Midea Group Co., Ltd.
Semi-Annual Report 2019
August 2019
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”) herebyguarantee that the information presented in this report is free of any misrepresentations,misleading statements or material omissions, and shall together be wholly liable for thetruthfulness, accuracy and completeness of its contents.
All directors of the Company attended the Board meeting to review this report.
The Company plans not to distribute cash dividends or bonus shares or convert capitalreserves into share capital for the first half of 2019.
Mr. Fang Hongbo, Chairman of the Board and President of the Company and Ms. ZhongZheng, Director of Finance of the Company, have represented and warranted that thefinancial statements in this report are true, accurate and complete.
The financial statements in this report are unaudited by a CPAs firm.
The future plans and some forward-looking statements mentioned in this report shall not beconsidered as virtual promises of the Company to investors. Therefore, investors are kindlyreminded 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 version shallprevail.
Midea Group Co., Ltd. Semi-Annual Report 2019
Contents
SECTION I IMPORTANT STATEMENTS, CONTENTS AND DEFINITIONS . 1
SECTION II COMPANY PROFILE AND KEY FINANCIAL RESULTS ...... 4
SECTION III BUSINESS PROFILE ...... 7
SECTION IV PERFORMANCE DISCUSSION AND ANALYSIS ...... 15
SECTION V SIGNIFICANT EVENTS ...... 51SECTION VI CHANGES IN SHARES AND INFORMATION ABOUTSHAREHOLDERS ...... 97
SECTION VII PREFERENCE SHARES ...... 104SECTION VIII INFORMATION ABOUT DIRECTORS, SUPERVISORS ANDSENIOR MANAGEMENT ...... 105
SECTION IX CORPORATE BONDS ...... 107
SECTION X FINANCIAL REPORT ...... 108
SECTION XI DOCUMENTS AVAILABLE FOR REFERENCE ...... 199
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 30 June 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 | ||
| 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 | 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 | ||
3.2 Information Disclosure and Place Where the Semi-Annual Report Is KeptChanges to the media for information disclosure and the place where materials carrying disclosedinformation such as this Report were kept in the Reporting Period:
□ Applicable √ N/A
The newspapers designated by the Company for information disclosure, the website designated by theCSRC for disclosing this Report and the place where materials carrying disclosed information such asthis Report were kept did not change in the Reporting Period. The said information can be found in the2018 Annual Report.
4. Key Accounting Data and Financial Indicators
Whether the Company performed a retroactive adjustment to or restatement of accounting data
□ Yes √ No
| H1 2019 | H1 2018 | Change (%) | |
| Operating revenue (RMB'000) | 153,770,300 | 142,623,837 | 7.82% |
| Net profit attributable to shareholders of the Company (RMB'000) | 15,187,069 | 12,936,846 | 17.39% |
| Net profit attributable to shareholders of the Company before non-recurring gains and losses (RMB'000) | 14,555,674 | 12,500,253 | 16.44% |
| Net cash flows from operating activities (RMB'000) | 21,787,890 | 7,613,688 | 186.17% |
| Basic earnings per share (RMB/share) | 2.32 | 1.97 | 17.77% |
| Diluted earnings per share (RMB/share) | 2.30 | 1.94 | 18.56% |
| Weighted average ROE (%) | 16.97% | 16.43% | 0.54% |
| 30 June 2019 | 31 December 2018 | Change (%) | |
| Total assets (RMB'000) | 284,033,825 | 263,701,148 | 7.71% |
| Net assets attributable to shareholders of the Company (RMB'000) | 92,588,979 | 83,072,116 | 11.46% |
5. Differences in Accounting Data under Domestic and Overseas AccountingStandards
5.1 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.
5.2 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.
6. Non-recurring Profits and Losses
√ Applicable □ N/A
RMB'000
| Item | H1 2019 | Note |
| Profit or loss from disposal of non-current assets | -13,705 | |
| Profit or loss from fair-value changes in trading and derivative financial assets and liabilities and other non-current financial assets & income from disposal of trading and derivative financial assets and liabilities and other non-current financial assets (exclusive of the effective portion of hedges that arise in the Company’s ordinary course of business) | -74,312 | |
| Other | 944,851 | |
| Less: Corporate income tax | 227,883 | |
| Minority interests (after tax) | -2,444 | |
| Total | 631,395 | -- |
Midea Group Co., Ltd. Semi-Annual Report 2019
Section III Business Profile
1.Business Scope in the Reporting Period
1.1 Summary of business scope
Midea is a technologies group in HVAC systems, consumer appliances, robotics & industrial automationsystems, and smart supply chain (logistics). Midea offers diversified products and services, includingHVAC centered on residential air-conditioning, commercial air-conditioning, heating & ventilation systems;consumer appliances centered on kitchen appliances, refrigerators, laundry appliances, and varioussmall home appliances; robotics and industrial automation systems centered on KUKA and GuangdongMidea Intelligent Robotics Co., Ltd.; and integrated smart supply chain solutions with Annto LogisticsTechnology Co., Ltd. as the service platform.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 300 million users, major clients and strategic partners in different areas worldwide every yearwith satisfying products and services.Midea, a global operating company, has now established a global platform with 15 overseasmanufacturing bases, around 33,000 overseas employees, 24 operating agencies, covering more than200 countries and regions with 22 settlement currencies. Additionally, it is the majority shareholder ofKUKA, a Germany-based world-leading company in robotics and automation, with a stake ofapproximately 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 homeappliance 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 100
Most 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 10
