proposal on the Cancellation of the Remaining Reserved Restricted Shares for 2018 was approvedat the 10th Meeting of the 3rd Board of Directors on 18 April 2019. The Company decided to cancel theremaining 240,000 such shares as there were no other personnel that met the conditions for the restrictedshare incentives within the effective period.g. The Company convened the 12th Meeting of the 3rd Board of Directors on 30 May 2019, at which theProposal for the Adjustments to the Repurchase Price for the 2018 Restricted Share Incentive Schemewas reviewed and approved. As the 2018 Annual Profit Distribution had been carried out, the repurchaseprice for the first phase of the grant was revised from RMB27.57 to RMB26.27 per share, and therepurchase price for the reserved restricted shares from RMB23.59 to RMB22.29 per share.Also, the Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2018Restricted Share Incentive Scheme was approved at the said meeting. As such, it was agreed torepurchase and retire 1,238,500 restricted shares that had been granted to 21 personnel but were still inlockup, for the reasons of their departure from the Company, position change or other factors.
h. The Company submitted the application to CSDC Shenzhen for the retirement of the 1,238,500restricted shares under the first phase of the 2018 Restricted Share Incentive Scheme that had beengranted but were still in lockup. On 23 July 2019, as confirmed by CSDC Shenzhen, the retirement of thesaid restricted shares had been completed.I. Overview of the 2019 Restricted Share Incentive Schemea. On 18 April 2019, the Proposal on the 2019 Restricted Share Incentive Scheme (Draft) and Its Abstract(hereinafter referred to as the “2019 Restricted Share Incentive Scheme (Draft)”) was reviewed andapproved at the 10th Meeting of the 3rd Board of Directors, and the incentive receiver list for the 2019Restricted Share Incentive Scheme (Draft) was examined at the 7th Meeting of the 3rd SupervisoryCommittee.b. On 13 May 2019, the Company convened the 2018 Annual General Meeting of Shareholders, at whichthe Proposal on the 2019 Restricted Share Incentive Scheme (Draft) and Its Abstract, the Proposal onthe Implementation and Appraisal Measures for the 2019 Restricted Share Incentive Scheme, theProposal for Asking the Meeting of Shareholders to Authorize the Board to Handle Mattes Related to the2019 Restricted Share Incentive Scheme and other relevant proposals were reviewed and approved. Forthis scheme, the Company intended to grant 30,350,000 restricted shares to 451 incentive receivers withthe price being RMB27.09/share.c. In light of the authorization given at the 2018 Annual General Meeting of Shareholders, the Companyconvened the 12th Meeting of the 3rd Board of Directors on 30 May 2019, at which the Proposal for theAdjustments to the Grant Price of the 2019 Restricted Share Incentive Scheme, the Proposal for theDetermination of the Grant Date for the 2019 Restricted Share Incentive Scheme and the Proposal forthe Grant-Related Matters for the 2019 Restricted Share Incentive Scheme were reviewed and approved.As such, the Company agreed to grant 30,350,000 restricted shares to 451 incentive receivers on 30 May2019 under the said scheme with the price revised from RMB27.09 per share to RMB25.79 per share.d. The Company had intended to grant 30,350,000 restricted shares to 451 incentive receivers. However,after the date of grant, 28 incentive receivers left the Company, experienced position change or gave up
subscription, and the 1,790,000 restricted shares that had been granted to them were cancelled. As such,the Company actually granted 28,560,000 restricted shares to 423 incentive receivers. Zhonghui CertifiedPublic Accountants LLP issued on 25 June 2019 the Capital Verification Report ZHKY [2019] No. 3970,verifying the payments as of 24 June 2019 by the 423 incentive receivers for share subscription underthe 2019 Restricted Share Incentive Scheme. As verified, as of 24 June 2019, the Company had receivedRMB736,562,400.00 from the 423 incentive receivers for restricted share subscription. After the grant,the total share capital of the Company remained the same, and the restricted shares rose by 28,560,000due to the equity incentive and the unrestricted public shares decreased by 28,560,000.e. As per the CSRC’s Measures for the Administration of Equity Incentives of Listed Companies, and asconfirmed by the Shenzhen Stock Exchange and CSDC Shenzhen, the shares under the Company’s2019 Restricted Share Incentive Scheme had been registered and were allowed for public trading on 10July 2019.J. Overview of the First Global Partner Stock Ownership Schemea. The Proposal on the Extended Duration of the First Global Partner Stock Ownership Scheme wasapproved at the 7th Meeting of the 3rd Board of Directors on 22 February 2019. As proposed by theadministrative committee of this scheme, the Board agreed to extend the duration of this scheme fromfour years to five years, i.e. to 21 April 2020.b. The Company disclosed on 2 July 2019 the Announcement on the Completion of Share Clearing &Early Termination of the First Global Partner Stock Ownership Scheme. As per the relevant provisions ofthe First Core Management and Global Partner Stock Ownership Scheme of Midea Group Co., Ltd.(Draft), this scheme was completed and terminated ahead of schedule.K. Overview of the Second Global Partner Stock Ownership Schemea. The Company disclosed the Reminder of the Completion of Vesting under the Second Global PartnerStock Ownership Scheme on 30 April 2019. As such, the final 30% installment of shares under the SecondGlobal Partner Stock Ownership Scheme had been vested, marking the completion of this scheme. Atotal of 1,684,540 shares had been vested in the Company’s incumbent senior management (Fang
Hongbo, Yin Bitong, Gu Yanmin, Wang Jianguo and Wang Jinliang), and a total of 1,179,170 shares hadbeen vested in other incentive receivers, totaling 2,863,710 shares. The remaining unvested 1,010,880shares and the corresponding dividends (if any) had been taken back by the administrative committee ofthis scheme for no compensation, and would be sold at a proper timing before this scheme expired. Theearnings on the sale would belong to the Company.L. Overview of the Third Global Partner Stock Ownership Schemea. The Company disclosed the Announcement on the Share Allocation and Vesting under a Partner StockOwnership Scheme on 22 May 2019. As such, the second 30% installment of shares under the ThirdGlobal Partner Stock Ownership Scheme was vested. A total of 478,724 shares were vested in theCompany’s incumbent senior management (Fang Hongbo, Yin Bitong, Gu Yanmin, Wang Jianguo, XiaoMingguang and Wang Jinliang), and a total of 215,640 shares were vested in other incentive receivers.Due to certain incentive receivers’ position change or departure from the Company before the secondvesting period, the unvested 138,005.5 shares of the second installment of shares under the Third GlobalPartner Stock Ownership Scheme and the corresponding dividends (if any) had been taken back by theadministrative committee of this scheme for no compensation, and would be sold at a proper timing beforethis scheme expired. The earnings on the sale would belong to the Company.M. Overview of the Fourth Global Partner Stock Ownership Schemea. The Company’s performance requirement for the Fourth Global Partner Stock Ownership Scheme isa weighted average ROE not lower than 20% for 2018. According to the 2018 Annual Auditor’s Report forMidea Group Co., Ltd. issued by PricewaterhouseCoopers China (LLP), this ROE requirement has beenmet at 25.66%.b. The Company disclosed the Announcement on the Share Allocation and Vesting under a Partner StockOwnership Scheme on 22 May 2019. A total of 3,318,540 of the Company’s shares were purchased forthis scheme. As per the Fourth Global Partner Stock Ownership Scheme (Draft), the administrativecommittee of this scheme confirmed the number of shares to be granted to each partner, with the totalshares to be granted being 2,714,700 shares (1,564,200 shares for senior management Fang Hongbo,
Yin Bitong, Gu Yanmin, Wang Jianguo and Wang Jinliang, and the other 1,150,500 shares for other coremanagement personnel).c. Due to certain incentive receivers’ position change or departure from the Company in the duration ofthe Fourth Global Partner Stock Ownership Scheme, there are remained 603,840 shares unallocatedunder this scheme. As per the Fourth Global Partner Stock Ownership Scheme (Draft), these unallocatedshares and the corresponding dividends (if any) had been taken back by the administrative committee ofthis scheme for no compensation, and would be sold at a proper timing before this scheme expired. Theearnings on the sale would belong to the Company.N. Overview of the First Business Partner Stock Ownership Schemea. The Company’s performance requirement for the First Business Partner Stock Ownership Scheme isa weighted average ROE not lower than 20% for 2018. According to the 2018 Annual Auditor’s Report forMidea Group Co., Ltd. issued by PricewaterhouseCoopers China (LLP), this ROE requirement has beenmet at 25.66%.b. The Company disclosed the Announcement on the Share Allocation and Vesting under a Partner StockOwnership Scheme on 22 May 2019. A total of 1,779,300 of the Company’s shares were purchased forthis scheme. As per the First Business Partner Stock Ownership Scheme (Draft), the administrativecommittee of this scheme confirmed the number of shares to be granted to each partner, with the totalshares to be granted being 1,151,687 shares (182,566 shares for senior management Zhang Xiaoyi, XiaoMingguang, Hu Ziqiang, Liu Min and Jiang Peng, and the other 969,121 shares for other coremanagement personnel).c. Due to certain incentive receivers’ position change or departure from the Company in the duration ofthe First Business Partner Stock Ownership Scheme, there are remained 627,613 shares unallocatedunder this scheme. As per the First Business Partner Stock Ownership Scheme (Draft), these unallocatedshares and the corresponding dividends (if any) had been taken back by the administrative committee ofthis scheme for no compensation and belonged to the Company. In this case, the Company still had toreturn the performance bonuses corresponding to these unallocated shares under this scheme to the
relevant senior management.O. Overview of the Fifth Global Partner Stock Ownership Schemea. The Fifth Core Management and Global Partner Stock Ownership Scheme was approved at the 10thMeeting of the 3rd Board of Directors on 18 April 2019 and the 2018 Annual General Meeting ofShareholders on 13 May 2019. The shares for this scheme would be obtained from the Company’ssecurities account for repurchase in a non-transaction transfer and put into the securities account of“Midea Group Co., Ltd.—the Fifth Employee Stock Ownership Scheme” for management.b. As of 30 June 2019, the Company cumulatively repurchased 40,014,998 shares (0.5764% of theCompany’s total share capital as of that date) through centralized bidding in its securities account forrepurchase at an average price of RMB49.79/share (RMB1,992,451,807.06 in total, exclusive of tradingfees), which was funded by the Company’s special fund of RMB185.82 million for this scheme. With thesaid average repurchase price as the price for transferring the shares in the repurchase securities accountto the securities account of the Fifth Global Partner Stock Ownership Scheme, the shares to betransferred would be 3,732,075.c. According to the Confirmation of Securities Transfer received by the Company from CSDC Shenzhenon 9 July 2019, 3,732,075 shares (0.0537% of the Company’s total share capital) had been transferredfrom the Company’s securities account for repurchase to the securities account of “Midea Group Co.,Ltd.—the Fifth Employee Stock Ownership Scheme” in a non-transaction transfer on 8 July 2019. Asrequired by the Fifth Global Partner Stock Ownership Scheme (Draft), the shares transferred shall belocked up for no less than 12 months from the disclosure date of the announcement on the completion ofthe transfer from the Company’s securities account for repurchase. Therefore, the shares transferred tothe securities account of the Fifth Global Partner Stock Ownership Scheme would be locked up from 11July 2019 to 10 July 2020.P. Overview of the Second Business Partner Stock Ownership Schemea. The Second Core Management and Business Partner Stock Ownership Scheme was approved at the10th Meeting of the 3rd Board of Directors on 18 April 2019 and the 2018 Annual General Meeting of
Shareholders on 13 May 2019. The shares for this scheme would be obtained from the Company’ssecurities account for repurchase in a non-transaction transfer and put into the securities account of“Midea Group Co., Ltd.—the Sixth Employee Stock Ownership Scheme” for management.b. The Second Business Partner Stock Ownership Scheme was funded by the Company’s special fundand the performance bonuses for senior management of RMB93 million. With the average repurchaseprice as the price for transferring the shares in the repurchase securities account to the securities accountof the Second Business Partner Stock Ownership Scheme, the shares to be transferred would be1,867,845.c. According to the Confirmation of Securities Transfer received by the Company from CSDC Shenzhenon 15 July 2019, 1,867,845 shares (0.0269% of the Company’s total share capital) had been transferredfrom the Company’s securities account for repurchase to the securities account of “Midea Group Co.,Ltd.—the Sixth Employee Stock Ownership Scheme” in a non-transaction transfer on 12 July 2019. Asrequired by the Second Business Partner Stock Ownership Scheme (Draft), the shares transferred shallbe locked up for no less than 12 months from the disclosure date of the announcement on the completionof the transfer from the Company’s securities account for repurchase. Therefore, the shares transferredto the securities account of the Second Business Partner Stock Ownership Scheme would be locked upfrom 16 July 2019 to 15 July 2020.
16. Significant Related Transactions
16.1 Related transactions arising from routine operation
√Applicable □N/A
| Related transaction party | Relation | Type of the transaction | Contents of the transaction | Pricing principle | Transaction price | Transaction amount (RMB’000) | Proportion in the total amounts of transaction of the same kind | Approved transaction line (RMB’000) | Over approved line | Mode of settlement | Obtainable market price for the transaction of the same kind | Disclosure date | Index to the disclosed information |
| (%) | |||||||||||||
| Infore Environment Technology Group Co., Ltd. | Controlled by family member of Company’s actual controller | Procurement | Procurement of goods | Market price | - | 1,163,650 | 0.64% | 1,500,000 | No | Payment after delivery | - | 2019-4-20 | www.cninfo.com.cn |
| Orinko Plastics Group | Controlled by family member of Company’s actual controller | Procurement | Procurement of goods | Market price | - | 1,159,700 | 0.63% | 1,700,000 | No | Payment after delivery | - | 2019-4-20 | www.cninfo.com.cn |
| Midea Real Estate Holding Limited | Controlled by Company’s actual controller | Sale | Sale of goods | Market price | 105,380 | 0.04% | 150,000 | No | Payment after delivery | - | 2019-4-20 | www.cninfo.com.cn | |
| Total | -- | -- | 2,428,730 | -- | 3,350,000 | -- | -- | -- | -- | ||||
| Details of any sales return of a large amount | Zero | ||||||||||||
| Give the actual situation in the Reporting Period (if any) where a forecast had been made for the total amounts of routine related-party transactions by type to occur in the current period | The line for routine related transactions between the Company and the related parties and their subsidiaries did not exceed the total amount of routine related transactions estimated by the Company by type. | ||||||||||||
| Reason for any significant difference between the transaction price and the market reference price (if applicable) | N/A | ||||||||||||
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 transactions 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
No such cases in the Reporting Period.
16.5 Other significant related transactions
√Applicable □N/A
a. The Proposal for Related Transactions Regarding Making Deposits in and Obtaining Loans fromShunde Rural Commercial Bank in 2019 was reviewed and approved at the 10th Meeting of the 3rd Boardof Directors held on 18 April 2019 and later at the 2018 Annual General Meeting of Shareholders held on13 May 2019.In 2019, the deposit balance of the Company in Shunde Rural Commercial Bank shall not exceed RMB5billion and neither shall the credit balance provided by the bank to the Company exceed RMB5 billion.b. In order to diversify the Group’s portfolio of long-term assets, as well as promote technologicalinnovation and development in emerging industries, Midea Innovation Investment Co., Ltd., a wholly-owned subsidiary of the Company, took part in the establishment of an industry investment fund,Guangdong Midea Smart Technology Industry Investment Fund (LLP), in January 2019 as one of thelimited partners.In order to further optimize its business layout, foster quality programs for its strategies and business,
and boost its comprehensive competitiveness, the Company intended to increase the subscribed capitalcontribution by RMB300 million via Midea Innovation Investment, bringing the cumulatively subscribedcapital contribution to the aforesaid industry investment fund to RMB600 million.Index to the announcement about the said related transactions disclosed
| Title of announcement | Disclosure date | Disclosure website |
| Announcement on Related Transactions Regarding Making Deposits in and Obtaining Loans from Shunde Rural Commercial Bank in 2019 | 20/04/2019 | www.cninfo.com.cn |
| Announcement on A Wholly-Owned Subsidiary Taking Part in the Establishment of an Industry Investment Fund and the Related Transaction | 09/01/2019 | www.cninfo.com.cn |
| Announcement on A Wholly-Owned Subsidiary Increasing the Subscribed Capital Contribution to an Industry Investment Fund and the Related Transaction | 11/01/2020 | www.cninfo.com.cn |
17.2.1 Guarantees provided
Unit: RMB'000
| Guarantees provided by the Company and its subsidiaries for external parties (excluding those for subsidiaries) | ||||||||
| Guaranteed party | Disclosure date of the guarantee line announcement | Line of guarantee | Actual occurrence date (date of agreement signing) | Actual guarantee amount | Type of guarantee | Term of guarantee | Due or not | Guarantee for a related party or not |
| No such cases | ||||||||
| Total external guarantee line approved during the Reporting Period (A1) | 0 | Total actual external guarantee amount during the Reporting Period (A2) | 0 | |||||
| Total approved external guarantee line at the end of the Reporting Period (A3) | 0 | Total actual external guarantee balance at the end of the Reporting Period (A4) | 0 | |||||
| Guarantees provided by the Company for its subsidiaries | ||||||||
| Guaranteed party | Disclosure date of the guarantee line announcement | Line of guarantee | Actual occurrence date (date of agreement signing) | Actual guarantee amount | Type of guarantee | Term of guarantee | Due or not | Guarantee for a related party or not |
| Midea Group Finance Co., Ltd. | 2019-4-20 | 9,900,000 | - | - | Joint liability | One year | No | No |
| GD Midea Air-Conditioning Equipment Co.,Ltd. | 2019-4-20 | 12,426,000 | 2019-1-10 | 1,147,910 | Joint liability | One year | No | No |
| Guangzhou Hualing Refrigerating Equipment Co.,ltd. | 2019-4-20 | 1,163,000 | - | - | Joint liability | One year | No | No |
| Foshan Midea Carrier Air-Conditioning Equipment Co., Ltd. | 2019-4-20 | 418,000 | - | - | Joint liability | One year | No | No |
| Guangdong Midea Precision Molding Technology Co., Ltd. | 2019-4-20 | 98,400 | - | - | Joint liability | One year | No | No |
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | 2019-4-20 | 3,854,000 | 2019-1-10 | 756,060 | Joint liability | One year | No | No |
| Guangdong Witol Vacuum Electronic Manufacture Co.,Ltd | 2019-4-20 | 120,000 | 2019-1-16 | 16,470 | Joint liability | One year | No | No |
| Guangdong De Yi Jie Appliances Co., Ltd. | 2019-4-20 | 360,000 | - | - | Joint liability | One year | No | No |
| GD Midea Heating & Ventilating Equipment Co., Ltd. | 2019-4-20 | 1,789,800 | 2019-1-9 | 117,840 | Joint liability | One year | No | No |
| Guangdong Midea-SIIX Electronics Co., Ltd. | 2019-4-20 | 172,000 | 2019-1-31 | 70 | Joint liability | One year | No | No |
| Guangdong Midea Commercial Air-Conditioning Equipment Co., Ltd. | 2019-4-20 | 200,000 | - | - | Joint liability | One year | No | No |
| Guangdong Midea Consumer Electric Manufacturing Co., Ltd. | 2019-4-20 | 385,000 | 2019-1-10 | 267,360 | Joint liability | One year | No | No |
| Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd. | 2019-4-20 | 540,000 | 2019-1-23 | 589,430 | Joint liability | One year | No | No |
| GD Midea Environment Appliances Mfg. Co.,Ltd. | 2019-4-20 | 752,000 | 2019-1-10 | 1,630 | Joint liability | One year | No | No |
| Guangdong Midea Cuchen Company Ltd. | 2019-4-20 | 54,000 | - | - | Joint liability | One year | No | No |
| GD Midea Caffitaly Coffee Machine Manufacturing Co., Ltd. | 2019-4-20 | 30,000 | - | - | Joint liability | One year | No | No |
| Main Power Inno Tech (Shenzhen) Manufacturing Co., Ltd. | 2019-4-20 | 24,000 | - | - | Joint liability | One year | No | No |
| Foshan Shunde Midea Washing Appliances Manufacturing Co., Ltd. | 2019-4-20 | 2,080,000 | 2019-1-10 | 120,070 | Joint liability | One year | No | No |
| Guangdong Midea Kitchen & Bath Appliances Manufacturing Co., Ltd. | 2019-4-20 | 24,000 | - | - | Joint liability | One year | No | No |
| Foshan Shunde Midea Water Dispenser Manufacturing Company Limited | 2019-4-20 | 694,000 | 2019-3-5 | 2,430 | Joint liability | One year | No | No |
| Foshan Midea Chungho Water Purification Equipment. Co., Ltd. | 2019-4-20 | 81,000 | - | - | Joint liability | One year | No | No |
| Guangdong Meizhi Compressor Limited | 2019-4-20 | 150,000 | 2019-1-16 | 1,700 | Joint liability | One year | No | No |
| Guangdong Meizhi Precision-Manufacturing Co., Ltd | 2019-4-20 | 80,000 | 2019-1-10 | 1,127,220 | Joint liability | One year | No | No |
| Guangdong Welling Motor Manufacturing Co., Ltd. | 2019-4-20 | 192,000 | 2019-1-4 | 412,470 | Joint liability | One year | No | No |
| Foshan Welling Washer Motor Manufacturing Co., Ltd. | 2019-4-20 | 222,000 | 2019-2-19 | 13,730 | Joint liability | One year | No | No |
| Guangdong Midea Environmental | 2019-4-20 | 46,000 | - | - | Joint liability | One | No | No |
| Technologies Co., Ltd. | year | |||||||
| Guangdong Welling Auto Parts Co. , Ltd. | 2019-4-20 | 40,000 | - | - | Joint liability | One year | No | No |
| Ningbo Midea United Materials Supply Co. Ltd. | 2019-4-20 | 924,000 | 2019-1-25 | 147,330 | Joint liability | One year | No | No |
| Guangzhou Kaizhao Commercial and Trading Co.,Ltd | 2019-4-20 | 70,400 | - | - | Joint liability | One year | No | No |
| Guangdong Midea Intelligent Robotics Co., Ltd. | 2019-4-20 | 50,000 | - | - | Joint liability | One year | No | No |
| Servotronix Motion Technology Development (Shenzhen) Ltd. | 2019-4-20 | 10,000 | - | - | Joint liability | One year | No | No |
| Midea Group E-Commerce Co., Ltd. | 2019-4-20 | 130,000 | - | - | Joint liability | One year | No | No |
| Annto Logistics Technology Co., Ltd. | 2019-4-20 | 70,000 | 2019-2-19 | 63,580 | Joint liability | One year | No | No |
| Guangdong Midea Smart Link Technologies Co., Ltd. | 2019-4-20 | 9,200 | - | - | Joint liability | One year | No | No |
| GD Midea Group Wuhu Air-Conditioning Equipment Co.,Ltd. | 2019-4-20 | 2,000,000 | 2019-1-29 | 500,720 | Joint liability | One year | No | No |
| Wuhu Maty Air-Conditioning Equipment Co., Ltd | 2019-4-20 | 326,000 | - | - | Joint liability | One year | No | No |
| Wuhu Midea Kitchen Appliances Manufacturing Co., Ltd. | 2019-4-20 | 164,000 | - | - | Joint liability | One year | No | No |
| Hefei Hualing Co., Ltd. | 2019-4-20 | 914,000 | 2019-4-30 | - | Joint liability | One year | No | No |
| Hubei Midea Refrigerator Co., Ltd. | 2019-4-20 | 250,800 | 2019-5-21 | - | Joint liability | One year | No | No |
| Hefei Midea Refrigerator Co., Ltd. | 2019-4-20 | 920,000 | - | - | Joint liability | One year | No | No |
| Guangzhou Midea Hualing Refrigerator Co., Ltd. | 2019-4-20 | 1,154,000 | - | - | Joint liability | One year | No | No |
| Hefei Midea Heating & Ventilating Equipment Co., Ltd. | 2019-4-20 | 548,000 | 2019-3-28 | - | Joint liability | One year | No | No |
| Hefei Midea-SIIX Electronics Co.,Ltd. | 2019-4-20 | 230,000 | 2019-1-29 | - | Joint liability | One year | No | No |
| Hefei M&B Air Conditioning Equipment Co., Ltd. | 2019-4-20 | 40,800 | - | - | Joint liability | One year | No | No |
| Wuhu Midea Life Appliances Mfg Co., Ltd. | 2019-4-20 | 200,000 | - | - | Joint liability | One year | No | No |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | 2019-4-20 | 1,761,600 | 2019-3-1 | 5,900 | Joint liability | One year | No | No |
| Anhui Meizhi Compressor Co., Ltd. | 2019-4-20 | 30,000 | 2019-4-22 | - | Joint liability | One year | No | No |
| Anhui Meizhi Precision Manufacturing Co., Ltd. | 2019-4-20 | 72,000 | 2019-2-2 | 14,580 | Joint liability | One year | No | No |
| Welling (Wuhu) Motor Manufacturing Co., Ltd. | 2019-4-20 | 24,000 | - | - | Joint liability | One year | No | No |
| Wuhu Welling Motor Sales Co., Ltd. | 2019-4-20 | 1,200,000 | - | - | Joint liability | One year | No | No |
| Wuxi Little Swan Company Limited | 2019-4-20 | 3,109,600 | 2019-6-19 | 490 | Joint liability | One year | No | No |
| Hefei Midea Laundry Appliance Co., Ltd. | 2019-4-20 | 1,598,960 | 2019-3-15 | 269,180 | Joint liability | One year | No | No |
| Jiangsu Midea Cleaning Appliances Co., Ltd | 2019-4-20 | 510,000 | 2019-1-1 | 3,000 | Joint liability | One year | No | No |
| Midea Group Wuhan Refrigeration Equipment Co.,Ltd. | 2019-4-20 | 7,200 | - | - | Joint liability | One year | No | No |
| Handan Midea Air-Conditioning Equipment Co.,Ltd. | 2019-4-20 | 120,000 | 2019-2-22 | 1,830 | Joint liability | One year | No | No |
| Chongqing Midea General Refrigeration Equipment Co., Ltd. | 2019-4-20 | 148,000 | 2019-4-16 | 1,860 | Joint liability | One year | No | No |
| Midea Intelligent Lighting & Controls Technology Co., Ltd. | 2019-4-20 | 250,000 | 2019-3-28 | 580 | Joint liability | One year | No | No |
| Changzhou Welling Motor Manufacturing Co., Ltd. | 2019-4-20 | 24,000 | - | - | Joint liability | One year | No | No |
| Huaian Welling Motor Manufacturing Co., Ltd. | 2019-4-20 | 20,000 | 2019-2-2 | - | Joint liability | One year | No | No |
| Zhejiang Meizhi Compressor Co., Ltd. | 2019-4-20 | 2,000,000 | 2019-1-10 | - | Joint liability | One year | No | No |
| Ningbo Annto Logistics Co., Ltd. | 2019-4-20 | 15,000 | - | - | Joint liability | One year | No | No |
| Reis Robotics (Kunshan) Co., Ltd. | 2019-4-20 | 120,750 | - | - | Joint liability | One year | No | No |
| KUKA Systems (China) CO., Ltd. | 2019-4-20 | 145,000 | - | - | Joint liability | One year | No | No |
| KUKA Robotics Manufacturing China Co.,Ltd | 2019-4-20 | 115,000 | - | - | Joint liability | One year | No | No |
| KUKA Robotics (Shanghai) Co.,Ltd. | 2019-4-20 | 115,000 | - | - | Joint liability | One year | No | No |
| Shanghai Swisslog Healthcare Co., Ltd. | 2019-4-20 | 8,000 | - | - | Joint liability | One year | No | No |
| Swisslog (Shanghai) Co., Ltd. | 2019-4-20 | 110,000 | - | - | Joint liability | One year | No | No |
| Shanghai Swisslog Logistics Automation Co. Ltd. | 2019-4-20 | 60,000 | - | - | Joint liability | One year | No | No |
| Midea International Corporation Company Limited | 2019-4-20 | 11,480,000 | 2019-4-23 | 6,312,120 | Joint liability | One year | No | No |
| Midea International Trading Company Limited | 2019-4-20 | 2,222,430 | 2019-1-1 | 279,670 | Joint liability | One year | No | No |
| Midea Investment Development Company Limited | 2019-4-20 | 4,900,000 | 2019-1-1 | 4,575,160 | Joint liability | One year | No | No |
| Welling International Hong Kong Ltd | 2019-4-20 | 126,000 | - | - | Joint liability | One year | No | No |
| Midea Electric Trading (Singapore) Co.,Pte. Ltd. | 2019-4-20 | 5,384,000 | 2019-1-3 | 634,490 | Joint liability | One year | No | No |
| Toshiba Lifestyle Products & Services Corporation and its subsidiaries | 2019-4-20 | 4,608,000 | 2019-1-1 | 593,500 | Joint liability | One year | No | No |
| Midea Consumer Electric Vietnam | 2019-4-20 | 112,000 | 2019-2-13 | 41,540 | Joint liability | One year | No | No |
| Concepcion Midea Inc. | 2019-4-20 | 112,000 | - | - | Joint liability | One year | No | No |
| Midea Italia S.r.l. | 2019-4-20 | 140,000 | - | - | Joint liability | One year | No | No |
| Midea Scott & English Electronics Sdn. Bhd. | 2019-4-20 | 206,500 | - | - | Joint liability | One year | No | No |
| Midea Mexico, S. DE R.L. DE C.V. | 2019-4-20 | 105,000 | - | - | Joint liability | One year | No | No |
| Midea Electric Trading (Thailand) Co., Ltd. | 2019-4-20 | 105,000 | - | - | Joint liability | One year | No | No |
| Midea America Corp | 2019-4-20 | 669,000 | - | - | Joint liability | One year | No | No |
| Pt. Midea Planet Indonesia | 2019-4-20 | 56,000 | - | - | Joint liability | One year | No | No |
| Midea Electrics Egypt | 2019-4-20 | 175,000 | - | - | Joint liability | One year | No | No |
| Midea Europe GmbH | 2019-4-20 | 70,000 | - | - | Joint liability | One year | No | No |
| Servotronix Motion Control Ltd. | 2019-4-20 | 34,000 | - | - | Joint liability | One year | No | No |
| Midea Austria GmbH | 2019-4-20 | 35,000 | - | - | Joint liability | One year | No | No |
| Clivet SPA | 2019-4-20 | 73,500 | - | - | Joint liability | One year | No | No |
| Clivet Mideast Fzco | 2019-4-20 | 31,500 | - | - | Joint liability | One year | No | No |
| Midea Electric Netherland (I) | 2019-4-20 | 29,600,000 | - | - | Joint liability | One year | No | No |
| Total guarantee line for subsidiaries approved during the Reporting Period (B1) | 115,715,440 | Total actual guarantee amount for subsidiaries during the Reporting Period (B2) | 42,090,640 | |||||
| Total approved guarantee line for subsidiaries at the end of the Reporting Period (B3) | 115,715,440 | Total actual guarantee balance for subsidiaries at the end of the Reporting Period (B4) | 40,506,410 | |||||
| Guarantees between subsidiaries | ||||||||
| Guaranteed party | Disclosure date of the guarantee line announcement | Line of guarantee | Actual occurrence date (date of agreement signing) | Actual guarantee amount | Type of guarantee | Term of guarantee | Due or not | Guarantee for a related party or not |
| No such cases | ||||||||
| Total guarantee amount (total of the above-mentioned three kinds of guarantees) | ||||||||
| Total guarantee line approved during the Reporting Period (A1+B1+C1) | 115,715,440 | Total actual guarantee amount during the Reporting Period (A2+B2+C2) | 42,090,640 | |||||
| Total approved guarantee line at the end of the Reporting Period (A3+B3+C3) | 115,715,440 | Total actual guarantee balance at the end of the Reporting Period (A4+B4+C4) | 40,506,410 | |||||
| Proportion of the total actual guarantee amount (A4+B4+C4) in net assets of the Company | 39.84% | |||||||
| Of which: | ||||||||
| Amount of guarantees provided for shareholders, the actual controller and their related parties (D) | 0 |
| Amount of debt guarantees provided directly or indirectly for entities with a liability-to-asset ratio over 70% (E) | 33,472,060 |
| Portion of the total guarantee amount in excess of 50% of net assets (F) | 0 |
| Total amount of the three kinds of guarantees above (D+E+F) | 33,472,060 |
| Joint responsibilities possibly borne for undue guarantees (if any) | N/A |
| Provision of external guarantees in breach of the prescribed procedures (if any) | N/A |
government, the community and other stakeholders, the Company sticks to harmonious common growthwith them, honors its commitments, abides by law and moral principles, and continue to contribute to thesustainable development of the society and the environment. For further information, see the Company’sCorporate Social Responsibility Report 2019 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 yearIn 2019, the decisive year for the battle against poverty, Midea Group readily responded to thegovernment’s poverty alleviation policy and took targeted poverty alleviation as the top priority in fulfillingits social responsibility.In January 2019, Midea donated RMB10 million to the Beijiao Charity Federation for the 10th consecutiveyear, which were used for poverty alleviation, education and other charitable activities in the localcommunity.In June 2019, Midea made another donation of RMB10 million for improving education, medical care andhousing in poor villages of Guangdong Province. This was the 10th consecutive year of Midea’sparticipation in this event since the “Guangdong Poverty Alleviation Day” was founded in 2010.In June 2019, in a charity event held by China Social Welfare Foundation and ShenZhen DreamInspiration Foundation, Midea made a donation of RMB200,000 to the “Support Education Project” toequip schools in the poor areas of Guizhou Province with professional teachers, with a view to alleviatingthe shortage of educational resources in remote villages.B. Targeted poverty alleviation plans for the coming futureIn 2020, in order to win the decisive battle against poverty, Midea Group will readily respond to the callof the CPC Committee and the Government of Guangdong Province to make further efforts with greaterdetermination and devotion, overcome the impact of the COVID-19 outbreak in a continuous and seriousmanner, and help accomplish the great cause of poverty alleviation, which is of enormous significance tothe Chinese people and even all mankind. Midea Group will donate yet another RMB10 million to theBeijiao Charity Federation to improve education, medical care, housing, etc. for the impoverished people.