thGood 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. 138 and No. 27 respectively on the 2019 Top 500 Most Valuable Brandslist and the Top 100 Most Valuable Tech Brands list released by Brand Finance, a British brandassessment institution. Midea has been given excellent credit ratings by the three major internationalcredit rating agencies, Standard & Poor’s, Fitch Ratings and Moody’s. The ratings are in a leading positionamong home appliance manufacturers worldwide as well as among Chinese non-state-ownedenterprises.According to data from AVC, Midea’s major home appliances all took up a larger share in the domesticmarket in the first half of 2019. Its residential air-conditioners, in particular, saw a much bigger share inall channels, with an online market share of 29.5% and an offline market share of 27.2%.The table below shows the offline market shares and rankings of the Company’s primary home applianceproducts (by retail sales) in the first half of 2019:
| Product category | Market share | Ranking |
| Air conditioners | 27.2% | 2 |
| Laundry appliances | 26.9% | 2 |
| Refrigerators | 11.9% | 2 |
| Microwave ovens | 44.3% | 2 |
| Rice cookers | 44% | 1 |
| Food processors | 38.8% | 1 |
| Pressure cookers | 45.9% | 1 |
| Electric fans | 39.7% | 1 |
| Water purifiers | 22.6% | 2 |
| Water heaters | 15.9% | 3 |
| Range hoods | 8.4% | 4 |
the best-selling home appliance manufacturer on major e-commerce channels such as JD, Tmall andSuning.The table below shows the online market shares and rankings of the Company’s primary homeappliance products (by retail sales) in the first half of 2019:
| Product category | Market share | Ranking |
| Air conditioners | 29.5% | 1 |
| Laundry appliances | 31.1% | 2 |
| Refrigerators | 17.0% | 2 |
| Electric water heaters | 33.4% | 1 |
| Gas water heaters | 18.5% | 1 |
| Range hoods | 16.7% | 1 |
| Water dispensers | 25.0% | 1 |
| Water purifiers | 16.4% | 1 |
| Microwave ovens | 48.5% | 1 |
| Rice cookers | 31.7% | 1 |
| Induction cookers | 44.7% | 1 |
| Electric pressure cookers | 41.3% | 1 |
| Electric fans | 21.4% | 1 |
| Gas stoves | 12.3% | 2 |
| Main assets | Reasons for any significant change |
| Construction in progress | Down 32.36% YoY, primarily driven by the transfer of construction in progress out of this item upon completion |
| Short-term borrowings | Up 53.76% YoY, primarily driven by an increase in such borrowings obtained |
| Derivative financial liabilities | Down 90.06% YoY, primarily driven by the changes in the fair value of derivative financial instruments |
| Current portion of non-current liabilities | Down 98.38% YoY, primarily driven by the repayment of the current portion of |
bonds payable and long-term borrowings
2.2 Main assets overseas
□Applicable √ N/A
3. Core Competitiveness Analysis
3.1 As one of the leaders among the global household appliance makers and a dominator in themajor appliance sectors, Midea Group provides high-quality, one-stop home solutions through itswide product range, complete with full specifications.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 and magnetrons), and ultimately based on itspowerful capabilities in logistics and services. Midea is widely known as a top brand of householdappliance and HVAC in China. Its dominance in the major appliance and HVAC markets means that itcan provide a wide range of competitive product sets. It also means internal synergies in brand awareness,price negotiation as a whole, customer needs research and R&D investments. Compatibility, coordinationand interaction among household appliances have become increasingly important since smart home isgaining popularity. With a full product line, Midea has had a head start in providing a combined andcompatible e-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 more thanRMB30 billion invested in R&D over the past five years (around 10 billion in 2018), the Group has set upa total of 20 research centers in nine countries including China, with its R&D employees over 10,000 andsenior foreign experts over 500. At present, Midea has filed for over 100,000 patents, of which more than50,000 have been granted. According to Clarivate Analytics, Midea holds the most invention patents inthe global home appliance industry for many consecutive years. While establishing its own researchcenters around 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,Politecnico di Milan, Tsinghua University and the Chinese Academy of Sciences, in order to establish jointlabs and build a global innovation ecosystem. The Group’s long-term focus on building technology,marketing, product and open innovation systems, building a cutting-edge research system and buildingreserves in technology for mid/long term, has provided a solid foundation for the Group to maintaintechnical 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 15 overseas manufacturing bases and 24 overseas operatingagencies. Midea’s global operation 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-branded business. In addition, with a deepknowledge and understanding on product characteristics and product demands in overseas market,Midea is promoting worldwide branding and expansion through global collaboration and cooperation. Inthis 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 market
coverage. In the mature first and second-tier markets, the Company has developed and maintained goodpartnerships 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 onlinesales exceeded RMB32 billion in the first half of 2019, up by over 30% YoY, maintaining the highest saleson China’s mainstream e-commerce platforms such as JD, Tmall and Suning in various home appliancecategories.With advanced smart technologies, Annto Logistics Technology Co., Ltd. (Annto), a subsidiary of Midea,has possessed core competitiveness and advantages in logistics automation. Annto has established anefficient, customer-oriented and quick response nationwide warehouses and direct distribution network,featuring a smooth flow of order data between the manufacturing end and the retail end through thelogistics information system, as well as the fast delivery of small orders through the flexible main linetransportation capacity. Relying on over 100 urban distribution centers nationwide, Annto concentratesits resources on urban distribution. Meanwhile, supported by its self-developed information technologysystem and nationwide distribution network, Annto is able to provide fully visualized direct distributionservices covering every town and village of the country. It can finish the delivery to 19,956 towns andvillages within 24 hours and to 16,511 towns and villages within 24-48 hours, as well as to 87.6% of thecountry’s towns and villages within 48 hours.
3.5 A solid foundation for digitalization-driven Industrial Internet operationsMidea has been promoting a strategy of “Smart Home + Smart Manufacturing”. With continual researchand investment in artificial intelligence (AI), chip, sensor, big data, cloud computing and other newtechnologies, Midea has built the biggest AI team in the household appliance industry, which is committedto enabling products, machines, production processes and systems to sense, perceive, understand andmake decision, driven by the combination of big data and AI, in order to reduce intermediaries for man-machine interaction to the minimum and create truly smart appliances without any assistance ininteraction.
Upon years of a digitalized reform characterized by “One Midea, One System, One Standard”, Mideahas successfully materialized operations driven by software and data through its value chain, connectingend to 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 MideaIndustrial Internet Platform, has become China’s first complete industrial Internet platform providercovering industrial knowledge, software and hardware. M.IoT focuses on building the SCADA platform,the industrial cloud platform, the industrial big data platform and industrial SaaS service to providestandardized, cloud-based and platform service, including C2M, supply coordination and solutions. It hasdeveloped over 20 platform products so far. In addition to applying these industrial Internet platformsolutions to its manufacturing bases across the world and tens of thousands of its products, the Grouphas also provided these solutions for over 150 customers in different industries. Therefore, it is safe tosay that Midea has built a solid foundation regarding industrial internet systems.
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 MideaGroup. They have been working for Midea on average for more than 15 years, all with rich industrial andprofessional 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 Incentive Schemes, three Restricted Share
Incentive Schemes, five Global Partner Stock Ownership Schemes and two Business Partner StockOwnership Schemes for key managerial and technical personnel, marking the establishment of agovernance structure aligning the interests of management and shareholders, as well as the formulationof an incentive scheme comprising 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 the first half of2019, the domestic sales of home appliances was RMB412.5 billion, down 2.1% year-on-year. This wasprimarily driven by changes in the macroeconomic environment and the weakening factors of real estateand population that had previously driven strong growth in the home appliance industry. But there werealso positive factors, such as the stabilizing economic environment and economic indicators as well asthe development of the consumer market and the expansion of consumer needs creating newopportunities and growth points. Exports of home appliances maintained a growing trend, with the totalexports in the first half of 2019 reaching RMB163.6 billion, representing a growth of 5.5% year on year.According to the 2019 Semi-Annual Report of China’s Household Electrical Appliance Industry publishedby CHEARI and the National Household Electrical Appliance Industry Information Center together,traditional home appliances with new technologies were favored by consumers, such as multi-doorrefrigerators, energy-efficient air conditioners and washer-driers. Consumption upgrading will continueon the traditional home appliance market. The home appliance market will continue to develop towardsthe diversification of categories, dimensions and levels in the future.In the first half of 2019, the domestic retail sales of air conditioners was RMB127.2 billion, down 3.7%year-on-year. In terms of product performance, on one hand, high-end products which are energy-efficient,comfortable and intelligent took up a larger market share, with the market share of air conditioners withLevel I Energy Efficiency rising to 55.1%; on the other hand, with higher energy efficiency standards forthe industry, the average market prices went down due to faster clearance sale of high energyconsumption products.In the first half of 2019, the domestic retail sales of laundry appliances was RMB35.8 billion, up 2.7%
year-on-year. The upgrading trend of laundry appliance industry remained marked, with washing-dryingbecoming an important selling point, and front-loading products, high-capacity products and washer-dryercombo products becoming the mainstream. Analyzing from the type of products, the market share ofwasher-dryer front-loading washing machines increased by more than five percentage to 35.6%; inaddition, the market shares of both twin-tub front-loading washing machines and air washing machinesfurther increased.In the first half of 2019, the domestic retail sales of refrigerators was RMB46 billion, down 1% year-on-year. Product upgrading was particularly obvious in the refrigerator industry, with multi-door productsmaintaining growth and the anti-bacteria, freshness preservation and odor-free selling points wellreceived on the market. The market share of multi-door refrigerators increased to nearly 50%, with theretail market shares of cross four-door refrigerators and five-door refrigerators rising to 25.5% and 8.9%respectively. On the backdrop of major consumption upgrading, represented by Midea Veg-FruitPurification Refrigerator Series, the world’s first refrigerator that is able to remove pesticide residue fromfruits and vegetables, production innovation in the refrigerator industry is moving towards high-end, highquality and intelligent products.In the first half of 2019, the domestic retail sales of kitchen appliances was RMB76.7 billion, up 0.4%year-on-year. The overall size growth of the industry was weak while new product categories was able tomaintain growth. Analyzing from products, the retail sales of water heaters, range hoods and gas stovesall decreased, whereas the retail sales of new product categories such as dishwashers, water purifiersand integrated stoves increased 24.4%, 5.9% and 52.4% respectively. In addition, driven by policies,kitchen waste processors skyrocketed.In the first half of 2019, the domestic retail sales of small appliances was RMB56.7 billion, up 4.5% year-on-year. The sales of some products rose at a very high speed, including vacuum cleaners, foodprocessors and rice cookers, which increased 2.4%, 4.8% and 5.9% respectively from the correspondingperiod of last year. Among vacuum cleaners, both the online and offline retail sales of robot and pusherproducts achieved steady growth. With people’s increasing awareness for a healthy life and the risingdemand in this respect, the market demand for healthy tea kettles grew over 35% in the first half of 2019,with the retail sales reaching RMB1.7 billion.