18.3 Environmental protection
Whether the Company or any of its subsidiaries is declared a heavily polluting business by the environmental protection authorities
√hYes □ N/A
| Name of the Company or subsidiary | Major pollutants | Discharge method | Number of discharge outlets | Distribution of discharge outlets | Concentration of the discharge (unit: mg/m?) | Pollutant discharge standards | Total discharge (ton) | Approved total discharge (ton) | Excess discharge |
| Foshan Shunde Midea Washing Appliances Manufacturing Co., Ltd. (the Washing and Sterilizing Appliances Park) | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | The southern side of 2# plant in the Washing and Sterilizing Appliances Park | 52 | The discharge limits of water pollutants in Guangdong （DB44/26-2001） | 0.22 | 0.228 | No |
| SS | 24 | 0.10 | / | No | |||||
| BOD5 | 16 | 0.07 | / | No | |||||
| Petroleum | 3.5 | 0.1 | / | No | |||||
| Benzene | High altitude discharge after being treated by waste gas treatment station | 1 | The southern side of 2# plant in the Washing and Sterilizing Appliances Park | 0.36 | Emission standard of volatile organic compounds for furniture manufacturing（DB44/814-2010） | 0.04 | / | No | |
| Toluene and xylene | 5.98 | 0.62 | / | No | |||||
| VOCS | 19.2 | 1.11 | No | ||||||
| Foshan Shunde Midea Washing | COD | Discharge to the municipal sewage system after being treated by wastewater treatment system | 1 | The northeastern side of 2# plant in the Third Industrial Zone | 61 | The discharge standard of water pollutants for electroplating in Guangdong (DB441597- | 0.72 | 2.41 | No |
| SS | 11 | 0.13 | / | No | |||||
| BOD5 | 20 | 0.26 | / | No | |||||
| Petroleum | 0.3 | 0.003 | / | No | |||||
| Appliances Manufacturing Co., Ltd. (the Range Hood and Stove Park) | Ammonia nitrogen | 0.5 | 2015) | 0.04 | 0.45 | No | |||
| Benzene | High altitude discharge after being treated by waste gas treatment station | 4 | The northern and eastern sides of 2# plant in the Third Industrial Zone | 0.10 | Emission standard of air pollutants for industrial kiln and furnace (GB-9078-1996) / The emission limit of gas pollutants in Guangdong（DB-44/27-2007) | 0.008 | / | No | |
| Toluene and xylene | 3.43 | 0.25 | / | No | |||||
| VOCS | 10.9 | 0.63 | / | No | |||||
| Soot | 8.1 | 0.03 | / | No | |||||
| Sulfur dioxide | Less than the limit of 3 | 0.01 | 0.114 | No | |||||
| Nitrogen oxide | 24 | 0.13 | 0.726 | No | |||||
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | Western gate of the Wuhu plant | 198 | Integrated wastewater discharge standard（GB8978-1996） | 1,1642.61 | No | |
| Ammonia nitrogen | 1.35 | 11.20 | / | No | |||||
| BOD5 | 48 | 398.21 | / | No | |||||
| Petroleum | 0.26 | 2.16 | / | No | |||||
| Soot | 15m high altitude discharge | 45 | Plants | <20 | Emission standard of air pollutants for boiler（GB13271-2014） | 666.20 | / | No | |
| Sulfur dioxide | <50 | 476.90 | 1,658 | No | |||||
| Nitrogen oxide | <150 | 1,532.20 | 4,074.5 | No | |||||
| Soot | High altitude discharge after being treated by waste gas treatment station | <50 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 3,361.24 | 35,049 | No | |||
| Xylene | <10 | 174.16 | / | No | |||||
| VOCs | <20 | 224.90 | 29,650 | No | |||||
| Hefei Midea Heating & Ventilating Equipment Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | The eastern side of 1# plant | 97 | Implementation of the takeover standards of the Western Hefei Group wastewater treatment plant and integrated wastewater discharge standard (GB8978-1996) third-level | 955 | 3,920 | No |
| Ammonia nitrogen | Discharge after being treated by wastewater treatment system and reaching the standard | 19.7 | 380 | 390 | No | ||||
| Nitrogen oxide | High altitude discharge after being treated by waste gas treatment station | 1 | 2# plant | 5 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 98 | / | No | |
| NMHC | 11 | 3 outlets at 1# plant, 4 outlets at 2# plant, 2 outlets at 3# plant and 2 outlets at 4# plant | 28.97 | 968 | / | No | |||
| Soot | 11 | 3 outlets at 1# plant, 4 outlets at 2# plant, 2 outlets at 3# plant and 2 outlets at 4# plant | 101.5 | 3,400 | / | No | |||
| Hefei Midea Laundry Appliance Co., Ltd. (monitored by the | COD | Discharge after being treated by wastewater treatment station | 1 | The eastern side of wastewater treatment station | 107 | Implementation of the takeover standards of the Western Hefei Group wastewater treatment plant and integrated wastewater discharge standard (GB8978-1996) third-level | 36,000 | 58,150 | No |
| Ammonia nitrogen | The eastern side of wastewater treatment station | 8.48 | 1,800 | / | No | ||||
| municipal government) | Particles | 15m high altitude discharge after being treated by cyclone + filter cartridge dust collector | 2 | 1 outlet at 2# plant, 1 outlet at 6# plant | ＜20 | Integrated emission standards for atmospheric pollutants GB16297-1996 second-level | 3,168 | / | No |
| Particles | 15m high altitude discharge after being treated by water spraying + dedusting + UV photolysis + activated carbon | 1 | 1 outlet at 3# plant | ＜20 | 1,267.2 | / | No | ||
| NMHC | 1.46 | 92.51 | / | No | |||||
| NMHC | 15m high altitude discharge after being treated by waste gas treatment station | 3 | 3 outlets at 2# plant | 2.25 | 1,995.84 | / | No | ||
| NMHC | 15m high altitude discharge after being treated by waste gas treatment station | 6 | 6 outlets at 6# plant | 1.11 | 3692.30 | / | No | ||
| NMHC | 15m high altitude discharge after being treated by low-temperature plasma | 2 | 1 outlet at 1# plant, 1 outlet at 5# plant | 2.215 | 122.80 | / | No | ||
| NMHC | 15m high altitude discharge after being treated by photocatalyst and activated carbon | 1 | 1 outlet at 3# plant | 1.27 | 140.82 | / | No | ||
| GD Midea Air-Conditioning Equipment Co.,Ltd. | COD | Discharge after being treated by wastewater treatment station | 1 | The southeastern side of 4# plant | 46 | The discharge standard of water pollutants for electroplating (DB441597-2015) chart 2 PRD standard | 10.00 | 9,590 | No |
| Ammonia nitrogen | 0.22 | 0.05 | 1,510 | No | |||||
| SS | 28 | 6.05 | / | No | |||||
| Petroleum | 1.55 | 0.33 | / | No | |||||
| COD | Discharge after being treated by | 1 | The eastern side of 2# | 87 | The discharge limits of | 3.90 | 1,160 | No | |
| SS | wastewater treatment station | plant | 25 | water pollutants（DB44/26-2001） | 0.90 | / | No | ||
| LAS | 0.18 | 0.06 | / | No | |||||
| Petroleum | 1.84 | 0.61 | / | No | |||||
| VOCs (dusting） | 15m high altitude discharge after being treated by spray tower + activated carbon | 3 | 4# plant | 20 | Emission standard of volatile organic compounds for furniture manufacturing (DB44/814-2010) the second time period | 548.00 | 5,930 | No | |
| VOCs（screen printing） | 15m high altitude discharge after being treated by green facilities | 4 | 1#, 5#, 9#, 11# plants | 4.6 | Emission standard of volatile organic compounds for printing industry（DB44/815-2010) | 312.00 | No | ||
| NMHC（evaporator & condenser） | 15m high altitude discharge after being treated by green facilities | 6 | 2#，5# plants | 10 | Emission limits of air pollutants（DB44/27-2001）the second time period | 590.00 | / | No | |
| NMHC（electronic) | 15m high altitude discharge after being treated by catalytic combustion | 2 | 10# plant | 6.2 | 134.00 | / | No | ||
| Wuhu Maty Air-Conditioning Equipment Co., Ltd | COD | Discharge after being treated by wastewater treatment station | 2 | The northern side of the Maty Park, the eastern side of the Sheet Metal Park | 82.5 | Integrated wastewater discharge standard（GB8978-1996）chart 4 third-level | 12403.7 | / | No |
| SS | Discharge after being treated by wastewater treatment station | 2 | 21.5 | 3232.5 | / | No | |||
| BOD | Discharge after being treated by wastewater treatment station | 2 | 29.5 | 4435.3 | / | No | |||
| Ammonia nitrogen | Discharge after being treated by wastewater treatment station | 2 | 8.9 | 1338.1 | / | No | |||
| Petroleum | Discharge after being treated by wastewater treatment station | 2 | 1.81 | 272.1 | / | No | |||
| Particles | 15m high altitude discharge after being treated by green facilities | 6 | 2# plant of the Maty Park, 1# plant of the Sheet Metal Park | <20 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 1.55 | / | No | |
| VOCs | 16m high altitude discharge after being treated by green facilities | 8 | 2# and 3# plants of the Maty Park, 1# plant of the Sheet Metal Park | 4.34 | Emission Control Standard for Industrial Enterprises Volatile Organic Compounds (DB13-2322-2016) | 0.31 | / | No | |
| Nox | 17m high altitude discharge after being treated by green facilities | 2 | 1# plant of the Sheet Metal Park | 142 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 10.92 | / | No | |
| SO2 | 18m high altitude discharge after being treated by green facilities | 2 | 2# plant of the Sheet Metal Park | 19 | 1.53 | / | No | ||
| Foshan Shunde Midea Electrical Heating Appliances Manufactur | CODcr | Discharge after being treated by wastewater treatment system and reaching the standard | 2 | Waste water treatment stations 1 and 2 of 3# plant | 47.9 | The discharge standard of water pollutants for electroplating（DB44/1597-2015） | 4,190.16 | 106,520 | No |
| Petroleum | 0.77 | 67.30 | / | No | |||||
| Ammonia nitrogen | 3.1 | 278.38 | 21,300 | No | |||||
| Toluene and xylene | High altitude discharge after being treated by waste gas treatment station | 7 | Waste gas sprayers 1 and 2 at 3# plant, outlets 1, 2 and 3 for waste gas from | 1.4 | Table 1 of the Discharge Standard of Volatile Organic Chemical | 57.62 | / | No | |
| ing Co., Ltd. | VOCs | High altitude discharge after being treated by waste gas treatment station | wave-soldering, painting and drying at 6# plant, outlets 1 and 2 for waste gas from reflow soldering at 6# plant | 8.11 | Compounds in the Furniture Making Industry (DB44/814-2010): Discharge Limits for VOCs through Exhaust Funnel/for Time Period II | 333.02 | / | No | |
| NMHC | High altitude discharge after being treated by waste gas treatment station | 2 | Outlet of injection molding waste gas in the south side of 1# plant, outlet of injection molding waste gas in the south side of 9# plant | 3.98 | |||||
| 109.49 | / | No | |||||||
| Particles | Pulsed jet cloth filtering | 4 | Outlets 1 and 2 of sanding waste gas at 3# plant, outlets 1 and 2 of polishing waste gas at 3# plant | Not detected | Table 2 of the Emission Limits of Air Pollutants (DB44/27-2001): Emission Limits of Industrial Waste Gas (Time Period 2), Level 2 | - | / | No | |
| Sulfur dioxide | High altitude discharge after being treated by waste gas treatment station | 2 | Oxidation wire roof of 3# plant | Not detected | - | 585.95 | No | ||
| Drying furnace of 3# plant | Not detected | - | No | ||||||
| Cooking fume | Discharge after being treated by waste gas treatment station | 2 | South and east section canteens | 1.13 | Emission Standard of Cooking Fume (Trial)（GB 18483-2001） | 41.4 | / | No | |
| Guangdong Midea Consumer | CODcr | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | Wastewater treatment station | 68 | The discharge standard of water pollutants for electroplating（DB44/1597- | 4,917 | 48,000 | No |
| Petroleum | 0.4125 | 29.81 | / | No | |||||
| ss | 20 | 1,450 | / | No | |||||
| Electric Manufacturing Co., Ltd. | Ammonia nitrogen | 7.2875 | 2015） | 526.7 | 9,600 | No | |||
| Benzene | High altitude discharge after being treated by waste gas treatment station | 1 | Spraying waste gas outlet at 1# plant | 0.5 | Table 1 of the Discharge Standard of Volatile Organic Chemical Compounds in the Furniture Making Industry (DB44/814-2010): Discharge Limits for VOCs through Exhaust Funnel/for Time Period II | 50 | / | No | |
| Toluene | High altitude discharge after being treated by waste gas treatment station | 0.137 | 13.7 | / | No | ||||
| Xylene | High altitude discharge after being treated by waste gas treatment station | 0.914 | 91.4 | / | No | ||||
| Toluene and xylene | High altitude discharge after being treated by waste gas treatment station | 1.05 | 105 | / | No | ||||
| VOCs | High altitude discharge after being treated by waste gas treatment station | 15 | 1,500 | / | No | ||||
| NMHC | High altitude discharge after being treated by waste gas treatment station | 2 | Injection molding waste gas outlet in the southern side of 2# plant, injection molding waste gas outlet in the northern side of 2# plant | 2.81 | |||||
| 758.7 | / | No | ||||||
| Particles | Pulsed jet cloth filtering | 2 | Sanding waste gas outlet at 1# plant, polishing waste gas outlet at 1# plant | 1.47 | Table 2 of the Emission Limits of Air Pollutants (DB44/27-2001): Emission Limits of Industrial Waste | 2.94 | / | No |
| Sulfur dioxide | High altitude discharge after being treated by waste gas treatment station | 1 | Drying furnace at 1# plant | 3 | Gas (Time Period 2), Level 2 | 300 | / | No | ||||
| Nitrogen oxide | High altitude discharge after being treated by waste gas treatment station | 19 | 1,900 | / | No | |||||||
| Cooking fume | Discharge after being treated by waste gas treatment facility | 1 | Canteen of 1# plant | 1.2 | Emission Standard of Cooking Fume (Trial)（GB 18483-2001） | 1.61 | / | No | ||||
| Guangdong Meizhi Precision-Manufacturing Co., Ltd | COD | Discharge after being treated by wastewater treatment station | 1 | Near the wastewater treatment station in the north side of the plant | 26.15 | The discharge limits of water pollutants in Guangdong DB-44/26-2001 the second time period first-level | 11,525 | 19,880 | No | |||
| Ammonia nitrogen | 1 | Near the wastewater treatment station in the north side of the plant | 1.04 | 476 | 2,210 | No | ||||||
| Guangdong Meizhi Compressor Limited | COD | Discharge after being treated by wastewater treatment station | 1 | Near the wastewater treatment station in the north side of the plant | 49 | The discharge standard of water pollutants for electroplating DB-441597-2015, before 1 September 2012 | 1,073 | 1,152 | No | |||
| Ammonia nitrogen | Discharge after being treated by wastewater treatment station | 1 | Near the wastewater treatment station in the north side of the plant | 0.375 | 224 | 230.4 | No | |||||
| Anhui | COD | Discharge after being treated by | 1 | Near the wastewater | 128 | Implementation of the | 16,027 | 30,708 | No | |||
| Meizhi Compressor Co., Ltd. | Ammonia nitrogen | wastewater treatment system and reaching the standard | treatment station in the north side of the plant | 0.9 | takeover standards of the Western Hefei Group wastewater treatment plant and integrated wastewater discharge standard (GB8978-1996) third-level | 361 | 1,770 | No | |
| Particles | Collected by gas trap hood+15m high exhaust cylinder | 14 | No. 1 workshop welding soot discharge outlet for waste gas | <20 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 9,547 | 12,820 | No | |
| No. 3 workshop welding 1#-8# discharge outlet for the welding waste gas | <20 | No | |||||||
| No.2 workshop 1#Chugai furnace and 2#Chugai furnace discharge outlet for waste gas | <20 | Emission standard of air pollutants for industrial kiln and furnace（GB9078-1996） | No | ||||||
| No.2 workshop 4#Chugai furnace and Samchully furnace discharge outlet for waste gas | <20 | No | |||||||
| No. 4 workshop 3# Chugai furnace discharge outlet for waste gas and die-casting molten aluminum I/J/F discharge outlet for waste gas combined with a discharge outlet | <20 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | No |
| No.4 workshop BAB boiler discharge outlet for waste gas | <20 | Emission standard of air pollutants for industrial kiln and furnace（GB9078-1996） | No | |||||
| No.2 workshop die-casting molten aluminum A/B/E discharge outlet for waste gas | <20 | No | ||||||
| No.2 workshop die-casting molten aluminum C/D discharge outlet for waste gas | <20 | No | ||||||
| No. 4 workshop centrifugal pouring G/H and rotor furnace combined with a discharge outlet | <20 | No | ||||||
| The tail of 3# and 4# stator furnace and the general discharge outlet of four melting aluminum furnace | <20 | No | ||||||
| Furnace 1#-3# discharge outlet for waste gas | <20 | Emission standard of air pollutants for boiler（GB13271-2014） | No | |||||
| Sulfur dioxide | Collected by gas trap hood+15m high exhaust cylinder | 3 | Furnace 1#-3# discharge outlet for waste gas | 10.07 | 330 | 4,120 | No | |
| Nitrogen oxide | 108 | 3,548 | 9,000 | No |
| VOCs | Direct-fired waste gas incinerator+15m high exhaust cylinder | 3 | No.1 workshop of discharge outlet for drying waste gas | 7.38 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 702 | 5,740 | No | |
| No.3 workshop 1# discharge outlet for drying waste gas | 8.65 | No | |||||||
| No.3 workshop 2# discharge outlet for drying waste gas | 8.4 | No | |||||||
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | COD | Discharge to the municipal sewage system after being treated by wastewater treatment system | 1 | The eastern side of wastewater treatment station in Malong base | 40 | The discharge limits of water pollutants in Guangdong (DB-44/26-201) | 14,159.60 | 22,770 | No |
| Ammonia nitrogen | 3.77 | 724.60 | 4,554 | No | |||||
| Particles | 20m high altitude discharge | 116 | 26 outlets at A1 plant, 50 outlets at A2 plant, 21 outlets at B2 plant, 9 outlets at C2 plant, 2 outlets at C3 plant, 1 outlet at wastewater treatment station and 7 outlets at canteen | 32.2 | Emission standard of air pollutants for industrial kiln and furnace（GB-9078-1996）/ The emission limit of gas pollutants in Guangdong（DB-44/27-2007) | 20,164.06 | / | No | |
| Sulfur dioxide | 32 | 17.88 | 1,055 | No | |||||
| Nitrogen oxide | 17 | 458.88 | 10,314 | No | |||||
| Benzene | High altitude discharge after being treated by waste gas treatment station | 0.773 | 52.63 | / | No | ||||
| Toluene and Xylene | 13.5 | 5,557.60 | / | No | |||||
| VOCs | 67.6 | 28,564.34 | / | No | |||||
| NMHC | 6.3 | 2,453.60 | / | No | |||||
| Styrene | 0.396 | 72.45 | / | No | |||||
| Fume | 1.46 | 214.56 | / | No | |||||
| Foshan Welling Washer Motor Manufacturing Co., Ltd. | Benzene | Activated carbon + UV photolysis + catalytic combustion | 3 | Waste gas outlet near 2# plant | 0.03 | Emission standard of volatile organic compounds for furniture manufacturing (DB44/814-2010) the second time period | 15.5013 | / | No |
| Toluene and xylene | Activated carbon + UV photolysis + catalytic combustion | 3 | Waste gas outlet near 2# plant | 4.25 | Emission standard of volatile organic compounds for furniture manufacturing (DB44/814-2010) the second time period | 1,420.3 | / | No | |
| VOCs | Activated carbon + UV photolysis + catalytic combustion | 3 | Waste gas outlet near 2# plant | 22.5 | Emission standard of volatile organic compounds for furniture manufacturing (DB44/814-2010) the second time period | 5,810 | / | No | |
| Welling (Wuhu) Motor Manufacturing Co., Ltd. | Particles | Collected by gas trap hood + dust collector +15m high exhaust cylinder | 1 | Exhaust funnel 1 for mold injection | <20 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 1,200 | 7,200 | No |
| VOCs | Collected by gas trap hood +15m high exhaust cylinder | 4 | Waste gas outlets 1-4 of the die casting workshop | <20 | Emission standard of air pollutants for industrial kiln and furnace（GB9078-1996） | 2,400 | 14,400 | No | |
| VOCs | Collected by gas trap hood + activated carbon +15m high exhaust cylinder | 1 | Waste gas outlets 1-4 of the die casting workshop | 2 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 352 | 1,200 | No | |
| VOCs | Collected by gas trap hood + activated carbon +15m high exhaust cylinder | 1 | Exhaust funnel 2 for mold injection | 2.2 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 39.6 | 160 | No | |
| GD Midea Group Wuhu Air-Conditioning Equipment Co.,Ltd. | VOCs | 15m high altitude discharge after being treated by environmental protection facilities | 3 | The south side of 1# plant and the north side of 2# plant | 1.72 | Emission Control Standard for Industrial Enterprises Volatile Organic Compounds DB13-2322-2016 | 151 | / | No |
| Anhui Meizhi Precision Manufacturing Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | The south side of Building 6 for night shift at the north side of the plant area | 61 | Integrated wastewater discharge standard（gb8978-1996）, chart 4, level 3 | 20,115 | 33,000 | No |
| Ammonia nitrogen | 0.052 | 17 | 3,300 | No | |||||
| BOD | 15.5 | 511 | 16,500 | No | |||||
| SS | 14 | 4,616 | 16,500 | No | |||||
| Petroleum | 0.14 | 46 | 6,600 | No | |||||
| Particles | Collected by gas trap hood +21m high exhaust cylinder | 9 | 1-8# welding waste gas outlets | <20 | 120（Integrated emission standards for atmospheric pollutants GB16297-1996, chart 2, level 2） | 11,330 | 36,000 | No | |
| 9#-10# welding waste gas outlets | <20 | ||||||||
| 2# outlet of stator + rotor heat-treating furnace | <20 | 200（Emission standard of air pollutants for industrial kiln and furnace GB9078-1996, chart 2, level 2） | 322 | No | ||||
| 3# outlet of 2# stator heat-treating furnace | <20 | |||||||
| 1# outlet of stator + rotor heat-treating furnace | <20 | |||||||
| Outlet at the head of 3# stator furnace | <20 | |||||||
| Outlets at the head of 2# stator furnace and 4# rotor furnace | <20 | |||||||
| Outlets at the tail of 3# and 4# stator furnaces and comprehensive outlet for 4 aluminum melting furnaces | <20 | |||||||
| Waste gas outlet of aluminum melting furnace | <20 | |||||||
| Sulfur dioxide | Collected by gas trap hood +21m high exhaust cylinder | 7 | 2# outlet of stator + rotor heat-treating furnace | 28 | 850（Emission standard of air pollutants for industrial kiln and furnace GB9078-1996, chart 2, level 2） | 4,145 | 20,000 | No |
| 3# outlet of 2# stator heat-treating furnace | 40 | |||||||
| 1# outlet of stator + rotor heat-treating furnace | Not detected | |||||||
| Outlet at the head of 3# stator furnace | 128 |
| Outlets at the head of 2# rotor furnace and 4# stator furnace | 35 | |||||||
| Outlets at the tail of 3# and 4# stator furnaces and comprehensive outlet for 4 aluminum melting furnaces | 24 | |||||||
| Waste gas outlet of aluminum melting furnace | 34 | |||||||
| Nitrogen oxide | Collected by gas trap hood +21m high exhaust cylinder | 3 | 2# outlet of stator + rotor heat-treating furnace | 154 | 8,553 | 18,000 | No | |
| 3# outlet of 2# stator heat-treating furnace | 95 | |||||||
| 1# outlet of stator + rotor heat-treating furnace | 206 | |||||||
| VOCs | Direct-fired waste gas incinerator+21m high exhaust cylinder | 3 | 1-4# outlets for waste gas from drying | 7.4 | 120（Integrated emission standards for atmospheric pollutants GB16297-1996, chart 2, level 2） | 3,033 | 5,000 | No |
| 5-8# outlets for waste gas from drying | 43.8 | |||||||
| 9-10# outlets for waste gas from drying | 25.3 |
environmental pollution incidents occurred. All subsidiaries have set up reliable waste water and gas treatment systems. Through regular monitoring,supervision and inspection mechanisms, as well as third-party testing, it is ensured that the discharge of waste water, waste gas and solid waste duringthe production and operation process meets the national and local laws and regulations. There is no excessive discharge by any subsidiary, which is incompliance with the relevant requirements of the environment administrations. The specific treatments for waste water, waste gas and solid wastes areas follows:
A. Waste water treatments: The waste water from subsidiaries is classified as household waste water and industrial waste water. Household wastewater is discharged to the municipal waste water treatment network and waste water treatment plants after being pre-treated in septic tanks, etc. Andindustrial waste water is discharged to the municipal waste water treatment network and waste water treatment plants after being pre-treated in thesubsidiaries’ waste water treatment stations. Meanwhile, the rain sewage diversion system is promoted in old factories and the existing productionprocesses are improved to reduce waste water.B. Waste gas treatments: The waste gas from the subsidiaries is mainly the industrial waste gas and dust produced in the production process.Corresponding waste gas treatment systems have been set up for different types of waste gas. For example, waste gas from screen printing line istreated with spraying, defogging, UV photolysis and activated carbon adsorption devices, and organic waste gas from oil spray lines for metal workingand plastic injection is treated with molecular sieve wheel adsorption and RCO catalytic combustion devices. Waste gas is discharged at a high altitudeafter emission concentration of benzene, toluene, xylene and VOCs in it is up to the Emission Limits of Air Pollutants, a local standard. Dust producingequipment operates in a closed environment, with a fully automatic dust sucker or powder dust collector treating powder dust without discharging itoutwards.C. Prevention and control of noise pollution: Noise produced in the operating process of the main noise equipment in the production processes of
various factories including punching machines, powder spray coating line, oil spray line, plastic injection machine, wire winding machine, waste waterand gas treatment facilities is 60～90dB (A). The company has taken the following preventive and control measures: 1) Select environmentally friendlylow noise equipment, deploy various equipment in the workshop rationally and take basic shock absorption and enclosed sound insulation measuresfor the equipment; 2) Ensure sound insulation by making use of factory buildings and doors and windows, and especially in the air fan room with bignoise, doors and windows with good sound insulation effect are recommended being set; 3) Forestation in the factory area and on the border of projectsis strengthened and green plants are set rationally there, which both beautify the environment and assist in noise adsorption and sound insulation. Aftertaking the above noise prevention and control measures, noise in the factory area can be up to third-level standard in the Emission Standard for IndustrialEnterprises noise at Boundary(GB12348-2008): ≤65dB（A）at daytime and ≤55dB（A）at nighttime.D. Solid waste treatments: The solid waste from subsidiaries is classified into general solid waste, hazardous solid waste, and household solid waste.Hazardous solid waste, according to laws and regulations, is required to be treated by qualified treatment institutions; general solid waste, after beingclassified at the subsidiaries, is collected and treated by resource recycling plants; and household solid waste is treated by the local sanitationadministration, which is in compliance with the relevant regulations.The environmental effect evaluation of construction projects and other administrative permits in relation to environmental protectionAll subsidiaries strictly observe the laws and regulations governing environmental protection, and all construction projects are in compliance with theenvironmental effect requirements and other rules, with no misdeeds during the Reporting Period. Once a construction project is finished, a third-partytesting institution is hired to examine indexes including waste water, waste gas and noise, and the compilation and approval of the environmental effectevaluation report is finished in time.Contingency plans for environmental accidents
All subsidiaries have finished the compilation and approval of their contingency plans for environmental accidents. Emergency mechanisms forenvironmental pollution accidents have been established and improved, and the subsidiaries’ ability to deal with environmental pollution accidents hasbeen enhanced, so as to maintain social stability, protect the lives, health and properties of the public, protect the environment, and promote acomprehensive, coordinated and sustainable development of the society.According to the accident levels, subsidiaries have formulated rules covering working principles, contingency plans, risk prevention measures,commanding departments, responsibilities and labor division, and have filed these contingency plans with the government.Environment self-monitoring plansAll the subsidiaries have formulated their own environment self-monitoring plans according to China’s relevant laws and regulations, , which include: 1)Waste gas pollution source monitoring: Sampling points are set at various discharge ports of waste gas for monitoring on a quarterly basis; 2) Wastewater pollution source monitoring: Samples are fetched at intake and outlet ports of waste water treatment stations to monitor changes of pollutionsource of waste water and up-to-standard emission of waste water after being treated at the waste water treatment stations. Monitoring items includeCODcr, SS and petroleum, etc. The data is uploaded to the governmental monitoring authority online and the government authority conducts real-timemonitoring; 3) Noise monitoring: Noise monitoring points are set at noise sensitive points and on the border of factories. Noise is monitored once inspring and summer respectively and at daytime and at nighttime respectively each time; 4) Solid waste pollution source monitoring: Hazardous wasteproduced from the subsidiaries is handed over to the units with qualifications for treatment, monitoring systems are established, and related managementforms and accounts are set up. Meanwhile, 11 factories have been equipped with an online waste water monitoring system, and such a system isunderway for other operations.Other environment-related information that should be made public
According to the national and local laws and regulations, information including pollutant discharge information, the construction and operation of pollutionprevention facilities, environmental effect evaluations of construction projects and other administrative permits in relation to environmental protection,contingency plans for environmental accidents, and environment self-monitoring results is all made public through the official WeChat account on aregular basis.Other environment-related informationNone
19. Other Significant Events
√Applicable □N/A
Midea’s merger with Little Swan in a share swap via A-share offering and the related transactionA. On 12 March 2019, the Company received the CSRC Reply on the Approval of the Merger of MideaGroup Co., Ltd. with Wuxi Little Swan Company Limited (ZJXK [2019] No. 352), approving the issuanceof 342,130,784 shares by Midea Group to merge with Little Swan.B. On 22 April 2019, the Company received the Reply of the Foshan Central Sub-Branch of the StateAdministration of Foreign Exchange on the Foreign Exchange Affairs in Midea Group Co., Ltd.’s Mergerwith Wuxi Little Swan Company Limited in a Share Swap via A-share Offering (FHF [2019] No. 1),according to which the Board of the Company would assist investors in handling the relevant foreignexchange affairs.C. Trading in the Company’s stock was suspended from 8 May 2019 for the implementation of theappraisal rights of dissenting shareholders. During the declaration period for the appraisal rights (15 May2019 to 21 May 2019), no investor declared the exercise of appraisal rights.D. As Little Swan and Midea Group conducted profit distribution before the completion of the merger, thefollowing adjustments were made:
The swap prices for a Little Swan-A share and a Little Swan-B share were adjusted to RMB46.91 andRMB38.07, respectively. The issue price of a Midea Group share was adjusted from RMB42.04 toRMB40.74. The respective swap ratios for Little Swan-A and Little Swan-B shares became 1:1.15144821and 1:0.93446244. And the shares to be issued by Midea Group for this merger became 323,657,476.E. On 21 June 2019, the total 323,657,476 new shares issued by the Company for this merger wereallowed for public trading at the Shenzhen Stock Exchange. Upon the completion of this merger, LittleSwan would be delisted and de-registered as a corporate body, and Midea Group or its wholly-ownedsubsidiary would take over all the assets, liabilities, business, personnel, contracts and all the other rights
and obligations of Little Swan.
20. Significant Events of Subsidiaries
□Applicable √N/A
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 | Percentage (%) | New issue | Shares as dividend converted from retained earnings | Shares as dividend converted from capital reserves | Other | Subtotal | Shares | Percentage (%) | |
| 1. Restricted shares | 147,174,760 | 2.22 | 33,359,376 | -15,131,623 | 18,227,753 | 165,402,513 | 2.37 | ||
| 1.1 Shares held by the state | |||||||||
| 1.2 Shares held by state-owned corporations | |||||||||
| 1.3 Shares held by other domestic investors | 145,424,760 | 2.19 | 32,539,376 | -14,594,623 | 17,944,753 | 163,369,513 | 2.34 | ||
| Among which: Shares held by domestic corporations | 0 | 0 | 2,363,601 | 2,363,601 | 2,363,601 | 0.03 | |||
| Shares held by domestic individuals | 145,424,760 | 2.19 | 30,175,775 | -14,594,623 | 15,581,152 | 161,005,912 | 2.31 | ||
| 1.4 Shares held by foreign investors | 1,750,000 | 0.03 | 820,000 | -537,000 | 283,000 | 2,033,000 | 0.03 | ||
| Among which: Shares held by foreign corporations | |||||||||
| Shares held by foreign individuals | 1,750,000 | 0.03 | 820,000 | -537,000 | 283,000 | 2,033,000 | 0.03 | ||
| 2. Non-restricted shares | 6,515,855,746 | 97.79 | 406,007,374 | -115,366,059 | 290,641,315 | 6,806,497,061 | 97.63 | ||
| 2.1 RMB common shares | 6,515,855,746 | 97.79 | 406,007,374 | -115,366,059 | 290,641,315 | 6,806,497,061 | 97.63 | ||
| 2.2 Domestically listed shares for foreign investors | |||||||||
| 2.3 Overseas listed shares for foreign investors | |||||||||
| 2.4 Other | |||||||||
| 3. Total shares | 6,663,030,506 | 100 | 439,366,750 | -130,497,682 | 308,869,068 | 6,971,899,574 | 100 |
c. For the reason of certain incentive receivers’ departure from the Company, violation of company rules,business unit’s 2017 performance appraisal result being “just so-so”, position change or other factors, theCompany repurchased and retired 1,775,917 shares of 30 incentive receivers under the 2017 RestrictedShare Incentive Scheme on 3 April 2019, and 2,237,500 shares of 47 incentive receivers under the 2018Restricted Share Incentive Scheme, totaling 4,013,417 restricted shares.d. 2,420,000 reserved restricted shares were granted to 32 employees for the Company’s 2018 RestrictedShare Incentive Scheme. These shares would be allowed for public trading on 10 May 2019.e. The Company issued a total of 323,657,476 new A-shares for the merger with Little Swan in a shareswap, including 321,278,100 non-restricted public shares and 2,379,376 restricted public shares(inclusive of such shares held by senior management). These shares would be allowed for public tradingon 21 June 2019.f. 28,560,000 restricted shares (repurchased shares) were granted to 423 employees for the Company’s2019 Restricted Share Incentive Scheme, with no change to the total share capital of the Company.These shares would be allowed for public trading on 10 July 2019.g. For the reason of certain incentive receivers’ departure from the Company, business unit’s 2018performance appraisal result being “just so-so”, individual performance appraisal result of 2018 being“substandard” or other factors, the Company repurchased and retired 1,580,750 shares of 35 incentivereceivers under the 2017 Restricted Share Incentive Scheme on 23 July 2019, and 1,238,500 shares of21 incentive receivers under the 2018 Restricted Share Incentive Scheme, totaling 2,819,250 restrictedshares.h. In 2019, the incentive receivers of stock options chose to exercise 84,729,274 shares, which havebeen registered into the Company’s share capital.i. In 2019, locked-up shares held by senior management decreased by 1,089,598 shares.Approval of share changes
√ Applicable □ N/A
On 12 March 2019, the Company received the CSRC Reply on the Approval of the Merger of MideaGroup Co., Ltd. with Wuxi Little Swan Company Limited (ZJXK [2019] No. 352), approving the issuanceof 342,130,784 shares by Midea Group to merge with Little Swan.Transfer of share ownership
□ Applicable √ N/A
Progress of any share repurchase
√ Applicable □ N/A
a. The Proposal on the Plan for the Repurchase of Some Public Shares (hereinafter referred to as the“2019 Repurchase Plan”) was approved at the 7th Meeting of the 3rd Board of Directors on 22 February2019. As such, the Company was agreed to repurchase, with its own funds, no less than 60,000,000shares and no more than 120,000,000 shares by way of centralized bidding at a price not exceedingRMB55/share within 12 months starting from the approval of the repurchase plan by the Board ofDirectors. All the repurchased shares would be used for the Company’s equity incentive schemes and/oremployee stock ownership schemes. As disclosed in the Announcement on the Expiry of the RepurchasePeriod & the Completion of the Implementation of the Repurchase Plan dated 22 February 2019, duringthe repurchase period, the Company cumulatively repurchased 62,181,122 shares by way of centralizedbidding. With the highest trading price being RMB55.00/share and the lowest being RMB45.62/share, thetotal payment amounted to RMB3,200,329,932.45 (exclusive of trading fees). The 2019 Repurchase Planhas expired and the number of shares repurchased has reached the lower limit of the repurchase plan.Therefore, the implementation of the repurchase plan has been completed. So far, cumulatively34,159,920 repurchased shares have been transferred.b. The Proposal on the Plan for the Repurchase of Some Public Shares (hereinafter referred to as the“2020 Repurchase Plan”) was approved at the 18th Meeting of the 3rd Board of Directors on 21 February2020. As such, the Company was agreed to repurchase, with its own funds, no less than 40,000,000shares and no more than 80,000,000 shares by way of centralized bidding at a price not exceedingRMB65/share within 12 months starting from the approval of the repurchase plan by the Board ofDirectors. All the repurchased shares would be used for the Company’s equity incentive schemes and/oremployee stock ownership schemes. As disclosed in the Announcement on the Share Repurchase
Progress dated 2 April 2020, as of 31 March 2020, the Company had repurchased 14,265,055 shares(0.2038% of the Company’s total share capital as of that date) by way of centralized bidding. With thehighest trading price being RMB54.18/share and the lowest being RMB46.30/share, the total paymentamounted to RMB701,292,302.13 (exclusive of trading fees). The repurchase was in line with therequirements of applicable laws and regulations, as well as the repurchase plan of the Company.Progress of any repurchased share reduction through centralized price bidding
□ Applicable √ N/A
Effects of changes in shares on basic EPS, diluted EPS, net assets per share attributable to commonshareholders of the Company and other financial indexes over the last year and the last Reporting Period
□Applicable √N/A
Other contents that the Company considers necessary or is required by the securities regulatoryauthorities to disclose
□Applicable √N/A
1.2 Changes in restricted shares
√Applicable □N/A
Unit: share
| Name of shareholder | Opening restricted shares | Unlocked in current period | Increased in current period | Closing restricted shares | Reason for change | Date of unlocking |
| Incentive receivers of 2017 Restricted Share Incentive Scheme (first phase) ① | 14,380,000 | 5,564,583 | 0 | 6,140,000 | Lockup according to the Scheme | 28 June 2019 |
| Incentive receivers of reserved restricted shares under 2017 Restricted Share Incentive Scheme ② | 5,235,000 | 1,629,000 | 0 | 2,924,750 | Lockup according to the Scheme | 20 February 2019 |
| Incentive receivers of 2018 Restricted Share Incentive Scheme (first phase) ③ | 20,570,000 | 0 | 0 | 17,094,000 | Lockup according to the Scheme | 21 June 2020 |
| Incentive receivers of reserved restricted shares under 2018 Restricted Share Incentive Scheme | 0 | 0 | 2,420,000 | 2,420,000 | Lockup according to the Scheme | 10 May 2021 |
| Incentive receivers of 2019 Restricted Share Incentive Scheme | 0 | 0 | 28,560,000 | 28,560,000 | Lockup according to the Scheme | 10 July 2021 |
| Restricted shares before Share Offering ④ | 0 | 0 | 2,363,601 | 2,363,601 | Lockup before Share Offering | - |
| Zhang Xiaoyi | 138,100 | 0 | 135,775 | 273,875 | Lockup for senior management position | - |
| Jiang Peng | 566,250 | 107,775 | 0 | 458,475 | Lockup for senior management position | - |
| Xiao Mingguang | 0 | 0 | 66,250 | 66,250 | Lockup for senior management position | - |
| Zhong Zheng | 0 | 0 | 11,152 | 11,152 | Lockup of new shares for senior management position | - |
| Li Feide | 1,195,000 | 1,195,000 | 0 | 0 | Unlocking of locked-up shares of former senior management | 26 March 2019 |
| Zhu Fengtao ⑤ | 765,300 | 255,100 | 255,100 | 765,300 | Lockup of all the shares held by a former senior management within the half year from his departure from the Company | 26 March 2022 |
| Total | 42,849,650 | 8,751,458 | 33,811,878 | 61,077,403 | -- | -- |
granted but were still in lockup were retired on 3 April and 23 July 2019, reducing the closing restrictedshares by 681,250 shares.
③ 3,476,000 restricted shares for the first phase of the 2018 Restricted Share Incentive Scheme thathad been granted but were still in lockup were retired on 3 April and 23 July 2019, reducing the closingrestricted shares by 3,476,000 shares.
④ These are new restricted shares before share offering upon the share swap in Midea Group’s mergerwith Little Swan via A-share offering.
⑤ Zhu Fengtao quit as a Director and Vice President of the Company on 22 March 2019. Therefore, allthe shares held by him in the Company were locked up within the half year from his departure.
2. Issuance and Listing of Securities
2.1 Securities (excluding preference shares) issued in the Reporting Period
√ Applicable □ N/A
| Name of stock or its derivative securities | Issue date | Issue price (or interest rate) | Issue number | Date of public trading | Number allowed for public trading | Date of termination of trading | Index to disclosed information | Disclosure date |
| Stock | ||||||||
| Midea Group（000333） | 21 June 2019 | RMB40.74/share | 323,657,476 | 21 June 2019 | 323,657,476 | - | Announcement of Midea Group Co., Ltd. on the A-share Offering for the Merger with Wuxi Little Swan Company Limited in a Share Swap & the Implementation of the Related-Party Transaction & the Listing of New Shares | 19 June 2019 |
the Reporting Period, 84,729,274 awarded stock options were exercised and registered; 95,105,015repurchased shares were retired in early 2019; 2,420,000 reserved restricted shares were granted to 32incentive receivers under the 2018 Restricted Share Incentive Scheme, which were allowed for publictrading on 10 May 2019; 323,657,476 new shares were issued for the merger with Little Swan in a shareswap via A-share offering, which were allowed for public trading on 21 June 2019; and a total of 6,832,667restricted shares under the 2017 and 2018 Restricted Share Incentive Schemes were repurchased andretired. As such, total shares are 6,971,899,574 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 number of common shareholders at the end of the Reporting Period | 172,279 | Total number of common shareholders at the prior month-end before the disclosure date of the annual report | 246,617 | Total number of preference shareholders with resumed voting rights at the period-end (if any) | 0 | Total number of preference shareholders with resumed voting rights at the prior month-end before the disclosure date of the annual report (if any) | 0 | |||||||
| 5% or greater common shareholders or top 10 common shareholders | ||||||||||||||
| Name of shareholder | Nature of shareholder | Shareholding percentage (%) | Total common shares held at the period-end | Increase/decrease during the Reporting Period | Number of restricted common shares held | Number of non-restricted common shares held | Pledged or frozen shares | |||||||
| Status | Shares | |||||||||||||
| Midea Holding Co., Ltd. | Domestic non-state-owned corporation | 31.73% | 2,212,046,613 | 0 | 0 | 2,212,046,613 | Pledged | 215,000,000 | ||||||
| Hong Kong Securities Clearing | Foreign corporation | 16.89% | 1,177,308,444 | 277,188,277 | 0 | 1,177,308,444 | ||||||||
| Company Limited | |||||||||||
| China Securities Finance Co., Ltd. | State-owned corporation | 2.84% | 198,145,134 | 0 | 0 | 198,145,134 | |||||
| Fang Hongbo | Domestic individual | 1.96% | 136,990,492 | 0 | 102,742,869 | 34,247,623 | |||||
| Canada Pension Plan Investment Board－ own funds (stock exchange) | Foreign corporation | 1.73% | 120,379,067 | 19,371,811 | 0 | 120,379,067 | |||||
| Central Huijin Asset Management Ltd. | State-owned corporation | 1.29% | 90,169,354 | 11,694,454 | 0 | 90,169,354 | |||||
| Huang Jian | Domestic individual | 1.26% | 88,032,200 | 25,100 | 0 | 88,032,200 | |||||
| Merrill Lynch International | Foreign corporation | 0.84% | 58,830,294 | 58,830,294 | 0 | 58,830,294 | |||||
| Yuan Liqun | Domestic individual | 0.76% | 52,873,570 | 254,270 | 0 | 52,873,570 | Pledged | 15,884,900 | |||
| Li Jianwei | Foreign individual | 0.74% | 51,700,000 | -91,941 | 0 | 51,700,000 | |||||
| Strategic investors or general corporations becoming top-ten common shareholders due to placing of new shares (if any) (see note 3) | N/A | ||||||||||
| Related-parties or acting-in-concert parties among the shareholders above | N/A | ||||||||||
| Top 10 non-restricted common shareholders | |||||||||||
| Name of shareholder | Number of non-restricted common shares held at the period-end | Type of shares | |||||||||
| Type | Shares | ||||||||||
| Midea Holding Co., Ltd. | 2,212,046,613 | RMB common stock | 2,212,046,613 | ||||||||
| Hong Kong Securities Clearing Company Limited | 1,177,308,444 | RMB common stock | 1,177,308,444 | ||||||||
| China Securities Finance Co., Ltd. | 198,145,134 | RMB common stock | 198,145,134 | ||||||||
| Canada Pension Plan Investment | 120,379,067 | RMB common stock | 120,379,067 | ||||||||
| Board－ own funds (stock exchange) | |||
| Central Huijin Asset Management Ltd. | 90,169,354 | RMB common stock | 90,169,354 |
| Huang Jian | 88,032,200 | RMB common stock | 88,032,200 |
| Merrill Lynch International | 58,830,294 | RMB common stock | 58,830,294 |
| Yuan Liqun | 52,873,570 | RMB common stock | 52,873,570 |
| Li Jianwei | 51,700,000 | RMB common stock | 51,700,000 |
| He Xiangjian | 45,008,871 | RMB common stock | 45,008,871 |
| Related-parties or acting-in-concert parties among the top ten non-restricted common shareholders and between the top ten non-restricted common shareholders and the top ten common shareholders | He Xiangjian is the controlling shareholder of Midea Holding Co., Ltd., which makes them parties acting in concert. | ||
| Explanation on the top 10 common shareholders participating in securities margin trading (if any) (see note 4) | 1. The Company’s shareholder Huang Jian holds 88,022,200 shares in the Company through his common securities account and 10,000 shares in the Company through his account of collateral securities for margin trading, representing a total holding of 88,032,200 shares in the Company. 2. The Company’s shareholder Yuan Liqun holds 43,028,290 shares in the Company through her common securities account and 9,845,280 shares in the Company through her account of collateral securities for margin trading, representing a total holding of 52,873,570 shares in the Company. | ||
| Name of controlling shareholder | Legal representative / company principal | Date of establishment | Credibility code | Main business scope |
| Midea Holding Co., Ltd. | He Xiangjian | 2002-08-05 | 914406067429989733 | Manufacture and commerce investment; domestic commerce and materials supply and marketing industry (excluding state-designated monopoly); CP software and hardware development; industrial product design; information technology consulting services, providing investment consultant and consulting services; installation, maintenance and after-sales service of electric appliances; real estate intermediary service and forwarding agent service. |
| Shareholdings of the controlling shareholder in other controlled or non-controlled listed companies at home or abroad during the Reporting Period | Apart from a direct control over the Company, Midea Holding does not directly control or have shares in other listed companies at home or abroad. | |||
| Name of the actual controller | Relationship with the actual controller | Nationality | Right of residence in other countries or regions |
| He Xiangjian | Actual controller himself | The People's Republic of China | No |
| Main occupation and duty | Incumbent board chairman of Midea Holding Co., Ltd. | ||
| Used-to-be-holding listed companies home and abroad in the last 10 years | Midea Group (000333.SZ), KUKA (KU2.DE), Little Swan (A: 000418.SZ; B: 200418) (delisted in 2019), and Welling Holding (00382.HK) (delisted in 2018) | ||
94.55%
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
Midea Group Co., Ltd.
0.65%
0.65%
31.73%
31.73%
Midea Holding Co., Ltd.