In the first half of 2019, the online retail sales of home appliances accounted for over 35% of the salesthrough all channels, and the online market became an indispensable channel in the home applianceindustry. In light of the changes in the channel retail sales, most product categories achieved growth inthe online market, while all categories other than washing machines declined in the offline market. So far,concentration has become an increasingly evident trend in the online market, with the industry’s top threeaccounting for a more than 92% market share. Although the overall offline market size shrank due to theimpact of the online market, it remained the mainstream channel for air conditioners, refrigerators,washing machines, and kitchen appliances. From a long-term perspective, the deep integration of onlineand offline channels will be a major trend. While e-commerce platforms are setting up offline physicalstores one after another, traditional offline channels are trying to develop their own business through e-commerce. The accelerated integration of online and offline channels will gradually form a relatively stablechannel structure.B. Robotics and Industrial Automation IndustryIn July 2019, the latest statistics published by the International Federation of Robotics (IFR) showed thatglobal installations of industrial robots that had maintained high speed growth since 2012 slowed downin 2018 with a growth of less than 1%. Meanwhile, analyzing from distribution in different countries andregions, China remained far ahead, with installations of industrial robots in 2018 reaching 133,200 units,exceeding the total of Japan, the U.S. and South Korea ranking second, third and fourth respectively withinstallations of 52,400 units, 38,100 units and 37,600 units. According to IFR, global installations ofindustrial robots increased from 159,000 units in 2012 to 384,000 in 2018, with the latter more than doublethe former in six years.According to GGII, in the first half of 2019, China’s industrial robot output reached 75,400 units,decreasing 10.1% from the corresponding period in the last year; imports of industrial robots reached5,035 units, declining 34.75% from the corresponding period in the last year; exports reached 1,434 units,sliding 18.62% from the corresponding period in the last year. According to GGII’s survey, despite theoverall weakening industrial robot market, the sales volumes of DELTA and collaborative robots in China’smarket in the first half of 2019 saw growth against the trend with growth speeds exceeding 30% and 20%respectively. In the first half of 2019, MIIT issued the 2019 Work Plan for the Task Force of IndustrialInternet to further promote the popularization and application of industrial internet and intelligent
manufacturing 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.In addition, the IFR statistics show that analyzing from the use of industrial robots per 10,000 persons,South Korea ranks top with 710 industrial robots, followed by Singapore with 658 units. China uses 97industrial robots per 10,000 persons, slightly higher than the Asian average of 75 units. The Europeanaverage is 106 units while that of Americas is 91 units. In light of its huge labor market, China has greatpotential for the use of industrial robots at present. Furthermore, coupled with diverse factors such asflexible demands of the manufacturing sector, declining demographic dividend, emerging markets andthe development of innovative technologies, industrial robots will have a very promising prospect and theapplication fields and development space of them will be expanded. According to IFR’s estimation,China’s market size of industrial robots will further increase to US$9.35 billion by 2020.
1.2 Analysis of the Company’s Main Business
In the first half of 2019, guided by the three core strategies of “Leading Products, Operational Efficiencyand Global Operations” in a complicated political and economic environment at home and abroad, Mideafocused on improving products, promoting lean management and high-performance operations in thevalue chain, continuously optimizing its product mix according to the consumption upgrade trends, andconstructing sustainable competitiveness for the future through internal growth. As a result, the businessobjectives set for H1 2019 were successfully fulfilled, with higher profitability, further improving indicatorssuch as owned funds and channel inventories, better product quality and reputation, as well asstrengthened competitiveness in various product categories and global operation synergies. For H1 2019,Midea achieved, on a consolidated basis, total revenue of RMB154.3 billion, up 7.37% YoY; and net profitattributable to Midea Group shareholders of RMB15.2 billion, up 17.39% year-on-year.In H1 2019, the Company carried out the following tasks:
A. Focused on users, provided innovative products and user experience, and steadily improvedproduct competitive advantages
Midea Group Co., Ltd. Semi-Annual Report 2019
In 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. Through user insightand technological innovation, users are provided with better-than-expected product experience. Onlineplatforms provide individualized shopping experience by way of refining shopping paths and improvingonline consultation, while offline stores adopt new retail, electronic and smart technologies to build whole-new flagship, home decoration, combo, new retail and other stores. Meanwhile, by means of e-service,as well as platform-based and modularized R&D and production, Midea takes the lead to explore theC2M model for its home appliance products, offering single product customization and product suitecustomization for the whole house with the house decoration considered. In terms of service, with thehelp of Internet tools, Midea goes beyond the traditional service model to build a “service + Internet”platform, enhance the entire service team and improve smart product experience, so as to increasecustomer satisfaction. In product design, Midea won a total of 58 design awards during H1 2019, including24 Red Dot Awards and 34 iF 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 Gold 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 counter-rotatingturbine 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 LXZ Air Conditioner Seriesoffers coziness in four dimensions, namely, air temperature, sensation, cleanness and freshness. Thisproduct features intelligent dual washing technology and dual hybrid power new wind technology, whichenable the dust intercepted by the natural water dust filter to go through the dual cleaning by washingand brushing, so as to keep the filter clean and achieve intelligent control of the room air quality; itachieves 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
Midea Group Co., Ltd. Semi-Annual Report 2019
processed. The DX Air Conditioner Series released by TLSC in Tokyo, Japan, features WiFi intelligentcontrol module and breezeless technology, avoiding the discomfort and fatigue brought by direct coldwind from ordinary air conditioners. In addition, it is equipped with the self-cleaning function, whichenables it to keep the machine clean and air fresh all the time.——Commercial Air Conditioners: As a leading HVAC provider worldwide, Midea Commercial AirConditioners is a leader in R&D strength, product technology and market performance. In recent years,Midea Commercial Air Conditioners are increasingly being seen in iconic international key programmes,including the Beijing Daxing International Airport, Terminal 3 of Beijing Capital International Airport,Terminal 2 of Guangzhou Baiyun International Airport, Shanghai Metro, Jilin Railway Station, etc.According to the data from ChinaIOL.com, Midea Commercial Air Conditioners topped the domesticmarket for the past five years in a row with a market share of nearly 20%. And the largest domestic marketshare remained with Midea Commercial Air Conditioners in H1 2019 according to the Mechanical andElectrical Information-Central Airconditioning Market magazine. Appearing in more and more iconicinternational key programmes, Midea Commercial Air Conditioners have won increasing recognition fromconsumers. The application of Midea Variable Frequency Direct Drive Centrifuge in the machine roomrenovation project of Shanghai Metro is recognized as an “Energy Saving and Emission ReductionDemonstration Project of Shanghai” in the refrigeration and air conditioning industry. Midea is also givenan Outstanding Contribution Award in the air-source heat pump industry during the 2018 “Clean WinterHeating” program for its excellent performance in the heat pump market. In addition, by virtue of itsoutstanding product and technological strength and market influence, Midea wins the title of the “First-Choice Central Air-Conditioner Brand for Procurement by Chinese Real Estate Enterprises”. MideaCommercial Air Conditioners has become an icon for “Made in China”.In April 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, solving users’ pain points with its keyfunctions of fast warm air, strong heating, temperature and humidity control, cozy wind sensation, strongcoolness in a high temperature and convenient control, as well as improving experience for users acrossthe world. In the same month, Midea Commercial Air Conditioners started to produce for the first batchof orders for its homegrown Maglev Variable Frequency Centrifugal Unit, marking the industrialization of
Midea Group Co., Ltd. Semi-Annual Report 2019
yet another independent innovation achievement by Midea Commercial Air Conditioners.——Laundry Appliances: Little Swan under Midea has launched Water Magic Cube II Front-Loading/Top-Loading Washing Machine, which adopts the unique “Ultra Fine Bubble” technology. Itsunique Ultra Fine Bubble generator transforms water and air into billions of nano bubbles, whichpermeate into fiber and release huge energy to peel off dirt. This physical cleaning approach helpsreduce the consumption of chemical detergent while removing dirt in an efficient and fast manner. Ithas been proved by an authoritative national testing institution to be able to save around 50%detergent for the same washing effect. Beverly under Little Swan has launched the One Drum WashingMachine, featuring the no-outer-drum and tower vibration absorption technology, which is pioneeringworldwide. The no-outer-drum design goes beyond the inner-and-outer-drum structure of aconventional top-loading washing machine, offers a big capacity in a small size, and saves energy and30% water for the same capacity. With the entire inner drum made from stainless steel, and featuringUV and nano silver ion sterilization, it inhibits the breeding of bacteria and realizes healthy washing. Asthe first of its kind in China, Beverley Heat Pump Washer-Dryer adopts intelligent sterilization breathinglight technology and has passed the authoritative certification of SGS, a world-leading testing andcertification institution. The ultra low temperature heat pump washing-drying technology applied in thisproduct has passed the German VDE certification, which is considered the Nobel Prize in the electricalappliance sector. In addition to performing professional washing of luxurious clothes made fromprecious materials, it is equipped with the function of easily removing dander and residue. BeverlyHousehold Washing Care Center, the world’s first heat pump intelligent washing care center withseparate drying and washing sections and the washer-dryer with the largest capacity (12KG for theupper dryer+ 12KG for the lower washer), adopts a built-in design with mirror coated glass and offersdual control on one screen. While the upper dryer is a maximum heat pump washer-dryer that worksefficiently, saves water, performs drying in low temperature and effectively removes acarids andbacteria, the lower washer adopts the “Ultra Fine Bubble” technology. Midea Chujian Front-LoadingWashing Machine Series integrates the unique new breathing technology with the micro steam care ofdirect air washing. The fresh air helps remove odor and solve consumers’ pain point of being unable towear the clothes immediately after washing. Two Toshiba Front-Loading Washer-Dryers featuring the“Ultra Fine Bubble W” technology have won the “Heisei 30” Annual Award for Energy Conservation inJapan. The nano ultra fine bubbles generated allow enhanced washing and
rinsing performances without having to increase water consumption or operation time.——Refrigerators: In June 2019, Midea unveiled three whole-new refrigerator series. The Micro-Crystalline Series with the upgraded micro-crystalline technology to deal with different food characteristicscan do better in freshness preservation. It also features better technique and quality, as well as a morestylish appearance, satisfying different needs of more families. The Veg-Fruit Purification Series adoptsthe core technologies of “Space Deep UV Light Wave” and “Titanium Photolyase” with massive activephotoions to achieve thorough degradation of pesticide residue. It can remove hundreds of pesticides in13 major categories. According to the laboratory test result of the authoritative institution SGS, it canremove 90% pesticide residue within two hours. The Ultra Odor-Free Series features the globallypioneering PST + super magnetic electrolysis odor-free technology, which releases more active ions toquickly degrade and kill odor and bacteria with a groundbreaking super magnetic induction electrolysisdevice, and quickens the degradation of odor through high-activity metal catalyst. As a result, the productachieves double purification and fast odor-free effects within 19 minutes and leads the industry into a“fast, clean and new era” of refrigerators. TLSC has launched the industry’s first 60cm wide slimrefrigerator with 501L capacity, which maintains insulation performances and strength with a slimmerexterior through high performance insulation materials.