Midea Holding Co., Ltd.He Xiangjian
Section VII Information about Directors, Supervisors, Senior
Management and Employees
1. Changes in Shareholdings of Directors, Supervisors and Senior Management
| Name | Office title | Incumbent/ Former | Gender | Age | Starting date of tenure | Ending date of tenure | Shares held at the year-begin (share) | Shares increased at the Reporting Period (share) | Shares decreased at the Reporting Period (share) | Other increase/decrease (share) | Shares held at the period-end (share) |
| Fang Hongbo | Chairman of the Board and CEO | Incumbent | Male | 53 | 2012-8-25 | 2021-9-25 | 136,990,492 | 0 | 0 | 0 | 136,990,492 |
| He Jianfeng | Director | Incumbent | Male | 53 | 2012-8-25 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Yin Bitong | Director and Vice President | Incumbent | Male | 52 | 2016-12-16 | 2021-9-25 | 2,109,655 | 0 | 0 | 0 | 2,109,655 |
| Gu Yanmin | Director and Vice President | Incumbent | Male | 57 | 2014-4-21 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Yu Gang | Director | Incumbent | Male | 61 | 2018-9-26 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Xue Yunkui | Independent Director | Incumbent | Male | 56 | 2018-9-26 | 2021-9-25 | 0 | 0 | 0 | 179,914 | 179,914 |
| Guan Qingyou | Independent Director | Incumbent | Male | 43 | 2018-9-26 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Han Jian | Independent Director | Incumbent | Female | 48 | 2018-9-26 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Liu Min | Chairman of the Supervisory Committee | Incumbent | Female | 43 | 2016-2-1 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Zhao Jun | Supervisor | Incumbent | Male | 45 | 2014-4-21 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Liang Huiming | Employee Supervisor | Incumbent | Female | 37 | 2017-3-30 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Wang Jianguo | Vice President | Incumbent | Male | 44 | 2017-12-15 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Zhang Xiaoyi | Vice President | Incumbent | Male | 47 | 2018-4-23 | 2021-9-25 | 470,800 | 0 | 0 | 115,775 | 586,575 |
| Xiao Mingguang | Vice President | Incumbent | Male | 50 | 2019-3-22 | 2021-9-25 | 280,000 | 0 | 0 | 75,000 | 355,000 |
| Director of Finance | Former | 2016-7-16 | 2019-3-22 | ||||||||
| Hu Ziqiang | Vice President | Incumbent | Male | 63 | 2014-8-18 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Wang Jinliang | Vice President | Incumbent | Male | 53 | 2014-8-18 | 2021-9-25 | 0 | 0 | 0 | 120,000 | 120,000 |
| Helmut Zodl | Chief Financial Officer | Incumbent | Male | 47 | 2019-10-22 | 2021-9-25 | 0 | 0 | 0 | 0 | 0 |
| Zhong Zheng | Director of Finance | Incumbent | Female | 38 | 2019-3-22 | 2021-9-25 | 0 | 0 | 0 | 201,152 | 201,152 |
| Jiang Peng | Board Secretary | Incumbent | Male | 47 | 2013-10-30 | 2021-9-25 | 611,300 | 0 | 152,700 | 0 | 458,600 |
| Zhu Fengtao | Director and Vice President | Former | Male | 52 | 2014-4-21 | 2019-3-22 | 1,020,400 | 0 | 0 | 0 | 1,020,400 |
| Total | -- | -- | -- | -- | -- | -- | 141,482,647 | 0 | 152,700 | 691,841 | 142,021,788 |
| Name | Office title | Type of change | Date | Reason |
| Zhu Fengtao | Director and Vice President | Resigned | 2019-3-22 | Personal reason |
| Xiao Mingguang | Director of Finance | Dismissed | 2019-3-22 | Job change |
incumbent directors, supervisors and senior managementMr. Fang Hongbo, male, holder of a Master's degree, is the Chairman and CEO of the Company. Hejoined Midea in 1992 and previously served as the General Manager of Midea Air-Conditioning BusinessUnit, CEO of Midea Refrigeration Electric Appliances Group, Chairman and CEO of GD Midea HoldingCo., Ltd.Mr. He Jianfeng, male, holder of a Bachelor's degree, is a Director of Midea Group. He is also theChairman of the Board and President of Infore Investments Holding Group Co., Ltd.Mr. Yin Bitong, male, a Master's graduate, joined Midea in 1999 and served as GM Assistant andMarketing Director of the Residential Air Conditioning Division as well as GM and Director of Wuxi LittleSwan Co. Ltd. He is now a Director and Vice President of Midea Group and the President of MideaResidential Air Conditioning Division.Mr. Gu Yanmin, male, holder of a Doctoral degree, joined Midea in 2000 and has functioned as the Headof Planning & Investment, Head of Overseas Strategy & Development, Vice President and Head ofOverseas Business Development of Midea Air-Conditioning & Refrigeration Group, Head of OverseasStrategy of Midea Group. Currently he is a Director, Vice President of the Company as well as theChairman of the Supervisory Board of KUKA.Mr. Yu Gang, male, holder of a Doctoral degree given by the Wharton School of the University ofPennsylvania, is the Honorary Chairman and a co-founder of YHD.COM. He once served as the GlobalSupply Chain Vice President of Amazon and the Global Procurement Vice President of Dell. He is nowthe Executive Chairman of the Board of Directors and a co-founder of 111, Inc., as well as a Director ofMidea Group.Mr. Xue Yunkui, male, is a holder of a Doctoral degree given by the Southwest University and a holderof a Post-Doctoral degree given by the Shanghai University of Finance and Economics. He used to bethe associate dean and a doctoral supervisor at the School of Accountancy of Shanghai University ofFinance and Economics, a Founding Vice President of Shanghai National Accounting Institute andCheung Kong Graduate School of Business, the Secretary-General of China Association of Accounting
Professors, a Vice Chairman of the Steering Committee of the National Accounting Institute under theMinistry of Finance, etc. He is now an accounting professor of Cheung Kong Graduate School of Business,and an Independent Director of Midea Group.Mr. Guan Qingyou, male, is a holder of a Doctoral degree in economics given by the Chinese Academyof Social Sciences and a holder of a Post-Doctoral degree given by the Tsinghua University. He onceworked as a Vice President and the Director of the Research Institute of Minsheng Securities. Currently,he serves as the President and Chief Economist of the Reality Institute of Advanced Finance (anindependent research institute), an Independent Director of Midea Group, a senior researcher at ChinaSociety of Economic Reform, a special expert in the Fiscal Reform and Development Think Tank underthe Ministry of Finance, a member of the Expert Advisory Committee on Industrial Economic Operationunder the Ministry of Industry and Information Technology, a member of the Think Tank Committee of theAll-China Federation of Industry and Commerce, etc.Ms. Han Jian, female, holder of a Doctoral degree given by the Cornell University, is an associateprofessor of management in China Europe International Business School, a co-director of the SinoEuropean Innovation Institute in China and the Sino European Digital Economy and Intelligent EnterpriseResearch Center, as well as an Independent Director of Midea Group.Ms. Liu Min, female, a Master’s degree graduate, joined Midea in 1998. She used to be the GeneralManager of the Overseas Marketing Company under Midea’s Residential Air-Conditioning Division andthe Director of Midea Executive Office. She is now the Chairman of the Supervisory Committee, Directorof HR Department of Midea as well as a member of KUKA’s Supervisory Board.Mr. Zhao Jun, male, a Master's degree graduate, joined Midea in 2000 and has functioned as the Directorand the CFO of GD Midea Holding Co., Ltd. He is now a Supervisor of the Company, a Vice Presidentand the Director of Finance in Midea Holding Co., Ltd., as well as a Non-Executive Director of Midea RealEstate Holding Limited.Ms. Liang Huiming, female, is a holder of a Bachelor’s degree. Joining Midea in 2007, she used to serveas the Chief Business Administration Commissioner in Midea Group’s Administration and Human
Resources Department. She is now the Employee Supervisor of Midea Group.Mr. Wang Jianguo, male, a Master’s degree holder, joined Midea in 1999. He was once the Director ofthe Supply Chain Management Department of Midea Group’s Residential Air Conditioner Division, theDirector of the Administration and Human Resources Department of Midea Group, and the GeneralManager of Midea Group’s Refrigeration Division. Currently, he is a Vice President of Midea Group andthe President of Midea International Business.Mr. Zhang Xiaoyi, male, is a holder of a Master’s degree. Joining Midea Group in 2010, he used to serveas the head of the overseas process IT system, the head of the supply chain system of Midea Group, etc.He is now a Vice President, the Chief Information Officer and IT Director of Midea Group.Mr. Xiao Mingguang, male, a holder of a Master’s degree, joined Midea in 2000. He once was the DeputyDirector of the Financial Management Department and the Director of the Operational ManagementDepartment of Midea Group, the Director of the Audit and Supervision Department and a Director of GDMidea Holding Co., Ltd., as well as the Director of Finance of Midea Group, etc. He is now a VicePresident of Midea Group.Mr. Hu Ziqiang, male, holder of a Doctoral degree, joined Midea in 2012, and has formerly worked forGE and Samsung and as a Vice GM in Wuxi Little Swan Co., Ltd. At present he is a Vice President andthe CTO of the Company.Mr. Wang Jinliang, male, holder of a Master’s degree, joined Midea in 1995 and previously worked asthe Vice President of China Marketing in the Company, and was GD Midea Holding’s Vice President andMarketing Head. He is now a Vice President of the Company.Mr. Helmut Zodl, male, holder of a Master’s degree, joined Midea in 2019. For the period from 2000 to2005, he worked in IBM as the Financial Manager for the Austrian operations, as well as the Director ofFinance for the European, Middle East and African operations. For the period from 2005 to 2017, heserved in Lenovo as the Director of Finance, the Vice President and Chief Financial Officer for the AsiaPacific and Latin American operations, the Vice President and Chief Financial Officer for the GlobalCommercial Business and the American operations, the Vice President and Chief Financial Officer for
the Global Service Business. For the period from 2017 to 2019, he was the Senior Vice President ofFinancial Affairs in Advance Auto Parts Inc. And he is now the Chief Financial Officer of Midea Group anda member of the Supervisory Board of KUKA.Ms. Zhong Zheng, female, a holder of a Master’s degree, joined Midea in 2002. She once was theFinancial Manager of the factory in Guangzhou of the Residential Air Conditioner Division and of domesticand overseas marketing subsidiaries, the Director of Finance of the Financial Center and the ComponentDivision, as well as the Audit Director of Midea Group, etc. She is now the Director of Finance of MideaGroup.Mr. Jiang Peng, male, holder of a Master’s degree, joined Midea in 2007 and used to be theRepresentative for Securities Affairs and Board Secretary for GD Midea Holding Co., Ltd. He is now theBoard Secretary and Director of Investor Relations of Midea Group.Posts held in shareholding entities
√Applicable □N/A
| Name | Shareholding entity | Position | Beginning date of office term | Ending date of office term | Allowance from the shareholding entity |
| He Jianfeng | Midea Holding Co., Ltd. | President | 2016-01 | - | No |
| Zhao Jun | Midea Holding Co., Ltd. | Director of Finance | 2012-09 | - | Yes |
| Vice President | 2015-12 | ||||
| Note | N/A | ||||
| Name | Other entity | Position | Beginning date of office term | Ending date of office term | Allowance from the entity |
| Fang Hongbo | KUKA | Member of the Supervisory Board | 2017-03 | 2019-05 | Yes |
| He Jianfeng | Infore Investments Holding Group Co., Ltd. | Chairman of the Board and | 1995-06 | - | Yes |
| President | ||||||
| Gu Yanmin | KUKA | Chairman of the Supervisory Board | 2017-01 | 2024-06 | Yes | |
| Yu Gang | 111, Inc. | Executive Chairman of the Board | 2011-04 | - | Yes | |
| Xue Yunkui | Aeon Life Insurance Company, Ltd. | Independent Director | 2019-01 | 2022-01 | Yes | |
| Ouyeel Co., Ltd. | Independent Director | 2019-08 | 2022-08 | Yes | ||
| Dalian Wanda Commercial Management Group Co., Ltd. | Independent Director | 2020-02 | 2023-02 | Yes | ||
| Guan Qingyou | Beijing Rushi Research Information Consulting Service Co., Ltd. | Chairman of the Board | 2017-12 | - | Yes | |
| Shaanxi International Trust Co., Ltd. | Independent Director | 2019-07 | 2022-07 | Yes | ||
| Nanhua Futures Co., Ltd. | Independent Director | 2019-02 | 2022-02 | Yes | ||
| Liu Min | KUKA | Member of the Supervisory Board | 2017-01 | 2024-06 | Yes | |
| Helmut Zodl | KUKA | Member of the Supervisory Board | 2020-01 | 2024-06 | Yes | |
| Note | N/A | |||||
The remuneration of directors, supervisors and senior executives consist of basic annual payments andperformance-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 isdetermined 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 thecompletion rate of corporate profit, the assessment result of target responsibility system and theperformance 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 theCompany's operating conditions in order to meet the Company’s development requirements. The basisfor adjusting the remuneration of directors, supervisors and senior executives are as follows:
a. Wage growth in the industryb. Inflationc. Corporate earningsd. Organizational structure adjustmente. Individual adjustment due to a change in position
Remuneration of directors, supervisors and senior executives during the Reporting Period
Unit: RMB'000
| Name | Position | Gender | Age | Incumbent/ Former | Total before-tax remuneration from the Company | Remuneration from related parties of the Company |
| Fang Hongbo | Chairman of the Board and CEO | Male | 53 | Incumbent | 9,630 | |
| He Jianfeng | Director | Male | 53 | Incumbent | - | Yes |
| Yin Bitong | Director and Vice President | Male | 52 | Incumbent | 7,650 | |
| Gu Yanmin | Director and Vice President | Male | 57 | Incumbent | 3,480 |
| Yu Gang | Director | Male | 61 | Incumbent | 450 | |
| Xue Yunkui | Independent Director | Male | 56 | Incumbent | 450 | |
| Guan Qingyou | Independent Director | Male | 43 | Incumbent | 450 | |
| Han Jian | Independent Director | Female | 48 | Incumbent | 450 | |
| Liu Min | Chairman of the Supervisory Board | Female | 43 | Incumbent | 2180 | |
| Zhao Jun | Supervisor | Male | 45 | Incumbent | - | Yes |
| Liang Huiming | Employee Supervisor | Female | 37 | Incumbent | 210 | |
| Wang Jianguo | Vice President | Male | 44 | Incumbent | 4,340 | |
| Zhang Xiaoyi | Vice President | Male | 47 | Incumbent | 4,460 | |
| Hu Ziqiang | Vice President | Male | 63 | Incumbent | 4,710 | |
| Wang Jinliang | Vice President | Male | 53 | Incumbent | 4,120 | |
| Xiao Mingguang | Vice President | Male | 50 | Incumbent | 3,270 | |
| Helmut Zodl | Chief Financial Officer | Male | 47 | Incumbent | 2,200 | |
| Zhong Zheng | Director of Finance | Female | 38 | Incumbent | 2,400 | |
| Jiang Peng | Board Secretary | Male | 47 | Incumbent | 2,410 | |
| Zhu Fengtao | Director and Vice President | Male | 52 | Former | 4,940 | |
| Total | -- | -- | -- | -- | 57,800 | -- |
| Name | Office title | Exercisable share options for the Reporting Period | Exercised share options in the Reporting Period | Exercise price for exercised share options in the Reporting Period (RMB / share) | Market price at the end of the Reporting Period (RMB / share) | Restricted shares held at the beginning of the Reporting Period | Unlocked shares in the Reporting Period | Restricted shares granted in the Reporting Period | Grant price of the restricted shares (RMB/share) | Restricted shares held at the end of the Reporting Period |
| Wang Jinliang | Vice President | 0 | 0 | - | 58.25 | 0 | 0 | 120,000 | 25.79 | 120,000 |
| Hu Ziqiang | Vice President | 0 | 0 | - | 58.25 | 200,000 | 100,000 | 0 | 15.86 | 100,000 |
| 100,000 | 0 | 0 | 27.57 | 100,000 |
| Xiao Mingguang | Vice President | 245,000 | 35,000 | 17.85 | 58.25 | 100,000 | 0 | 0 | 27.57 | 100,000 |
| 150,000 | 50,000 | 0 | 27.99 | 100,000 | ||||||
| Zhong Zheng | Director of Finance | 116,000 | 41,000 | 19.15 | 58.25 | 120,000 | 60,000 | 0 | 15.86 | 60,000 |
| 80,000 | 0 | 27.57 | 80,000 | |||||||
| Zhang Xiaoyi | Vice President | 180,000 | 90,000 | 17.36 | 58.25 | 140,000 | 70,000 | 0 | 15.86 | 70,000 |
| 10,000 | 16.06 | 58.25 | 100,000 | 0 | 0 | 27.57 | 100,000 | |||
| Total | -- | 541,000 | 176,000 | -- | -- | 990,000 | 280,000 | 120,000 | -- | 830,000 |
| Note (if any) | N/A | |||||||||
| Number of in-service staff of the Company | 1,491 |
| Number of in-service staff of main subsidiaries | 133,406 |
| Total number of in-service staff | 134,897 |
| Total number of staff with remuneration in the period | 134,897 |
| Number of retirees to whom the Company or its main subsidiaries need to pay retirement pension | 2,280 |
| Functions | |
| Function | Number of staff |
| Production | 110,568 |
| Sales | 7,424 |
| Technical/R&D | 13,727 |
| Financial | 1,783 |
| Administrative | 1,395 |
| Total | 134,897 |
| Educational backgrounds | |
| Educational background | Number of staff |
| Master and doctor | 4,422 |
| Bachelor | 26,867 |
| College, technical secondary school | 51,855 |
| Others | 51,753 |
| Total | 134,897 |
5.2 Staff remuneration policy
Staff remuneration shall be paid on time according to the Salary Management System. The Companydecides the regular salary of the employees according to the position’s value and evaluationperformances 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 marketcompetitiveness in the salary of core talent. The Company shall make dynamic adjustments to the staffremuneration policy according to regional differences, number of employees, staff turnover, environmentchanges in the industry and paying ability of the Company.
5.3 Staff trainings
The attendances at internal training sessions were 637,007 in the Reporting Period, of which 27,411 weremanagement personnel, 283,869 technical and marketing personnel and 325,727 operational personnel.The trainings included:
a. Building Leadership Development Programs such as the Sailor-Voyager-Pilot program and a High-Potential Leaders Training system to facilitate talent management and training.53 talent training programswere carried out, where 2,916 highly skilled managerial staff were trained for a total of 54,288 man-hours.b. Building a professionalism promotion system. 817 such programs were carried out, where 344,920staff were trained for a total of 2,862,836.5 man-hours.c. Providing channels for common skill improvement. 662 such programs such as the Lecture for Staffand language trainings were launched, where 71,482 staff were trained for a total of 252,402 man-hours.d. Improving individual comprehensive ability. 151 external trainings for individuals at junior, middle andsenior levels were organized, where 655 staff were trained for a total of 10,926 man-hours.e. In order to help new graduates develop themselves fast and foster a new power for the Company, 72relevant programs such as the Re-Education of New Graduates and the Training Camp for NewGraduates were organized, where 10,310 new graduates were trained for a total of 273,922 man-hours.
f. Facilitating organizational learning. 1,368 internal sharing sessions were held, where 50,511 employeeswere trained for 89,909 man-hours. With the addition of 860 new internal trainers, annual teaching timereached 7,231.3 hours in total. And a total of 920 courses were designed in the year.g. 13,217 key technical staff and working team leaders were trained for a total of 278,189 hours.h. 54,965 staff visited M-Learning, a mobile app developed by Midea for online training, for a total of228,232 times in 2019.
5.4 Labor outsourcing
□Applicable √N/A
Section VIII Corporate Governance
1. Basic Situation of Corporate Governance
Any incompliance with the regulatory documents issued by the CSRC governing the governance of listedcompanies
□Yes √No
The Company is constantly improving its corporate governance in strict accordance with the CompanyLaw, 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 AuditingCommittee, the Nomination Committee as well as the Remuneration and Appraisal Committee. Theywere designed to provide consultation and advice to the Board and validate the professionalization andefficiency of discussions and decision-making. The Company has established clear rules of procedurefor its shareholders' general meeting, board of directors, Supervisory Committee and special committeesunder the board, as well as the Work Rules for Company Secretary. It has also established a set ofstandard documents including Information Disclosure Management System, Funds Raising ManagementSystem, Connected Transaction Management System, Wealth Management Entrustment ManagementSystem, Insider Registration System, External Guaranty Decision-making System, Foreign InvestmentManagement System, and Management System for Finance Flow with Connected Parties, InternalAuditing System. The shareholders' meeting, the Board, Supervisory Committee and operationsmanagement departments have clear authority and responsibility. Each performs its own functions andmaintains its stability effectively. Their scientific decision-making and coordinated operations have laid afirm foundation for the sustained, healthy and steady development of the Company.The Company has also launched core management team shareholding plans and equity incentive plansfor core research, quality control, technical, production and management staff, which helps to develop asound shareholding structure for the future growth of the Company.In 2019, the Company won the following honors:
No. 312 of “2019 Fortune Global 500”; No. 253 of “The World’s 2,000 Largest Public Companies”released by the Forbes; No. 33 of the “BrandZ? Top 100 Most Valuable Chinese Brands” jointlyreleased by WPP and Kantar Millward Brown; No. 149 of the “2019 Brand Finance Global 500 ”; the“Best Responsibility Advancement Award” at “China ESG Golden Awards 2019” presented byfinance.sina.com.cn; and “The Enterprise with Excellent Governance” at “The Golden Round TableAwards 2019” presented by the Directors & Boards magazine.
2. Independency of businesses, personnel, assets, organizations, and finance whichare separate from the controlling shareholderThe Company is totally autonomous with respect to business, personnel, assets, organizations, andfinance from Midea Holding Co., Ltd., the controlling shareholder of the Company, therefore maintainingintegrity and independency in both business and operations.
2.1 Business independence:
The Company has a complete industrial chain for its manufacturing business, a completely distinctpurchase 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. Thelabor, personnel and remuneration management of the company are totally unrelated. All seniormanagement members received remuneration from the Company except those that hold only a director’sposition in the controlling shareholder.
2.3 Asset integrity:
The Company has its own independent production system as well as ancillary production systems andfacilities. Intangible assets such as industrial rights, trademark ownership and non-patent technology areheld by the Company.
2.4 Organization independence:
The Company has set up an independent organizational structure which maintains its independentoperation. The Company has the right to appoint or remove any personnel so there is no overlapping withthe controlling shareholder.
2.5 Financial independence:
The Company's financial management is independent from the controlling shareholder. The Companyhas its own accounting department, accounting system, financial management system, and bankaccounts 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 Convenedduring the Reporting Period
4.1 Meetings of shareholders convened during the Reporting Period
| Meeting | Type | Investor participation ratio | Convened date | Disclosure date | Disclosure index |
| 2019 First Special Meeting of Shareholders | Special meeting of shareholders | 55.2068% | 15 February 2019 | 16 February 2019 | Announcement No. 2019-020, disclosed on www.cninfo.com.cn |
| 2018 Annual Meeting of Shareholders | Annual meeting of shareholders | 57.1694% | 13 May 2019 | 14 May 2019 | Announcement No. 2019-071, disclosed on www.cninfo.com.cn |
| 2019 Second Special Meeting of Shareholders | Special meeting of shareholders | 51.6877% | 18 November 2019 | 19 November 2019 | Announcement No. 2019-127, disclosed on www.cninfo.com.cn |
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 | ||||||
| Independent director | Presence due in the Reporting Period (times) | Presence on site (times) | Presence by telecommunication (times) | Presence through a proxy (times) | Absence (times) | Absence for two consecutive times |
| Xue Yunkui | 12 | 1 | 11 | 0 | 0 | No |
| Guan Qingyou | 12 | 1 | 11 | 0 | 0 | No |
| Han Jian | 12 | 1 | 11 | 0 | 0 | No |
| Presence of independent directors in meetings of shareholders (times) | 1 | |||||
6. Performance of Duties by Special Committees under the Board during theReporting Period
6.1 The Audit Committee under the Board convened four meetings in the Reporting Period, at which thefollowing proposals were considered and approved: The 2018 Final Account Report, The 2018 AnnualReport & Its Abstract, The Report of the Audit Committee on Concluding and Appraising the 2018 AnnualAudit Work, The Proposal for Appointing an Auditor for the 2019 Annual Result, The Proposal forAppointing an Auditor for the Internal Control in 2019, The Proposal for Writing off Asset ImpairmentProvisions, The Report on the First Quarter of 2019, The 2019 Semi-Annual Report and The Report onthe Third Quarter of 2019.
6.2 The Remuneration and Appraisal Committee under the Board convened three meetings in theReporting Period, at which the following proposals were considered and approved: The Proposal on theRepurchase and Retirement of Certain Incentive Shares under the 2017 and 2018 Restricted ShareIncentive Schemes, The Proposal on the Satisfaction of the Conditions for the First Unlocking Period forthe Reserved Restricted Shares of the 2017 Restricted Share Incentive Scheme, The Proposal forMatters Related to the Stock Option Exercise for the Second Exercise Period of the Fourth Stock OptionIncentive Scheme, The Proposal on the Satisfaction of the Conditions for the Second Unlocking Periodfor the First Phase of the 2017 Restricted Share Incentive Scheme, and The Proposal for Matters Relatedto the Stock Option Exercise for the Third Exercise Period of the Third Stock Option Incentive Scheme.
6.3 The Nomination Committee under the Board convened two meetings in the Reporting Period, at whichthe following proposals were considered and approved: The Proposal for Vice President Appointment,The Proposal for the Appointment of Director of Finance and The Proposal for the Appointment of ChiefFinancial Officer.
7. Performance of Duties by the Supervisory Committee
Were there any risks to the Company identified by the Supervisory Committee when performing itsduties 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 ManagementThe Company established an appraisal system on the basis of its target-oriented responsibility systemand adopted an appraisal agreement for senior management members, which determines the appraisalcriterion, appraisal method and measures taken based on the appraisal result. During the ReportingPeriod, the Company has carried out appraisals of senior management members on the basis of itstarget-oriented responsibility system and the appraisal result was reflected in the annual performance-based incentive rewards. Meanwhile, the Company promoted the unification of interests betweenmanagers and shareholders through high-level staff and core management teams' shareholding schemesas well as multiple stock option or restricted share incentive schemes, laying a good foundation for thefuture growth of the Company.
9. Internal Control
9.1 Serious internal control defects found in the Reporting Period
□Yes √No
9.2 Self-evaluation report on internal control
| Disclosure date of the internal control self-evaluation report | 30 April 2020 | ||
| Index to the disclosed internal control self-evaluation report | For details, please refer to the 2019 Self-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 consolidated total assets | 70% | ||
| Ratio of the operating revenue of the appraised entities to the consolidated operating revenue | 70% | ||
| Defect identification standards | |||
| Type | Financial-report related | Non-financial-report related | |
| Nature standard | For details, please refer to “(c) Basis for internal control evaluation and identification standards for internal control defects” under Section III of The 2019 Self-Evaluation Report on Internal Control disclosed on www.cninfo.com.cn dated 30 | For details, please refer to “(c) Basis for internal control evaluation and identification standards for internal control defects” under Section III of The 2019 Self-Evaluation Report on Internal Control disclosed on www.cninfo.com.cn dated 30 | |
| April 2020. | April 2020. | |
| Quantitative standard | For details, please refer to “(c) Basis for internal control evaluation and identification standards for internal control defects” under Section III of The 2019 Self-Evaluation Report on Internal Control disclosed on www.cninfo.com.cn dated 30 April 2020. | For details, please refer to “(c) Basis for internal control evaluation and identification standards for internal control defects” under Section III of The 2019 Self-Evaluation Report on Internal Control disclosed on www.cninfo.com.cn dated 30 April 2020. |
| Number of serious financial-report-related defects | 0 | |
| Number of serious non-financial-report-related defects | 0 | |
| Number of important financial-report-related defects | 0 | |
| Number of important non-financial-report-related defects | 0 | |
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 2019, 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 control disclosed or not | Disclosed on www.cninfo.com.cn |
| Date of disclosing the full text of the auditor’s report on internal control | 30 April 2020 |
| Index to the disclosed full text of the auditor’s report on internal control | For details, please refer to the 2019 Auditor’s Report on Internal Control, which has been disclosed on www.cninfo.com.cn |
| Type of the auditor’s opinion | Standard & unqualified |
| Serious non-financial-report-related defects | No |
Whether any modified opinions are expressed by the accounting firm in its auditor’s report on theCompany’s internal control
□Yes √ No
Whether the auditor’s report on the Company’s internal control issued by the accounting firm is consistentwith the self-evaluation report of the Board
√Yes □ No
Section IX Financial Report
1.Auditor’s report
| Type of the auditor’s opinion | Unqualified opinion |
| Signing date of the auditor’s report | 28 April 2020 |
| Name of the auditor | PricewaterhouseCoopers China (LLP) |
| No. of the auditor’s report | PwC ZT Shen Zi (2020) No. 10017 |
| Names of certified public accountants | Huang Meimei and Qiu Xiaoying |
[English Translation for Reference Only]
Auditor’s ReportPwC ZT Shen Zi (2020) No. 10017
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To the shareholders of Midea Group Co., Ltd.,Opinion
OpinionWhat we have audited
What we have audited
We have audited the accompanying financial statements of Midea Group Co., Ltd. (hereinafter “theGroup”), which comprise:
? the consolidated and company balance sheets as at 31 December 2019;? 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.
We have audited the accompanying financial statements of Midea Group Co., Ltd. (hereinafter “theGroup”), which comprise:
? the consolidated and company balance sheets as at 31 December 2019;? 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
Our opinionIn our opinion, the accompanying financial statements present fairly, in all material respects, theconsolidated and company’s financial position of the Group as at 31 December 2019, and their financialperformance and cash flows for the year then ended in accordance with the requirements of theAccounting Standards for Business Enterprises (“CASs”).
In our opinion, the accompanying financial statements present fairly, in all material respects, theconsolidated and company’s financial position of the Group as at 31 December 2019, and their financialperformance and cash flows for the year then ended in accordance with the requirements of theAccounting Standards for Business Enterprises (“CASs”).Basis for Opinion
Basis for OpinionWe conducted our audit in accordance with China Standards on Auditing (“CSAs”). Our responsibilitiesunder those standards are further described in the Auditor’s Responsibilities for the Audit of theFinancial Statements section of our report. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.
We conducted our audit in accordance with China Standards on Auditing (“CSAs”). Our responsibilitiesunder those standards are further described in the Auditor’s Responsibilities for the Audit of theFinancial Statements section of our report. We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our opinion.We are independent of the Group in accordance with the Code of Ethics for Professional Accountants ofthe Chinese Institute of Certified Public Accountants (“CICPA Code”), and we have fulfilled our otherethical responsibilities in accordance with the CICPA Code.
We are independent of the Group in accordance with the Code of Ethics for Professional Accountants ofthe Chinese Institute of Certified Public Accountants (“CICPA Code”), and we have fulfilled our otherethical responsibilities in accordance with the CICPA Code.Key Audit Matters
Key Audit MattersKey audit matters are those matters that, in our professional judgement, were of most significance inour audit of the financial statements of the current period. These matters were addressed in the contextof our audit of the financial statements as a whole, and in forming our opinion thereon, and we do notprovide a separate opinion on these matters.
Key audit matters are those matters that, in our professional judgement, were of most significance inour audit of the financial statements of the current period. These matters were addressed in the contextof our audit of the financial statements as a whole, and in forming our opinion thereon, and we do notprovide a separate opinion on these matters.Key audit matters identified in our audit are summarised as follows:
Key audit matters identified in our audit are summarised as follows:
? Recognition of revenue from sales of household appliances
| ? Recognition of revenue from sales of household appliances |
| ? Impairment testing of goodwill |
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| Key Audit Matters(Cont’d) | How our audit addressed the Key Audit Matters |
| Recognition of revenue from sales of household appliances Please refer to Note 2(26)(a) “Revenue - sales of goods” and Note 4(42) “Operating revenue” to the financial statements. Revenue is recognised when it’s probable that the economic benefits associated with the transaction will flow to the Group, the related revenue can be reliably measured, and the specific criteria of revenue recognition have been met for each type of the Group’s activities. In 2019, the Group’s consolidated operating revenue was RMB278,216,017,000 and the revenue from sales of household appliances accounted for over 80% of the consolidated operating revenue. We focused on recognition of revenue from sales of household appliances mainly due to the Group’s numerous clients and big sales volume at home and abroad achieved by its varied distribution channels. | Regarding the Group’s revenue from sales of household appliances, we performed procedures as follows: We interviewed management from operation and financial departments in terms of sales processes of all distribution channels to understand and evaluate the internal control of processes relating to the revenue from sale of household appliances designed by management and tested the operating effectiveness of key controls; We checked the household appliance sales contract template entered into by and between the Group and the clients from all distribution channels, and analysed and evaluated the Group’s accounting policies on the revenue from sales of household appliances based on our interview with management, understanding of the Group’s selling operation and audit experience. Regarding the sales of household appliances through all distribution channels, we performed the procedures as follows: 1.We performed such risk assessment procedures asanalysis of fluctuation in revenue from sales ofhousehold appliances on a monthly basis and analysisof fluctuation in gross profit rates;2.We checked supporting documents relevant torecognition of revenue from sales of householdappliances on sample basis, including sales contracts,orders, sales invoices, shipping orders,acknowledgement of goods receipts signed bycustomers, billing agreements with customers, etc.;3.We checked the amount of revenue by sendingconfirmations to customers on a sampling basis;4.We checked revenue from sales of householdappliances recognised around the balance sheet dateagainst acknowledgement of goods receipts signed bycustomers, billing agreements with customers orother supporting documents to evaluate if therevenue was recognised over appropriate period.We concluded that the Group’s recognition of revenue from sales of household appliances complied with its applicable accounting policies based on the audit procedures performed. |
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| Key Audit Matters (Cont’d) | How our audit addressed the Key Audit Matters |
| Impairment testing of goodwill Please refer to Note 4(17) “Goodwill” to the financial statements. As at 31 December 2019, the goodwill recorded in the consolidated balance sheet of the Group amounted to RMB28,207,065,000, including RMB22,240,132,000 and RMB2,984,110,000 arising from business acquisition of KUKA Aktiengesellschaft (“KUKA Group”) and Toshiba Lifestyle Products & Services Corporation (“TLSC”), respectively. Management believed that it was not necessary to make impairment provision for the goodwill based on the impairment testing prepared in accordance with the accounting policies stated in Note 2(19) to the consolidated financial statements. 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 required key accounting estimates and judgement. We focused on the impairment risk of the goodwill totalling RMB25,224,242,000 arising from the business acquisition of KUKA Group and TLSC because the amount is significant and the impairment testing of goodwill involved key accounting estimates and judgements. | Regarding the impairment testing of goodwill arising from the acquisition of KUKA Group and TLSC, we performed the procedures as followings: 1.We understood and evaluated the internal controlsrelevant to the impairment testing of goodwill, andtested the operating effectiveness of key control,including review and approval of key assumptionsapplied and internal control of calculation of therecoverable amounts of the asset groups containingthe allocated goodwill.2.We evaluated the appropriateness of methodologiesof impairment testing of goodwill adopted bymanagement with the assistance of internal valuers,and evaluated and recalculated the discount ratesadopted in the test by comparing industry or marketdata;3.We tested the accuracy of arithmetic applied in thecalculating process during the impairment testing ofgoodwill;4.We evaluated the accuracy of historical estimates onfuture cash flows by comparing the actual financialperformance of current year with the forecasts ofprior year, so as to check whether there was any biasfrom management during the evaluation of theimpairment testing of goodwill;5.We evaluated the reasonableness of key assumptionson expected revenue growth rates, EBITDA margins,perpetual annual growth rates, discount rates, etc.adopted in the impairment testing of goodwill byinterviewing with management and considering themarket developments.We concluded that the audit evidence we have obtained could support the accounting estimates and judgement applied by management in the evaluation of impairment testing of goodwill based on the audit procedures performed. |
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Other InformationManagement of the Group is responsible for the other information. Other information comprises all theinformation included in the 2019 annual report of the Group other than the financial statements andour auditor’s report thereon.
Management of the Group is responsible for the other information. Other information comprises all theinformation included in the 2019 annual report of the Group other than the financial statements andour auditor’s report thereon.Our opinion on the financial statements does not cover the other information and we do not express anyform of assurance conclusion thereon.
Our opinion on the financial statements does not cover the other information and we do not express anyform of assurance conclusion thereon.In connection with our audit of the financial statements, our responsibility is to read the otherinformation and, in doing so, consider whether the other information is materially inconsistent with thefinancial statements or our knowledge obtained in the audit or otherwise appears to be materiallymisstated. If, based on the work we have performed, we conclude that there is a material misstatementof this other information, we are required to report that fact. We have nothing to report in this regard.
In connection with our audit of the financial statements, our responsibility is to read the otherinformation and, in doing so, consider whether the other information is materially inconsistent with thefinancial statements or our knowledge obtained in the audit or otherwise appears to be materiallymisstated. If, based on the work we have performed, we conclude that there is a material misstatementof 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 FinancialStatements
Responsibilities of Management and Those Charged with Governance for the FinancialStatementsManagement of the Group is responsible for the preparation and fair presentation of these financialstatements in accordance with the CASs, and for such internal control as management determines isnecessary to enable the preparation of financial statements that are free from material misstatement,whether due to fraud or error.
Management of the Group is responsible for the preparation and fair presentation of these financialstatements in accordance with the CASs, and for such internal control as management determines isnecessary 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 the Group’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless management either intends to liquidate the Group or to ceaseoperations, or has no realistic alternative but to do so.
In preparing these financial statements, management is responsible for assessing the Group’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless management either intends to liquidate the Group or to ceaseoperations, or has no realistic alternative but to do so.Those charged with governance are responsible for overseeing the Group’s financial reporting process.
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Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether these financial statements as a wholeare free from material misstatement, whether due to fraud or error, and to issue an auditor’s report thatincludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that anaudit 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 theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.
Our objectives are to obtain reasonable assurance about whether these financial statements as a wholeare free from material misstatement, whether due to fraud or error, and to issue an auditor’s report thatincludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that anaudit 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 theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.As part of an audit in accordance with CSAs, we exercise professional judgement and maintainprofessional scepticism throughout the audit. We also:
As part of an audit in accordance with CSAs, we exercise professional judgement and maintainprofessional scepticism throughout the audit. We also:
? Identify and assess the risks of material misstatement of the financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtainaudit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk ofnot detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.
? 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 obtainaudit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk ofnot detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride 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.
? 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.
? 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 the 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 the Group
to cease to continue as a going concern.
? 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 the 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 the Group
to cease to continue as a going concern.? Evaluate the overall presentation (including the disclosures), structure and content of the
financial statements, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
? Evaluate the overall presentation (including the disclosures), structure and content of the
financial statements, 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 the 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.
? Obtain sufficient appropriate audit evidence regarding the financial information of the entities
or business activities within the 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 plannedscope and timing of the audit and significant audit findings, including any significant deficiencies ininternal control that we identify during our audit.
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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 relevantethical requirements regarding independence, and to communicate with them all relationships andother matters that may reasonably be thought to bear on our independence, and where applicable,related safeguards.
We also provide those charged with governance with a statement that we have complied with relevantethical requirements regarding independence, and to communicate with them all relationships andother 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 thatwere of most significance in the audit of the financial statements of the current period and are thereforethe key audit matters. We describe these matters in our auditor’s report unless law or regulationprecludes public disclosure about the matter or when, in extremely rare circumstances, we determinethat a matter should not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of such communication.
From the matters communicated with those charged with governance, we determine those matters thatwere of most significance in the audit of the financial statements of the current period and are thereforethe key audit matters. We describe these matters in our auditor’s report unless law or regulationprecludes public disclosure about the matter or when, in extremely rare circumstances, we determinethat a matter should not be communicated in our report because the adverse consequences of doing sowould reasonably be expected to outweigh the public interest benefits of such communication.