——Kitchen Appliances: In the first half of 2019, Midea AI Range Hood + Stove Suite (E80\E62+Q80Pro)was released in China, the first of its kind in the country. The combination of AI and scenario interactionshelps realize intelligent application in the kitchen. The range hood in the product suite is equipped with apowerful variable frequency motor that intelligently senses duct resistance. In addition, the smart homeautomatic sensor and gesture intelligent control functions not only absorb fume thoroughly, but also solvethe problems of reverse flow of fume on high residential floors and fume obstruction on low residentialfloors. Midea Intelligent Chef Stove Q80 Pro20 breaks through industrial barriers and achieves realprecise control of time. Whether it is in steaming, boiling, cooking or frying, this product is able toautomatically switch off with absolute precision, and offers a buzzing alert after the switch-off. Its 5.0KWhigh-fire cooking and whole-new energy concentrating cap helps shorten cooking time and retainfreshness and nutrition. Midea Anti-Bacteria Intelligent Dishwasher Silver Wing H4 is equipped with highpressure spray washing, pioneering hot air drying technology and deep UV sterilization technology. It isthe industry’s first dishwasher of its kind integrating washing, sterilization, drying and storage. It also
features the AI washing model, which autonomously selects the best washing mode by recognizing thedegree of contamination, making it a representative of intelligent dishwashers. The industry’s first Purifier-Dishwasher E500B with the micro nano bubble function released by Midea uses a double pressuretransducer system to dissolve air in water and generate pure physical micro nano bubble water, whichremoves dirt and pesticide residue from fruits and vegetables in a more thorough manner. Its tank-freelarge capacity of 500 gallons satisfies the whole family’s demand for healthy water. Midea’s first dome-shaped product G50 Series Embedded Combi Steamer features a dome design without water drippingand variable frequency HM direct-spray steam, which generates steam instantly and retains freshnessquickly. It saves more space while offering a super large capacity of 50L. The enamel cavity processedthrough seamless welding makes it easier to clean. The Intelligent Micro Combi Steamer PG2310Cooking Oven has been released into market integrating the functions of microwave, steamer and oven.The ZOPPAS direct-spray steam technology it uses enables quick generation of plentiful steam and thefive-switch intelligent variable frequency heating technology brings precision heating. Midea 32QE6Electric Water Heater is the first healthy water product with intelligent power conservation of 40%. Itdisplays the inner tank cleaning time on the screen in real time and reminds of timely cleaning.——Lifestyle Appliances: In the first half of 2019, Midea unveiled a variety of disruptive lifestyleappliances with the brand value concept of “technology, fashion, convenience and durability”. Theproducts include the industry’s first low-sugar rice cooker specifically designed for people withhyperglycemia. It adopts the innovative sugar leaching technology to reduce the reducing sugar by 50%while making rice fragrant, soft and tasty with the built-in titanium tank and the micro pressure braisingvalve. Midea’s new black technology product “Intelligent Stir-Fry Robot” performs stir-fry automaticallywith its two wings, and is able to control cooking temperature and cook without fume with 1800W IH highfire. Midea’s unique Ultra Thin Noise-Free Blender features the industry’s thinnest 77mm body with a1800W ultra thin variable frequency motor. The unique ultra noise-free blender system + 4D eccentricsystem blends food ingredients thoroughly and finely, which helps release more nutrition. Midea haslaunched the first intelligent bladeless fan to bring better user experience for Chinese consumers. In 2019,Midea was the first in the industry to put forward the “Techwind” concept and developed seven types ofdifferent wind shapes to fully meet users’ different demands. For example, Midea’s “Little Monster” offersmulti-directional wind through double-layer blades and blows wind to two spaces at the same time; and
its “Xiaoqingyu” series blows quiet, soft wind and is free from the noise of conventional fans.B. Continued to invest in R&D to build a global R&D platform and a responsive and innovativeR&D systemMidea 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 “Leading Products” strategy. An innovative R&D modelof “Three Generations” has been put in place, namely, “Generation I product development, Generation IIplatform research, Generation III technologies and product concepts research”. Innovation research iscarried out on innovative product development, cutting-edge platforms, key components, differentiatedselling points and basic product performance improvement, so as to build up the competence of “LeadingProducts”.While carrying out the core technology research, Midea has attached great importance to thetransformation of R&D achievements. In 2019, 14 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 Technology of High EfficiencyOpposed Variable Frequency Centrifugal Compressors”, “the Research and Application of Micro ChannelRefrigerant Heat Dissipation Variable Frequency Technology”, “the Research and Industrial Applicationof Key Technology of Cooking Healthy Food to Control Blood Sugar”, “the Research and Application ofKey Technology for the Comfort of Intelligent Bladeless Fans”, “the Research and Application of KeyTechnology for the Full Power Enhanced Heat Transfer of Oil-Filed Electric Heaters”, “the Research onthe Precision Diet Management System and its Application in Intelligent Household Appliances”, “theApplication of Electromagnetic Isolation Technology in Power Frequency Microwaves”, “the Applicationof Micro Perforated Plate Noise Reduction Technology in Household Appliances”, “the Research andApplication of Key Technology for Exhausting Steam, Removing Fog and Reducing Humidity in Steaming,Baking and Cooking Products”, “the Research and Application of Vacuum Cleaner High Speed BLDCDrive Technology and Integrated Master Controller”, “the Research and Application of Technology for the