PricewaterhouseCoopers Zhong Tian LLPShanghai , the People’s Republic of China28 April 2020
| PricewaterhouseCoopers Zhong Tian LLP Shanghai , the People’s Republic of China 28 April 2020 | Signing CPA Signing CPA | --------------------------- Huang MeiMei (Engagement Partner) --------------------------- Qiu XiaoYing |
MIDEA GROUP CO., LTD.CONSOLIDATED AND COMPANY BALANCE SHEETSAS AT 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| ASSETS | Note | 31 December 2019 | 31 December 2018 | 31 December 2019 | 31 December 2018 |
| Consolidated | Consolidated | Company | Company |
| Current assets | |||||
| Cash at bank and on hand | 4(1) | 70,916,841 | 27,888,280 | 52,291,056 | 15,361,626 |
| Financial assets held for trading | 4(2) | 1,087,351 | —— | - | —— |
| Derivative financial assets | 197,412 | 220,197 | - | - | |
| Notes receivable | 4(3) | 4,768,520 | 12,556,294 | - | - |
| Accounts receivable | 4(4) | 18,663,819 | 19,390,174 | - | - |
| Receivables financing | 4(6) | 7,565,776 | —— | - | —— |
| Advances to suppliers | 4(7) | 2,246,177 | 2,215,888 | 36,877 | 55,069 |
| Loans and advances | 4(8) | 10,869,396 | 11,328,392 | - | - |
| Other receivables | 4(5),17(1) | 2,712,974 | 2,971,368 | 18,369,865 | 11,593,020 |
| Inventories | 4(9) | 32,443,399 | 29,645,018 | - | - |
| Other current assets | 4(10) | 65,011,027 | 76,473,827 | 42,665,884 | 55,052,256 |
| Total current assets | 216,482,692 | 182,689,438 | 113,363,682 | 82,061,971 |
| Non-current assets | |||||
| Available-for-sale financial assets | —— | 1,906,878 | —— | 56,579 | |
| Long-term receivables | 4(11) | 1,208,079 | 34,815 | - | - |
| Loans and advances | 4(8) | 790,101 | - | - | - |
| Long-term equity investments | 4(12),17(2) | 2,790,806 | 2,713,316 | 52,605,859 | 28,236,295 |
| Other non-current financial assets | 4(13) | 1,750,107 | —— | 487,564 | —— |
| Investment properties | 399,335 | 391,765 | 518,828 | 560,954 | |
| Fixed assets | 4(14) | 21,664,682 | 22,437,212 | 878,239 | 1,056,790 |
| Construction in progress | 4(15) | 1,194,650 | 2,077,621 | 155,681 | 51,872 |
| Intangible assets | 4(16) | 15,484,179 | 16,186,675 | 700,836 | 712,454 |
| Goodwill | 4(17) | 28,207,065 | 29,100,390 | - | - |
| Long-term prepaid expenses | 4(18) | 1,267,127 | 1,191,373 | 123,548 | 174,684 |
| Deferred tax assets | 4(19) | 5,768,993 | 4,421,313 | 189,888 | 202,703 |
| Other non-current assets | 4(20) | 4,947,603 | 550,352 | 4,359,507 | 4,576 |
| Total non-current assets | 85,472,727 | 81,011,710 | 60,019,950 | 31,056,907 |
| TOTAL ASSETS | 301,955,419 | 263,701,148 | 173,383,632 | 113,118,878 |
MIDEA GROUP CO., LTD.CONSOLIDATED AND COMPANY BALANCE SHEETS (CONT’D)AS AT 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| LIABILITIES AND OWNERS' EQUITY | Note | 31 December 2019 | 31 December 2018 | 31 December 2019 | 31 December 2018 |
| Consolidated | Consolidated | Company | Company |
| Current liabilities | |||||
| Short-term borrowings | 4(23) | 5,701,838 | 870,390 | 4,550,064 | 575,000 |
| Borrowings from the Central Bank | - | 99,754 | - | - | |
| Customer deposits and deposits from banks and other financial institutions | 62,477 | 44,386 | - | - | |
| Derivative financial liabilities | 27,100 | 756,299 | - | - | |
| Notes payable | 4(24) | 23,891,600 | 23,325,115 | - | - |
| Accounts payable | 4(25) | 42,535,777 | 36,901,626 | - | - |
| Advances from customers | 4(26) | 16,231,854 | 16,781,666 | - | - |
| Employee benefits payable | 4(27) | 6,436,109 | 5,788,004 | 566,861 | 573,632 |
| Taxes payable | 4(28) | 5,096,267 | 3,875,298 | 1,059,246 | 280,499 |
| Other payables | 4(29) | 3,800,568 | 3,346,129 | 103,624,998 | 74,714,012 |
| Current portion of non-current liabilities | 4(30) | 1,460,117 | 7,122,712 | - | - |
| Other current liabilities | 4(31) | 39,074,777 | 31,319,709 | 19,539 | 44,414 |
| Total current liabilities | 144,318,484 | 130,231,088 | 109,820,708 | 76,187,557 |
| Non-current liabilities | |||||
| Long-term borrowings | 4(32) | 41,298,377 | 32,091,439 | 4,000,000 | - |
| Long-term payables | 33,646 | 88,890 | - | - | |
| Provisions | 353,269 | 268,887 | - | - | |
| Deferred income | 617,155 | 647,583 | - | - | |
| Long-term employee benefits payable | 4(33) | 2,418,563 | 2,480,318 | - | - |
| Deferred tax liabilities | 4(19) | 4,556,002 | 4,422,074 | 59,032 | - |
| Other non-current liabilities | 4(34) | 863,826 | 1,016,352 | - | - |
| Total non-current liabilities | 50,140,838 | 41,015,543 | 4,059,032 | - |
| Total liabilities | 194,459,322 | 171,246,631 | 113,879,740 | 76,187,557 |
| Shareholders' equity | |||||
| Share capital | 4(35) | 6,971,900 | 6,663,031 | 6,971,900 | 6,663,031 |
| Capital surplus | 4(37) | 19,640,313 | 18,451,307 | 26,592,959 | 10,615,389 |
| Less: Treasury stock | 4(36) | (3,759,732) | (4,918,427) | (3,759,732) | (4,918,427) |
| Other comprehensive income | 4(38) | (711,554) | (1,332,153) | 1,735 | 6,020 |
| General risk reserve | 366,947 | 366,947 | - | - | |
| Surplus reserve | 4(39) | 6,447,658 | 5,079,096 | 6,447,658 | 5,079,096 |
| Undistributed profits | 4(40) | 72,713,631 | 58,762,315 | 23,249,372 | 19,486,212 |
| Total equity attributable to shareholders of the Company | 101,669,163 | 83,072,116 | 59,503,892 | 36,931,321 | |
| Minority interests | 5,826,934 | 9,382,401 | - | - | |
| Total shareholders' equity | 107,496,097 | 92,454,517 | 59,503,892 | 36,931,321 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 301,955,419 | 263,701,148 | 173,383,632 | 113,118,878 |
The accompanying notes form an integral part of these financial statements.Legal representative:
Fang Hongbo
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.CONSOLIDATED AND COMPANY INCOME STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Note | 2019 | 2018 | 2019 | 2018 |
| Consolidated | Consolidated | Company | Company |
| Total revenue | 279,380,506 | 261,819,635 | 1,767,902 | 1,767,161 | |
| Including: Operating revenue | 4(42),17(3) | 278,216,017 | 259,664,820 | 1,767,902 | 1,767,161 |
| Interest income | 4(43) | 1,163,180 | 2,154,392 | - | - |
| Fee and commission income | 1,309 | 423 | - | - | |
| Less: Cost of sales | 4(42) | (197,913,928) | (188,164,557) | (45,823) | (39,632) |
| Interest costs | 4(43) | (122,618) | (189,490) | - | - |
| Fee and commission expenses | (11,633) | (3,214) | - | - | |
| Taxes and surcharges | 4(44) | (1,720,616) | (1,617,566) | (37,481) | (40,601) |
| Selling and distribution expenses | 4(45) | (34,611,231) | (31,085,879) | - | - |
| General and administrative expenses | 4(46) | (9,531,361) | (9,571,639) | (579,072) | (879,563) |
| Research and development expenses | 4(47) | (9,638,137) | (8,377,201) | - | - |
| Financial income | 4(48) | 2,231,636 | 1,823,040 | 1,974,379 | 975,062 |
| Including: Interest expenses | (880,703) | (703,991) | (1,402,376) | (758,024) | |
| Interest income | 3,807,136 | 2,155,862 | 3,363,003 | 1,780,258 | |
| Add: Other income | 4(54) | 1,194,665 | 1,316,904 | 464,034 | 421,377 |
| Investment income | 4(52),17(4) | 164,132 | 907,326 | 10,384,466 | 9,720,094 |
| Including: Investment income from associates | 506,225 | 349,321 | 272,089 | 239,418 | |
| Profit or loss arising from derecognition of financial assets measured at amortised costs | (709) | —— | - | —— | |
| Gains/(Losses) on changes in fair value | 4(51) | 1,361,163 | (810,450) | 162,565 | - |
| Credit impairment losses | 4(50) | (96,446) | —— | (418) | —— |
| Asset impairment losses | 4(49) | (871,909) | (447,864) | - | (6,051) |
| (Losses)/Gains on disposal of assets | 4(53) | (131,131) | (34,934) | (1,040) | 45,614 |
| Operating profit | 29,683,092 | 25,564,111 | 14,089,512 | 11,963,461 | |
| Add: Non-operating income | 613,310 | 434,756 | 39,832 | 6,419 | |
| Less: Non-operating expenses | (367,288) | (225,809) | (22,741) | (4,124) |
| Total profit | 29,929,114 | 25,773,058 | 14,106,603 | 11,965,756 | |
| Less: Income tax expenses | 4(55) | (4,651,970) | (4,122,639) | (420,984) | 2,881 |
| Net profit | 25,277,144 | 21,650,419 | 13,685,619 | 11,968,637 |
| (1) Classified by continuity of operations | |||||
| Net profit from continuing operations | 25,277,144 | 21,650,419 | 13,685,619 | 11,968,637 | |
| Net profit from discontinued operations | - | - | - | - |
| (2) Classified by ownership of the equity | |||||
| Attributable to shareholders of the Company | 24,211,222 | 20,230,779 | 13,685,619 | 11,968,637 | |
| Minority interests | 1,065,922 | 1,419,640 | - | - |
MIDEA GROUP CO., LTD.CONSOLIDATED AND COMPANY INCOME STATEMENTS (CONT’D)FOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Note | 2019 | 2018 | 2019 | 2018 |
| Consolidated | Consolidated | Company | Company |
| Other comprehensive income, net of tax | 348,040 | (1,215,825) | (4,285) | (27,439) | |
| Other comprehensive income attributable to shareholders of the Company, net of tax | 283,152 | (1,087,461) | (4,285) | (27,439) | |
| (1) Other comprehensive income items which will not be reclassified subsequently to profit or loss | (142,753) | (1,023) | - | - | |
| 1)Changes arising fromremeasurement of defined benefit plan | (142,753) | (1,023) | - | - | |
| (2) Other comprehensive income items which will be reclassified subsequently to profit or loss | 425,905 | (1,086,438) | (4,285) | (27,439) | |
| 1)Other comprehensiveincome that will be transferred subsequently to profit or loss under the equity method | (6,590) | 51,924 | (4,285) | 39,520 | |
| 2)Changes in fair value ofavailable-for-sale financial assets | —— | (489,228) | —— | (66,959) | |
| 3)Effective portion of cashflow hedging gains or losses | 113,890 | (424,417) | - | - | |
| 4)Translation of foreigncurrency financial statements | 318,605 | (224,717) | - | - | |
| Other comprehensive income attributable to minority shareholders, net of tax | 64,888 | (128,364) | - | - |
| Total comprehensive income | 25,625,184 | 20,434,594 | 13,681,334 | 11,941,198 |
| Attributable to shareholders of the Company | 24,494,374 | 19,143,318 | 13,681,334 | 11,941,198 | |
| Minority interests | 1,130,810 | 1,291,276 | - | - |
| Earnings per share | |||||
| Basic earnings per share (RMB Yuan) | 4(56) | 3.60 | 3.08 | Not applicable | Not applicable |
| Diluted earnings per share (RMB Yuan) | 4(56) | 3.58 | 3.05 | Not applicable | Not applicable |
The accompanying notes form an integral part of these financial statements.Legal representative:
Fang Hongbo
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.CONSOLIDATED AND COMPANY CASH FLOW STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Note | 2019 | 2018 | 2019 | 2018 |
| Consolidated | Consolidated | Company | Company |
| 1. Cash flows from operating activities | |||||
| Cash received from sales of goods or rendering of services | 238,815,589 | 211,230,723 | - | - | |
| Net decrease in loans and advances | - | 864,209 | - | - | |
| Net increase in customer deposits and deposits from banks and other financial institutions | 18,091 | - | - | - | |
| Net decrease in deposits with the Central Bank | 693,023 | 708,879 | - | - | |
| Net increase in borrowings from the Central Bank | - | 99,754 | - | - | |
| Cash received from interest, fee and commission | 1,315,921 | 2,174,661 | - | - | |
| Refund of taxes and surcharges | 6,271,733 | 5,705,259 | - | - | |
| Cash received relating to other operating activities | 4(57)(a) | 5,008,821 | 5,558,221 | 30,809,036 | 19,248,174 |
| Sub-total of cash inflows | 252,123,178 | 226,341,706 | 30,809,036 | 19,248,174 | |
| Cash paid for goods and services | (130,099,497) | (127,367,813) | - | - | |
| Net increase in loans and advances | (318,859) | - | - | - | |
| Net decrease in customer deposits and deposits from banks and other financial institutions | - | (64,540) | - | - | |
| Net decrease in deposits with the Central Bank | (99,754) | - | - | - | |
| Cash paid for interest, fee and commission | (134,251) | (198,761) | - | - | |
| Cash paid to and on behalf of employees | (26,851,139) | (24,709,578) | (52,269) | (298,323) | |
| Payments of taxes and surcharges | (14,897,513) | (13,739,262) | (133,421) | (102,575) | |
| Cash paid relating to other operating activities | 4(57)(b) | (41,131,761) | (32,400,672) | (6,818,472) | (2,986,732) |
| Sub-total of cash outflows | (213,532,774) | (198,480,626) | (7,004,162) | (3,387,630) | |
| Net cash flows from operating activities | 4(57)(c) | 38,590,404 | 27,861,080 | 23,804,874 | 15,860,544 |
| 2. Cash flows from investing activities | |||||
| Cash received from disposal of investments | 84,852,601 | 65,711,622 | 56,920,222 | 27,315,231 | |
| Cash received from returns on investments | 4,026,590 | 2,097,948 | 12,812,869 | 11,075,864 | |
| Net cash received from disposal of fixed assets, intangibleassets and other long-term assets | 125,419 | 164,070 | 1,040 | 1,825 | |
| Net cash received from disposal of subsidiaries and other business units | - | 24,406 | - | - | |
| Sub-total of cash inflows | 89,004,610 | 67,998,046 | 69,734,131 | 38,392,920 | |
| Cash paid to acquire fixed assets, intangible assets and other long-term assets | (3,451,856) | (5,611,851) | (183,326) | (715,778) | |
| Cash paid to acquire investments | (108,457,398) | (80,713,830) | (88,883,737) | (59,593,512) | |
| Net cash paid to acquire subsidiaries and other business units | (203,057) | (314,653) | - | - | |
| Sub-total of cash outflows | (112,112,311) | (86,640,334) | (89,067,063) | (60,309,290) | |
| Net cash flows from investing activities | (23,107,701) | (18,642,288) | (19,332,932) | (21,916,370) |
| 3. Cash flows from financing activities | |||||
| Cash received from capital contributions | 2,897,917 | 2,713,366 | 2,777,490 | 2,098,273 | |
| Including: Cash received from capital contributions by minority shareholders of subsidiaries | 120,427 | 615,092 | - | - | |
| Cash received from borrowings | 17,117,677 | 2,524,315 | 11,059,564 | 1,000,000 | |
| Sub-total of cash inflows | 20,015,594 | 5,237,681 | 13,837,054 | 3,098,273 | |
| Cash repayments of borrowings | (8,643,875) | (3,378,492) | (3,084,500) | (425,000) | |
| Cash payments for interest expenses and distribution of dividends or profits | (11,055,769) | (9,303,222) | (9,740,298) | (8,385,248) | |
| Including: Cash payments for dividends or profit to minority shareholders of subsidiaries | (1,651,504) | (815,998) | - | - | |
| Cash payments relating to other financing activities | (3,589,551) | (5,943,131) | (3,257,482) | (4,028,808) | |
| Sub-total of cash outflows | (23,289,195) | (18,624,845) | (16,082,280) | (12,839,056) | |
| Net cash flows from financing activities | (3,273,601) | (13,387,164) | (2,245,226) | (9,740,783) |
| 4. Effect of foreign exchange rate changes on cash and cashequivalents | 280,376 | 289,001 | - | - |
| 5. Net increase/(decrease) in cash and cash equivalents | 12,489,478 | (3,879,371) | 2,226,716 | (15,796,609) | |
| Add: Cash and cash equivalents at beginning of year | 17,952,282 | 21,831,653 | 10,181,934 | 25,978,543 |
| 6. Cash and cash equivalents at end of year | 4(57)(d) | 30,441,760 | 17,952,282 | 12,408,650 | 10,181,934 |
The accompanying notes form an integral part of these financial statements.Legal representative:
Fang Hongbo
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Equity attributable to shareholders of the Company | ||||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | General reserve | Surplus reserve | Undistributed profits | Minority interests | Total shareholders’ equity | |
| (Note 4(35)) | (Note 4(37)) | (Note 4(36)) | |||||||
| 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 |
| Movements for the year ended 31 December 2018 | |||||||||
| Total comprehensive income | |||||||||
| Net profit | - | - | - | - | - | - | 20,230,779 | 1,419,640 | 21,650,419 |
| Other comprehensive income, net of tax | - | - | - | (1,087,461) | - | - | - | (128,364) | (1,215,825) |
| Total comprehensive income | - | - | - | (1,087,461) | - | - | 20,230,779 | 1,291,276 | 20,434,594 |
| Capital contribution and withdrawal by shareholders | |||||||||
| Ordinary shares invested by shareholders | 103,679 | 2,596,878 | (717,841) | - | - | - | - | 615,092 | 2,597,808 |
| Business combinations | - | - | - | - | - | - | - | 345,657 | 345,657 |
| Share-based payment included in shareholders' equity | - | 356,412 | - | - | - | - | - | 117,423 | 473,835 |
| Others | (1,701) | (397,777) | (3,833,744) | - | - | - | - | (1,450,682) | (5,683,904) |
| Profit distribution | |||||||||
| Appropriations to general risk reserve | - | - | - | - | - | - | - | - | - |
| Appropriation to surplus reserve | - | - | - | - | - | 1,196,864 | (1,196,864) | - | - |
| Profit distribution to shareholders | - | - | - | - | - | - | (7,898,785) | (819,804) | (8,718,589) |
| Transfer from capital surplus to share capital | - | - | - | - | - | - | - | - | - |
| Others | - | (15,710) | - | - | - | - | (50) | 95,705 | 79,945 |
| Balance at 31 December 2018 | 6,663,031 | 18,451,307 | (4,918,427) | (1,332,153) | 366,947 | 5,079,096 | 58,762,315 | 9,382,401 | 92,454,517 |
MIDEA GROUP CO., LTD.CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT’D)FOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Equity attributable to shareholders of the Company | ||||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | General reserve | Surplus reserve | Undistributed profits | Minority interests | Total shareholders' equity | |
| (Note 4(35)) | (Note 4(37)) | (Note 4(36)) | |||||||
| Balance at 31 December 2018 | 6,663,031 | 18,451,307 | (4,918,427) | (1,332,153) | 366,947 | 5,079,096 | 58,762,315 | 9,382,401 | 92,454,517 |
| Changes in accounting policies (Note 2(32)(b)(i)) | - | - | - | 337,447 | - | - | (337,447) | - | - |
| Balance at 1 January 2019 | 6,663,031 | 18,451,307 | (4,918,427) | (994,706) | 366,947 | 5,079,096 | 58,424,868 | 9,382,401 | 92,454,517 |
| Movements for the year ended 31 December 2019 | |||||||||
| Total comprehensive income | |||||||||
| Net profit | - | - | - | - | - | - | 24,211,222 | 1,065,922 | 25,277,144 |
| Other comprehensive income, net of tax | - | - | - | 283,152 | - | - | - | 64,888 | 348,040 |
| Total comprehensive income | - | - | - | 283,152 | - | - | 24,211,222 | 1,130,810 | 25,625,184 |
| Capital contribution and withdrawal by shareholders | |||||||||
| Ordinary shares invested by shareholders | 87,150 | 2,426,916 | (57,088) | - | - | - | - | 120,427 | 2,577,405 |
| Share-based payment included in shareholders' equity | - | 144,287 | - | - | - | - | - | 82,268 | 226,555 |
| Others | 221,719 | (1,221,661) | 1,215,783 | - | - | - | - | (3,231,072) | (3,015,231) |
| Profit distribution | |||||||||
| Appropriations to general risk reserve | - | - | - | - | - | - | - | - | - |
| Appropriation to surplus reserves | - | - | - | - | - | 1,368,562 | (1,368,562) | - | - |
| Profit distribution to shareholders | - | - | - | - | - | - | (8,553,897) | (1,670,654) | (10,224,551) |
| Transfer from capital surplus to share capital | - | - | - | - | - | - | - | - | - |
| Others | - | (160,536) | - | - | - | - | - | 12,754 | (147,782) |
| Balance at 31 December 2019 | 6,971,900 | 19,640,313 | (3,759,732) | (711,554) | 366,947 | 6,447,658 | 72,713,631 | 5,826,934 | 107,496,097 |
The accompanying notes form an integral part of these financial statements.Legal representative:Fang Hongbo
| Legal representative:Fang Hongbo | Principal in charge of accounting:Zhong Zheng | Head of accounting department:Chen Lihong |
MIDEA GROUP CO., LTD.COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Surplu sreserve | Undistributed profits | Total shareholders’ equity |
| Balance at 31 December 2017 | 6,561,053 | 7,726,237 | (366,842) | 33,459 | 3,882,232 | 16,613,224 | 34,449,363 |
| Movements for the year ended 31 December 2018 | |||||||
| Total comprehensive income | |||||||
| Net profit | - | - | - | - | - | 11,968,637 | 11,968,637 |
| Other comprehensive income, net of tax | - | - | - | (27,439) | - | - | (27,439) |
| Total comprehensive income | - | - | - | (27,439) | - | 11,968,637 | 11,941,198 |
| Capital contribution and withdrawal by shareholders | |||||||
| Ordinary shares invested by shareholders | 103,679 | 2,596,878 | (717,841) | - | - | - | 1,982,716 |
| Share-based payment included in shareholders' equity | - | 312,656 | - | - | - | - | 312,656 |
| Others | (1,701) | (27,109) | (3,833,744) | - | - | - | (3,862,554) |
| Profit distribution | |||||||
| Appropriation to surplus reserve | - | - | - | - | 1,196,864 | (1,196,864) | - |
| Profit distribution to shareholders | - | - | - | - | - | (7,898,785) | (7,898,785) |
| Transfer from capital surplus to share capital | - | - | - | - | - | - | - |
| Others | - | 6,727 | - | - | - | - | 6,727 |
| Balance at 31 December 2018 | 6,663,031 | 10,615,389 | (4,918,427) | 6,020 | 5,079,096 | 19,486,212 | 36,931,321 |
MIDEA GROUP CO., LTD.COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT’D)FOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Surplus reserve | Undistributed profits | Total shareholders’ equity |
| Balance at 31 December 2018 | 6,663,031 | 10,615,389 | (4,918,427) | 6,020 | 5,079,096 | 19,486,212 | 36,931,321 |
| Changes in accounting policies | - | - | - | - | - | - | - |
| Balance at 1 January 2019 | 6,663,031 | 10,615,389 | (4,918,427) | 6,020 | 5,079,096 | 19,486,212 | 36,931,321 |
| Movements for the year ended 31 December 2019 | |||||||
| Total comprehensive income | |||||||
| Net profit | - | - | - | - | - | 13,685,619 | 13,685,619 |
| Other comprehensive income, net of tax | - | - | - | (4,285) | - | - | (4,285) |
| Total comprehensive income | - | - | - | (4,285) | - | 13,685,619 | 13,681,334 |
| Capital contribution and withdrawal by shareholders | |||||||
| Ordinary shares invested by shareholders | 87,150 | 2,426,916 | (57,088) | - | - | - | 2,456,978 |
| Share-based payment included in shareholders' equity | - | 226,556 | - | - | - | - | 226,556 |
| Others | 221,719 | 13,372,750 | 1,215,783 | - | - | - | 14,810,252 |
| Profit distribution | |||||||
| Appropriation to surplus reserve | - | - | - | - | 1,368,562 | (1,368,562) | - |
| Profit distribution to shareholders | - | - | - | - | - | (8,553,897) | (8,553,897) |
| Transfer from capital surplus to share capital | - | - | - | - | - | - | - |
| Others | - | (48,652) | - | - | - | - | (48,652) |
| Balance at 31 December 2019 | 6,971,900 | 26,592,959 | (3,759,732) | 1,735 | 6,447,658 | 23,249,372 | 59,503,892 |
The accompanying notes form an integral part of these financial statements.Legal representative:Fang Hongbo
| Legal representative:Fang Hongbo | Principal in charge of accounting:Zhong Zheng | Head of accounting department:Chen Lihong |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
1 General information
The principal business activities of MIDEA GROUP CO., LTD. (hereinafter referred to as“the Company”) and its subsidiaries (hereinafter collectively referred to as “the Group”)include heating & ventilation, as well as air-conditioner (hereinafter referred to as “HVAC”)centred on household air-conditioner, central air-conditioner, heating and ventilationsystems; consumer appliances centred on kitchen appliances, refrigerators, washingmachines and various small appliances; robotics and automation system centred on KUKAAktiengesellschaft (hereinafter referred to as “KUKA”) and its subsidiaries (hereinafterreferred to as “KUKA Group”), and other robots business of Midea Group. Other servicesinclude service platform with Annto Logistics Technology Co., Ltd. providing the smart supplychain integrated solutions; sale, wholesale and processing of raw materials of householdelectrical appliances; and financial business involved in customer deposits, interbanklendings and borrowings, consumption credits, buyer’s credits and finance leases.The Company was set up by the Council of Trade Unions of GD Midea Group Co., and wasregistered in Market Safety Supervision Bureau of Shunde District, Foshan on 7 April 2000,with its headquarters located in Foshan, Guangdong. On 30 August 2012, the Companywas transformed into a limited liability company. On 29 July 2013, the Company wasapproved to merge and acquire Guangdong Midea Electric Co., Ltd., which was listed onShenzhen Stock Exchange. On 18 September 2013, the Company’s shares listed onShenzhen Stock ExchangeAs at 31 December 2019, the Company's share capital is RMB 6,971,899,574, and the totalnumber of shares in issue is 6,971,899,574, of which 165,402,513 shares are restrictedtradable A shares and 6,806,497,061 shares are unrestricted tradable A shares. In 2019,the increasing of Company’s share capital are mainly from shares in exchange for the equityof Wuxi Little Swan Company Limited (hereinafter referred to as “Little Swan”) (Note 4 (35),
(41)).
The detailed information of major subsidiaries included in the consolidation scope in currentperiod is set out in Notes 5 and 6. Entities newly included in the consolidation scope incurrent year include Midea Electrics Egypt, Anhui Welling Auto Parts Co., Ltd., Wuxi LittleSwan Electric Co., Ltd., Guangdong Swisslog Technology Co., Ltd., Guangdong YueyunIndustrial Internet Innovation Technology Co. ,Ltd., Midea Refrigeration Equipment(Thailand) Co., Ltd and Tianjin Midea Commercial Factoring Co., Ltd. Please refer to Note5(1)(a) for details. The detailed information of subsidiaries no longer included in theconsolidation scope in current year is set out in 5(1)(b).These financial statements were authorised for issue by the Company’s Board of Directorson 28 April 2020.2 Summary of significant accounting policies and accounting estimates
The Group determines specific accounting policies and accounting estimates based on thefeatures of production and operation, mainly including the measurement of expected creditloss (ECL) on accounts receivable (Note 2(9(a))), valuation method of inventory (Note2(11)), depreciation of fixed assets and amortisation of intangible assets (Note 2(14), (17)),impairment of long-term assets (Note 2(19)) and recognition of revenue (Note 2(26)).Critical judgements applied by the Group in determining significant accounting policies areset out in Note 2(31).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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 forBusiness Enterprises - Basic Standard, and the specific accounting standards and otherrelevant regulations issued by the Ministry of Finance on 15 February 2006 and insubsequent periods (hereinafter collectively referred to as the “Accounting Standards forBusiness Enterprises” or “CAS”) and the disclosure requirements in the PreparationConvention of Information Disclosure by Companies Offering Securities to the Public No. 15–General Rules on Financial Reporting issued by the China Securities RegulatoryCommission (“CSRC”).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 2019 are incompliance with the Accounting Standards for Business Enterprises, and truly andcompletely present the consolidated and the Company’s financial position of the Companyas at 31 December 2019 and their financial performance, cash flows and other informationfor 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 Renminbi (“RMB”). The subsidiaries determinetheir functional currency based on the primary economic environment in which the businessis operated, mainly including EUR, JPY, USD and HKD. The financial statements arepresented 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 businesscombination are measured at the carrying amount. If the absorbing party was bought by theultimate 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 inthe ultimate controller’s consolidated financial statements. The difference between thecarrying amount of the net assets obtained from the combination and the carrying amountof 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 thedifference, the remaining balance is adjusted against retained earnings. Costs directlyattributable to the combination are included in profit or loss in the period in which they areincurred. Transaction costs associated with the issue of equity or debt securities for thebusiness combination are included in the initially recognised amounts of the equity or debtsecurities.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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 (Cont’d)
(b) Business combinations involving enterprises not under common control
The cost of combination and identifiable net assets obtained by the acquirer in a businesscombination are measured at fair value at the acquisition date. Where the cost of thecombination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable netassets, the difference is recognised as goodwill; where the cost of combination is lower thanthe acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the differenceis recognised in profit or loss for the current period. Costs directly attributable to thecombination are included in profit or loss in the period in which they are incurred. Transactioncosts associated with the issue of equity or debt securities for the business combination areincluded in the initially recognised amounts of the equity or debt securities.For business combinations achieved by stages involving enterprises not under commoncontrol, previously-held equity in the acquiree is remeasured at its fair value at theacquisition dates, and the difference between its fair value and carrying amount is includedin investment income for the current period in consolidated financial statements. Where thepreviously-held equity in the acquiree involves other comprehensive income under equitymethod and shareholders’ equity changes other than those arising from the net profit or loss,other comprehensive income and profit distribution, the related other comprehensiveincome and other shareholders' equity changes are transferred into income for the currentperiod to which the acquisition dates belong, excluding those arising from changes in theinvestee's remeasurements 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 theconsideration paid at the acquisition dates over share of fair value of identifiable net assetsacquired from the subsidiary is recognised as goodwill.
(6) Preparation of consolidated financial statements
The consolidated financial statements comprise the financial statements of the Companyand 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 abusiness combination involving enterprises under common control, it is included in theconsolidated financial statements from the date when it, together with the Company, comesunder common control of the ultimate controlling party. The portion of the net profits realisedbefore the combination date is presented separately in the consolidated income statement.In preparing the consolidated financial statements, where the accounting policies and theaccounting periods of the Company and subsidiaries are inconsistent, the financialstatements of the subsidiaries are adjusted in accordance with the accounting policies andthe accounting period of the Company. For subsidiaries acquired from businesscombinations involving enterprises not under common control, the individual financialstatements of the subsidiaries are adjusted based on the fair value of the identifiable netassets at the acquisition date.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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 theconsolidated financial statements. The portion of subsidiaries’ equity and the portion of asubsidiaries’ net profits and losses and comprehensive income for the period not attributableto Company are recognised as minority interests and presented separately in theconsolidated financial statements under equity, net profits and total comprehensive incomerespectively. Unrealised profits and losses resulting from the sale of assets by the Companyto its subsidiaries are fully eliminated against net profit attributable to owners of the parent.Unrealised profits and losses resulting from the sale of assets by a subsidiary to theCompany are eliminated and allocated between net profit attributable to owners of theparent and minority interests in accordance with the allocation proportion of the parent inthe subsidiary. Unrealised profits and losses resulting from the sale of assets by onesubsidiary to another are eliminated and allocated between net profit attributable to ownersof the parent and minority interests in accordance with the allocation proportion of the parentin the subsidiary. If the accounting treatment of a transaction which considers the Group asan accounting entity is different from that considers the Company or its subsidiaries as anaccounting 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 ondemand, and short-term and highly liquid investments that are readily convertible to knownamounts 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 RMB using the exchange rates prevailingat the dates of the transactions.At the balance sheet date, monetary items denominated in foreign currencies are translatedinto the 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 thecurrent period, except for those attributable to foreign currency borrowings that have beentaken out specifically for the acquisition or construction of qualifying assets, which arecapitalised as part of the cost of those assets. Non-monetary items denominated in foreigncurrencies that are measured at historical costs are translated at the balance sheet dateusing the spot exchange rates at the date of the transactions. The effect of exchange ratechanges on cash is presented separately in the cash flow statement.(b) Translation of foreign currency financial statements
The asset and liability items in the balance sheets for overseas operations are translated atthe 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 thetransaction dates. The income and expense items in the income statements of overseasoperations are translated at the spot exchange rates of the transaction dates. Thedifferences 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 thedates of the cash flows. The effect of exchange rate changes on cash is presentedseparately in the cash flow statement.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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
A financial instrument is any contract that gives rise to a financial asset of one entity and afinancial liability or equity instrument of another entity. A financial asset or a financial liabilityis recognised when the Group becomes a party to the contractual provisions of theinstrument.(a) Financial assets(i) Classification and measurement
Based on the business model for managing the financial assets and the contractual cashflow characteristics of the financial assets, financial assets are classified as: (1) financialassets at amortised cost; (2) financial assets at fair value through other comprehensiveincome; (3) financial assets at fair value through profit or loss.The financial assets are measured at fair value at initial recognition. Related transactioncosts that are attributable to the acquisition of the financial assets are included in the initiallyrecognised amounts, except for the financial assets at fair value through profit or loss, therelated transaction costs of which are recognised directly in profit or loss for the currentperiod. Accounts receivable or notes receivable arising from sales of products or renderingof services (excluding or without regard to significant financing components) are initiallyrecognised at the consideration that is entitled to be charged by the Group as expected.(i-1) Debt investments
The debt instruments held by the Group refer to the instruments that meet the definition offinancial liabilities from the perspective of the issuer, and are measured in the followingthree ways:
Measured at amortised cost:
The objective of the Group’s business model is to hold the financial assets to collect thecontractual cash flows, and the contractual cash flow characteristics are consistent with abasic lending arrangement, which gives rise on specified dates to the contractual cash flowsthat are solely payments of principal and interest on the principal amount outstanding. Theinterest income of such financial assets is recognised using the effective interest method.Such financial assets mainly comprise cash at bank and on hand, loans and advances,notes receivable, accounts receivable, other receivables, structural deposits, debtinvestments and long-term receivables, etc. Debt investments and long-term receivablesthat are due within one year (inclusive) as from the balance sheet date are included in thecurrent portion of non-current assets; debt investments with maturities of no more than oneyear (inclusive) at the time of acquisition are included in other current assets.Measured at fair value through other comprehensive income:
The objective of the Group’s business model is to hold the financial assets to both collectthe contractual cash flows and sell such financial assets, and the contractual cash flowcharacteristics are consistent with a basic lending arrangement. Such financial assets aremeasured at fair value through other comprehensive income, except for the impairmentgains or losses, foreign exchange gains and losses, and interest income calculated usingthe effective interest method which are recognised in profit or loss for the current period.Such financial assets are mainly included in receivables financing, other debt investments;other debt investments that are due within one year (inclusive) as from the balance sheetdate are included in the current portion of non-current assets; other debt investments withmaturities no more than one year (inclusive) at the time of acquisition are included in othercurrent assets.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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)(i) Classification and measurement (Cont’d)(i-1) Debt investments (Cont’d)
Measured at fair value through profit or loss:
Debt instruments held by the Group that are not divided into those at amortised cost, orthose measured at fair value through other comprehensive income, are measured at fairvalue through profit or loss and included in financial assets held for trading. At initialrecognition, Group designates a portion of financial assets as at fair value through profit orloss to eliminate or significantly reduce an accounting mismatch. Financial assets that aredue over one year as from the balance sheet date and are expected to be held over oneyear are included in other non-current financial assets.(i-2) Equity investments
Investments in equity instruments, over which the Group has no control, joint control orsignificant influence, are measured at fair value through profit or loss under financial assetsheld for trading; investments in equity instruments expected to be held over one year asfrom the balance sheet date are included in other non-current financial assets.(i -3) Derivative financial instruments
The derivative financial instruments held or issued by the Group are mainly used incontrolling risk exposures. Derivative financial instruments are initially recognised at fairvalue on the day when derivatives transaction contract was signed, and subsequentlymeasured at fair value. The derivative financial instruments are recorded as assets whenthey have a positive fair value and as liabilities when they have a negative fair value.The recognition of changes in fair value of derivative financial instruments depends onwhether such derivative financial instruments are designated as hedging instruments andmeet requirements for hedging instruments, and depends on the nature of hedged items inthis case. For derivative financial instruments that are not designated as hedginginstruments and fail to meet requirements on hedging instruments, including those held forthe purpose of providing hedging against specific risks in interest rate and foreign exchangebut not conforming with requirements of hedge accounting, the changes in fair value arerecorded in gains or losses arising from changes in fair value in the consolidated incomestatement.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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)(i) Classification and measurement (Cont’d)(i-3) Derivative financial instruments (Cont'd)
Cash flow hedgeThe effective portion of gains or losses on hedging instruments is recognised in othercomprehensive income as cash flow hedging reserve, while the ineffective portion isrecognised in profit or loss for the current period. Where the hedge is a forecast transactionwhich subsequently results in the recognition of a non-financial asset or liability, the amountoriginally recognised in other comprehensive income is transferred and included in theinitially recognised amount of the asset or liability. For cash flow hedge beyond the foregoingscope, the amount originally recognised in other comprehensive income is transferred andincluded in profit or loss for the current period during the same time in which the profit orloss is influenced by the hedged expected cash flow. However, if all or part of net lossrecognised directly in other comprehensive income will not be recovered in futureaccounting periods, the amount not expected to be recovered should be transferred to profitor loss for the current period. When the Group revokes the designation of a hedge, a hedginginstrument expires or is sold, terminated or exercised, or the hedge no longer meets thecriteria for hedge accounting, the Group will discontinue the hedge accounting treatmentsprospectively. Where the Group discontinues the hedge accounting treatment for cash flowhedging, for hedged future cash flows that will still happen, the accumulated gains or lossesthat have been recognised in other comprehensive income are retained and subject toaccounting treatment under the subsequent treatment method of aforesaid cash flowhedging reserve; for hedged future cash flows that the forecast transaction will neverhappen, the accumulated gains or losses that have been recognised in other comprehensiveincome are transferred immediately and included in profit or loss for the current period.(ii) Impairment
Loss provision for financial assets at amortised cost, investments in debt instruments at fairvalue through other comprehensive income, as well as financial guarantee contracts isrecognised on the basis of ECL.Giving consideration to reasonable and supportable information on past events, currentconditions and forecasts of future economic conditions, and weighted by the risk of default,the Group recognises the ECL as the probability-weighted amount of the present value ofthe difference between the cash flows receivable from the contract and the cash flowsexpected to collect.As at each balance sheet date, the expected credit losses of financial instruments atdifferent stages are measured respectively. 12-month ECL provision is recognised forfinancial instruments in Stage 1 that have not had a significant increase in credit risk sinceinitial recognition; lifetime ECL provision is recognised for financial instruments in Stage 2that have had a significant increase in credit risk yet without credit impairment since initialrecognition; and lifetime ECL provision is recognised for financial instruments in Stage 3 thathave had credit impairment since initial recognition.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Impairment (Cont’d)
For the financial instruments with lower credit risk on the balance sheet date, the Groupassumes there is no significant increase in credit risk since initial recognition and recognisesthe 12-month ECL provision.For the financial instruments in Stage 1, Stage 2 and with lower credit risk, the Groupcalculates the interest income by applying the effective interest rate to the gross carryingamount (before deduction of the impairment provision). For the financial instrument in Stage3, the interest income is calculated by applying the effective interest rate to the amortisedcost (after deduction of the impairment provision from the gross carrying amount).For notes receivable, accounts receivable, and receivables financing arising from sales ofgoods or rendering of services in the ordinary course of business, the Group recognises thelifetime ECL provision regardless of whether there exists a significant financing component.In case the ECL of an individually assessed financial asset cannot be evaluated withreasonable cost, the Group divides the receivables into certain groupings based on creditrisk characteristics, then pursuant to which, calculates the ECL. Basis and provision methodfor determining groupings are as follows:
| Notes receivable - bank acceptance notes | Bank credit risk grouping |
| Accounts receivable | Domestic/overseas business grouping |
| Other receivables | Security deposit/guarantee payables grouping |
| Long-term receivables | Finance lease payable grouping |
| Loans and advances | Loans business grouping |
The Group, on the basis of the exposure at default and the lifetime ECL rate, calculates theECL of notes receivable and receivables financing that are classified into groupings withconsideration to historical credit losses experience, current conditions and forecasts offuture economic conditions.With consideration to historical credit loss experience, current conditions and forecasts offuture economic conditions, the Group prepares the cross-reference between the numberof overdue days of accounts receivable and the lifetime ECL rate, and calculates the ECLof accounts receivable that are classified into groupings.The Group, on the basis of the exposure at default and the 12-month or lifetime ECL rate,calculates the ECL of other receivables, loans and advances, and long-term receivables thatare classified into groupings with consideration to historical credit losses experience, thecurrent conditions and forecasts of future economic conditions.The Group recognises the loss provision made or reversed into profit or loss for the currentperiod. For debt instruments held at fair value through other comprehensive income, theGroup adjusts other comprehensive income while the impairment loss or gain is recognisedin profit or loss for the current period.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Derecognition of financial assets
A financial asset is derecognised when: (i) the contractual rights to the cash flows from thefinancial asset expire, (ii) the financial asset has been transferred and the Group transferssubstantially all the risks and rewards of ownership of the financial asset to the transferee,or (iii) the financial asset has been transferred and the Group has not retained control of thefinancial asset, although the Group neither transfers nor retains substantially all the risksand rewards of ownership of the financial asset.When a financial asset is derecognised, the difference between the carrying amount andthe sum of the consideration received and the cumulative changes in fair value that arepreviously recognised directly in other comprehensive income is recognised in profit or lossfor the current period, except for those as investments in other equity instruments, thedifference aforementioned is recognised in retained earnings instead.(b) Financial liabilities
Financial liabilities are classified as financial liabilities at amortised cost and financialliabilities at fair value through profit or loss at initial recognition.Financial liabilities of the Group mainly comprise financial liabilities at amortised cost,including notes payable, accounts payable, other payables, borrowings and debenturespayable, customer deposits and deposits from banks and other financial institutions,borrowings from the Central Bank, long-term payables, etc. Such financial liabilities areinitially recognised at fair value, net of transaction costs incurred, and subsequentlymeasured using the effective interest method. Financial liabilities that are due within oneyear (inclusive) are classified as current liabilities; those with maturities over one year butare due within one year (inclusive) as from the balance sheet date are classified as currentportion of non-current liabilities. Others are classified as non-current liabilities.A financial liability is derecognised or partly derecognised when the underlying presentobligation is discharged or partly discharged. The difference between the carrying amountof the derecognised part of the financial liability and the consideration paid is recognised inprofit or loss for the current period.(c) Determination of fair value of financial instruments
The fair value of a financial instrument that is traded in an active market is determined atthe quoted price in the active market. The fair value of a financial instrument that is nottraded in an active market is determined by using a valuation technique. In valuation, theGroup adopts valuation techniques applicable in the current situation and supported byadequate available data and other information, selects inputs with the same characteristicsas those of assets or liabilities considered in relevant transactions of assets or liabilities bymarket participants, and gives priority to the use of relevant observable inputs. Whenrelevant observable inputs are not available or feasible, unobservable inputs are adopted.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Receivables
Receivables comprise accounts receivable, other receivables, notes receivable, long-termreceivables, loans and advances, etc. Accounts receivable arising from sale of goods orrendering of services are initially recognised at fair value of the contractual payments fromthe buyers or service recipients, and subsequently measured at amortised cost lessprovision for impairment using the effective interest method. Provision for impairment ofreceivables are set out in Note 2(9)(a).