Quality of Microwaved Food”, and “the Research and Application of Miniaturized Hot Air TechnologyBased on Baking Uniformity”. Additionally, Midea has another eight scientific research projects winningthe Progress Award of China Light Industry Association (CLIA), the Sci-Tech Progress Award of ChinaAssociation for Promotion of Private Sci-Tech Enterprises, and the Sci-Tech Progress Award ofGuangdong Province. At the 41st Meeting of the Parties to the Montreal Protocol in July 2019, the UNagency highly praised Midea’s R290 air conditioner technology for promoting the implementation of theKigali Amendment, which has made important contributions towards enhancing the role of the airconditioner industry in global environmental protection.In H1 2019, Midea filed 5,719 patent applications in total and were granted 7,068 patents, including 1,649inventions. As at 30 June 2019, the number of patent applications of Midea has exceeded 100,000 intotal and over 52,000 patents have been granted, making Midea the home appliance maker with the mostpatents in the world for four consecutive years. Midea Group has been sticking to the double drivers of“product innovation + standard innovation” and making active steps towards contributing to thestandardization of industrial technologies. In H1 2019, the national standard of the Energy EfficiencyLimits and Levels of Room Air Conditioner of which Midea took part in the drafting was approved, whichbrings about a new round of energy efficiency upgrade in the air conditioning industry. The national orindustrial standards of which Midea led in the drafting or revision include the IEC 60705 HouseholdMicrowave Ovens - Method for Measuring Performance, the GB/T 36934-2018 Guidelines for DesigningHousehold Appliances for the Elderly, the GB/T 36947-2018 Standards for Designing User Interface ofHousehold Appliances for the Elderly, the QB/T 5366-2019 Commercial Microwave Ovens, the QB/T5363-2019 Dust Mite Controller, among others. Meanwhile, Midea also works with China ElectricApparatus Research Institute to establish an IEC/TC72/WG13 smart home appliance controllerworkgroup to push forward the formulation and implementation of the relevant international standards.C. Deepened the channel transformation, further improved the channel efficiency and rebuilt theretail service abilityMidea continued to promote channel reform and transformation, flaten 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 30
regional 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. It has established long-term strategiccooperation for procurement with the domestic top 20 companies in the real estate industry, the top 20long-term leasing apartment chain operators and financial and insurance companies. Midea aims toprovide corporate customers with one-stop smart product solutions. At the same time, Midea attachesgreat importance to improving the service quality of strategic procurement projects. Through the systemicmanagement of “Selection, Appointment, Cultivation and Retainment” over regional service providers,Midea uses a digital project management system to conduct 360-degree appraisals in order to build upits core competitiveness for the B2B business.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. First, it provides one-stop, intelligent product andservice solutions for users with house decoration demands. In the first half of 2019, it opened more than150 Midea Smart Life Experience Centers in China and upgraded over 250 flagship stores into MideaSmart Life Experience Centers, providing products and services for more than 100,000 families. Second,Midea studies 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, and steadily increases the ratio of large-order packagedpurchase, with the total order value per customer increasing over 20%. Third, Midea builds a full-coverageand high-penetration retail network targeting users in different cities and regions to enhance the retailservice experience, renew and upgrade its old retail system and extend the reach of its network.Specifically, on one hand, it promotes the project of deep 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 fastresponse to user demands. On the other hand, it brings one-stop services to users by closely cooperatingwith large chains and shopping malls in various first- and second-tier cities. In the vast third- and fourth-tier cities, it provides full-category products and services through flagship store and franchised storesystems. In towns and villages, it offers convenient products and services to users through a network ofnearly 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, in an effort tocarry out new retail, efficiently introduce online users, and promote user flow between online and offlinestores. At the same time, through light operation of online communities, it enhances activity, gets closerto users, understands their demands and propels offline all household appliances experience purchaseand house decoration purchase. On the other hand, it improves the delivery-installation integratednetwork, which offers users one-stop after-sales service solutions in respect of all household appliances.Over 2,500 delivery-installation integrated service outlets have been set up nationwide and 1,500 Mideaflagship stores have been equipped with the delivery-installation service capabilities. Meanwhile, it beefsup its effort in eliminating poor services by publicizing service standards and fees and establishingchannels for user communication and feedback to ensure closed-loop processing of user complaints. Inthe first half of 2019, the ratio of confirmation by installation users reached 97% and the after-sales serviceplatform for full category was successfully launched. In addition, Midea cracks down on irregularitiesthrough multiple mechanisms such as secret visits to mysterious users.Annto highly focuses on core capacity building. Under the background of Midea Group promoting the T+3business model reform, Annto upgrades the national direct distribution network on all fronts, vigorouslyintegrates warehouse resources and increases the density of warehouses, with its warehouse densityranking top in the industry. Furthermore, it plans to set up comprehensive home appliances/FMCGdistribution centers in nearly 140 cities by 2019. It expedites the layout of automatic warehousing towardsthe goal of completing 40,000-square-meter automatic warehouses in the next two years to substantiallyincrease the operational efficiency in the logistics link. At the same time, to accommodate and satisfy
automatic management requirements, it continues to optimize and upgrade the logistics IT system. Itproactively tries new external business models and engages in the origin warehouse cooperation modelwith e-commerce platforms to jointly build an end-to-end logistics network of warehouses, trunk lines,branch lines and distribution based on the inventory sharing model. It takes active steps to build corecapacity, develops new transport capacity resource models and fully introduces stable vehicle resources,in a bid to directly control terminal transport capacity, stabilize the structure of transport capacity, improvedistribution service quality and efficiency, and effectively enhance end customers’ service experience. Itfocuses resources on urban distribution. In the first half of 2019, the urban distribution and homedistribution business scale of Annto saw a year-on-year increase of 65%. Meanwhile, supported by itsself-developed information technology system and nationwide distribution network, Annto is able toprovide fully visualized direct distribution services covering every town and village of the country. It canfinish the delivery to 19,956 towns and villages within 24 hours and to 16,511 towns and villages within24-48 hours, as well as to 87.6% of the country’s towns