(11) Inventories
(a) Classification of inventories
Inventories, including raw materials, consigned processing materials, low valueconsumables, 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 individualcontract at the cost of contract incurred plus profits thereof and less losses recognised andamount settled. It is recognised as assets when the balance is positive and recognised asliabilities when the balance is negative.(b) Costing of inventories
Other than completed but unsettled products, cost is determined using the first-in, first-outmethod when issued. The cost of finished goods and work in progress comprises rawmaterials, direct labour and systematically allocated production overhead based on thenormal production capacity.(c) Basis for determining net realisable values of inventories and method for making provision
for decline in the value of inventoriesInventories 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 realisablevalue.Net realisable value is determined based on the estimated selling price in the ordinarycourse of business, less the estimated costs to completion and estimated costs necessaryto make the sale and related taxes.Provision for decline in the value of inventories is determined at the excess amount of thecost 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.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Long-term equity investments
Long-term equity investments comprise the Company’s long-term equity investments in itssubsidiaries, and the Group’s long-term equity investments in its associates and jointventure.Subsidiaries are the investees over which the Company is able to exercise control. A jointventure is a joint arrangement which is structured through a separate vehicle over which theGroup has joint control together with other parties and only has rights to the net assets ofthe 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 andoperating policies.Investments in subsidiaries are presented in the Company’s financial statements using thecost method, and are adjusted to the equity method when preparing the consolidatedfinancial statements. Investments in a joint venture and associates are accounted for usingthe equity method.(a) Determination of investment cost
For long-term equity investments acquired through a business combination: for long-termequity investments acquired through a business combination involving enterprises undercommon control, the investment cost shall be the absorbing party’s share of the carryingamount of equity of the party being absorbed in the consolidated financial statements of theultimate controller at the combination date; for long-term equity investment acquired througha business combination involving enterprises not under common control, the investmentcost shall be the combination cost.For business combinations achieved by stages involving enterprises not under commoncontrol, the initial investment cost accounted for using the cost method is the sum of carryingamount of previously-held equity investment and additional investment cost. For previously-held equity accounted for using the equity method, the accounting treatment of related othercomprehensive income from disposal of the equity is carried out on a same basis with theinvestee's direct disposal of related assets or liabilities. Shareholders' equity, which isrecognised due to changes in investee’s shareholders’ equity other than those arising fromthe net profit or loss, other comprehensive income and profit distribution, is accordinglytransferred into profit or loss in the period in which the investment is disposed.For investment in previously-held equity accounted for using the recognition andmeasurement standards of financial instruments, the initial investment cost accounted forusing the cost method is the sum of carrying amount of previously-held equity investmentand additional investment cost. The difference between the fair value and carrying amountfor investment in previously-held equity and the accumulated changes in fair valuepreviously included in other comprehensive income are transferred to profit or loss for thecurrent period accounted for using the cost method.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 thepurchase price actually paid; for long-term equity investments acquired by issuing equitysecurities, the initial investment cost shall be the fair value of the equity securities issued.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Long-term equity investments (Cont’d)
(b) Subsequent measurement and recognition of related profit and loss
For long-term equity investments accounted for using the cost method, they are measuredat the initial investment costs, and cash dividends or profit distribution declared by theinvestees are recognised as investment income in profit or loss.For long-term equity investments accounted for using the equity method, where the initialinvestment cost of a long-term equity investment exceeds the Group’s share of the fair valueof the investee’s identifiable net assets at the acquisition date, the long-term equityinvestment is measured at the initial investment cost; where the initial investment cost isless than the Group’s share of the fair value of the investee’s identifiable net assets at theacquisition date, the difference is included in profit or loss and the cost of the long-termequity investment is adjusted upwards accordingly.For long-term equity investments accounted for using the equity method, the Grouprecognises the investment income according to its share of net profit or loss of the investee.The Group discontinues recognising its share of the net losses of an investee after thecarrying amounts of the long-term equity investment together with any long-term intereststhat in substance form part of the investor’s net investment in the investee are reduced tozero. However, if the Group has obligations for additional losses and the criteria with respectto recognition of provisions under the accounting standards on contingencies are satisfied,the Group continues recognising the investment losses and the provisions. The changes ofthe Group’s share of the investee’s owner's equity other than those arising from the net profitor loss, other comprehensive income and profit distribution, are recognised in the Group’sequity 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 profitdistribution or cash dividends declared by an investee. The unrealised profits or lossesarising from the transactions between the Group and its investees are eliminated inproportion to the Group’s equity interest in the investees, based on which the investmentgain or losses are recognised. Any losses resulting from transactions between the Groupand its investees attributable to asset impairment losses are not eliminated.(c) Basis for determining existence of control, joint control, significant influence over investees
Control is the power to govern an investee and obtain variable returns from participating theinvestee'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 relevanteconomic activity can be arranged upon the unanimous approval of the Group and otherparticipants sharing of control rights.Significant influence is the power to participate in the financial and operating policy decisionsof 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 andassociates are reduced to the recoverable amounts when the recoverable amounts arebelow their carrying amounts (Note 2(19)).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(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) Investment properties
Investment properties, including land use rights that have already been leased out, buildingsthat are held for the purpose of leasing and buildings that are being constructed ordeveloped for future use for leasing, are measured initially at cost. Subsequent expendituresincurred in relation to an investment property are included in the cost of the investmentproperty when it is probable that the associated economic benefits will flow to the Groupand their costs can be reliably measured; otherwise, the expenditures are recognised inprofit 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 residualvalues over their estimated useful lives. The estimated useful lives, the estimated netresidual values that are expressed as a percentage of cost and the annual depreciation(amortisation) rates of investment properties are as follows:
| Estimated useful lives | Estimated net residual values | Annual depreciation (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 reclassifiedas fixed asset or intangible asset at the date of the transfer. When an owner-occupiedproperty is transferred out for earning rentals or for capital appreciation, the fixed asset orintangible asset is reclassified as investment properties at its carrying amount at the date ofthe transfer. At the time of transfer, the property is recognised based on the carrying amountbefore transfer.The investment properties' estimated useful lives, the estimated net residual values and thedepreciation (amortisation) methods applied are reviewed and adjusted as appropriate ateach year-end.An investment property is derecognised on disposal or when the investment property ispermanently withdrawn from use and no future economic benefits are expected from itsdisposal. The net amount of proceeds from sale, transfer, retirement or damage of aninvestment property after its carrying amount and related taxes and expenses is recognisedin profit or loss for the current period.
(14) Fixed assets
(a) Recognition and initial measurement of fixed assets
Fixed assets comprise buildings, overseas land, machinery and equipment, motor vehicles,electronic equipment and others.Fixed assets are recognised when it is probable that the related economic benefits will flowto the Group and the costs can be reliably measured. The initial cost of purchased fixedassets include purchase price, related taxes and expenditures that are attributable to theassets incurred before the assets are ready for their intended use. The initial cost of self-constructed fixed assets is determined based on Note 2(15).Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed assetwhen it is probable that the associated economic benefits will flow to the Group and therelated cost can be reliably measured. The carrying amount of the replaced part isderecognised. All the other subsequent expenditures are recognised in profit or loss in theperiod in which they are incurred.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Fixed assets (Cont’d)
(b) Depreciation methods for fixed assets
Fixed assets are depreciated using the straight-line method to allocate the cost of the assetsto their estimated net residual values over their estimated useful lives. For the fixed assetsthat have been provided for impairment loss, the related depreciation charge is prospectivelydetermined based upon the adjusted carrying amounts over their remaining useful lives.The estimated useful lives, the estimated net residual values expressed as a percentage ofcost and the annual depreciation rates of the Group's fixed assets are as follows:
| Categories | Estimated useful lives | Estimated net residual values | Annual depreciation rates |
| Buildings | 15 to 50 years | 0% to 10% | 6.7% to 1.8% |
| Machinery and equipment | 2 to 18 years | 0% to 10% | 50% to 5.0% |
| Motor vehicles | 2 to 20 years | 0% to 10% | 50% to 4.5% |
| Electronic equipment and others | 2 to 20 years | 0% to 10% | 50% to 4.5% |
| Overseas land | Permanent | N/A | N/A |
The estimated useful lives and the estimated net residual values of the Group's fixed assetsand the depreciation methods applied to the assets are reviewed, and adjusted asappropriate at each year-end.(c) Basis for identification of fixed assets held under finance leases and related measurement
A lease that transfers substantially all the risks and rewards incidental to ownership of anasset is a finance lease. The leased asset is recognised at the lower of the fair value of theleased asset and the present value of the minimum lease payments. The difference betweenthe recorded amount of the leased asset and the minimum lease payments is accounted foras unrecognised finance charge.Fixed assets held under a finance lease is depreciated on a basis consistent with thedepreciation policy adopted for fixed assets that are self-owned. When a leased asset canbe 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 depreciatedover 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(19)).(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 disposal on sales, 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.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Construction in progress
Construction in progress is measured at actual cost. Actual cost comprises constructioncosts, installation costs, borrowing costs that are eligible for capitalisation and other costsnecessary to bring the fixed assets ready for their intended use. Construction in progress istransferred to fixed assets when the assets are ready for their intended use, anddepreciation begins from the following month. The carrying amount of construction inprogress is reduced to the recoverable amount when the recoverable amount is below thecarrying amount (Note 2(19)).
(16) Borrowing costs
The borrowing costs that are directly attributable to the acquisition and construction of afixed asset that needs a substantially long period of time for its intended use commence tobe capitalised and recorded as part of the cost of the asset when expenditures for the assetand borrowing costs have been incurred, and the activities relating to the acquisition andconstruction that are necessary to prepare the asset for its intended use have commenced.The capitalisation of borrowing costs ceases when the asset under acquisition orconstruction becomes ready for its intended use and the borrowing costs incurred thereafterare recognised in profit or loss for the current period. Capitalisation of borrowing costs issuspended during periods in which the acquisition or construction of an asset is interruptedabnormally and the interruption lasts for more than 3 months, until the acquisition orconstruction is resumed.For the specific borrowings obtained for the acquisition or construction of a fixed assetqualifying for capitalisation, the amount of borrowing costs eligible for capitalisation isdetermined by deducting any interest income earned from depositing the unused specificborrowings in the banks or any investment income arising on the temporary investment ofthose borrowings during the capitalisation period.For the general borrowings obtained for the acquisition or construction of a fixed assetqualifying for capitalisation, the amount of borrowing costs eligible for capitalisation isdetermined 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 overthe amount of specific borrowings. The effective interest rate is the rate at which theestimated future cash flows during the period of expected duration of the borrowings orapplicable shorter period are discounted to the initial amount of the borrowings.
(17) Intangible assets
Intangible assets include land use rights, patents and non-patent technologies, trademarkrights, trademark use rights, royalties 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 of40 to 50 years. If the acquisition costs of the land use rights and the buildings locatedthereon cannot be reasonably allocated between the land use rights and the buildings, allof 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 periodas stipulated by contracts or the beneficial period.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Intangible assets (Cont’d)
(c) Trademark rights
The trademark rights is measured at cost when acquired and is amortised over theestimated useful life of 30 years. The cost of trademark rights obtained in the businesscombinations involving enterprises not under common control is measured at fair value. Assome of the trademarks are expected to attract net cash inflows injected into the Group, themanagement considers that these trademarks have an indefinite useful lives and arepresented based upon the carrying amounts after deducting the provision for impairment(Note 4(16)).(d) Trademark use rights
The trademark use rights is measured at cost when acquired. The cost of trademark userights obtained in the business combinations involving enterprises not under commoncontrol is measured at fair value, and is amortised over the estimated useful life of 40 years.(e) Periodical review of useful life and amortisation method
For an intangible asset with a finite useful life, review of its useful life and amortisationmethod 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 intoexpenditure on the research phase and expenditure on the development phase based onits nature and whether there is material uncertainty that the research and developmentactivities can form an intangible asset at the end of the project.Expenditure on the planned investigation, evaluation and selection for the research ofproduction processes or products is categorised as expenditure on the research phase, andit is recognised in profit or loss when it is incurred. Expenditure on design and test for thefinal application of the development of production processes or products before massproduction is categorised as expenditure on the development phase, which is capitalisedonly if all of the following conditions are satisfied:
? The development of production processes or products has been fully justified by
technical team;? The budget on the development of production processes or products has been
approved by the management;? There is market research analysis that demonstrates the product produced by the
production process or product has the ability of marketing;? There are sufficient technical and financial resources to support the development of
production processes or products and subsequent mass production; and? Expenditure attributable to the development of production processes or products
can be reliably measured.Other development expenditures that do not meet the conditions above are recognised inprofit or loss in the period in which they are incurred. Development costs previouslyrecognised as expenses are not recognised as an asset in a subsequent period. Capitalisedexpenditure on the development phase is presented as development costs in the balancesheet and transferred to intangible assets at the date that the asset is ready for its intendeduse.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(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) Intangible assets (Cont’d)
(g) Impairment of intangible assets
The carrying amounts of intangible assets are reduced to the recoverable amounts whenthe recoverable amounts are below their carrying amounts (Note 2(19)).
(18) Long-term prepaid expenses
Long-term prepaid expenses include the expenditure for improvements to fixed assets heldunder operating leases, and other expenditures that have been incurred but should berecognised 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 expectedbeneficial period and are presented at actual expenditure net of accumulated amortisation.
(19) Impairment of long-term assets
Fixed assets, construction in progress, intangible assets with finite useful lives, investmentproperties 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 theassets may be impaired at the balance sheet date. Intangible assets not ready for theirintended use and overseas land are tested at least annually for impairment, irrespective ofwhether there is any indication that it may be impaired. If the result of the impairment testindicates that the recoverable amount of an asset is less than its carrying amount, aprovision for impairment and an impairment loss are recognised for the amount by whichthe asset’s carrying amount exceeds its recoverable amount. The recoverable amount is thehigher of an asset’s fair value less costs to sell and the present value of the future cashflows expected to be derived from the asset. Provision for asset impairment is determinedand recognised on the individual asset basis. If it is not possible to estimate the recoverableamount of an individual asset, the recoverable amount of a group of assets to which theasset belongs is determined. A group of assets is the smallest group of assets that is ableto generate independent cash inflows.Goodwill that is separately presented in the financial statements is tested at least annuallyfor impairment, irrespective of whether there is any indication that it may be impaired. Inconducting the test, the carrying value of goodwill is allocated to the related asset groups orgroups of asset groups which are expected to benefit from the synergies of the businesscombination. If the result of the test indicates that the recoverable amount of an asset groupsor a group of asset groups, including the allocated goodwill, is lower than its carryingamount, the corresponding impairment loss is recognised. The impairment loss is firstdeducted from the carrying amount of goodwill that is allocated to the asset groups or groupof asset groups, and then deducted from the carrying amounts of other assets within theasset groups or group of asset groups in proportion to the carrying amounts of assets otherthan goodwill.Once the above asset impairment loss is recognised, it will not be reversed for the valuerecovered in the subsequent periods.
(20) Employee benefits
Employee benefits include short-term employee benefits, post-employment benefits,termination benefits and other long-term employee benefits provided in various forms ofconsideration in exchange for service rendered by employees or compensations for thetermination of employment relationship.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Employee benefits (Cont’d)
(a) Short-term employee benefits
Short-term employee benefits include employee wages or salaries, bonus, allowances andsubsidies, staff welfare, premiums or contributions on medical insurance, work injuryinsurance and maternity insurance, housing funds, union running costs and employeeeducation costs, short-term paid absences. The employee benefit liabilities are recognisedin the accounting period in which the service is rendered by the employees, with acorresponding charge to the profit or loss for the current period or the cost of relevant assets.Employee benefits which are non-monetary benefits are measured at fair value.(b) Post-employment benefits
The Group classifies post-employment benefit plans as either defined contribution plans ordefined benefit plans. Defined contribution plans are post-employment benefit plans underwhich the Group pays fixed contributions into a separate fund and will have no obligation topay further contributions; and defined benefit plans are post-employment benefit plans otherthan defined contribution plans. During the reporting period, the Group's defined contributionplans mainly include basic pensions and unemployment insurance, while the defined benefitplans are Toshiba Lifestyle Products & Services Corporation (“TLSC”), and KUKA Group,the Group’s subsidiaries, provide supplemental retirement benefits beyond the nationalregulatory insurance system.Basic pensionsThe Group’s employees participate in the basic pension plan set up and administered bylocal authorities of Ministry of Human Resource and Social Security. Monthly payments ofpremiums on the basic pensions are calculated according to prescribed bases andpercentage by the relevant local authorities. When employees retire, the relevant localauthorities are obliged to pay the basic pensions to them. The amounts based on the abovecalculations are recognised as liabilities in the accounting period in which the service hasbeen rendered by the employees, with a corresponding charge to the profit or loss for thecurrent period or the cost of relevant assets.Supplementary retirement benefitsThe liability recognised in the balance sheet in respect of defined benefit pension plans isthe present value of the defined benefit obligation at the end of the reporting period less thefair value of plan assets. The defined benefit obligation is calculated annually byindependent actuaries using the projected unit credit method at the interest rate of treasurybonds with similar obligation term and currency. The charges related to the supplementalretirement benefits (including current service costs, past-service costs and gains or losseson settlement) and net interest costs are recognised in the statement of profit or loss orincluded in the cost of an asset, and the changes of remeasurement in net liabilities or netassets arising from the benefit plan are charged or credited to equity in other comprehensiveincome.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(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) Employee benefits (Cont’d)
(c) Termination benefits
The Group provides compensation for terminating the employment relationship withemployees before the end of the employment contracts or as an offer to encourageemployees to accept voluntary redundancy before the end of the employment contracts.The Group recognises a liability arising from compensation for termination of theemployment relationship with employees, with a corresponding charge to profit or loss atthe earlier of the following dates: 1) when the Group cannot unilaterally withdraw the offerof termination benefits because of an employment termination plan or a curtailmentproposal; 2) when the Group recognises costs or expenses related to the restructuring thatinvolves the payment of termination benefits.Early retirement benefitsThe Group offers early retirement benefits to those employees who accept early retirementarrangements. The early retirement benefits refer to the salaries and social securitycontributions to be paid to and for the employees who accept voluntary retirement beforethe normal retirement date prescribed by the State, as approved by the management. TheGroup pays early retirement benefits to those early retired employees from the earlyretirement date until the normal retirement date. The Group accounts for the early retirementbenefits in accordance with the treatment for termination benefits, in which the salaries andsocial 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 correspondingcharge to the profit or loss for the current period. The differences arising from the changesin the respective actuarial assumptions of the early retirement benefits and the adjustmentsof benefit standards are recognised in profit or loss in the period in which they occur.The termination benefits expected to be settled within one year since the balance sheet dateare classified as current liabilities.
(21) General risk reserve
General risk reserve is the reserve appropriated from undistributed profits to cover part ofunidentified potential losses, on the basis of the estimated potential risk value of risk assetsassessed by the standardised approach, which is deducted from recognised provision forimpairment losses on loans. Risk assets include loans and advances, long-term equityinvestments, deposits with banks and other financial institutions and other receivables ofsubsidiary engaged in financial business.
(22) Dividend distribution
Cash dividend is recognised as a liability for the period in which the dividend is approved bythe shareholders’ meeting.
(23) Provisions
Provisions for product warranties, onerous contracts, etc. are recognised when the Grouphas a present obligation, it is probable that an outflow of economic benefits will be requiredto settle the obligation, and the amount of the obligation can be measured reliably.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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)
(23) Provisions (Cont’d)
A provision is initially measured at the best estimate of the expenditure required to settle therelated 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 reachingthe best estimate of a provision. Where the effect of the time value of money is material, thebest estimate is determined by discounting the related future cash outflows. The increase inthe discounted amount of the provision arising from passage of time is recognised asinterest expense.The carrying amount of provisions is reviewed at each balance sheet date and adjusted toreflect the current best estimate.The provisions expected to be settled within one year since the balance sheet date areclassified as current liabilities.
(24) Share-based payments
(a) Type of share-based payment
Share-based payment is a transaction in which the entity acquires services from employeesas consideration for equity instruments of the entity or by incurring liabilities for amountsbased on the equity instruments. Equity instruments include equity instruments of theCompany, its parent company or other accounting entities of the Group. Share-basedpayments are divided into equity-settled and cash-settled payments. The Group’s share-based payments are equity-settled payments.Equity-settled share-based paymentThe Group’s equity-settled share-based payment contains share option incentive plan,restricted share plan and employee stock ownership plan. These plans are measured at thefair value of the equity instruments at grant date and the equity instruments are tradable orexercisable when services in vesting period are completed or specified performanceconditions are met. In the vesting period, the services obtained in current period are includedin relevant cost and expenses at the fair value of the equity instruments at grant date basedon the best estimate of the number of tradable or exercisable equity instruments, and capitalsurplus is increased accordingly. If the subsequent information indicates the number oftradable or exercisable equity instruments differs from the previous estimate, an adjustmentis made and, on the exercise date, the estimate is revised to equal to the number of actualvested equity instruments.(b) Determination of the fair value of equity instruments
The Group determines the fair value of share options using option pricing model, which isBlack - Scholes option pricing model.The fair value of other equity instruments are based on the share prices, which excludedthe price that incentive objects pay, and the number of the shares on the grant date, takinginto account the effects of clause of the Group’s relevant plans.(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 optionsthat are expected to vest based on the non-marketing performance and service conditions.On the exercise or desterilisation date, the final number of estimated exercisable or tradableequity instruments is consistent with the number of exercised or tradable equity instruments.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Treasury stock
The Group’s treasury stock mainly comes from the repurchase of equity instruments andthe issuance of restricted shares and so on.Consideration and transaction costs paid by the Group for repurchasing equity instrumentsare deducted from equity and not recognised as financial assets. The considerations andthe related transaction costs paid by the Group for repurchasing equity instruments aremeasured as treasury stock.On the deregistration day of shares, relevant share capital and treasury stock are reversedwith the difference included in capital surplus (share premium) based on actualderegistration results.On the grant day of restricted shares, the Group recognise bank deposits when receivingsubscription from the employees and measures the repurchase obligation as liability. Onthe day of release of restricted shares, relevant treasury stocks, liabilities and capital surplusrecognised in the vesting period are reversed based on the actual vesting results.
(26) Revenue
The amount of revenue is determined in accordance with the fair value of the considerationreceived or receivable for the sales of goods and services in the ordinary course of theGroup’s activities. Revenue is stated net of discounts, rebates and returns.Revenue is recognised when it’s probable that the economic benefits associated with thetransaction will flow to the Group, the related revenue can be reliably measured, and thespecific criteria of revenue recognition have been met for each type of the Group’s activitiesas described below:
(a) Sales of products
The Group are principally engaged in the manufacturing and sales of home appliances(mainly comprises HVAC and consumer appliances), and robotics and automation system(mainly comprises robotics and automation system).Revenue from domestic sales is recognised when 1) the goods are delivered to buyers bythe Group pursuant to contracts; 2) the amount of revenue is confirmed; 3) payments forgoods are collected or receipts are acquired; and 4) the related economic benefits will flowto the Group; and the related costs can be measured reliably. Upon confirming theacceptance, the buyer has the right to sell the products at its discretion and takes the risksof any price fluctuations and obsolescence and loss of the products.Revenue from overseas sales is recognised when 1) the goods have been declared to thecustoms and shipped out of the port; 2) the amount of revenue is confirmed; 3) paymentsfor goods are collected or obtain related receipts; and 4) the related economic benefits willflow to the Group and the related costs can be measured reliably.Revenue from sales of robotics and automation system is recognised when 1) the goodsare delivered to buyers by the Group pursuant to contracts; 2) the amount of revenue isconfirmed; 3) payments for goods are collected or receipts are acquired; and 4) the relatedeconomic benefits will flow to the Group; and the related costs can be measured reliably.(b) Rendering of services
Revenue from transportation service, distribution service and installation service asprovided by the Group is recognised when the services are completed.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Revenue (Cont’d)
(b) Rendering of services (Cont’d)
Revenue from providing automation system business, intelligent logistics integrationsolution and storage service is recognised according to the percentage of completion.(c) Construction contract
Where the outcome of a construction contract can be estimated reliably, revenue and coststhereof are recognised using the “percentage-of-completion” method as at the balancesheet date. The stage of completion is measured by reference to the contract costs incurredup to the end of the reporting period as a percentage of total estimated costs for eachcontract.The outcome of a construction contract can be estimated reliably when all of the followingconditions 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 theenterprise; (3) the contract costs incurred thus far can be clearly identified and measuredreliably; (4) both the stage of completion and the costs necessary to complete the contractcan be reliably measured.Where the outcome of a construction contract cannot be estimated reliably, contract revenueis recognised to the extent that contract costs can be recovered actually. Contract costs arerecognised as expenses in the period in which they are incurred. Otherwise, contract costsare recognised as expenses immediately, not as contract revenue. If the unexpected factorsno longer exist which make construction contract unable to be estimated reliably, revenueand costs are recognised using the percentage-of-completion method.When it is probable that total contract costs will exceed total contract revenue, the expectedloss is recognised as an expense immediately.As at the balance sheet date, the actual total contract revenue multiply the percentage ofcompletion less the total contract revenue recognised in previous accounting periods shouldbe recognised as the revenue for the current period. Similarly, the total contract costsmultiply the percentage of completion incurred less the total contract costs recognised inprevious 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 andrecognised in profit or loss for the current period. Interest income comprises premiums ordiscounts, or the amortisation based on effective rates of other difference between the initialcarrying amount and the due amount of interest-earning assets.The effective interest method is a method of calculating the amortised cost of a financialasset or liability and the interest income or expense based on effective rates. Actual interestrate is the rate at which the estimated future cash flows during the period of expectedduration of the financial instruments or applicable shorter period are discounted to thecurrent carrying amount of the financial instruments. When calculating the effective interestrate, the Group estimates cash flows by considering all contractual terms of the financialinstrument (e.g. early repayment options, similar options, etc.), but without consideringfuture credit losses. The calculation includes all fees and interest paid or received that arean integral part of the effective interest rate, transaction costs, and all other premiums ordiscounts.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Revenue (Cont’d)
(d) Interest income (Cont’d)
Interest income from impaired financial assets is calculated at the interest rate that is usedfor 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.
(27) 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 are recorded as deferred income 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 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
for the current period.
The same kind of government grants are presented with the same method.
Those related to ordinary activities are recorded into operating profit while other in non-
operating income and expenses.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(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) Government grants (Cont’d)
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 politicalpreferential rate. Finance discounts directly received offset related loans expenses.
(28) Deferred tax assets and deferred tax liabilities
Deferred tax assets and deferred tax liabilities are calculated and recognised based on thedifferences 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 canbe carried forward to subsequent years for deduction of the taxable profit in accordance withthe tax laws. No deferred tax liability is recognised for a temporary difference arising fromthe initial recognition of goodwill. No deferred tax asset or deferred tax liability is recognisedfor the temporary differences resulting from the initial recognition of assets or liabilities dueto a transaction other than a business combination, which affects neither accounting profitnor taxable profit (or deductible loss). At the balance sheet date, deferred tax assets anddeferred tax liabilities are measured at the tax rates that are expected to apply to the periodwhen the asset is realised or the liability is settled.Deferred tax assets are only recognised for deductible temporary differences, deductible taxlosses and tax credits to the extent that it is probable that taxable profit will be available inthe future against which the deductible temporary differences, deductible tax losses and taxcredits can be utilised.Deferred tax liabilities are recognised for temporary differences arising from investments insubsidiaries, associates and joint ventures, except where the Group is able to control thetiming of reversal of the temporary difference, and it is probable that the temporary differencewill not reverse in the foreseeable future. When it is probable that the temporary differencesarising from investments in subsidiaries, associates and joint ventures will be reversed inthe foreseeable future and that the taxable profit will be available in the future against whichthe temporary differences can be utilised, the corresponding deferred tax assets arerecognised.Deferred tax assets and liabilities are offset when:
? the deferred 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.
(29) Leases
(a) Operating leases
Rental expenses for assets held under operating leases are recognised as the cost ofrelevant assets or expenses on a straight-line basis over the lease period. Contingentrentals are recognised as profit and loss for the current period when incurred.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(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) Leases (Cont’d)
(a) Operating leases (Cont’d)
Fixed assets leased out under operating leases, other than investment prosperities (Note2(13), are depreciated in accordance with the depreciation policy stated in Note 2(14(b) andprovided for impairment loss in accordance with the policy stated in Note 2(19). Rentalincome from operating leases is recognised as revenue on a straight-line basis over thelease period. Initial direct costs in large amount arising from assets leased out underoperating leases are capitalised when incurred and recognised as profit and loss for thecurrent period over the lease period on a same basis with revenue recognition; initial directcosts 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 leases
The leased asset is recognised at the lower of the fair value of the leased asset and thepresent value of the minimum lease payments. The difference between the recorded amountof the leased asset and the minimum lease payments is accounted for as unrecognisedfinance charge and is amortised using the effective interest method over the period of thelease. A long-term payable is recorded at the amount equal to the minimum lease paymentsless the unrecognised finance charge.
(30) Segment information
The Group identifies operating segments based on the internal organisation structure,management requirements and internal reporting system, and discloses segmentinformation 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 followingconditions: (1) the component is able to earn revenue and incur expenses from its ordinaryactivities; (2) whose operating results are regularly reviewed by the Group’s managementto make decisions about resources to be allocated to the segment and to assess itsperformance, and (3) for which the information on financial position, operating results andcash flows is available to the Group. Two or more operating segments that have similareconomic characteristics and satisfy certain conditions can be aggregated into one singleoperating segment.
(31) Critical accounting estimates and judgements
The Group continually evaluates the critical accounting estimates and key judgementsapplied based on historical experience and other factors, including expectations of futureevents that are believed to be reasonable.Critical accounting estimates and key assumptionsThe critical accounting estimates and key assumptions that have a significant risk of causinga material adjustment to the carrying amounts of assets and liabilities within the nextaccounting year are outlined below:
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) Critical accounting estimates and judgements (Cont’d)
(i) Provision for impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment. The recoverableamount of the asset groups and the combination of asset groups that contain theapportioned goodwill is determined by the higher value between the use value and the netvalue that is calculated by the fair value less the disposal costs. Accounting estimate isrequired for the calculation of the recoverable amount. The impairment testing is performedby assessing the recoverable amount of the groups of assets containing the relevantgoodwill, based on the present value of cash flows forecasts. Key assumptions adopted inthe impairment testing of goodwill included expected revenue growth rates, EBITDAmargins, perpetual annual growth rates, discount rates, etc. which involved criticalaccounting estimates and judgement.(ii) Income tax
The Group is subject to income taxes in numerous jurisdictions. There are manytransactions and events for which the ultimate tax determination is uncertain during theordinary course of business. Significant judgement is required from the Group in determiningthe provision for income taxes in each of these jurisdictions. Where the final tax outcome ofthese matters is different from the amounts that were initially recorded, such differences willimpact the income tax and deferred tax provisions in the period in which such determinationis made.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) |
| 32 | Significant changes in accounting policies |
The Ministry of Finance released the revised CAS 22 - Recognition and Measurement of Financial Instruments, CAS 23 - Transfer of FinancialAssets, CAS 24 - Hedge Accounting and CAS 37 - Presentation of Financial Instruments (hereinafter collectively referred to as “the new financialinstruments standards”) in 2017, and released the Circular on the Amendment to the Formats of Corporate Financial Statements for the Year of2019 (Cai Kuai [2019] No. 6), the revised CAS 7 - Exchange of Non-monetary Assets (hereinafter the “exchange of non-monetary assets standard”)and the revised CAS 12 - Debt Restructuring (hereinafter the “debt restructuring standard”) in 2019. The financial statements for the year ended 31December 2019 are prepared in accordance with the above standards and circular. The revised standards for exchange of non-monetary assetsand debt restructuring had no significant impacts on the Group and the Company, and impacts of other revisions on financial statements of theGroup and the Company are as follows:
(a)
| (a) | Revisions based on the circular on the amendment to the formats of corporate financial statements |
Impacts on the consolidated balance sheet are as follows:
The nature and the reasons of the
changes in accounting policies
| The nature and the reasons of the changes in accounting policies | The line items affected | 31 December 2018 | 1 January 2018 | ||||
| Before adjustment | The amounts affected | After adjustment | Before adjustment | The amounts affected | After adjustment | ||
| The Group split notes and accounts receivables into accounts receivable and notes receivable. | Accounts receivable | - | 19,390,174 | 19,390,174 | - | 17,528,717 | 17,528,717 |
| Notes receivable | - | 12,556,294 | 12,556,294 | - | 10,854,226 | 10,854,226 | |
| Notes and accounts receivables | 31,946,468 | (31,946,468) | - | 28,382,943 | (28,382,943) | - |
| The Group split notes and accounts payables into accounts payable and notes payable. | Accounts payable | - | 36,901,626 | 36,901,626 | - | 35,144,777 | 35,144,777 |
| Notes payable | - | 23,325,115 | 23,325,115 | - | 25,207,785 | 25,207,785 | |
| Notes and accounts payables | 60,226,741 | (60,226,741) | - | 60,352,562 | (60,352,562) | - |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) |
| 32 | Significant changes in accounting policies (Cont’d) |
| (b) | Revisions based on the new financial instruments standards |
Accordance with relevant provisions of the new financial instruments standards, the Group and the Company recognised the cumulative effect ofinitially applying the standard as an adjustment to the opening balance of retained earnings in 2019 and other relevant line items in the financialstatements. The comparatives were not restated.(i)
| (i) | As at 1 January 2019, the financial assets represented in the Group's consolidated financial statements were disclosed and measured in accordance with the old/new financial instruments standards as follows: |
| Old financial instruments standards | New financial instruments standards | ||||
| Line item | Measurement | Carrying amount | Line item | Measurement | Carrying amount |
| Cash at bank and on hand | Amortised cost | 27,888,280 | Cash at bank and on hand | Amortised cost | 27,888,280 |
| Notes receivable | Amortised cost | 12,556,294 | Notes receivable | Amortised cost | 11,049,539 |
| Receivables financing | Fair value through other comprehensive income | 1,506,755 | |||
| Accounts receivable | Amortised cost | 19,390,174 | Accounts receivable | Amortised cost | 18,641,979 |
| Receivables financing | Fair value through other comprehensive income | 748,195 | |||
| Other receivables | Amortised cost | 2,971,368 | Other receivables | Amortised cost | 2,960,939 |
| Financial assets held for trading | Fair value through profit or loss | 10,429 | |||
| Other current assets | Fair value through other comprehensive income (hedging instruments) | 38,822 | Other current assets | Fair value through other comprehensive income | 38,822 |
| Fair value through other comprehensive income (wealth management products) | 1,521,007 | Financial assets held for trading | Fair value through profit or loss | 1,521,007 | |
| Amortised cost (structural deposits) | 70,402,509 | Other current assets | Amortised cost | 70,402,509 | |
| Derivative financial assets | Fair value through profit or loss | 220,197 | Derivative financial assets | Fair value through profit or loss | 220,197 |
| Loans and advances | Amortised cost | 11,328,392 | Loans and advances | Amortised cost | 11,328,392 |
| Long-term receivables | Amortised cost | 34,815 | Long-term receivables | Amortised cost | 34,815 |
| Available-for-sale financial assets | Fair value through other comprehensive income (equity instruments) (Note) | 1,184,859 | Financial assets held for trading | Fair value through profit or loss | 1,122,609 |
| Other non-current financial assets | Fair value through profit or loss | 62,250 | |||
| Cost (equity instruments) | 722,019 | Other non-current financial assets | Fair value through profit or loss | 722,019 | |
(Note) As at 31 December 2018, the Group’s financial assets held for trading measured at fair value through other comprehensive income amountedto RMB 1,184,859,000. As at 1 January 2019, such equity instruments were measured at fair value through profit or loss after the implementation ofthe new financial instruments standards. Correspondingly, the Group transferred RMB 337,447,000 of equity instruments measured at fair valuethrough other comprehensive income in prior years to the opening balance of undistributed profit.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(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) |
| 32 | Significant changes in accounting policies (Cont’d) |
| (b) | Revisions based on the new financial instruments standards (Cont’d) |
| (ii) | As at 1 January 2019, the financial assets of represented in the Company's financial statements were disclosed and measured in accordance with the old/new financial instruments standards as follows: |
| Old financial instruments standards | New financial instruments standards | ||||
| Line item | Measurement | Carrying amount | Line item | Measurement | Carrying amount |
| Cash at bank and on hand | Amortised cost | 15,361,626 | Cash at bank and on hand | Amortised cost | 15,361,626 |
| Other receivables | Amortised cost | 11,593,020 | Other receivables | Amortised cost | 11,593,020 |
| Other current assets | Fair value through other comprehensive income (wealth management products) | 1,521,007 | Financial assets held for trading | Fair value through profit or loss | 1,521,007 |
| Amortised cost (structural deposits) | 53,164,300 | Other current assets | Amortised cost | 53,164,300 | |
| Available-for-sale financial assets | Cost (equity instruments) | 56,579 | Other non-current financial assets | Fair value through profit or loss | 56,579 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) |
| 32 | Significant changes in accounting policies (Cont’d) |
| (b) | Revisions based on the new financial instruments standards (Cont’d) |
| (iii) | As at 1 January 2019, for the Group and the Company, the carrying amount of financial assets is reconciled from the old financial instruments standards to the new financial instruments standards based on the new measurement: |
Measurement under the new financial instruments standardsFinancial assets at amortised cost
| Financial assets at amortised cost | Table 1 |
| Financial assets at fair value through profit or loss | Table 2 |
| Financial assets at fair value through other comprehensive income | Table 3 |
Table 1: Financial assets at amortised cost under the new financial instruments standardsCarrying amount
| Carrying amount | |
| Consolidated | Company |
| Cash at bank and on hand 31 December 2018 | 27,888,280 | 15,361,626 |
| Less: Disclosure and measurement under the new financial instruments standards | - | - |
| 1 January 2019 | 27,888,280 | 15,361,626 |
| Receivables (including notes receivable, accounts receivable, other receivables, and long-term receivables) 31 December 2018 | 34,952,651 | 11,593,020 |
| Less: Transfer to financial assets at fair value through other comprehensive income | (2,254,950) | - |
| Less: Transfer to financial assets at fair value through profit or loss | (10,429) | - |
| 1 January 2019 | 32,687,272 | 11,593,020 |
| Loans and advances 31 December 2018 | 11,328,392 | - |
| Less: Disclosure and measurement under the new financial instruments standards | - | - |
| 1 January 2019 | 11,328,392 | - |
| Other current assets - Structural deposits 31 December 2018 | 70,402,509 | 53,164,300 |
| Less: Disclosure and measurement under the new financial instruments standards | - | - |
| 1 January 2019 | 70,402,509 | 53,164,300 |
| Total financial assets measured at amortised cost (under the new financial instruments standards) as at 1 January 2019 | 142,306,453 | 80,118,946 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) |
| 32 | Significant changes in accounting policies (Cont’d) |
| (b) | Revisions based on the new financial instruments standards (Cont’d) |
| (iii) | As at 1 January 2019, for the Group and the Company, the carrying amount of financial assets is reconciled from the old financial instruments standards to the new financial instruments standards based on the new measurement: (Cont’d) |
Table 2: Financial assets at fair value through profit or loss under the new financialinstruments standardsCarrying amount
| Carrying amount | |
| Consolidated | Company |
| Financial assets held for trading 31 December 2018 | - | - |
| Add:Transferred from other current assets - available-for-sale financial assets - wealth management products | 1,521,007 | 1,521,007 |
| Add:Transferred from available-for-sale financial assets | 1,122,609 | - |
| Add:Transferred from other receivables | 10,429 | - |
| 1 January 2019 | 2,654,045 | 1,521,007 |
| Derivative financial instruments 31 December 2018 | 220,197 | - |
| Less: Disclosure and measurement under the new financial instruments standards | - | - |
| 1 January 2019 | 220,197 | - |
| Other non-current financial assets 31 December 2018 | - | - |
| Add:Transferred from available-for-sale financial assets | 784,269 | 56,579 |
| 1 January 2019 | 784,269 | 56,579 |
| Total financial instruments at fair value through profit or loss (under the new financial instruments standards) as at 1 January 2019 | 3,658,511 | 1,577,586 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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) |
| 32 | Significant changes in accounting policies (Cont’d) |
| (b) | Revisions based on the new financial instruments standards (Cont’d) |
| (iii) | As at 1 January 2019, for the Group and the Company, the carrying amount of financial assets is reconciled from the old financial instruments standards to the new financial instruments standards based on the new measurement: (Cont’d) |
Table 3: Financial assets at fair value through other comprehensive income under the newfinancial instruments standardsCarrying amount
| Carrying amount | |
| Consolidated | Company |
| Receivables financing 31 December 2018 | - | - |
| Add: Transfer from notes receivables (under the old financial instruments standards) | 1,506,755 | - |
| Add:Transfer from accounts receivables (under the old financial instruments standards) | 748,195 | - |
| 1 January 2019 | 2,254,950 | - |
| Other current assets - Hedging instruments | ||
| 31 December 2018 | 38,822 | - |
| Less: Disclosure and measurement under the new financial instruments standards | - | - |
| 1 January 2019 | 38,822 | - |
| Total financial instruments at fair value through profit or loss (under the new financial instruments standards) as at 1 January 2019 | 2,293,772 | - |
| (iv) | As at 1 January 2019, the Group’s reconciliation from the provision for impairment of financial assets under the old financial instruments standards and provisions recognised according to accounting standards on contingencies to loss provision under the new financial instruments standards is as below: |
| Measurement | Loss provision under the old financial instruments standards/provisions recognised according to accounting standards on contingencies | Reclassification | Remeasurement | Loss provision under the new financial instruments standards |
| Financial assets at amortised cost - | ||||
| Provision for bad debts of accounts receivable | 982,109 | - | - | 982,109 |
| Provision for impairment of loans and advances | 154,006 | - | - | 154,006 |
| Provision for bad debts of other receivables | 42,730 | - | - | 42,730 |
| Provision for bad debts of long-term receivables | - | - | - | - |
| Financial assets at fair value through other comprehensive income - | ||||
| Provision for impairment of available-for-sale financial assets | 2,287 | (2,287) | - | - |
| Total | 1,181,132 | (2,287) | - | 1,178,845 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(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) |
| 32 | Significant changes in accounting policies (Cont’d) |
| (b) | Revisions based on the new financial instruments standards (Cont’d) |
| (v) | As at 1 January 2019, the Company’s reconciliation from the provision for impairment of financial assets under the old financial instruments standards and provisions recognised according to accounting standards on contingencies to loss provision under the new financial instruments standards is as below: |
| Measurement | Loss provision under the old financial instruments standards/provisions recognised according to accounting standards on contingencies | Reclassification | Remeasurement | Loss provision under the new financial instruments standards |
| Financial assets at amortised cost - | ||||
| Provision for bad debts of other receivables | 6,840 | - | - | 6,840 |
| Total | 6,840 | - | - | 6,840 |
3 Taxation
(1) Main tax category and rate
| Category | Tax base | Tax rate |
| Enterprise income tax | Levied based on taxable income | Note (a) |
| Value-added tax (“VAT”) | Taxable value-added amount (Tax payable is calculated using the taxable sales amount multiplied by the applicable tax rate less deductible VAT input of the current period) | Note (b) |
| City maintenance and construction tax | The amount of VAT paid | 5% or 7% |
| Educational surcharge | The amount of VAT paid | 3% or 5% |
| Local educational surcharge | The amount of VAT paid | 2% |
| Property tax | Price-based property is subject to a 1.2% tax rate after a 30% cut in the original price of property; rental-based property is subject to a 12% tax rate for the rental income. | 1.2% or 12% |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(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 enterprise income tax rate of the principal tax payers with different tax rates
(a-1) The following subsidiaries of the Company are subject to an enterprise income tax rate of
15% in 2019 as they qualified as high-tech enterprises and obtained the High-techEnterprise Certificate:
| Name of taxpayer | No. of the High-tech Enterprise Certificate | Dates of issuance | Term of validity |
| Jiangsu Midea Cleaning Appliances Co., Ltd. | GR201732001675 | 17 November 2017 | 3 years |
| GD Midea Environment Appliances Mfg. Co., Ltd. | GR201944000430 | 2 December 2019 | 3 years |
| Midea Intelligent Lighting & Controls Technology Co., Ltd. | GR201736000187 | 23 August 2017 | 3 years |
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | GR201844000250 | 28 November 2018 | 3 years |
| Guangdong Witol Vacuum Electronic Manufacture Co., Ltd | GR201744000489 | 9 November 2017 | 3 years |
| Foshan Shunde Midea Washing Appliances Manufacturing Co., Ltd. | GR201744002837 | 9 November 2017 | 3 years |
| Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd. | GR201844010373 | 28 November 2018 | 3 years |
| Guangdong Midea Precision Molding Technology Co., Ltd. | GR201944004780 | 2 December 2019 | 3 years |
| Foshan Shunde Midea Electric Science and Technology Co., Ltd. | GR201944000317 | 2 December 2019 | 3 years |
| GD Midea Heating & Ventilating Equipment Co., Ltd. | GR201844008219 | 28 November 2018 | 3 years |
| Hefei Midea Heating & Ventilating Equipment Co., Ltd. | GR201934001163 | 9 September 2019 | 3 years |
| Anhui Meizhi Precision Manufacturing Co., Ltd. | GR201834000890 | 24 July 2018 | 3 years |
| Guangzhou Midea Hualing Refrigerator Co., Ltd. | GR201944009238 | 2 December 2019 | 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 Welling Motor Manufacturing Co., Ltd. | GR201932010033 | 6 December 2019 | 3 years |
| Annto Logistics Technology Co., Ltd. | GR201834001306 | 24 July 2018 | 3 years |
| Little Swan | GR201832001394 | 24 October 2018 | 3 years |
| Wuxi Filin Electronics Co., Ltd. | GR201832001053 | 24 October 2018 | 3 years |
| Wuxi Little Swan General Appliance Co., Ltd. | GR201832001100 | 24 October 2018 | 3 years |
| GD Midea Air-Conditioning Equipment Co., Ltd. | GR201744000337 | 9 November 2017 | 3 years |
| Handan Midea Air-Conditioning Equipment Co., Ltd. | GR201713000957 | 27 October 2017 | 3 years |
| Midea Group Wuhan Refrigeration Equipment Co., Ltd. | GR201742002075 | 30 November 2017 | 3 years |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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 enterprise 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 an enterprise income tax rate of
15% in 2019 as they qualified as high-tech enterprises and obtained the High-techEnterprise Certificate (Cont’d):
Name of taxpayer
| Name of taxpayer | No. of the High-tech Enterprise Certificate | Dates of issuance | Term of validity |
| Guangzhou Hualing Refrigerating Equipment Co., Ltd. | GR201744010610 | 11 December 2017 | 3 years |
| Wuhu Maty 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 Meizhi Compressor Limited | GR201744000895 | 9 November 2017 | 3 years |
| Hubei Midea Refrigerator Co., Ltd. | GR201742001255 | 28 November 2017 | 3 years |
| Guangdong Midea Consumer Electric Manufacturing Co., Ltd. | GR201744006141 | 11 December 2017 | 3 years |
| Anhui Meizhi Compressor Co., Ltd. | GR201934000046 | 9 September 2019 | 3 years |
| Foshan Shunde Midea Water Dispenser Manufacturing Co., Ltd. | GR201744008471 | 11 December 2017 | 3 years |
| Midea Welling Motor Technology (Shanghai) Co., Ltd. | GR201731001731 | 23 November 2017 | 3 years |
| Welling (Wuhu) Motor Manufacturing Co., Ltd. | GR201834001144 | 24 July 2018 | 3 years |
| Hefei Midea Laundry Appliance Co., Ltd. | GR201834000882 | 24 July 2018 | 3 years |
| Hefei Hualing Co., Ltd. | GR201834000552 | 24 July 2018 | 3 years |
| Foshan Midea Chungho Water Purification Equipment. Co., Ltd. | GR201844007089 | 28 November 2018 | 3 years |
| Toshiba HA Manufacturing (Nanhai) Co., Ltd. | GR201844007107 | 28 November 2018 | 3 years |
| Guangdong Meizhi Precision- Manufacturing Co., Ltd. | GR201844006181 | 28 November 2018 | 3 years |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | GR201834000818 | 24 July 2018 | 3 years |
| Guangdong Midea Intelligent Technologies Co., Ltd. | GR201844003941 | 28 November 2018 | 3 years |
(a-2) The application for enterprise income tax preferential treatment by Chongqing Midea Air-
Conditioning Equipment Co., Ltd. the Company's subsidiary, was approved by the StateAdministration of Taxation of Chongqing Economical and Technological Development Zoneon 3 June 2014. The subsidiary is subject to enterprise income tax at the rate of 15% in2019.(a-3) The Company's subsidiaries in Mainland China other than those mentioned in (a-1) and (a-
2)are subject to enterprise income tax at the rate of 25%.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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 enterprise income tax rate of the principal tax payers with different tax rates
(Cont’d)(a-4) In August 2008, Midea Electric Trading (Singapore) Co.,Pte. Ltd., the Company's subsidiary,
was awarded with the Certificate of Honour for Development and Expansion (No. 587) by
the Singapore Economic Development Board, which approves that qualified income
exceeding a certain amount is subject to enterprise income tax at the rate of 5% from 1
August 2008 to 31 July 2018, and subject to enterprise income tax at the rate of 5.5% from
1 August 2018 to 31 July 2023, . Midea Singapore Trading Co Pte Limited. and Little Swan
International (Singapore) Co., Pte. LTD., the Company's subsidiaries, are subject to
enterprise 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 Trading Company Limited, Midea
International Corporation Company Limited, Midea Home Appliances Investments (Hong
Kong) Co., Limited, Century Carrier Residential Air-conditioning Equipment Co., Limited,
Midea Refrigeration (Hong Kong) Limited, Welling Holding Limited, Welling International
Hong Kong Ltd, and Midea Investment (Asia) Company Limited.(a-6) The Company's subsidiaries in BVI and Cayman Islands are exempted from enterprise
income tax. Such subsidiaries include Mecca International (BVI) Limited, Titoni Investments
Development Ltd., Midea Investment Holding (BVI) Limited, Midea Electric Investment (BVI)
Limited, Welling Holding (BVI) Ltd, Midea Holding (Cayman Islands) Limited and Midea
Investment Development Company Limited.(a-7) Springer Carrier Ltd., the Company's subsidiary in Brazil, is subject to Brazil enterprise
income tax at the rate of 34%.(a-8) TLSC, the Company's subsidiary in Japan, and its subsidiaries (“TLSC Group”), are subject
to Japan enterprise income tax at the rate of 33.80%.(a-9) Clivet S.P.A and Clivet Espa?a S.A.U. (“Clivet”), the Company's subsidiaries in Italy, are
subject to Italy enterprise income tax at the rate between 20% and 31.4%.(a-10) KUKA Group, the Company's subsidiary in Germany, is subject to Germany enterprise
income tax at the rate of 32%.(a-11) Servotronix Motion Control Ltd. (hereinafter referred to as “SMC”), the Company's
subsidiary in Israel, is subject to Israel enterprise income tax at the rate of 23%.(a-12) Misr Refrigeration and Air Conditioning Manufacturing Company, S.A.E., the Company's
subsidiary in Egypt, is subject to Egyptian enterprise income tax at the rate of 22.5%.(b) Notes to the VAT rate of the principal tax payers with different tax rates(b-1) Pursuant to the Announcement on Relevant Policies for Deepening the Value-Added Tax
Reform (Announcement [2019] No. 39) issued by the Ministry of Finance, the State Taxation
Administration and the General Administration of Customs, the applicable tax rate of
revenue arising from sales of goods and rendering of repairing and replacement services of
the Company’s certain subsidiaries is 13% from 1 April 2019, while it was 16% before then.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(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 VAT rate of the principal tax payers with different tax rates (Cont'd)(b-2) Pursuant to the Announcement on Relevant Policies for Deepening the Value-Added Tax
Reform (Announcement [2019] No. 39) issued by the Ministry of Finance, the State TaxationAdministration and the General Administration of Customs, the applicable tax rate ofrevenue arising from rendering of real estate leasing and transportation services of theCompany’s certain subsidiaries is 9% from 1 April 2019, while it was 10% before then.(b-3) Financial services, consulting services and storage services provided by the Company and
certain subsidiaries are subject to VAT at the rate of 6%.(b-4) Rental revenue of Hefei Midea Laundry Appliance Co., Ltd., which is a subsidiary of the
Company, is subject to easy levy of VAT at the rate of 5%.(b-5) Pursuant to the Announcement on Relevant Policies for Deepening the Value-Added Tax
Reform (Announcement [2019] No. 39) issued by the Ministry of Finance, the State Taxation
Administration and the General Administration of Customs, certain subsidiaries of the
Company engaged in the production service sector, are eligible for a 10% additional VAT
deduction based on deductible input VAT in the current period from 1 April 2019 to 31
December 2021.4 Notes to the consolidated financial statements
(1) Cash at bank and on hand
| 31 December 2019 | 31 December 2018 |
| Cash on hand | 3,128 | 3,803 |
| Cash at bank (a) | 49,012,677 | 15,857,413 |
| Other cash balances (b) | 153,022 | 123,197 |
| Statutory reserve deposits with the Central Bank (c) | 433,149 | 1,126,172 |
| Surplus reserve with the Central Bank | 355,471 | 204,073 |
| Deposits with banks and other financial institutions (d) | 20,562,160 | 10,573,622 |
| Accrued interest | 397,234 | —— |
| 70,916,841 | 27,888,280 |
| Including: Total amounts deposited with banks overseas (including Hong Kong, China, Macau, China, Singapore, Japan, Italy, Brazil and Germany, etc.) | 5,270,085 | 6,316,807 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(1) Cash at bank and on hand (Cont'd)
(a) As at 31 December 2019, cash at bank included fixed deposits with the term of over three
months, amounting to RMB 39,491,676,000 (31 December 2018: RMB 5,686,629,000)(b) Other cash balances mainly include letters of guarantee, bank acceptance notes and letters
of credit.(c) Statutory reserve with 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 6% 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 2019, deposits with banks and other financial institutions included no
fixed deposits with the term of over three months (31 December 2018: RMB 3,000,000,000).
(2) Financial assets held for trading
| 31 December 2019 | 1 January 2019 | 31 December 2018 |
| Financial assets held for trading | 1,087,351 | 2,654,045 | —— |
(a) As at 31 December 2019, financial assets held for trading are equity investments in listed
companies, measured at fair value through profits or losses.
(3) Notes receivable
| 31 December 2019 | 1 January 2019 | 31 December 2018 |
| Bank acceptance notes | 4,768,520 | 11,049,539 | 12,556,294 |
| Less: Provision for bad debts | - | - | - |
| 4,768,520 | 11,049,539 | 12,556,294 |
(a) Provision for bad debts
For notes receivable of the Group arising from sales of goods or rendering of services in the
ordinary course of business, the Group recognises the lifetime ECL provision regardless of
whether there exists a significant financing component. As at 31 December 2019, bad debts
risk was relatively low.
(4) Accounts receivable
| 31 December 2019 | 1 January 2019 | 31 December 2018 |
| Accounts receivable | 19,631,644 | 19,624,088 | 20,372,283 |
| Less: Provision for bad debts | (967,825) | (982,109) | (982,109) |
| 18,663,819 | 18,641,979 | 19,390,174 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(4) Accounts receivable (Cont’d)
(a) The ageing of accounts receivable is analysed as follows:
| 31 December 2019 | 1 January 2019 | 31 December 2018 |
| Within 1 year | 19,168,694 | 19,242,068 | 19,990,263 |
| 1 to 2 years | 301,554 | 187,071 | 187,071 |
| 2 to 3 years | 101,643 | 88,294 | 88,294 |
| 3 to 5 years | 42,106 | 84,069 | 84,069 |
| Over 5 years | 17,647 | 22,586 | 22,586 |
| 19,631,644 | 19,624,088 | 20,372,283 |
As at 31 December 2019, the Group had no significant overdue accounts receivable.(b) Under the new financial instruments standards, the Group measures the loss provision for
accounts receivable according to the lifetime ECL.
As at 31 December 2019, accounts receivable for which the related provision for bad debts
was provided on the individual basis were analysed as follows:
| Book balance | Lifetime ECL rate | Provision for bad debts | Reason |
| Domestic customers | 2,998 | 100% | (2,998) | The debtor encountered financial difficulties |
| Overseas customers | 4,767 | 100% | (4,767) | |
| 7,765 | (7,765) |
As at 31 December 2019, accounts receivable for which the related provision for bad debts
was provided on the grouping basis were analysed as follows:
| 31 December 2019 | ||
| Book balance | Provision for bad debts | |
| Amount | Lifetime ECL rate | Amount |
| Domestic business grouping | 7,908,831 | 5.53% | (437,578) |
| Overseas business grouping | 11,715,048 | 4.46% | (522,482) |
| 19,623,879 | (960,060) |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(4) Accounts receivable (Cont’d)
(c) The provision for bad debts in current year amounted to RMB 215,902,000 (31 December
2018: RMB 334,946,000). The provision for bad debts reversed in current year amountedto RMB 145,990,000 (31 December 2018: RMB 137,346,000).The accounts receivable written off by the Group for the current year were arising fromtransactions with third parties and there were no written-off accounts receivable that areindividually significant.(d) As at 31 December 2019, the five largest accounts receivable aggregated by debtors were
summarised and analysed as follows:
| Amount | Provision for bad debts | % of total balance |
| Total amount of the five largest accounts receivable | 2,021,879 | (47,562) | 10.30% |
(5) Other receivables
| 31 December 2019 | 1 January 2019 | 31 December 2018 |
| Other receivables | 2,766,098 | 3,003,669 | 3,014,098 |
| Less: Provision for bad debts | (53,124) | (42,730) | (42,730) |
| 2,712,974 | 2,960,939 | 2,971,368 |
(a) Other receivables mainly include deposits, receivables related to share options, current
accounts, petty cash to staff, and interest.The ageing of other receivables is analysed as follows:
| 31 December 2019 | 1 January 2019 | 31 December 2018 |
| Within 1 year | 2,643,584 | 2,795,057 | 2,805,486 |
| 1 to 2 years | 69,490 | 118,049 | 118,049 |
| 2 to 3 years | 16,555 | 60,259 | 60,259 |
| 3 to 5 years | 25,773 | 20,900 | 20,900 |
| Over 5 years | 10,696 | 9,404 | 9,404 |
| 2,766,098 | 3,003,669 | 3,014,098 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(5) Other receivables (Cont’d)
(b) Provision for bad debts and changes in book balance statements
| Stage 1 | Stage 3 | |||||
| 12-month ECL (Grouping) | 12-month ECL (Individual) | Lifetime ECL (Credit impaired) | Sub-total | |||
| Book balance | Provision for bad debts | Book balance | Provision for bad debts | Book balance | Provision for bad debts | Provision for bad debts |
| 31 December 2018 | 2,844,783 | 42,730 | 169,315 | - | - | - | 42,730 |
| Changes in accounting policies | (10,429) | - | - | - | - | - | - |
| 1 January 2019 | 2,834,354 | 42,730 | 169,315 | - | - | - | 42,730 |
| Transfer to stage 3 | (3,832) | (1,533) | - | - | 3,832 | 1,533 | - |
| Net (decrease)/increase in current year | (128,884) | 8,511 | (108,212) | - | (475) | 1,809 | 10,320 |
| Including: Written-off in current year | - | - | - | - | (475) | (475) | (475) |
| Derecognition | - | - | - | - | - | - | - |
| Differences on translation of foreign currency financial statements | - | 59 | - | - | - | 15 | 74 |
| 31 December 2019 | 2,701,638 | 49,767 | 61,103 | - | 3,357 | 3,357 | 53,124 |
As at 31 December 2019, the Group had no other receivables at stage 2.(c) As at 31 December 2019, the Group’s other receivables at stage 1 and stage 3 were
analysed as follows:
(i) As at 31 December 2019, other receivables for which the related provision for bad debts
was provided on the individual basis were analysed as follows:
| Book balance | ECL rate in the following 12 months | Provision for bad debts | Reason |
| Stage 1 | 61,103 | 0% | - | Relatively low bad debt risks |
| Book balance | ECL rate in the following 12 months | Provision for bad debts | Reason |
| Stage 3 | 3,357 | 100% | (3,357) | The debtor encountered financial difficulties |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(5) Other receivables (Cont’d)
(c) As at 31 December 2019, the Group’s other receivables at stage 1 and stage 3 were
analysed as follows (Cont’d):
(ii) As at 31 December 2019, other receivables at stage 1 for which the related provision for
bad debts was provided on the grouping basis were analysed as follows:
| 31 December 2019 | ||
| Book balance | Provision for bad debts | |
| Amount | Amount | Provision ratio |
| Security deposit/guarantee payables grouping | 2,701,638 | (49,767) | 1.84% |
(iii) The provision for bad debts in current year amounted to RMB 19,276,000 (31 December
2018: RMB 13,508,000). The provision for bad debts reversed in current year amounted toRMB 8,481,000 (31 December 2018: 21,166,000).For the year ended 31 December 2019, no other receivables with significant amounts werewritten off.(d) As at 31 December 2019, the five largest other receivables aggregated by debtors were
summarised and analysed as follows:
| Amount | Provision for bad debts | % of total balance |
| Total amount of the five largest other receivables | 222,226 | (6,779) | 8.03% |
(e) As at 31 December 2019, the Group did not recognise significant government grants at
amounts receivable.
(6) Receivables financing
| 31 December 2019 | 1 January 2019 | 31 December 2018 |
| Receivables financing | 7,565,776 | 2,254,950 | —— |
The Group’s receivables financing were mainly bank acceptance notes and accountreceivables transferred, discounted and endorsed for the purpose of daily treasurymanagement and were qualified for derecognition.No provision for bank acceptance notes was individually provided. As at 31 December 2019,the Group measured bad debts based on the lifetime ECL and expected that there was nosignificant credit risk associated with its bank acceptance notes and did not expect that therewill be any significant losses from non-performance by these banks.
No provision for bank acceptance notes was individually provided. As at 31 December 2019,the Group measured bad debts based on the lifetime ECL and expected that there was nosignificant credit risk associated with its bank acceptance notes and did not expect that therewill be any significant losses from non-performance by these banks.As at 31 December 2019, the Group's transferred account receivables and notesreceivables endorsed or discounted but not matured were as follows:
| As at 31 December 2019, the Group's transferred account receivables and notes receivables endorsed or discounted but not matured were as follows: | ||
| Derecognised | Recognised | |
| Receivables financing | 20,946,601 | - |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(7) Advances to suppliers
| 31 December 2019 | 31 December 2018 |
| Prepayments for raw materials and others | 2,246,177 | 2,215,888 |
(a) The ageing of advances to suppliers is analysed as follows:
| 31 December 2019 | 31 December 2018 | ||
| Amount | % of total balance | Amount | % of total balance |
| Within 1 year | 2,176,110 | 96.88% | 2,112,343 | 95.33% |
| 1 to 2 years | 26,925 | 1.20% | 78,764 | 3.55% |
| 2 to 3 years | 22,895 | 1.02% | 11,870 | 0.54% |
| Over 3 years | 20,247 | 0.90% | 12,911 | 0.58% |
| 2,246,177 | 100.00% | 2,215,888 | 100.00% |
As at 31 December 2019, advances to suppliers over 1 year with a carrying amount of RMB70,067,000 (31 December 2018: RMB 103,545,000) were mainly unsettled prepayments forraw materials.As at 31 December 2019, the five largest advances to suppliers aggregated by debtors weresummarised and analysed as follows:
| Amount | % of total balance |
| Total amount of the five largest advances to suppliers | 494,085 | 22.00% |
(8) Loans and advances to customers
(a) By individual and corporation:
| 31 December 2019 | 31 December 2018 |
| Loans and advances measured at amortised cost | ||
| Loans and advances to individuals | 1,110,127 | 894,392 |
| Loans and advances to corporations | 10,708,289 | 10,588,006 |
| Including: Loans | 9,558,953 | 4,702,308 |
| Discounted bills | 1,149,336 | 5,885,698 |
| 11,818,416 | 11,482,398 | |
| Less: Provision for bad debts | (158,919) | (154,006) |
| 11,659,497 | 11,328,392 |
As at 31 December 2019, loans and advances to customers over 1 year amounted to RMB790,101,000 (31 December 2018: Nil).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(8) Loans and advances to customers (Cont’d)
(b) By type of collateral held
| 31 December 2019 | 31 December 2018 |
| Unsecured loans | 1,075,217 | 814,657 |
| Guaranteed loans | 1,476,273 | 614,688 |
| Pledged loans | 9,266,926 | 10,053,053 |
| 11,818,416 | 11,482,398 | |
| Less: Provision for bad debts | (158,919) | (154,006) |
| 11,659,497 | 11,328,392 |
(c) For the year ended 31 December 2019, the Group’s provision for bad debts was RMB
68,617,000, bad debts written-off were RMB 10,826,000 and reversal of bad debts was52,878,000 (Note 4(21)).(d) As at 31 December 2019, the Group’s loans and advances for bad debt provision amounting
to RMB 1,036,154,000, of which the bad debt provision is RMB 219,000.
(9) Inventories
(a) Inventories are summarised by categories as follows:
| 31 December 2019 | 31 December 2018 | ||||
| Book balance | Provision for declines in the value of inventories | Carrying amount | Book balance | Provision for declines in the value of inventories | Carrying amount |
| Finished goods | 22,046,730 | (407,598) | 21,639,132 | 18,600,407 | (320,022) | 18,280,385 |
| Raw materials | 5,009,197 | (67,875) | 4,941,322 | 5,181,916 | (60,822) | 5,121,094 |
| Work in progress | 1,596,042 | - | 1,596,042 | 2,040,228 | - | 2,040,228 |
| Consigned processing material | 219,542 | - | 219,542 | 239,741 | - | 239,741 |
| Low value consumables | 38,185 | - | 38,185 | 38,763 | - | 38,763 |
| Projects completed but unsettled | 4,009,176 | - | 4,009,176 | 3,924,807 | - | 3,924,807 |
| 32,918,872 | (475,473) | 32,443,399 | 30,025,862 | (380,844) | 29,645,018 |
(b) Provision for decline in the value of inventories are analysed as follows:
| 31 December 2018 | Increase in current year | Decrease in current year | Differences on translation of foreign currency | 31 December 2019 |
| Provision | Reversal or written-off | financial statements |
| Finished goods | 320,022 | 311,801 | (227,739) | 3,514 | 407,598 |
| Raw materials | 60,822 | 11,434 | (5,826) | 1,445 | 67,875 |
| 380,844 | 323,235 | (233,565) | 4,959 | 475,473 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(9) Inventories (Cont’d)
(c) Provision for decline in the value of inventories is as follows:
| Specific basis for determining net realisable value | Reason for the reversal or written-off of provision for decline in the value of inventories |
| Finished goods | Stated at the lower of cost and net realisable value | Sales |
| Projects completed but unsettled | Stated at the lower of cost and net realisable value | Settled |
| Raw materials,etc. | Stated at the lower of cost and net realisable value | Requisition for production |
(10) Other current assets
| 31 December 2019 | 1 January 2019 | 31 December 2018 |
| Wealth management products | —— | —— | 1,521,007 |
| Structural deposits (a) | 60,038,855 | 70,402,509 | 70,402,509 |
| VAT input to be deducted | 3,159,794 | 2,803,315 | 2,803,315 |
| Prepaid expenses | 875,451 | 647,648 | 647,648 |
| Others | 936,927 | 1,099,348 | 1,099,348 |
| 65,011,027 | 74,952,820 | 76,473,827 |
(a) As at 31 December 2019, structural deposits represented deposits in financial instruments
due within one year, mostly measured at fair value through profits or losses.
(11) Long-term receivables
| 31 December 2019 | 31 December 2018 |
| Long-term receivables | 1,208,079 | 34,815 |
| Less: Provision for bad debts | - | - |
| 1,208,079 | 34,815 |
The Group’s long-term receivables are presented in net amount of finance lease receivablesafter offsetting the unrealised financing income.
(12) Long-term equity investments
Long-term equity investments are classified as follows:
| 31 December 2019 | 31 December 2018 |
| Investment in associates (a) | 2,790,806 | 2,713,316 |
| Less: Provision for impairment of long-term equity investments | - | - |
| 2,790,806 | 2,713,316 |
(a) Investment in associates mainly refers to the investments in Guangdong Shunde Rural
Commercial Bank Co., Ltd. and Hefei Royalstar Motor Co., Ltd. and other companies by theGroup.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(13) Other non-current financial assets
| 31 December 2019 | 1 January 2019 | 31 December 2018 |
| Measured at fair value | |||
| - Equity of unlisted companies | 1,750,107 | 784,269 | —— |
(14) Fixed assets
| Buildings | Overses land | Machinery and equipment | Motor vehicles | Electronic equipment and others | Total |
| Cost | ||||||
| 31 December 2018 | 17,396,391 | 1,289,251 | 18,935,114 | 747,441 | 4,151,719 | 42,519,916 |
| Increase in current year | ||||||
| Purchase | 272,034 | - | 1,342,838 | 23,357 | 698,159 | 2,336,388 |
| Transfers from construction in progress | 553,985 | - | 88,850 | - | 45,707 | 688,542 |
| Decrease in current year | ||||||
| Disposal and retirement | (63,025) | (2,080) | (702,214) | (65,032) | (396,824) | (1,229,175) |
| Others | (277,682) | - | - | - | (1,675) | (279,357) |
| Differences on translation of foreign currency financial statements | 18,900 | 9,322 | 37,540 | 1,937 | 13,652 | 81,351 |
| 31 December 2019 | 17,900,603 | 1,296,493 | 19,702,128 | 707,703 | 4,510,738 | 44,117,665 |
| Accumulated depreciation | ||||||
| 31 December 2018 | 6,561,909 | - | 10,235,762 | 477,072 | 2,774,680 | 20,049,423 |
| Increase in current year | ||||||
| Provision | 872,098 | - | 1,676,581 | 88,793 | 718,348 | 3,355,820 |
| Decrease in current year | ||||||
| Disposal and retirement | (44,650) | - | (521,472) | (57,140) | (364,657) | (987,919) |
| Others | (29,841) | - | - | - | (1,497) | (31,338) |
| Differences on translation of foreign currency financial statements | 3,119 | - | 14,643 | 748 | 9,000 | 27,510 |
| 31 December 2019 | 7,362,635 | - | 11,405,514 | 509,473 | 3,135,874 | 22,413,496 |
| Provision for impairment loss | ||||||
| 31 December 2018 | 6,674 | 5,849 | 20,107 | 206 | 445 | 33,281 |
| Increase in current year | ||||||
| Provision | - | - | - | - | 8,466 | 8,466 |
| Decrease in current year | ||||||
| Disposal and retirement | (26) | - | (2,635) | - | (17) | (2,678) |
| Differences on translation of foreign currency financial statements | 98 | 58 | 241 | 4 | 17 | 418 |
| 31 December 2019 | 6,746 | 5,907 | 17,713 | 210 | 8,911 | 39,487 |
| Carrying amount | ||||||
| 31 December 2019 | 10,531,222 | 1,290,586 | 8,278,901 | 198,020 | 1,365,953 | 21,664,682 |
| 31 December 2018 | 10,827,808 | 1,283,402 | 8,679,245 | 270,163 | 1,376,594 | 22,437,212 |
(a) In 2019, the depreciation of fixed assets amounted to RMB 3,355,820,000 (2018: RMB
3,362,075,000) and was included in the income statement in full amount.(b) As at 31 December 2019, the Company was still in the course of obtaining the ownership
certificate for the fixed asset with a carrying amount of RMB 219,475,000 (31 December
2018: RMB 503,717,000).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(15) Construction in progress
(a) Movement of significant projects of construction in progress
| 31 December 2018 | Increase in current year | Transfer to fixed assets in current year | Transfer to long-term receivables in current year | Differences on translation of foreign currency financial statements | 31 December 2019 | Accumulative amount of capitalised borrowing costs | Including: Borrowing costs capitalised in current year | Capitalisation rate of borrowing costs in current year | Source of funds |
| Carrying amount | Carrying amount |
| Kuka Toledo Production Operations | 1,152,820 | 151,170 | - | (1,285,005) | (18,985) | - | - | - | - | Self-financing |
| Media Kuka Intelligent Manufacturing Plant | 173,549 | 51,102 | (224,651) | - | - | - | - | - | - | Self-financing |
| Indian Science & Technology Park | 20,545 | 258,736 | (4,531) | - | (321) | 274,429 | - | - | - | Self-financing |
| Other projects | 730,707 | 675,840 | (459,360) | (25,419) | (1,547) | 920,221 | - | - | - | Self-financing |
| 2,077,621 | 1,136,848 | (688,542) | (1,310,424) | (20,853) | 1,194,650 | - | - | - |
As at 31 December 2019, the Group believed that there was no need to make provision for impairment of construction in progress with the Carryingamount consistent with the carrying amount; and the cost of construction in progress matched the budget amount. The projects were carried out onschedule.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(16) Intangible assets
| Land use rights | Patents and non-patent technologies | Trademark rights | Trademark use rights | Others | Total |
| Cost | ||||||
| 31 December 2018 | 4,586,857 | 2,061,849 | 5,005,403 | 2,601,880 | 4,721,765 | 18,977,754 |
| Increase in current year | ||||||
| Purchase | 98,367 | 8,756 | - | - | 78,777 | 185,900 |
| Others | - | 21,793 | - | - | 297,490 | 319,283 |
| Decrease in current year | ||||||
| Disposal | (30,174) | (11,300) | - | - | (167,698) | (209,172) |
| Differences on translation of foreign currency financial statements | 223 | 7,694 | (12,010) | 87,207 | 90,844 | 173,958 |
| 31 December 2019 | 4,655,273 | 2,088,792 | 4,993,393 | 2,689,087 | 5,021,178 | 19,447,723 |
| Accumulated amortisation | ||||||
| 31 December 2018 | 819,030 | 488,412 | 75,176 | 168,088 | 1,228,235 | 2,778,941 |
| Increase in current year | ||||||
| Provision | 99,342 | 96,237 | 33,883 | 64,402 | 950,106 | 1,243,970 |
| Decrease in current year | ||||||
| Disposal | (6,510) | (11,300) | - | - | (94,675) | (112,485) |
| Differences on translation of foreign currency financial statements | 151 | 5,389 | (131) | 6,224 | 28,842 | 40,475 |
| 31 December 2019 | 912,013 | 578,738 | 108,928 | 238,714 | 2,112,508 | 3,950,901 |
| Provision for impairment loss | ||||||
| 31 December 2018 | - | 10,951 | - | - | 1,187 | 12,138 |
| Differences on translation of foreign currency financial statements | - | 461 | - | - | 44 | 505 |
| 31 December 2019 | - | 11,412 | - | - | 1,231 | 12,643 |
| Carrying amount | ||||||
| 31 December 2019 | 3,743,260 | 1,498,642 | 4,884,465 | 2,450,373 | 2,907,439 | 15,484,179 |
| 31 December 2018 | 3,767,827 | 1,562,486 | 4,930,227 | 2,433,792 | 3,492,343 | 16,186,675 |
In 2019, the amortisation of intangible assets amounted to RMB 1,243,970,000 (2018: RMB1,034,945,000) and was included in the income statement in full amount.
(17) Goodwill
The Group’s goodwill had been allocated to the asset groups and groups of asset groups atthe acquisition date, and the allocation is as follows:
| 31 December 2019 | 31 December 2018 |
| Goodwill - | ||
| KUKA Group | 22,240,132 | 22,330,623 |
| TLSC Group | 2,984,110 | 2,881,760 |
| Little Swan | 1,361,306 | 1,361,306 |
| Others | 2,173,765 | 2,526,701 |
| 28,759,313 | 29,100,390 | |
| Less: Provision for impairment | (552,248) | - |
| 28,207,065 | 29,100,390 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(17) Goodwill (Cont’d)
When making an impairment testing of goodwill for assets, the Group compares the carryingamount of the relevant assets or portfolios of asset groups (including goodwill) with theirrecoverable amount. If the recoverable amount is lower than the carrying amount, thedifference shall be included in profit or loss for current period. The Group’s allocation ofgoodwill was not changed in 2019.As at 31 December 2019, the Group tested whether goodwill has suffered any impairment.The recoverable amount of asset groups with goodwill is calculated using discounted futurecash flows determined according to the budget approved by management (the budgetperiod is 5 to 6 years). The future cash flows beyond the budget periods are calculatedbased on the estimated perpetual annual growth rates. The perpetual annual growth rates(approx. 1%-2%) applied by management are consistent with the estimates of the industry,and do not exceed the long-term average growth rates of each product. Managementdetermines expected revenue growth rates (approx. 2.27%-11.90%) and EBITDA margins(approx. 2.65%-11.30%) based on past experience and forecast on future marketdevelopment. The discount rates (approx. 9.35%-15.43%) used by management are thepre-tax rates that are able to reflect the risks specific to the related asset groups.Management analyses the recoverable amount of each asset group based on theseassumptions. As at 31 December 2019, the Group made a provision for impairment inamount of RMB 552,248,000 of the SMC asset group, and no provision for impairment wasnecessary for the goodwill of asset groups.
(18) Long-term prepaid expenses
The long-term prepaid expenses mainly include expenses prepaid for software and projectreconstruction.
(19) Deferred tax assets and deferred tax liabilities
(a) Deferred tax assets before offsetting
| 31 December 2019 | 31 December 2018 | ||
| Deductible temporary differences and deductible losses | Deferred tax assets | Deductible temporary differences and deductible losses | Deferred tax assets |
| Deductible losses | 1,457,853 | 416,248 | 1,844,308 | 558,896 |
| Provision for asset impairments | 1,489,044 | 291,763 | 1,332,124 | 272,227 |
| Employee benefits payable | 1,394,921 | 337,172 | 1,371,756 | 330,923 |
| Other current liabilities | 24,574,237 | 4,767,558 | 16,549,427 | 3,572,039 |
| Others | 6,408,056 | 1,484,817 | 5,201,746 | 1,087,280 |
| 35,324,111 | 7,297,558 | 26,299,361 | 5,821,365 |
| Including: | ||||
| Expected to be recovered within one year (inclusive) | 6,073,311 | 4,755,720 | ||
| Expected to be recovered after one year | 1,224,247 | 1,065,645 | ||
| 7,297,558 | 5,821,365 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(19) Deferred tax assets and deferred tax liabilities (Cont’d)
(b) Deferred tax liabilities before offsetting
| 31 December 2019 | 31 December 2018 | ||
| Taxable temporary differences | Deferred tax liabilities | Taxable temporary differences | Deferred tax liabilities |
| Changes in fair value | 827,153 | 162,129 | 49,939 | 11,131 |
| Business combination involving enterprise not under common control | 11,785,555 | 3,474,098 | 12,533,188 | 3,663,691 |
| Others | 9,644,666 | 2,448,340 | 8,308,900 | 2,147,304 |
| 22,257,374 | 6,084,567 | 20,892,027 | 5,822,126 |
| Including: | ||||
| Expected to be recovered within one year (inclusive) | 1,145,971 | 1,194,871 | ||
| Expected to be recovered after one year | 4,938,596 | 4,627,255 | ||
| 6,084,567 | 5,822,126 |
(c) The net balances of deferred tax assets and liabilities after offsetting are as follows:
| 31 December 2019 | 31 December 2018 |
| Balance after offsetting | Balance after offsetting |
| Deferred tax assets | 5,768,993 | 4,421,313 |
| Deferred tax liabilities | 4,556,002 | 4,422,074 |
(20) Other non-current assets
| 31 December 2019 | 31 December 2018 |
| Structural deposits (a) | 4,355,799 | - |
| Others | 591,804 | 550,352 |
| 4,947,603 | 550,352 |
(a) As at 31 December 2019, structural deposits represented deposits in financial instruments
due for more than one year, mostly measured at fair value through profits or losses.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(21) Details of provision for asset impairments
| 31 December 2018 | Changes in accounting policies | 1 January 2019 | Increase in current year | Decrease in current year | Differences on translation of foreign currency financial statements | 31 December 2019 | ||||||||
| Reversal | Charge-off/Written-off | |||||||||||||
| Provision for bad debts | 1,178,845 | - | 1,178,845 | 303,795 | (207,349) | (108,649) | 13,226 | 1,179,868 | ||||||||
| Including: Provision for bad debts of accounts receivable | 982,109 | - | 982,109 | 215,902 | (145,990) | (97,348) | 13,152 | 967,825 | ||||||||
| Provision for bad debts of loans and advances | 154,006 | - | 154,006 | 68,617 | (52,878) | (10,826) | - | 158,919 | ||||||||
| Provision for bad debts of other receivables | 42,730 | - | 42,730 | 19,276 | (8,481) | (475) | 74 | 53,124 | ||||||||
| Provision for decline in the value of inventories | 380,844 | - | 380,844 | 323,235 | (12,040) | (221,525) | 4,959 | 475,473 | ||||||||
| Provision for impairment of available-for-sale financial assets | 2,287 | (2,287) | —— | —— | —— | —— | —— | —— | ||||||||
| Provision for impairment of fixed assets | 33,281 | - | 33,281 | 8,466 | - | (2,678) | 418 | 39,487 | ||||||||
| Provision for impairment of intangible assets | 12,138 | - | 12,138 | - | - | - | 505 | 12,643 | ||||||||
| Provision for impairment of investment properties | 12,576 | - | 12,576 | - | - | - | - | 12,576 | ||||||||
| Provision for impairment of goodwill | - | - | - | 552,248 | - | - | - | 552,248 | ||||||||
| 1,619,971 | (2,287) | 1,617,684 | 1,187,744 | (219,389) | (332,852) | 19,108 | 2,272,295 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(22) Assets with use rights restricted
As at 31 December 2019, assets with use rights restricted were as follows:
| 31 December 2019 | 31 December 2018 |
| Cash at bank and on hand | ||
| Including: Cash at bank (Note 4(1)) | 39,491,676 | 5,686,629 |
| Other cash balances (Note 4(1)) | 153,022 | 123,197 |
| Legal reserves with the Central Bank (Note 4(1)) | 433,149 | 1,126,172 |
| Deposits with banks and other financial institutions (Note 4(1)) | - | 3,000,000 |
| 40,077,847 | 9,935,998 |
(23) Short-term borrowings
| 31 December 2019 | 31 December 2018 |
| Unsecured | 5,665,756 | 807,097 |
| Guaranteed borrowings | 36,082 | 63,293 |
| 5,701,838 | 870,390 |
As at 31 December 2019, the annual interest rate range of short-term borrowings was 0.57%to 9.40% (31 December 2018: 0.63% to 11.63%).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(24) Notes payable
| 31 December 2019 | 31 December 2018 |
| Bank acceptance notes | 23,891,600 | 23,325,115 |
(25) Accounts payable
| 31 December 2019 | 31 December 2018 |
| Materials cost payable | 39,528,815 | 32,605,437 |
| Others | 3,006,962 | 4,296,189 |
| 42,535,777 | 36,901,626 |
As at 31 December 2019, accounts payable with ageing over 1 year amounted to RMB886,355,000 (31 December 2018: RMB 803,286,000), mainly representing unsettledaccounts payable for materials.
(26) Advances from customers
| 31 December 2019 | 31 December 2018 |
| Advances on sales | 14,054,839 | 14,521,809 |
| Settled but not completed | 2,177,015 | 2,259,857 |
| 16,231,854 | 16,781,666 |
As at 31 December 2019, advances from customers with ageing over 1 year amounted toRMB 467,780,000 (31 December 2018: RMB 410,800,000), mainly representing unsettledadvances on sales.
(27) Employee benefits payable
| 31 December 2019 | 31 December 2018 |
| Short-term employee benefits payable(a) | 6,118,722 | 5,624,918 |
| Others | 317,387 | 163,086 |
| 6,436,109 | 5,788,004 |
(a) Short-term employee benefits
| 31 December 2018 | Increase in current year | Decrease in current year | 31 December 2019 |
| Wages and salaries, bonus, allowances and subsidies | 5,057,019 | 22,470,846 | (21,813,181) | 5,714,684 |
| Staff welfare | 407,405 | 1,343,272 | (1,494,776) | 255,901 |
| Social security contributions | 101,292 | 1,793,935 | (1,805,624) | 89,603 |
| Including: Medical insurance | 98,652 | 1,718,795 | (1,730,274) | 87,173 |
| Work injury insurance | 1,933 | 23,671 | (24,301) | 1,303 |
| Maternity insurance | 707 | 51,469 | (51,049) | 1,127 |
| Housing funds | 30,631 | 425,791 | (427,977) | 28,445 |
| Labour union funds and employee education funds | 19,310 | 135,965 | (134,914) | 20,361 |
| Other short-term employee benefits | 9,261 | 214,772 | (214,305) | 9,728 |
| 5,624,918 | 26,384,581 | (25,890,777) | 6,118,722 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(28) Taxes payable
| 31 December 2019 | 31 December 2018 |
| Enterprise income tax payable | 2,985,670 | 2,530,018 |
| Unpaid VAT | 900,204 | 853,187 |
| Others | 1,210,393 | 492,093 |
| 5,096,267 | 3,875,298 |
(29) Other payables
| 31 December 2019 | 31 December 2018 |
| Other payables | 3,800,568 | 3,346,129 |
(a) Other payables are mainly restricted share repurchase obligation, deposit and security
deposit payable, reimbursed logistics expense, manufacturing equipment expense, dividendpayable,etc.(b) As at 31 December 2019, other payables with ageing over 1 year with a carrying amount of
RMB 765,092,000 (31 December 2018: RMB 821,240,000) were mainly those recognisedfor performing equity incentive plan and deposit and security deposit payable, which wereunsettled for related projects that were uncompleted.
(30) Current portion of non-current liabilities
| 31 December 2019 | 31 December 2018 |
| Current portion of debentures payable | - | 4,797,644 |
| Current portion of long-term borrowings (Note 4(32)) | 1,230,966 | 2,166,041 |
| Current portion of long-term payables | 39,426 | 159,027 |
| Current portion of equity purchase payables | 189,725 | - |
| 1,460,117 | 7,122,712 |
(31) Other current liabilities
| 31 December 2019 | 31 December 2018 |
| Accrued sale rebates | 26,175,014 | 19,583,366 |
| Others | 12,899,763 | 11,736,343 |
| 39,074,777 | 31,319,709 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(32) Long-term borrowings
| 31 December 2019 | 31 December 2018 |
| Mortgage borrowings (a) | 28,892,783 | 29,049,580 |
| Guaranteed borrowings (b) | 6,569,414 | 2,126,618 |
| Unsecured | 7,067,146 | 3,081,282 |
| 42,529,343 | 34,257,480 | |
| Less: Current portion of mortgage borrowings (Note 4(30)) | (39,078) | (39,236) |
| Current portion of guaranteed borrowings (Note 4(30)) | - | (2,126,618) |
| Current portion of unsecured (Note 4(30)) | (1,191,888) | (187) |
| 41,298,377 | 32,091,439 |
(a) As at 31 December 2019, a cost of mortgage borrowings of EUR 3,696,857,000, equivalent
to RMB 28,892,783,000 (31 December 2018: a cost of EUR 3,701,857,000, equivalent toRMB 29,049,580,000) was pledged by 81.04% equity of KUKA Group, which was acquiredby the subsidiary of the Company. Interest is paid on a semi-annual basis, and theborrowings are due on August 2022.(b) Guaranteed borrowings of EUR 271,000,000, equivalent to RMB 2,118,000,000 was
guaranteed by the Company on 31 December 2019. Guaranteed borrowings of JPY69,460,000,000, equivalent to RMB 4,451,414,000 was guaranteed by the Company on 31December 2019. Interest is paid once a month, until May 2024.(c) As at 31 December 2019, the annual interest rate range of long-term borrowings was 0.5%
to 5.5% (31 December 2018: 0.4% to 5.5%).
(33) Long-term employee benefits payable
| 31 December 2019 | 31 December 2018 |
| Supplementary retirement benefits (a) | 2,267,015 | 2,329,652 |
| Others | 151,548 | 150,666 |
| 2,418,563 | 2,480,318 |
(a) Supplementary retirement benefits
Supplementary retirement benefits obligation of the Group recognised in the balance sheetdate is calculated using the projected unit credit method, and reviewed by externalindependent actuary institution.(i) The Group’s supplementary retirement benefits liabilities:
| 31 December 2019 | 31 December 2018 |
| Defined benefit obligation | 3,896,591 | 4,034,998 |
| Less: Fair value of planned assets | (1,629,576) | (1,705,346) |
| Liabilities of defined benefit obligation | 2,267,015 | 2,329,652 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(33) Long-term employee benefits payable (Cont’d)
(a) Supplementary retirement benefits (Cont’d)(ii) The actuarial assumptions used to determine the present value of defined benefit obligation
31 December 2019Discount rate
| Discount rate | 0.06%-7.10% |
| Inflation rate | 0.93% |
| Expected return on assets | 0.75%-7.10% |
| Salary growth rate | 0.00%-6.00% |
| Benefit growth rate | 0.00%-10.50% |
(34) Other non-current liabilities
Other non-current liabilities are mainly payable for equity acquisition.
(35) Share capital
| 31 December 2018 | Movements in the current year | |||||
| Share-based payment incentive plan (a) | Desterilisation | Share issuance (b) | Repurchases and written-offs | Sub-total | 31 December 2019 | |
| RMB-denominated ordinary shares - | |||||||
| RMB-denominated ordinary shares subject to trading restriction | 147,175 | 30,980 | (8,298) | 2,379 | (6,833) | 18,228 | 165,403 |
| RMB-denominated ordinary shares not subject to trading restriction | 6,515,856 | 56,170 | 8,298 | 321,278 | (95,105) | 290,641 | 6,806,497 |
| 6,663,031 | 87,150 | - | 323,657 | (101,938) | 308,869 | 6,971,900 |
| 31 December 2017 | Movements in the previous year | 31 December 2018 | ||||
| Share-based payment incentive plan | Desterilisation | Share issuance | Repurchases and written-offs | Sub-total | ||
| RMB-denominated ordinary shares - | |||||||
| RMB-denominated ordinary shares subject to trading restriction | 212,023 | 25,955 | (89,102) | - | (1,701) | (64,848) | 147,175 |
| RMB-denominated ordinary shares not subject to trading restriction | 6,349,030 | 77,724 | 89,102 | - | - | 166,826 | 6,515,856 |
| 6,561,053 | 103,679 | - | - | (1,701) | 101,978 | 6,663,031 |
(a) In 2019, the share-based payment incentive plan increased the share capital to 87,150,000
shares (2018: 103,679,000 shares). Some of the restricted shares have not met unlockcondition at end of year, and the Company regarded them as treasury stock and recognisedrelated liabilities for repurchase obligation.(b) In 2019, the Company issued 323,657,000 A shares in exchange for the equity of Little Swan
(Note 4 (41)).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(36) Treasury stock
| 31 December 2018 | Increase in current year | Decrease in current year | 31 December 2019 |
| Restricted shares locked | 918,171 | 3,157,236 | (315,675) | 3,759,732 |
| Repurchased shares that have not yet written off | 4,000,256 | - | (4,000,256) | - |
| 4,918,427 | 3,157,236 | (4,315,931) | 3,759,732 |
| 31 December 2018 | Increase in current year | Decrease in current year | 31 December 2019 |
| Restricted shares locked | 366,842 | 717,841 | (166,512) | 918,171 |
| Repurchased shares that have not yet written off | - | 4,000,256 | - | 4,000,256 |
| 366,842 | 4,718,097 | (166,512) | 4,918,427 |
In 2019, the group’s repurchased shares amounting to RMB 3,100,149,000 including RMB1,701,167,000 granted restricted shares and employee stock ownership plan (Note10(2)(a)). On 31 December 2019, treasury stock mainly comprised restricted sharesamounting to RMB 2,360,750,000 that have not met unlock condition and unallocatedrepurchased shares of RMB 1,398,982,000 pursuant to the employee stock ownershipplans, amounting to RMB 3,759,732,000 in total (31 December 2018: RMB 4,918,427,000).
(37) Capital surplus
| 31 December 2018 | Increase in current year | Decrease in current year | 31 December 2019 |
| Share premium (a) | 14,478,244 | 5,260,907 | (4,055,652) | 15,683,499 |
| Share-based payment incentive plan (b) | 1,299,655 | 733,330 | (589,043) | 1,443,942 |
| Others (c) | 2,673,408 | 10,806 | (171,342) | 2,512,872 |
| 18,451,307 | 6,005,043 | (4,816,037) | 19,640,313 |
| 31 December 2017 | Increase in current year | Decrease in current year | 31 December 2018 |
| Share premium | 11,908,475 | 2,596,878 | (27,109) | 14,478,244 |
| Share-based payment incentive plan | 943,243 | 825,330 | (468,918) | 1,299,655 |
| Others | 3,059,786 | 21,902 | (408,280) | 2,673,408 |
| 15,911,504 | 3,444,110 | (904,307) | 18,451,307 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(37) Capital surplus (Cont’d)
(a) The increase in share premium arose from the exercise of share options with the amount of
RMB 2,372,248,000, restricted shares subscription with amount of RMB 54,668,000 andnewly issued shares with the amount of RMB 2,833,991,000 for merge with Little Swanthrough share swap (Note 4(41)), and the decrease in share premium arose from the written-off for the repurchased restricted shares with the amount of RMB 150,501,000 and therepurchased public shares with the amount of RMB 3,905,151,000.(b) The increase of share-based payment incentive plan arose from expenses attributable to
shareholders' equity of the parent company in the share-based payment incentive plan withthe amount of RMB 733,330,000, while the decrease arose from the transfer of RMB589,043,000 to share premium due to the share-based payment incentive plan.(c) Other decreases in capital surplus were mainly due to the Group's acquisition of equity held
by the minority shareholders of SMC, a subsidiary, at a premium.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(38) Other comprehensive income
| Other comprehensive income in the balance sheet | Other comprehensive income in the income statement for the year ended 31 December 2019 | |||||||||
| 31 December 2018 | Changes in accounting policies | 1 January 2019 | Attributable to the parent company after tax | 31 December 2019 | Amount arising before income tax | Less: Reclassification of previous other comprehensive income to profit or loss | Less: Income tax expenses | Attributable to the parent company after tax | Attributable to minority shareholders after tax | |
| Other comprehensive income items which will not be reclassified to profit or loss | |||||||||||
| Changes arising from remeasurement of defined benefit plan | 50,068 | - | 50,068 | (142,753) | (92,685) | (160,406) | - | 10,017 | (142,753) | (7,636) | |
| Other comprehensive income items which will be reclassified to profit or loss | |||||||||||
| Share of the other comprehensive income of the investee accounted for using equity method which will be reclassified to profit and loss | (59,146) | - | (59,146) | (6,590) | (65,736) | (6,580) | - | - | (6,590) | 10 | |
| Gains or losses arising from changes in fair value of available-for-sale financial assets | (337,447) | 337,447 | —— | —— | —— | ——- | —— | —— | —— | —— | |
| Effective portion of gains or losses on hedging instruments in a cash flow hedge | (101,270) | - | (101,270) | 113,890 | 12,620 | 13,175 | 107,675 | (2,511) | 113,890 | 4,449 | |
| Differences on translation of foreign currency financial statement | (884,358) | - | (884,358) | 318,605 | (565,753) | 386,670 | - | - | 318,605 | 68,065 | |
| (1,332,153) | 337,447 | (994,706) | 283,152 | (711,554) | 232,859 | 107,675 | 7,506 | 283,152 | 64,888 |
| Other comprehensive income in the balance sheet | Other comprehensive income in the income statement for the year ended 31 December 2018 | |||||||
| 31 December 2017 | Attributable to the parent company after tax | 31 December 2018 | Amount arising before income tax | Less: Reclassification of previous other comprehensive income to profit or loss | Less: Income tax expenses | Attributable to the parent company after tax | Attributable to minority shareholders after tax | |
| Other comprehensive income items which will not be reclassified to profit or loss | |||||||||
| Changes arising from remeasurement of defined benefit plan | 51,091 | (1,023) | 50,068 | (8,397) | - | 5,194 | (1,023) | (2,180) | |
| Other comprehensive income items which will be reclassified to profit or loss | |||||||||
| Share of the other comprehensive income of the investee accounted for using equity method which will be reclassified to profit and loss | (111,070) | 51,924 | (59,146) | 51,701 | - | - | 51,924 | (223) | |
| Gains or losses arising from changes in fair value of available-for-sale financial assets | 151,781 | (489,228) | (337,447) | (343,741) | (175,256) | 9,287 | (489,228) | (20,482) | |
| Effective portion of gains or losses on hedging instruments in a cash flow hedge | 323,147 | (424,417) | (101,270) | (107,675) | (358,980) | 31,750 | (424,417) | (10,488) | |
| Differences on translation of foreign currency financial statement | (659,641) | (224,717) | (884,358) | (319,708) | - | - | (224,717) | (94,991) | |
| (244,692) | (1,087,461) | (1,332,153) | (727,820) | (534,236) | 46,231 | (1,087,461) | (128,364) |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(39) Surplus reserve
| 31 December 2018 | Increase in current year | 31 December 2019 |
| Statutory surplus reserve | 5,079,096 | 1,368,562 | 6,447,658 |
| 31 December 2017 | Increase in current year | 31 December 2018 |
| Statutory surplus reserve | 3,882,232 | 1,196,864 | 5,079,096 |
In accordance with the Company Law and the Company’s Articles of Association, theCompany should appropriate 10% of net profit for the year to the statutory surplus reserve,and the Company can cease appropriation when the statutory surplus reserve accumulatedto more than 50% of the registered capital. The statutory surplus reserve can be used tomake up for the loss or increase the share capital after approval from the appropriateauthorities. According to the resolution at the Board of Directors’ meeting, the Companyappropriated 10% of net profit, amounting to RMB 1,368,562,000 in 2019 (2018: 10% of netprofit, amounting to RMB 1,196,864,000) to the statutory surplus reserve.
(40) Undistributed profits
| 2019 | 2018 |
| Undistributed profits at beginning of year | 58,762,315 | 47,627,235 |
| Changes in accounting policies | (337,447) | - |
| Add: Net profit attributable to shareholders of the parent company for current year | 24,211,222 | 20,230,779 |
| Less: Ordinary share dividends payable (a) | (8,553,897) | (7,898,785) |
| Appropriation to general reserve (b) | - | - |
| Appropriation to statutory surplus reserve (Note 4(39)) | (1,368,562) | (1,196,864) |
| Others | - | (50) |
| Undistributed profit at end of year | 72,713,631 | 58,762,315 |
(a) Ordinary share dividends distributed in current year
In accordance with the resolution at the shareholders’ meeting, dated on 13 May 2019, theCompany distributed a cash dividend to the shareholders at RMB 1.30 per share, amountingto RMB 8,561,590,000 calculated by 6,585,838,349 issued shares. As 40,014,998 publicshares did not participate in dividend distribution of total amount of 6,605,842,687 shares atthe time, 6,565,827,689 shares were actually entitled to distribution, and based on theprinciple that the total dividend remains unchanged, it was actually RMB 1.304 per share.Besides, 6,833,000 repurchased incentive shares in the restricted shares incentive planwere written off (Note 4(35)), and cash dividend amounting to RMB 7,693,000 wascancelled. The actual cash dividends distributed in current year amounted to RMB8,553,897,000.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(40) Undistributed profits (Cont’d)
(b) General reserve
In 2019, according to the Administrative Measures for the Provision of Reserves of FinancialEnterprises issued by the Ministry of Finance (MOF), no provision for general reserve wasrequired (2018: Nil) at 1.5% of the balance of financial enterprise risk assets net ofrecognised loan impairment provision.
(41) Transactions with minority shareholders
In 2019, transactions with minority shareholders were mainly the Company issued A sharesin exchange for the 47.33% equity held by minority shareholders of Little Swan on 21 June2019. In this transaction, the Company issued 323,657,000 RMB-denominated ordinaryshares with RMB 53.29 per share, amounting to a total consideration of RMB17,247,707,000, and share premium amounting to RMB 2,833,991,000. As at 31 December2019, the Company held 100% equity of Little Swan .
(42) Operating revenue and cost of sales
| 2019 | 2018 |
| Revenue from main operations | 257,059,725 | 240,980,548 |
| Revenue from other operations | 21,156,292 | 18,684,272 |
| 278,216,017 | 259,664,820 |
| 2019 | 2018 |
| Cost of sales from main operations | 179,314,385 | 171,493,579 |
| Cost of sales from other operations | 18,599,543 | 16,670,978 |
| 197,913,928 | 188,164,557 |
(a) Revenue and cost of sales from main operations
| 2019 | 2018 | ||
| Revenue from main operations | Cost of sales from main operations | Revenue from main operations | Cost of sales from main operations |
| Heating & ventilation, as well as air-conditioner | 119,607,379 | 81,626,941 | 109,394,649 | 75,886,326 |
| Consumer appliances | 109,486,791 | 75,014,044 | 102,992,803 | 72,959,466 |
| Robotics and automation System | 25,191,964 | 19,953,437 | 25,677,924 | 19,809,997 |
| Others | 2,773,591 | 2,719,963 | 2,915,172 | 2,837,790 |
| 257,059,725 | 179,314,385 | 240,980,548 | 171,493,579 |
For the year ended 31 December 2019, cost of sales from main operations was mainlymaterial costs and labour costs, which accounted for over 80% of total cost of sales frommain operations (31 December 2018: over 80%).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(42) Operating revenue and cost of sales (Cont’d)
(b) Revenue and cost of sales from other operations
| 2019 | 2018 | ||
| Revenue from other operations | Cost of sales from other operations | Revenue from other operations | Cost of sales from other operations |
| Revenue from sales of material | 18,933,525 | 17,997,520 | 16,573,666 | 16,130,032 |
| Others | 2,222,767 | 602,023 | 2,110,606 | 540,946 |
| 21,156,292 | 18,599,543 | 18,684,272 | 16,670,978 |
For the year ended 31 December 2019, cost of sales from other operations was mainlymaterial costs, which accounts for over 80% of total cost of sales from other operations (31December 2018: over 80%).
(43) Interest income and interest expenses
Interest income and expenses arising from financial business are presented as follows:
| 2019 | 2018 |
| Interest income from loans and advances | 1,058,536 | 844,382 |
| Including: Interest income from loans and advances to corporations and individuals | 730,885 | 403,407 |
| Interest income from note discounting | 327,651 | 440,975 |
| Interest income from deposits with banks, other financial institutions and the Central Bank | 104,644 | 1,310,010 |
| Interest income | 1,163,180 | 2,154,392 |
| Interest expenses | (122,618) | (189,490) |
| 1,040,562 | 1,964,902 |
(44) Taxes and surcharges
| 2019 | 2018 |
| City maintenance and construction tax | 699,256 | 695,858 |
| Educational surcharge | 508,523 | 505,347 |
| Others | 512,837 | 416,361 |
| 1,720,616 | 1,617,566 |
(45) Selling and distribution expenses
| 2019 | 2018 |
| Selling and distribution expenses | 34,611,231 | 31,085,879 |
For the year ended 31 December 2019, selling and distribution expenses were mainlymaintenance and installation expenses, advertisement and promotion fee, transportationand storage fee, employee benefits and rental expenses, which accounted for over 80% oftotal selling and distribution expenses (31 December 2018: over 80%).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(46) General and administrative expenses
| 2019 | 2018 |
| General and administrative expenses | 9,531,361 | 9,571,639 |
For the year ended 31 December 2019, general and administrative expenses were mainlyemployee benefits, expenses of depreciation and amortisation, technical maintenanceexpenses, administrative office expenses, rental expenses and property managementexpenses, which accounted for over 70% of total general and administrative expenses (31December 2018: over 70%).
(47) Research and development expenses
| 2019 | 2018 |
| Research and development expenses | 9,638,137 | 8,377,201 |
For the year ended 31 December 2019, research and development expenses were mainlyemployee benefits, expenses of depreciation and amortisation, trial products and materialinputs expenses, which accounted for over 80% of total research and developmentexpenses (31 December 2018: over 80%).
(48) Financial income
The Group's financial income, other than those arising from financial business (Note 4(43)),are presented as follows:
| 2019 | 2018 |
| Interest expenses | (880,703) | (703,991) |
| Less: Interest income | 3,807,136 | 2,155,862 |
| Exchange gains or losses | (531,088) | 485,298 |
| Others | (163,709) | (114,129) |
| 2,231,636 | 1,823,040 |
(49) Asset impairment losses
| 2019 | 2018 |
| Losses on bad debts | —— | 189,942 |
| Losses on decline in the value of inventories (Note 4(9)) | 311,195 | 260,031 |
| Impairment losses on fixed assets (Note 4(14)) | 8,466 | 11,539 |
| Reversal of impairment of loans and advances | —— | (13,648) |
| Impairment losses on goodwill (Note 4(17)) | 552,248 | - |
| 871,909 | 447,864 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(50) Credit impairment losses
| 2019 | 2018 |
| Losses on bad debts of accounts receivable (Note 4(4)) | 69,912 | —— |
| Losses on bad debts of other receivables (Note 4(5)) | 10,795 | —— |
| Impairment losses on loans and advances (Note 4(8)) | 15,739 | —— |
| 96,446 | —— |
(51) Gains/(Losses) on changes in fair value
| 2019 | 2018 |
| Derivative financial assets and liabilities | 707,527 | (810,450) |
| Other financial assets | 653,636 | —— |
| 1,361,163 | (810,450) |
(52) Investment income
| 2019 | 2018 |
| Investment income from wealth management products | 91,359 | 504,556 |
| Losses on disposition of derivative financial assets and liabilities | (357,265) | (31,958) |
| Investment income from associates | 506,225 | 349,321 |
| Derecognized gains on financial assets measured at amortized cost | (709) | —— |
| Others | (75,478) | 85,407 |
| 164,132 | 907,326 |
There is no significant restriction on recovery of investment income of the Group.
(53) Losses on disposal of assets
| 2019 | 2018 |
| Gains on disposal of non-current assets | 48,152 | 82,425 |
| Losses on disposal of non-current assets | (179,283) | (117,359) |
| (131,131) | (34,934) |
(54) Other income
| 2019 | 2018 | Asset related/ Income related |
| Special subsidy | 1,194,665 | 1,316,904 | Income related |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(55) Income tax expenses
| 2019 | 2018 |
| Current income tax calculated based on tax law and related regulations | 5,865,722 | 4,096,331 |
| Deferred income tax | (1,213,752) | 26,308 |
| 4,651,970 | 4,122,639 |
The reconciliation from income tax calculated based on the applicable tax rates and totalprofit presented in the consolidated financial statements to the income tax expenses is listedbelow:
| 2019 | 2018 |
| Total profit | 29,929,114 | 25,773,058 |
| Income tax calculated at tax rate of 25% | 7,482,279 | 6,443,265 |
| Effect of different tax rates applicable to subsidiaries | (2,418,377) | (1,792,394) |
| Effect of income tax annual filing for prior periods | (132,198) | (91,527) |
| Income not subject to tax | (225,015) | (189,499) |
| Costs, expenses and losses not deductible for tax purposes | 435,334 | 385,662 |
| Utilisation of previous temporary differences or deductible losses not realised as deferred tax assets | (52,064) | (2,255) |
| Others | (437,989) | (630,613) |
| Income tax expenses | 4,651,970 | 4,122,639 |
(56) Calculation of basic and diluted earnings per share
(a) Basic earnings per share
Basic earnings per share is calculated by dividing consolidated net profit attributable toordinary shareholders of the Company by the weighted average number of ordinary sharesoutstanding:
| Unit | 2019 | 2018 |
| Consolidated net profit attributable to ordinary shareholders of the parent company | RMB’000 | 24,211,222 | 20,230,779 |
| Less: Dividends payable to restricted shares | RMB’000 | (41,095) | (23,538) |
| 24,170,127 | 20,207,241 | ||
| Weighted average number of outstanding ordinary shares | Thousands shares | 6,707,294 | 6,561,297 |
| Basic earnings per share | RMB Yuan/share | 3.60 | 3.08 |
| Including: | |||
| - Basic earnings per share from continuing operations: | 3.60 | 3.08 | |
| - Basic earnings per share for discontinued operations: | - | - |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(56) Calculation of basic and diluted earnings per share (Cont’d)(b) Diluted earnings per share are calculated by dividing consolidated net profit attributable to
ordinary shareholders of the parent company by the diluted weighted average number ofoutstanding ordinary shares:
| Unit | 2019 | 2018 |
| Consolidated net profit attributable to ordinary shareholders of the Company | RMB’000 | 24,211,222 | 20,230,779 |
| Weighted average number of outstanding ordinary shares | Thousands shares | 6,707,294 | 6,561,297 |
| Weighted average number of ordinary shares increased from share-based payment | Thousands shares | 64,256 | 69,395 |
| Weighted average number of diluted outstanding ordinary shares | Thousands shares | 6,771,550 | 6,630,692 |
| Diluted earnings per share | RMB Yuan/share | 3.58 | 3.05 |
(57) Notes to the cash flow statement
(a) Cash received relating to other operating activities
| 2019 | 2018 |
| 1,218,555 | 1,327,455 |
| 2,116,396 | 2,284,317 |
| 612,867 | 418,984 |
| 339,475 | 323,352 |
Other incomeOther operating revenueNon-operating incomeFinancial income - interest incomeOthers
| 721,528 | 1,204,113 |
| 5,008,821 | 5,558,221 |
(b) Cash paid relating to other operating activities
| 2019 | 2018 |
| Selling and distribution expenses (excluding employee benefits and taxes and surcharges) | 30,246,514 | 22,942,704 |
| General and administrative expenses and research and development expenses (excluding employee benefits and taxes and surcharges) | 9,601,758 | 8,971,922 |
| Others | 1,283,489 | 486,046 |
| 41,131,761 | 32,400,672 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(57) Notes to the cash flow statement (Cont'd)
(c) Supplementary information to the cash flow statement
Reconciliation of net profit to cash flow from operating activities is as follows:
| 2019 | 2018 |
| Net profit | 25,277,144 | 21,650,419 |
| Add: Losses on asset impairment | 871,909 | 447,864 |
| Credit impairment losses | 96,446 | —— |
| Depreciation and amortisation | 5,168,262 | 4,817,456 |
| Losses on disposal of assets | 131,131 | 34,934 |
| (Gains)/Losses on changes in fair value | (1,361,163) | 810,450 |
| Financial income | (2,847,411) | (1,265,831) |
| Investment income | (164,132) | (907,326) |
| Share options expenses | 815,598 | 942,753 |
| Increase in deferred tax assets | (1,347,604) | (360,724) |
| Increase in deferred tax liabilities | 149,942 | 478,982 |
| Increase in inventories | (2,670,712) | (77,387) |
| Increase in operating receivables | (1,445,679) | (17,867,374) |
| Increase in operating payables | 15,916,673 | 19,156,864 |
| Net cash flows from operating activities | 38,590,404 | 27,861,080 |
| Net increase/(decrease) in cash and cash equivalents | ||
| Cash and cash equivalents at end of year | 30,441,760 | 17,952,282 |
| Less: Cash and cash equivalents at beginning of year | (17,952,282) | (21,831,653) |
| Net increase/(decrease) in cash and cash equivalents | 12,489,478 | (3,879,371) |
(d) Composition of cash and cash equivalents
| 31 December 2019 | 31 December 2018 |
| Cash on hand | 3,128 | 3,803 |
| Cash at bank that can be readily drawn on demand | 9,521,001 | 10,170,784 |
| Deposits with the Central Bank that can be readily drawn on demand | 355,471 | 204,073 |
| Deposits with banks and other financial institutions that can be readily drawn on demand | 20,562,160 | 7,573,622 |
| Cash and cash equivalents at end of year | 30,441,760 | 17,952,282 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(58) Monetary items denominated in foreign currencies
| 31 December 2019 | ||
| Foreign currency balance | Exchange rate | RMB balance |
| Cash at bank and on hand | |||
| USD | 317,624 | 6.9762 | 2,215,810 |
| JPY | 5,212,777 | 0.0641 | 334,139 |
| HKD | 100,593 | 0.8958 | 90,111 |
| EUR | 180,362 | 7.8155 | 1,409,618 |
| BRL | 150,491 | 1.7308 | 260,469 |
| VND | 377,386,667 | 0.0003 | 113,216 |
| Other currencies | Not applicable | Not applicable | 1,309,279 |
| Sub-total | 5,732,642 | ||
| Accounts receivable | |||
| USD | 872,897 | 6.9762 | 6,089,502 |
| JPY | 14,299,236 | 0.0641 | 916,581 |
| HKD | 24,233 | 0.8958 | 21,708 |
| EUR | 345,216 | 7.8155 | 2,698,038 |
| BRL | 578,855 | 1.7308 | 1,001,883 |
| VND | 1,233,736,667 | 0.0003 | 370,121 |
| Other currencies | Not applicable | Not applicable | 1,982,229 |
| Sub-total | 13,080,062 | ||
| Other receivables | |||
| USD | 118,625 | 6.9762 | 827,551 |
| JPY | 2,392,309 | 0.0641 | 153,347 |
| HKD | 11,071 | 0.8958 | 9,917 |
| EUR | 88,187 | 7.8155 | 689,229 |
| BRL | 99,705 | 1.7308 | 172,569 |
| Other currencies | Not applicable | Not applicable | 146,583 |
| Sub-total | 1,999,196 |
| Total | 20,811,900 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(58) Monetary items dominated in foreign currency (Cont’d)
| 31 December 2019 | ||
| Foreign currency balance | Exchange rate | RMB balance |
| Short-term borrowings | |||
| EUR | 159,081 | 7.8155 | 1,243,298 |
| BRL | 54,530 | 1.7308 | 94,380 |
| Other currencies | Not applicable | Not applicable | 164,160 |
| Sub-total | 1,501,838 | ||
| Accounts payable | |||
| USD | 230,576 | 6.9762 | 1,608,545 |
| JPY | 7,697,192 | 0.0641 | 493,390 |
| HKD | 73,082 | 0.8958 | 65,467 |
| EUR | 183,248 | 7.8155 | 1,432,176 |
| BRL | 262,096 | 1.7308 | 453,636 |
| Other currencies | Not applicable | Not applicable | 1,191,342 |
| Sub-total | 5,244,556 | ||
| Other payables | |||
| USD | 31,148 | 6.9762 | 217,296 |
| JPY | 6,349,314 | 0.0641 | 406,991 |
| HKD | 73,628 | 0.8958 | 65,956 |
| EUR | 8,944 | 7.8155 | 69,899 |
| Other currencies | Not applicable | Not applicable | 105,353 |
| Sub-total | 865,495 | ||
| Current portion of non-current liabilities | |||
| USD | 9,987 | 6.9762 | 69,674 |
| EUR | 176,223 | 7.8155 | 1,377,267 |
| Other currencies | Not applicable | Not applicable | 13,176 |
| Sub-total | 1,460,117 | ||
| Long-term borrowings | |||
| USD | 148,000 | 6.9762 | 1,032,475 |
| EUR | 4,070,228 | 7.8155 | 31,810,870 |
| JPY | 69,444,836 | 0.0641 | 4,451,414 |
| Other currencies | Not applicable | Not applicable | 3,618 |
| Sub-total | 37,298,377 |
| Total | 46,370,383 |
Monetary items denominated in foreign currencies above present all foreign currenciesexcept RMB.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(58) Monetary items dominated in foreign currency (Cont’d)
| 31 December 2018 | ||
| Foreign currency balance | Exchange rate | RMB balance |
| Cash at bank and on hand | |||
| USD | 1,395,190 | 6.8632 | 9,575,470 |
| JPY | 2,338,433 | 0.0619 | 144,749 |
| HKD | 260,111 | 0.8762 | 227,909 |
| EUR | 120,307 | 7.8473 | 944,084 |
| BRL | 209,297 | 1.7714 | 370,748 |
| VND | 123,516,667 | 0.0003 | 37,055 |
| Other currencies | Not applicable | Not applicable | 1,010,028 |
| Sub-total | 12,310,043 | ||
| Accounts receivable | |||
| USD | 932,695 | 6.8632 | 6,401,272 |
| JPY | 24,107,916 | 0.0619 | 1,492,280 |
| HKD | 16,236 | 0.8762 | 14,226 |
| EUR | 336,710 | 7.8473 | 2,642,265 |
| BRL | 524,032 | 1.7714 | 928,271 |
| VND | 1,148,340,000 | 0.0003 | 344,502 |
| Other currencies | Not applicable | Not applicable | 1,477,430 |
| Sub-total | 13,300,246 | ||
| Other receivables | |||
| USD | 124,888 | 6.8632 | 857,132 |
| JPY | 2,067,932 | 0.0619 | 128,005 |
| HKD | 18,648 | 0.8762 | 16,339 |
| EUR | 74,408 | 7.8473 | 583,899 |
| BRL | 15,827 | 1.7714 | 28,036 |
| Other currencies | Not applicable | Not applicable | 156,264 |
| Sub-total | 1,769,675 |
| Total | 27,379,964 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(58) Monetary items dominated in foreign currency (Cont’d)
| 31 December 2018 | ||
| Foreign currency balance | Exchange rate | RMB balance |
| Short-term borrowings | |||
| USD | 22,169 | 6.8632 | 152,148 |
| EUR | 27,744 | 7.8473 | 217,714 |
| BRL | 92,000 | 1.7714 | 162,969 |
| Other currencies | Not applicable | Not applicable | 219,956 |
| Sub-total | 752,787 | ||
| Accounts payable | |||
| USD | 300,761 | 6.8632 | 2,064,186 |
| JPY | 24,045,751 | 0.0619 | 1,488,432 |
| HKD | 57,062 | 0.8762 | 49,998 |
| EUR | 213,116 | 7.8473 | 1,672,382 |
| BRL | 106,504 | 1.7714 | 188,662 |
| Other currencies | Not applicable | Not applicable | 664,097 |
| Sub-total | 6,127,757 | ||
| Other payables | |||
| USD | 21,765 | 6.8632 | 149,379 |
| JPY | 5,035,719 | 0.0619 | 311,711 |
| HKD | 153,811 | 0.8762 | 134,769 |
| EUR | 21,064 | 7.8473 | 165,293 |
| Other currencies | Not applicable | Not applicable | 70,231 |
| Sub-total | 831,383 | ||
| Current portion of non-current liabilities | |||
| USD | 699,039 | 6.8632 | 4,797,644 |
| EUR | 276,024 | 7.8473 | 2,166,041 |
| Other currencies | Not applicable | Not applicable | 159,027 |
| Sub-total | 7,122,712 | ||
| Long-term borrowings | |||
| USD | 162,918 | 6.8632 | 1,118,139 |
| EUR | 3,946,464 | 7.8473 | 30,969,089 |
| BRL | 846 | 1.7714 | 1,499 |
| Other currencies | Not applicable | Not applicable | 2,712 |
| Sub-total | 32,091,439 |
| Total | 46,926,078 |
Monetary items denominated in foreign currencies above present all foreign currenciesexcept RMB.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| 5 | Changes of consolidation scope |
| (1) | Changes of consolidation scope due to other reasons |
| (a) | Increase of consolidation scope |
The Company’s wholly-owned subsidiaries, Midea Electric Trading (Singapore) Co. Pte. Ltd.and Midea Electrics Netherlands B.V., established Midea Electric by cash of EGP 250,000in March 2019, holding 99% and 1% of equity respectively.The Company's wholly-owned subsidiary Guangdong Welling Auto Parts Co., Ltd.established Anhui Welling Auto Parts Corporation Limited in May 2019 by cash of RMB100,000,000, holding 100% of its equity.The Company established Wuxi Little Swan Electric Co., Ltd. in May 2019, holding 100% ofits equity.The Company’s wholly-owned subsidiary Guangdong Midea Electric Co., Ltd. and, itssubsidiary, Swisslog AG established Guangdong Swisslog Technology Co., Ltd. in August2019, holding 50% and 50% of its equity respectively.The Company and Guangdong Meicloud Technology Co.，Ltd. (wholly-owned subsidiary) .South China Intelligent Robotics Innovation Research Institute (a third-party company)Guangdong Newpearl Ceramics Group, and Guangdong Robotics Institute Venture CapitalCo., Ltd. established Guangdong Yueyun Industrial Internet Innovation Technology Co. ,Ltd.in September 2019, holding 62%, 22%, 3%, 10% and 3% of its equity, respectively.The Company’s wholly-owned subsidiaries, Midea Electric Trading (Singapore) Co., Pte.Ltd., Midea International Corporation Company Limited and Midea Home AppliancesInvestments (Hong Kong) Co., Limited, established Midea Refrigeration Equipment(Thailand) Co., Ltd. in November 2019, holding 100% of its equity.The Company's wholly-owned subsidiary Foshan Shunde Midea Household AppliancesIndustry Co., Ltd. established Tianjin Midea Commercial Factoring Co., Ltd. in December2019, holding 100% of its equity.
| (b) | Decrease of consolidation scope |
In 2019, decrease of consolidation scope mainly includes deregistration of subsidiaries,details are as follows:
| Name of company | Disposal method of the equity | Disposal time-point of the equity |
| Main Power Electrical Appliances (Guiyang) Limited | Deregistration | January 2019 |
| Wuhu Midea Household Appliance Consultation Service Co., Ltd. | Deregistration | February 2019 |
| Shenzhen Qianhai Midea Asset Management Co., Ltd. | Deregistration | March 2019 |
| Midea Financial Holding (Shenzhen) Co., Ltd. | Deregistration | April 2019 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
6 Interests in other entities
(1) Interests in subsidiaries
(a) Composition of significant subsidiaries
| Subsidiaries | Major business location | Place of registration | Nature of business | Shareholding (%) | Acquisition method | |
| Direct | Indirect | |||||
| GD Midea Air-Conditioning Equipment Co., Ltd. | Foshan, PRC | Foshan, PRC | Manufacture and sales of air conditioner | 73% | 7% | Business combination involving enterprise not under common control |
| GD Midea Group Wuhu Air-Conditioning Equipment Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Manufacture and sales of air conditioner | 73% | 7% | Business combination involving enterprise not under common control |
| Midea Group Wuhan Refrigeration Equipment Co., Ltd. | Wuhan, PRC | Wuhan , PRC | Manufacture of air conditioner | 73% | 7% | Establishment |
| Wuhu Maty Air-Conditioning Equipment Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Manufacture of air conditioner | 87% | 13% | Establishment |
| GD Midea Heating & Ventilating Equipment Co., Ltd. | Foshan, PRC | Foshan, PRC | Manufacture of air conditioner | 90% | 10% | Establishment |
| Zhejiang Meizhi Compressor Co., Ltd. | Ningbo, PRC | Ningbo, PRC | Manufacture of air conditioner | 100% | - | Establishment |
| Hefei Midea Refrigerator Co., Ltd. | Hefei, PRC | Hefei, PRC | Manufacture of refrigerator | 75% | 25% | Business combination involving enterprise not under common control |
| Hefei Hualing Co., Ltd. | Hefei, PRC | Hefei, PRC | Manufacture of refrigerator | 75% | 25% | Business combination involving enterprise not under common control |
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | Foshan, PRC | Foshan, PRC | Manufacture of small household appliances | - | 100% | Establishment |
| Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd. | Foshan, PRC | Foshan, PRC | Manufacture of small household appliances | - | 100% | Establishment |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Manufacture of small household appliances | 90% | 10% | Business combination involving enterprises under common control |
| Little Swan | Wuxi, PRC | Wuxi, PRC | Manufacture of washing machine | 85% | 15% | Business combination involving enterprise not under common control |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
6 Interests in other entities (Cont'd)
(1) Interests in subsidiaries (Cont'd)
(a) Composition of significant subsidiaries (Cont'd)
| Subsidiaries | Major business location | Place of registration | Nature of business | Shareholding (%) | Acquisition method | |
| Direct | Indirect | |||||
| Midea Electric Trading (Singapore) Co., Pte. Ltd. | Singapore | Singapore | Export trade | - | 100% | Establishment |
| Midea Group Finance Co., Ltd. | Foshan, PRC | Foshan, PRC | Financial industry | 95% | 5% | Establishment |
| Midea Microfinance Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Petty loan | 5% | 95% | Business combination involving enterprise not under common control |
| Mecca International (BVI) Limited | British Virgin Islands | British Virgin Islands | Investment holding | - | 100% | Establishment |
| Midea International Corporation Company Limited | Hong Kong | Hong Kong | Investment holding | 100% | - | Establishment |
| Wuhu Midea Life Appliances Mfg Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Manufacture of small household appliances | 100% | - | Establishment |
| Midea Electric Netherlands (I) B.V. | Netherlands | Netherlands | Investment holding | - | 100% | Establishment |
| Toshiba Consumer Marketing Corporation | Japan | Japan | Manufacture of home appliances | - | 100% | Business combination involving enterprise not under common control |
| TLSC | Japan | Japan | Manufacture of home appliances | - | 100% | Business combination involving enterprise not under common control |
| KUKA | Germany | Germany | Manufacture and sales of robots | - | 94.55% | Business combination involving enterprise not under common control |
| Midea Commerical Factoring Co., Ltd. | Shenzhen, PRC | Shenzhen, PRC | Factoring | - | 100% | Establishment |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
6 Interests in other entities (Cont'd)
(2) Interest in associates
The Group’s associates have no significant influence on the Group and are summarised asfollows:
| 2019 | 2018 |
| Aggregated carrying amount of investments | 2,790,806 | 2,713,316 |
| Aggregate of the following items in proportion | ||
| Net profit (i) | 506,225 | 349,321 |
| Other comprehensive income (i) | (9,378) | 51,924 |
| Total comprehensive income | 496,847 | 401,245 |
7 Segment information
The reportable segments of the Group are the business units that provide different productsor service, or operate in the different areas. Different businesses or areas require differenttechnologies and marketing strategies, the Group, therefore, separately manages theproduction and operation of each reportable segment and evaluates their operating resultsrespectively, in order to make decisions about resources to be allocated to these segmentsand to assess their performance.The Group identified 4 reportable segments as follows:
- Heating & ventilation, as well as air-conditioner- Consumer appliances- Robotics and automation system- OthersInter-segment transfer prices are measured by reference to selling prices to third parties.The assets are allocated based on the operations of the segment and the physical locationof the asset. The liabilities are allocated based on the operations of the segment. Expensesindirectly attributable to each segment are allocated to the segments based on theproportion of each segment’s revenue.Operating expenses include cost of sales, interest costs, fee and commission expenses,taxes and surcharges, selling and distribution expenses, general and administrativeexpenses, research and development expenses and financial income.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
8 Segment reporting(a) Information on the profit or loss, assets and liabilities of reported segment
Segment information as at and for the year ended 31 December 2019 is as follows:
| Heating & ventilation, as well as air-conditioner | Consumer appliances | Robotics and automation system | Other segments and unallocated | Elimination | Total |
| Revenue from external customers | 135,470,711 | 114,367,462 | 25,356,999 | 4,185,334 | - | 279,380,506 |
| Inter-segment revenue | 2,227,043 | 756,506 | 163,663 | 7,408,736 | (10,555,948) | - |
| Operating expenses | (124,219,498) | (101,665,999) | (25,955,822) | (9,771,544) | 10,294,975 | (251,317,888) |
| Segment profit | 13,478,256 | 13,457,969 | (435,160) | 1,822,526 | (260,973) | 28,062,618 |
| Other profit or loss | 1,866,496 | |||||
| Total profit | 29,929,114 |
| Total assets | 121,176,656 | 103,888,887 | 37,236,774 | 121,317,404 | (81,664,302) | 301,955,419 |
| Total liabilities | 81,518,812 | 74,715,832 | 27,386,386 | 99,888,660 | (89,050,368) | 194,459,322 |
| Long-term equity investments in associates | 210,811 | 91,779 | 83,964 | 2,404,252 | - | 2,790,806 |
| Investment income from associates | 160,908 | 4,035 | (25,831) | 367,113 | - | 506,225 |
| Increase in non-current assets (excluding long-term equity investments, financial assets, goodwill and deferred tax assets) | 2,221,732 | 1,205,818 | 847,053 | 242,998 | - | 4,517,601 |
| Asset impairment losses | 64,814 | 245,923 | 560,382 | 790 | - | 871,909 |
| Losses on/(Reversal of) credit impairment | 102,545 | 54,637 | (75,990) | 100,895 | (85,641) | 96,446 |
| Depreciation and amortisation | 1,780,289 | 1,565,812 | 1,157,866 | 664,295 | - | 5,168,262 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
8 Segment reporting (Cont’d)(a) Information on the profit or loss, assets and liabilities of reported segment (Cont’d)
Segment information as at and for the year ended 31 December 2018 is as follows:
| Heating & ventilation, as well as air-conditioner | Consumer appliances | Robotics and automation system | Other segments and unallocated | Elimination | Total |
| Revenue from external customers | 123,750,494 | 106,076,743 | 25,767,137 | 6,225,261 | - | 261,819,635 |
| Inter-segment revenue | 1,517,400 | 637,021 | 70,421 | 6,496,010 | (8,720,852) | - |
| Operating expenses | (113,818,159) | (95,177,469) | (26,076,871) | (10,847,195) | 8,733,188 | (237,186,506) |
| Segment profit | 11,449,735 | 11,536,295 | (239,313) | 1,874,076 | 12,336 | 24,633,129 |
| Other profit or loss | 1,139,929 | |||||
| Total profit | 25,773,058 |
| Total assets | 107,186,255 | 104,567,409 | 32,248,141 | 94,734,450 | (75,035,107) | 263,701,148 |
| Total liabilities | 71,901,268 | 71,644,039 | 26,081,586 | 86,771,167 | (85,151,429) | 171,246,631 |
| Long-term equity investments in associates | 130,668 | 82,038 | 111,212 | 2,389,398 | - | 2,713,316 |
| Investment income from associates | 72,022 | (13,897) | (18,003) | 309,199 | - | 349,321 |
| Increase in non-current assets (excluding long-term equity investments, financial assets, goodwill and deferred tax assets) | 2,172,033 | 1,734,086 | 2,226,302 | 899,271 | - | 7,031,692 |
| Losses on asset impairment | 126,987 | 166,013 | 203,390 | 122,744 | (171,270) | 447,864 |
| Depreciation and amortisation | 1,554,330 | 1,719,693 | 1,019,462 | 523,971 | - | 4,817,456 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
8 Segment reporting (Cont’d)(b) Geographical area information
The Group’s revenue from external customers domestically and in foreign countries orgeographical areas, and the total non-current assets other than long-term equityinvestments, financial assets, goodwill and deferred tax assets located domestically and inforeign countries or geographical areas (including Germany, Hong Kong, Macau, Singapore,Japan, Italy, South America, etc.) are as follows:
| Revenue from external customers | 2019 | 2018 |
| Domestic | 162,596,802 | 151,412,126 |
| In other countries/geographical areas | 116,783,704 | 110,407,509 |
| 279,380,506 | 261,819,635 |
| Total non-current assets | 31 December 2019 | 31 December 2018 |
| Domestic | 22,206,308 | 22,966,699 |
| In other countries/geographical areas | 18,395,469 | 19,903,114 |
| 40,601,777 | 42,869,813 |
In 2019 and 2018, revenue from each individual customer is lower than 10% of the Group’stotal revenue.9 Related parties and significant related party transactions
(1) Information of the parent company
(a) General information of the parent company
| Name of the parent company | Relationship | Place of registration | Nature of business |
| Midea Holding Co., Ltd. | Controlling shareholder | Shunde District, Foshan | Commercial |
The Company’s ultimate controlling person is Mr. He Xiangjian.(b) Registered capital and changes in registered capital of the parent company
31 December 2019 and31 December 2018Midea Holding Co., Ltd.
| Midea Holding Co., Ltd. | 330,000 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
9 Related parties and significant related party transactions (Cont’d)
(1) Information of the parent company (Cont'd)
(c) The percentages of shareholding and voting rights in the Company held by the parent
company
| 31 December 2019 | 31 December 2018 | ||||
| Shareholding (%) | Voting rights | Shareholding (%) | Voting rights | ||
| Direct | Indirect | (%) | Direct | Indirect | (%) |
| Midea Holding Co., Ltd. | 31.73% | - | 31.73% | 33.20% | - | 33.20% |
(2) Information of the Company's subsidiaries
Please refer to Note 6(1) for the information of the Company’s main subsidiaries.
(3) Information of other related parties
| Name of other related parties | Relationship |
| Guangdong Wellkey Electrician Material Co., Ltd. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholder |
| Anhui Wellkey Electrician Material Co., Ltd. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholder |
| Guangdong Infore Material-Tech Co., Ltd. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholder |
| Orinko New Material Co., Ltd. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholder |
| Guangdong Ruizhu Intelligent Technoloy Co.,ltd. | Under the common control of the Company’s ultimate controlling shareholder |
| Foshan Micro Midea Filter Mfg. Co., Ltd | Associates of the Company |
| Guangdong Shunde Rural Commercial Bank Co., Ltd. | Associates of the Company |
(4) Information of related party transactions
The following primary related party transactions with major related parties are conducted inaccordance with normal commercial terms or relevant agreements.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
9 Related parties and significant related party transactions (Cont’d)
(4) Information of related party transactions (Cont'd)
(a) Purchase of goods:
| Related parties | Content of related party transactions | Pricing policies of related party transactions | 2019 | 2018 |
| Guangdong Wellkey Electrician Material Co., Ltd. | Purchase of goods | Agreed price | 851,608 | 813,655 |
| Foshan Micro Midea Filter Mfg. Co., Ltd | Purchase of goods | Agreed price | 298,143 | 227,593 |
| Anhui Wellkey Electrician Material Co., Ltd. | Purchase of goods | Agreed price | 312,038 | 316,102 |
| Orinko New Material Co., Ltd. | Purchase of goods | Agreed price | 1,159,702 | 332,991 |
| 2,621,491 | 1,690,341 |
(b) Selling of goods
| Related parties | Content of related party transactions | Pricing policies of related party transactions | 2019 | 2018 |
| Guangdong Ruizhu Intelligent Technoloy Co.,ltd. | Selling of goods | Agreed price | 105,382 | 10,812 |
(c) Remuneration of key management
| 2019 | 2018 |
| Remuneration of key management | 57,800 | 41,590 |
(5) Receivables from and payables to related parties
Receivables from related parties:
| Items | Related parties | 31 December 2019 | 31 December 2018 |
| Cash at bank and on hand | Guangdong Shunde Rural Commercial Bank Co., Ltd. | 3,058,300 | 88,084 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
9 Related parties and significant related party transactions (Cont’d)
(5) Receivables from and payables to related parties (Cont’d)
Payables to related parties:
| Items | Related parties | 31 December 2019 | 31 December 2018 |
| Accounts payable | Guangdong Wellkey Electrician Material Co., Ltd. | 201,956 | 169,592 |
| Foshan Micro Midea Filter Mfg. Co., Ltd | 68,258 | 60,885 | |
| Anhui Wellkey Electrician Material Co., Ltd. | 60,373 | 59,011 | |
| Orinko New Material Co., Ltd. | 80,121 | 25,321 | |
| 410,708 | 314,809 |
10 Share-based payment
(1) Share option incentive plan
(a) Pursuant to the fifth reserved share option incentive plan (the “Fifth Reserved Share Option
Incentive Plan”) approved at the eighth meeting of the third Board of Directors held duringthe year 2019, the Company granted 5,340,000 share options with exercise price of RMB
47.17 to 97 employees. Under the circumstance that the Company meets expectedperformance, 1/4 of the total share options granted will become effective after 2 years, 3years, 4 years and 5 years respectively since 11 March 2019.Determination method for fair value of share options at the grant date
| Exercise price of options: | RMB 47.17 |
| Effective period of options: | 6 years |
| Current price of underlying shares: | RMB 46.58 |
| Estimated fluctuation rate of share price: | 37.02% |
| Estimated dividend rate: | 2.95% |
| Risk-free interest rate within effective period of options: | 2.42% |
The fair value of the Fifth Share Option Incentive Plan calculated pursuant to the aboveparameters is: RMB 46,628,000.Pursuant to the sixth share option incentive plan (the “Sixth Share Option Incentive Plan”)approved at the shareholders’ meeting for 2018 held during the year 2019, the Companygranted 46,540,000 share options with exercise price of RMB 52.87 to 1,131 employees.Under the circumstance that the Company meets expected performance, 1/4 of the totalshare options granted will become effective after 2 years, 3 years, 4 years and 5 yearsrespectively since 30 May 2019.Determination method for fair value of share options at the grant date
| Exercise price of options: | RMB 52.87 |
| Effective period of options: | 6 years |
| Current price of underlying shares: | RMB 49.45 |
| Estimated fluctuation rate of share price: | 37.04% |
| Estimated dividend rate: | 2.62% |
| Risk-free interest rate within effective period of options: | 2.68% |
The fair value of the Sixth Share Option Incentive Plan calculated pursuant to the aboveparameters is: RMB 417,556,000.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
10 Share-based payment (Cont'd)
(1) Share option incentive plan (Cont'd)
(b) Movements in share options during the year
| 2019 |
| (Share in thousands) |
| Share options issued at beginning of year | 229,836 |
| Share options granted during the year | 51,880 |
| Share options exercised during the year | (84,730) |
| Share options lapsed during the year | (14,081) |
| Share options issued at end of year | 182,905 |
As at 31 December 2019, the residual contractual maturity date of the Second Share OptionIncentive Plan is on 27 May 2020. The residual contractual maturity date of the Third ShareOption Incentive Plan is on 27 June 2021. The residual contractual maturity date of theFourth Share Option Incentive Plan is on 11 May 2021. The residual contractual maturitydate of the Fifth Share Option Incentive Plan is on 6 May 2024. The residual contractualmaturity date of the Fifth Reserved Share Option Incentive Plan is on 10 March 2025. Theresidual contractual maturity date of the Sixth Share Option Incentive Plan is 29 May 2025.
(2) Restricted share plan
(a) Pursuant to the reserved restricted share incentive plan for 2018 approved at the eighth
meeting of the third Board of Directors held during the year 2019 (the "Reserved RestrictedShare Incentive Plan for 2018"), the Company granted 2,420,000 restricted shares withexercise price of RMB 23.59 to 32 employees. Under the circumstance that the Companymeets expected performance, 1/4 of the total restricted shares granted will be unlocked after2 years, 3 years, 4 years and 5 years, respectively, since 11 March 2019.Pursuant to the restricted share incentive plan for 2019 (the “Restricted Share IncentivePlan for 2019”) approved at the shareholders’ meeting for 2018 held during the year 2019,the Company granted 28,560,000 restricted shares with exercise price of RMB 25.79 to 423employees. Under the circumstance that the Company meets expected performance, 1/4 ofthe total restricted shares granted will be unlocked after 2 years, 3 years, 4 years and 5years, respectively, since 30 May 2019.(b) Movements in restricted shares during the year
| 2019 |
| (Share in thousands) |
| Restricted shares issued at beginning of year | 40,185 |
| Restricted shares granted during the year | 30,980 |
| Restricted shares unlocked during the year | (7,193) |
| Restricted shares lapsed during the year | (6,833) |
| Restricted shares issued at end of year | 57,139 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
10 Share-based payment (Cont'd)
(3) Employee stock ownership plan
Pursuant to the fifth stock ownership plan of the Midea Global Partner Plan (the “Fifth GlobalPartner Plan”) approved at the shareholders' meeting for the year ended 31 December 2019held during the year 2019, The Company would purchase a total of 3,732,075 shares ofMidea Group from the secondary market, with an average purchase price of RMB 49.79 pershare and the purchase fund was the special fund of RMB 185,820,000 accrued by theCompany. The Company then entrusted China International Capital Corporation Limited(“CICC”) to provide an asset management plan. The lock-up period of shares under this planis from 11 July 2019 to 10 July 2020.Pursuant to the second stock ownership plan of the Midea Business Partner Plan (the“Second Business Partner Plan”) approved at the shareholders' meeting for the year ended31 December 2018 held during the year 2019. The Company would purchase a total of1,868,000 shares of Midea Group from the secondary market, with an average purchaseprice of RMB 49.79 per share. The purchase fund was the special fund and part ofperformance bonus for management of RMB 93,000,000 in total accrued by the Company.The Company then entrusted CICC to provide an asset management plan. The lock-upperiod of shares under this plan is from 16 July 2019 to 15 July 2020.
(4) The total expenses due to the above share-based payment incentive plan, which were
granted, recognised for the year ended 31 December 2019 were RMB 815,598,000. As at31 December 2019, the balance relating to the share-based payment incentive and accruedfrom capital surplus was RMB 1,443,942,000.11 Contingencies
As at 31 December 2019, the amount in tax disputes involving Brazilian subsidiary with 51%interests held by the Company is about BRL 698 million (equivalent to RMB 1,207 million)(Some cases have lasted for more than 10 years. The above amount includes the principaland interest). As at 31 December 2019, relevant cases are still at court. Originalshareholders of Brazilian subsidiary have agreed to compensate the Company according toverdict results of the above tax disputes. The maximum compensation amount is about BRL157 million (equivalent to RMB 272 million). With reference to judgements of third-partyattorneys, management believes that the probability of losing lawsuits and makingcompensation is small, and expects no significant risk of tax violation.12 Commitments
(1) Capital commitments
Capital expenditures contracted for by the Group but are not yet necessary to be recognisedon the balance sheet as at the balance sheet date are as follows:
| 31 December 2019 | 31 December 2018 |
| Buildings, machinery and equipment | 1,433,420 | 639,689 |
(2) Operating lease commitments
The Group has no significant operating lease commitments at the balance sheet date.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
13 Events after the balance sheet date
(1) Significant non-adjusting events
(a) Outbreak of Coronavirus Empidemic 2019 (“COVID-2019”)
Under the outbreak of COVID-2019 in early 2020, domestic consumption and productionhave been affected in the short run. Started from the end of February, the development ofthe COVID-2019 outbreak is having increasing impacts overseas. The Group is consistentlyworking on the preventation and control work of the COVID-2019 spreading. As at the dateon which the financial statements were authorised for issue, the Group’s revenues andprofits had a certain degree of decline under the influences of the epedimic.The duration ofthe COVID-2019 development will probably challenge the Group’s financial position andoperating results in the year 2020.(b) Repurchased shares
Pursuant to the Proposal on the Scheme for the Repurchase of Certain Social Public Sharesapproved at the eighteenth meeting of the third Board of Directors dated 21 February 2020,the Company is allowed to use its own funds to repurchase some of the Company’s sharesthrough centralised price bidding, with number of shares to be repurchased ranging from 40million to 80 million and purchase price not exceeding RMB 65 per share. The expectedtotal amount for repurchases is no more than RMB 5,200 million. The scheme is to beimplemented within 12 months from the date of approval by the Board of Directors. As atthe date on which the financial statements were authorised for issue, the Group hasrepurchased 14.27million shares, and purchase price was RMB 700 million.(c) Debt Financing
Pursuant to the Proposal on the Application for Registration and Issuance of Debt FinancingInstruments approved at the first interim shareholders’ meeting in 2020 dated 13 March2020, the total amount of the debt financing instruments to be registered is no more thanRMB 20 billion (inclusive), of which the ultra-short-term financing bonds not more thanRMB10 billion (inclusive) and the medium-term notes not more than 10 billion (inclusive).As at the date on which the financial statements were authorised for issue, the event wasapproved at the shareholders’ meeting and published named SCP Short Commercial Paperfor 2 billion.
(2) Overview of profit distribution
On 28 April 2020, the company has total existing 6,999,467,315 shares. As 42,286,257public shares did not participate in dividend distribution of total amount of 6,999,467,315shares at the time, 6,957,181,058 shares were actually entitled to distribution. The Board ofDirectors proposed a distribution of cash dividends of approximately RMB 11,131,490,000at RMB 16 every 10 shares (including tax). Such proposal is pending for approval at theshareholders’ meeting. The cash dividends distributed after the balance sheet date were notrecognised as liabilities at the balance sheet date.14 Financial risk
The Group is exposed to various financial risks in the ordinary course of business, mainlyincluding:
? Market risk (mainly including foreign exchange risk, interest rate risk and price risk)? Credit risk? Liquidity riskThe following mainly relates to the above risk exposures and relevant causes, objectives,policies and process of risk management, method of risk measurement, etc.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
14 Financial risk (Cont'd)
The objective of the Group's risk management is to seek balance between risk and income,minimising the adverse impact of financial risks on the Group's financial performance.Pursuant to the risk management objective, the Group has made risk management policiesto identify and analyse the risks it is exposed to and set appropriate risk resistant level anddesign relevant internal control procedures to monitor the Group’s risk level. The Groupreviews regularly these risk management policies and relevant internal control systems toadapt to changes in market condition or its operating activities.
(1) Market risk
(a) Foreign exchange risk
The Group mainly operates in China, Europe, America, Asia, South America and Africa forthe manufacturing, sales, investments and financing activities. Any foreign currencydenominated monetary assets and liabilities other than in RMB would subject the Group toforeign exchange exposure.The Group’s finance department at its headquarters has a professional team to manageforeign exchange risk, with approach of the natural hedge for settling currencies, signingforward foreign exchange hedging contracts and controlling the scale of foreign currencyassets and liabilities, to minimise foreign exchange risk, and to reduce the impact ofexchange rate fluctuations on business performance.(b) Interest rate risk
The Group's interest rate risk arises from interest bearing borrowings including long-termborrowings and debentures payable. Financial liabilities issued at floating rates expose theGroup to cash flow interest rate risk. Financial liabilities issued at fixed rates expose theGroup to fair value interest rate risk. The Group determines the relative proportions of itsfixed rate and floating rate contracts depending on the prevailing market conditions. As at31 December 2019, the Group’s long-term interest bearing borrowings at floating ratesamounting to RMB 971,090,000 (31 December 2018: Nil) (Note 4(32)).The Group’s finance department at its headquarters continuously monitors the interest rateposition of the Group. Increases in interest rates will increase the cost of new borrowing andthe interest expenses with respect to the Group’s outstanding floating rate borrowings, andtherefore could have a material adverse effect on the Group’s financial performance. TheGroup makes adjustments timely with reference to the latest market conditions and mayenter into interest rate swap agreements to mitigate its exposure to interest rate risk.As at 31 December 2019, if the borrowing rate rises or falls 50 base points while otherfactors remain constant, the group’s profit before tax would increase or decrease amountingto RMB 206,492,000 (31 December 2018: RMB 160,457,000).(c) Other price risk
The Group's other price risk arises mainly from financial assets held for trading (Note 4(2))and other non-current financial assets (Note 4(13)) measured at fair value. As at 31December 2019, if expected price of the investments held by the Group fluctuated, theGroup's gains or losses on changes in fair value would be affected accordingly.As at 31 December 2019, if the Group’s expected price of equity instruments investmentrises or falls by 10% while other factors remain constant, the Group would have an increaseor decrease profit before tax amounting to RMB 283,746,000 (31 December 2018: RMB190,688,000), other comprehensive income amounting to RMB 0 (31 December 2018:Nil).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
14 Financial risk (Cont'd)
(2) Credit risk
Credit risk is managed on the grouping basis. Credit risk mainly arises from cash at bank,deposits with the Central Bank, deposits with banks and other financial institutions, notesreceivable, accounts receivable, loans and advances, other receivables and structuraldeposits in other current assets and non-current assets.The Group expects that there is no significant credit risk associated with cash at bank,deposits with the Central Bank and deposits with banks and other financial institutions sincethey are deposited at state-owned banks and other medium or large size listed banks.Management does not expect that there will be any significant losses from non-performanceby these counterparties.In addition, the Group has policies to limit the credit exposure on notes receivable, accountsreceivable, loans and advances, other receivables and structural deposits in other currentassets and non-current assets. The Group assesses the credit quality of and sets creditlimits on its customers by taking into account their financial position, the availability ofguarantee from third parties, their credit history and other factors such as current marketconditions. The credit history of the customers is regularly monitored by the Group. Inrespect of customers with a poor credit history, the Group will use written paymentreminders, or shorten or cancel credit periods, to ensure the overall credit risk of the Groupis limited to a controllable extent.As at 31 December 2019, the Group has no significant collateral or other creditenhancements held as a result of the debtor's mortgage.
(3) Liquidity risk
Cash flow forecasting is performed by each subsidiary of the Group and aggregated by theGroup’s finance department in its headquarters. The Group’s finance department at itsheadquarters monitors rolling forecasts of the Group's short-term and long-term liquidityrequirements to ensure it has sufficient cash and securities that are readily convertible tocash to meet operational needs, while maintaining sufficient headroom on its undrawncommitted borrowing facilities from major financial institutions so that the Group does notbreach borrowing limits or covenants on any of its borrowing facilities to meet the short-termand long-term liquidity requirements. As at 31 December 2019, monetary assets held by theGroup, including cash at bank and on hand, notes receivable, notes receivable included inloans and advances, discounted assets, notes receivable included in receivables financingand wealth management funds and structural deposits included in other current assets andother non-current assets amounted to RMB144,026,331,000.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
14 Financial risk (Cont'd)
(3) Liquidity risk (Cont'd)
The financial liabilities of the Group at the balance sheet date are analysed by their maturitydates below at their undiscounted contractual cash flows:
| 31 December 2019 | ||||
| Within 1 year | 1 to 2 years | 2 to 5 years | Over 5 years | Total |
| Short-term borrowings (including interest) | 5,840,214 | - | - | - | 5,840,214 |
| Customer deposits and deposits from banks and other financial institutions | 62,521 | - | - | - | 62,521 |
| Notes payable | 23,891,600 | - | - | - | 23,891,600 |
| Accounts payable | 42,535,777 | - | - | - | 42,535,777 |
| Other payables | 3,800,568 | - | - | - | 3,800,568 |
| Derivative financial liabilities | 27,100 | - | - | - | 27,100 |
| Other current liabilities | 12,899,763 | - | - | - | 12,899,763 |
| Current portion of non-current liabilities (including interest) | 1,471,468 | - | - | - | 1,471,468 |
| Long-term borrowings (including interest) | 512,262 | 4,425,755 | 37,467,552 | - | 42,405,569 |
| Long-term payables | - | 29,256 | 4,390 | - | 33,646 |
| Other non-current liabilities | - | - | 863,826 | - | 863,826 |
| 91,041,273 | 4,455,011 | 38,335,768 | - | 133,832,052 |
| 31 December 2018 | ||||
| Within 1 year | 1 to 2 years | 2 to 5 years | Over 5 years | Total |
| Short-term borrowings (including interest) | 897,699 | - | - | - | 897,699 |
| Borrowings from the Central Bank (including interest) | 100,260 | - | - | - | 100,260 |
| Customer deposits and deposits from banks and other financial institutions | 44,386 | - | - | - | 44,386 |
| Notes payable | 23,325,115 | - | - | - | 23,325,115 |
| Accounts payable | 36,901,626 | 36,901,626 | |||
| Other payables | 3,346,129 | - | - | - | 3,346,129 |
| Derivative financial liabilities | 756,299 | - | - | - | 756,299 |
| Other current liabilities | 11,736,343 | - | - | - | 11,736,343 |
| Current portion of non-current liabilities (including interest) | 6,967,940 | - | - | - | 6,967,940 |
| Long-term borrowings (including interest) | 390,253 | 1,609,425 | 31,453,442 | - | 33,453,120 |
| Long-term payables | - | 49,866 | 39,024 | - | 88,890 |
| Other non-current liabilities | - | 190,496 | 159,844 | 666,012 | 1,016,352 |
| 84,466,050 | 1,849,787 | 31,652,310 | 666,012 | 118,634,159 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
15 Fair value estimates
The level in which fair value measurement is categorised is determined by the level of thefair value hierarchy of the lowest level input that is significant to the entire fair valuemeasurement:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2: Inputs other than quoted prices included within Level 1 that are observable for theasset or liability, either directly or indirectly.Level 3: Unobservable inputs for the asset or liability.
(1) Assets and liabilities measured at fair value on a recurring basis
As at 31 December 2019, the assets and liabilities measured at fair value on a recurringbasis by the above three levels are analysed below:
| Level 1 | Level 2 | Level 3 | Total |
| Financial assets measured at fair value - | ||||
| Financial assets held for trading | 1,087,351 | - | - | 1,087,351 |
| Derivative financial assets | - | 197,412 | - | 197,412 |
| Receivables financing | - | 7,565,776 | - | 7,565,776 |
| Other current assets – hedging instruments | - | 98,572 | - | 98,572 |
| Structural deposits | - | 50,557,518 | - | 50,557,518 |
| Other non-current financial assets | - | - | 1,750,107 | 1,750,107 |
| Total assets | 1,087,351 | 58,419,278 | 1,750,107 | 61,256,736 |
| Financial liabilities measured at fair value - | ||||
| Derivative financial liabilities | - | 27,100 | - | 27,100 |
| Other financial liabilities – hedging instruments | - | 32 | - | 32 |
| Total liabilities | - | 27,132 | - | 27,132 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
15 Fair value estimates (Cont'd)
(1) Assets and liabilities measured at fair value on a recurring basis (Cont'd)
As at 31 December 2018, the assets and liabilities measured at fair value on a recurringbasis by the above three levels are analysed below:
| Level 1 | Level 2 | Level 3 | Total |
| Financial assets measured at fair value - | ||||
| Derivative financial assets | - | 220,197 | - | 220,197 |
| Other current assets - hedging instruments | - | 38,822 | - | 38,822 |
| Available-for-sale financial assets - | ||||
| Other current assets - wealth management products | - | - | 1,521,007 | 1,521,007 |
| Available-for-sale financial assets | 1,122,609 | - | 62,250 | 1,184,859 |
| Total assets | 1,122,609 | 259,019 | 1,583,257 | 2,964,885 |
| Financial liabilities measured at fair value - | ||||
| Derivative financial liabilities | - | 756,299 | - | 756,299 |
| Other financial liabilities - hedging instruments | - | 146,496 | - | 146,496 |
| Total liabilities | - | 902,795 | - | 902,795 |
The Group takes the date on which events causing the transfers between the levels takeplace as the timing specific for recognising the transfers. There was no significant transferof fair value measurement level of the above financial instruments among the three levels.The fair value of financial instruments traded in an active market is determined at the quotedmarket price; and the fair value of those not traded in an active market is determined by theGroup using valuation technique. The valuation models used mainly comprise discountedcash flow model and market comparable corporate model. Inputs of valuation techniquemainly comprise risk-free interest rate, estimated interest rate and estimated annual yield.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
15 Fair value estimates (Cont'd)
(1) Assets and liabilities measured at fair value on a recurring basis (Cont'd)
There was no change in the valuation technique for the fair value of the Group’s financialinstruments in current year.
The changes in Level 3 financial assets are analysed below:
Financial assets held for trading andother non-current financial assets
Financial assets held for trading andother non-current financial assets31 December 2018
| 31 December 2018 | 1,583,257 |
| Impact of changes in standards | 732,448 |
| 1 January 2019 | 2,315,705 |
| Increase | 4,232,805 |
| Decrease | (5,274,444) |
| Transfer out from Level 3 | (56,340) |
| Total gains of current period | |
| Investment income recognised in the income statement | 509,578 |
| Gains recognised in other comprehensive income | 22,803 |
| 31 December 2019 | 1,750,107 |
The changes in Level 3 financial assets are analysed below:
Available-for-sale financial assets
Available-for-sale financial assets1 January 2018
| 1 January 2018 | 22,174,966 |
| Increase | 1,576,579 |
| Decrease | (22,660,142) |
| Total gains of current period | |
| Income recognised in the income statement | 519,042 |
| Gains recognised in other comprehensive income | (27,188) |
| 31 December 2018 | 1,583,257 |
(a) The fair value of this part of other non-current financial assets is measured using discounted
cash flows approach. The judgement of Level 3 of the fair value hierarchy is based on themateriality of unobservable inputs towards calculation of whole fair value. Significantunobservable inputs mainly include the financial data of targeted company and risk adjusteddiscount rates.Assets and liabilities subject to Level 2 fair value measurement are mainly structuraldeposits, receivables financing and forward exchange contracts and are evaluated bymarket approach and income approach.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
15 Fair value estimates (Cont'd)
(2) Assets and liabilities not measured at fair value but disclosed
The Group's financial assets and financial liabilities measured at amortised cost mainlyinclude: cash at bank and on hand, deposits with the Central Bank, deposits with banks andother financial institutions, notes receivable, accounts receivable, loans and advances, otherreceivables, other current assets (excluding those mentioned in Note 15(1)), notes payable,accounts payable, short-term borrowings, borrowings from the Central Bank, long-termborrowings, current portion of non-current liabilities, customer deposits and deposits frombanks and other financial institutions, other payables, other current liabilities, etc.Carrying amounts of the Group’s derecognized gains on financial assets and financialliabilities measured at amortized cost as at 31 December 2019 and 31 December 2018approximated to their fair value.16 Capital management
The Group’s capital management policies aim to safeguard the Group’s ability to continueas a going concern in order to provide returns for shareholders and benefits for otherstakeholders, and to maintain an optimal capital structure to reduce the cost of capital.In order to maintain or adjust the capital structure, the Group may adjust the amount ofdividends paid to shareholders, refund capital to shareholders, issue new shares or sellassets to reduce debts.The Group is not subject to external mandatory capital requirements, and monitors capitalstructure on the basis of gearing ratio (total liabilities divide total assets).As at 31 December 2019 and 31 December 2018, the Group's gearing ratio is as follows:
| 31 December 2019 | 31 December 2018 |
| Total liabilities | 194,459,322 | 171,246,631 |
| Total assets | 301,955,419 | 263,701,148 |
| Gearing ratio | 64.40% | 64.94% |
17 Notes to the parent company’s financial statements
(1) Other receivables
| 31 December 2019 | 31 December 2018 |
| Other receivables | 18,377,123 | 11,599,860 |
| Less: Provision for bad debts | (7,258) | (6,840) |
| 18,369,865 | 11,593,020 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the parent company’s financial statements (Cont'd)
(1) Other receivables (Cont'd)
(a) Other receivables are analysed by ageing as follows:
| 31 December 2019 | 31 December 2018 |
| Within 1 year | 18,356,942 | 11,574,080 |
| 1 to 2 years | 19,000 | 21,110 |
| 2 to 3 years | 1,181 | 4,670 |
| 18,377,123 | 11,599,860 |
(b) Provision for bad debts and changes in book balance statements
| Stage 1 | Stage 3 | |||||
| Expected credit losses in the following 12 months (grouping) | Expected credit losses in the following 12 months (individual) | Lifetime expected credit losses (credit impaired) | Sub-total | |||
| Book balance | Provision for bad debts | Book balance | Provision for bad debts | Book balance | Provision for bad debts | Provision for bad debts |
| 31 December 2018 | 557,395 | 6,840 | 11,042,465 | - | - | - | 6,840 |
| Changes in accounting policies | - | - | - | - | - | - | - |
| 1 January 2019 | 557,395 | 6,840 | 11,042,465 | - | - | - | 6,840 |
| Transfer to stage 3 in current year | (58) | (35) | - | - | 58 | 35 | - |
| Net increase in current year | 175,171 | 395 | 6,602,092 | - | - | 23 | 418 |
| Including: Written-off in current year | - | - | - | - | - | - | - |
| Derecognition | - | - | - | - | - | - | - |
| 21 December 2019 | 732,508 | 7,200 | 17,644,557 | - | 58 | 58 | 7,258 |
As at 31 December 2019, the Company did not have other receivables in stage 2.(c) As at 31 December 2019, the Group’s other receivables at stage 1 and stage 3 were
analysed as follows:
(i) As at 31 December 2019, other receivables for which the related provision for bad debts
was provided on the individual basis were analysed as follows:
| Book balance | ECL rate in the following 12 months | Provision for bad debts | Reason |
| Stage 1 | 17,644,557 | 0% | - | Relatively low bad debt risks |
| Book balance | ECL rate in the following 12 months | Provision for bad debts | Reason |
| Stage 3 | 58 | 100.00% | (58) | The debtor encountered financial difficulties |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the parent company’s financial statements (Cont'd)
(1) Other receivables (Cont'd)
(c) As at 31 December 2019, the Group’s other receivables at stage 1 and stage 3 were
analysed as follows (Cont'd):
(ii) As at 31 December 2019, other receivables at stage 1 for which the related provision for
bad debts was provided on the grouping basis were analysed as follows:
| 31 December 2019 | ||
| Book balance | Provision for bad debts | |
| Amount | Amount | Provision ratio |
| Security deposit/guarantee payables grouping | 732,508 | (7,200) | 0.98% |
(d) As at 31 December 2019, other receivables from the top five debtors are analysed as below:
| Nature | Balance | Ageing | % of total balance | Provision for bad debts |
| Company A | Current accounts | 12,868,000 | Within 1 year | 70.02% | - |
| Company B | Current accounts | 4,001,000 | Within 1 year | 21.77% | - |
| Company C | Current accounts | 272,890 | Within 1 year | 1.48% | - |
| Company D | Current accounts | 220,857 | Within 1 year | 1.20% | - |
| Company E | Current accounts | 150,000 | Within 1 year | 0.82% | - |
| 17,512,747 | 95.29% | - |
(2) Long-term equity investments
Long-term equity investments are classified as follows:
| 31 December 2019 | 31 December 2018 |
| Subsidiaries (a) | 51,025,905 | 26,586,165 |
| Associates (b) | 1,579,954 | 1,650,130 |
| 52,605,859 | 28,236,295 | |
| Less: Provision for impairment | - | - |
| 52,605,859 | 28,236,295 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the parent company’s financial statements (Cont'd)
(2) Long-term equity investments (Cont’d)
(a) Subsidiaries
| Movements in current year | |||||||
| 31 December 2018 | Increase in investment | Decrease in investment | Provision for impairment | Others | 31 December 2019 | Provision for impairment loss | Cash dividends attributable to the parent company declared in current year |
| Ending balance | |||||||
| Little Swan | 2,822,571 | - | - | - | 17,295,265 | 20,117,836 | - | 955,792 |
| Guangdong Midea Electric Co., Ltd. | 1,000 | 4,999,000 | - | - | - | 5,000,000 | - | - |
| Midea Group Finance Co., Ltd. | 3,354,009 | - | - | - | 4,103 | 3,358,112 | - | - |
| Foshan Shunde Midea Household Appliances Industry Co., Ltd. | 2,949,000 | - | - | - | - | 2,949,000 | - | - |
| Guangdong Midea Microwave Oven Manufacturing Co., Ltd. | 1,880,041 | - | - | - | - | 1,880,041 | - | - |
| GD Midea Air-Conditioning Equipment Co., Ltd. | 1,436,506 | - | - | - | 226,131 | 1,662,637 | - | 435,132 |
| Guangdong Midea Consumer Electric Manufacturing Co., Ltd. | 1,073,448 | - | - | - | 35,658 | 1,109,106 | - | - |
| Hefei Midea Heating & Ventilation Equipment Co., Ltd. | 1,065,941 | - | - | - | 5,518 | 1,071,459 | - | 1,132,080 |
| Guangdong Midea Intelligent Technologies Co., Ltd. | 50,319 | 1,000,000 | - | - | 692 | 1,051,011 | - | - |
| Hubei Midea Refrigerator Co., Ltd. | 843,928 | - | - | - | 3,562 | 847,490 | - | 660,341 |
| Wuhu Maty Air-Conditioning Equipment Co., Ltd. | 753,225 | - | - | - | 4,106 | 757,331 | - | 1,063,279 |
| GD Midea Heating & Ventilating Equipment Co., Ltd. | 645,564 | - | - | - | 54,664 | 700,228 | - | 1,305,613 |
| Hefei Midea Refrigerator Co., Ltd. | 500,247 | - | - | - | 12,673 | 512,920 | - | - |
| Ningbo Midea United Materials Supply Co., Ltd. | 491,350 | - | - | - | 4,069 | 495,419 | - | 593,117 |
| GD Midea Group Wuhu Air-Conditioning Equipment Co., Ltd. | 352,041 | - | - | - | - | 352,041 | - | - |
| Hefei Hualing Co., Ltd. | 174,228 | - | - | - | 38,624 | 212,852 | - | - |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the parent company’s financial statements (Cont'd)
(2) Long-term equity investments (Cont’d)
(a) Subsidiaries (Cont’d)
| Movements in current year | |||||||
| 31 December 2018 | Increase in investment | Decrease in investment | Provision for impairment | Others | 31 December 2019 | Provision for impairment loss Ending balance | Cash dividends attributable to the parent company declared in current year |
| Midea International Corporation Company Limited | 176,974 | - | - | - | - | 176,974 | - | - |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | 137,244 | - | - | - | 23,941 | 161,185 | - | 715,213 |
| Midea Group Wuhan Refrigeration Equipment Co., Ltd. | 97,602 | - | - | - | 5,357 | 102,959 | - | 234,498 |
| Zhejiang Meizhi Compressor Co., Ltd. | 63,030 | - | - | - | 2,624 | 65,654 | - | 644,182 |
| Midea Microfinance Co., Ltd. | 55,594 | - | - | - | 738 | 56,332 | - | - |
| Wuhu Midea Life Appliances Mfg Co., Ltd. | 56,223 | - | - | - | - | 56,223 | - | 8,121 |
| Others (i) | 7,606,080 | 68,600 | (151,648) | - | 806,063 | 8,329,095 | - | 1,889,958 |
| 26,586,165 | 6,067,600 | (151,648) | - | 18,523,788 | 51,025,905 | - | 9,637,326 |
(i) In 2019, other changes in long-term equity investments movements is mainly from shares in exchange for the equity of Little Swan.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the parent company’s financial statements (Cont'd)
(2) Long-term equity investments (Cont’d)
(b) Associates
Investments in associates are mainly the investments in Guangdong Shunde RuralCommercial Bank Co., Ltd. and Hefei Royalstar Motor Co., Ltd. and other companies.
(3) Operating revenue
Operating revenue mainly comprises other operating revenue including the trademarkroyalty income, rental income, management fee income, etc. obtained by the Companyfrom the subsidiaries.
(4) Investment income
| 2019 | 2018 |
| Income from long-term equity investments under cost method | 9,637,326 | 9,168,299 |
| Investment income from wealth management products purchased from financial institutions | 91,359 | 388,942 |
| Investment income from associates | 272,089 | 239,418 |
| Others | 383,692 | (76,565) |
| 10,384,466 | 9,720,094 |
There is no significant restriction on repatriation of the Company's investment income.
MIDEA GROUP CO., LTD.SUPPLEMENTARY INFORMATION(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
1 Details of non-recurring profit or loss
| 2019 | 2018 |
| Gains or losses on disposal of non-current assets | (131,131) | 222,204 |
| Except for the effective hedging activities related to the Company’s ordinary activities, profit or loss arising from changes in fair value of financial assets held for trading, derivative financial assets, financial liabilities held for trading, derivative financial liabilities, other non-current financial assets, financial assets available for sale and investment income from disposal of financial assets held for trading, derivative financial assets, financial liabilities held for trading, derivative financial liabilities, other non-current financial assets and financial assets available for sale. | 676,430 | (842,408) |
| Others (mainly including government grants, compensation income, penalty income and other non-operating income and expenses) | 1,347,788 | 1,091,473 |
| 1,893,087 | 471,269 | |
| Less: Effect of income tax | (394,095) | (207,870) |
| Effect of minority interests (after tax) | (12,162) | (90,775) |
| 1,486,830 | 172,624 |
Basis of preparation of details of non-recurring profit or loss:
Under the requirements of the Explanatory Announcement No. 1 on Information Disclosureby Companies Offering Securities to the Public – Non-recurring Profit or Loss [2008] fromCSRC, non-recurring profit or loss refers to that arises from transactions and events that arenot directly relevant to ordinary activities, or that is relevant to ordinary activities, but isextraordinary and not expected to recur frequently that would have an influence on users offinancial statements making economic decisions on the financial performance andprofitability of an enterprise.2 Return on net assets and earnings per share
The Group's return on net asset and earnings per share calculated pursuant to theCompilation Rules for Information Disclosure of Companies Offering Securities to the PublicNo. 9 - Calculation and Disclosure of Return on Net Asset and Earnings per Share (revisedin 2010) issued by CSRC and relevant requirements of accounting standards are as follows:
| Weighted average | Earnings per share (in RMB Yuan) | ||||
| Return on net assets (%) | Basic earnings per share | Diluted earnings per share | |||
| 2019 | 2018 | 2019 | 2018 | 2019 | 2018 |
| Net profit attributable to shareholders of the Company | 26.43% | 25.66% | 3.60 | 3.08 | 3.58 | 3.05 |
| Net profit attributable to shareholders of the Company net of non-recurring profit or loss | 24.80% | 25.44% | 3.38 | 3.05 | 3.36 | 3.03 |
Section X Documents Available for Reference
1.The original of The 2019 Annual Report of Midea Group Co., Ltd. signed by thelegal representative;
2.The financial statements signed and stamped by the legal representative, theDirector of Finance and the accounting supervisor;
3.The original of the auditor’s report with the seal of the accounting firm, and signedand stamped by CPAs;
4.The originals of all company documents and announcements that are disclosed tothe public via newspaper designated for information disclosure during the ReportingPeriod; and
5.The electronic version of The 2019 Annual Report that is released onhttp://www.cninfo.com.cn.
Midea Group Co., Ltd.Legal Representative: Fang Hongbo
30 April 2020