and villages within 48 hours.D. Stepped up the industrial internet and digitalization 2.0 programmes to thoroughly improveoperational efficiency of the entire value chainTo accelerate the transformation towards a world’s leading technologies group and further advancedigitalization, based on its software advantages, manufacturing experience and robot and automationtechnologies, Midea has built a pilot industrial Internet factory at the production base in Nansha,Guangzhou, and unveiled its industrial Internet platform, “M.IoT”. Since 2013, Midea has invested a totalof more than RMB8 billion in digitalization. On one hand, Midea proactively explored and implementedthe application of the C2M model in various product categories. Through digital upgrading in the wholevalue chain of R&D, production and sales and with a focus on key projects such as digital planning,platform-based and modular development, process simulation, flexible manufacturing and intelligentmarketing, Midea implemented the business model of individualization and customization for householdappliances oriented by users’ real demands. On the other hand, it took further steps to promote the T+3model and carried out reforms with a focus on driving the whole supply-demand value chain as an activeresponse to users’ demands and sore points. Midea performed in-depth reforms in synergy of productionand sales, transparency of delivery time, offline direct delivery and synergy of suppliers, and a completeset of reversed forcing mechanism and a supply-demand model driven by market terminals are
established.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, home decoration stores, e-commerce platforms, 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. The Company introduces housedecoration design software, develops the suite design capacity of household scenario and providesconsumers with all household appliance solutions and one-stop shopping experience. In the userexperience reform program, relying on tools such as CMS, big data, the Midea Engine app and CSS,Midea focuses on home decoration store transformation, shopping guide reform and retail systembuilding, after-sales service innovation, product suite sales, and integration of the entire chain, so as toimprove the business model. Based on inventory transparency and synergy of physical goods on thewhole channel, Midea opens up the information flow of synergistic warehouse, establishes whole-channelinventory sharing and digestion rules, and enables the automatic adjustment system of the channelinventory level, so as to implement shared inventory management and increase inventory turnover ratio.Midea continues with international digitalization by fully promoting the “International 632” global modelproject. The digitalization of six overseas operating units was completed in H1 2019. While promoting ITapplication and digitalization, Midea also improves its business processes and systems by enhancing thebusiness control ability and operating efficiency. It assists TLSC to improve its overall business, as wellas promotes the connectivity and expansion of KUKA’s businesses in China. In order to adapt to changeson the international market and help achieve the strategic goal of global production capacity planning,Midea has launched a pilot global order platform featuring smart distribution of orders to manufacturingbases, order scheduling and transparent delivery time, which increases the efficiency and accuracy oforder distribution.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 reproducing
and 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 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 bycombining internal data and external internet data, and develops the operations cockpit and theoperations analysis module at the mobile terminal. It builds the data consistency platform for the entiregroup to unify the top-down data standards of the Group and all business units, and achieves thevisualization of whole-range operations data through the operations cockpit to identify operationalproblems immediately. Meanwhile, it establishes the early warning and urging mechanism to provide apowerful data driven tool for operation and management.Midea’s cloud computing mainly offers support services to digital transformation through open sourcecomponents and hybrid cloud structures. Open source components build an open source ecosystem oncloud through the combination of open source and self-development to gradually separate businesssystems from commercialized software and upload them on cloud, which reduces the costs of usingsoftware and enhances software controllability. Through the building of container cloud and hybrid cloud,with container cloud providing unified software delivery standards as well as the separated applicationand running environment, hybrid cloud structures are able to transfer business applications seamlesslyamong container services of private cloud, Alibaba Cloud and Tencent Cloud. As a result, multi-cloudservices are formed to reduce cloud computing costs and enhance the capacity of processing massivedata flow during business peak periods such as “Double 11” and “618”.E. Steadily promoted Midea’s globalized business layout and accelerated the cooperativeintegration of Toshiba Project.
Midea 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 has also established 20 global R&D centers in 9 countries, including the U.S., Italy, Germany, Indiaand Singapore, to work on future products and technologies with foresight.Under a unified global macro framework in the first half of 2019, Midea continued to advance internationalcorporate governance by adjusting measures to local conditions, reinforced the integration of R&D,production and sales systems in regional markets, and further strengthened cohesion effects. Mideaproactively expanded and reasonably planned overseas production layout, beefed up the managementof overseas production bases and the enhancement of efficiency and improved local manufacturingcapacity to deal with uncertainties in global trade. Meanwhile, it intensified analysis and research andformulated long-term plans according to global trade changes. Midea continued to expand sales channelsand polished the image of its self-owned brands in overseas markets. It issued brand brochures for Mideaand Toshiba and the standards for store image, set up or upgraded about 600 overseas brand retail storesand conducted training on more than 6,000 overseas shopping guides. As a result, a steady increasewas seen in its retail channel shares and consumers’ recognition of its brands. It sped up the expansionof overseas e-businesses and made business breakthroughs in key markets and key e-businessplatforms. So far it has expanded to 12 markets overseas and ranked top for the sales of multiple productcategories on the e-commerce platforms of core markets, such as the U.S., the UK, Russia and Germany.Midea optimized its overseas operations data platforms, connected the data of overseas sales systemsand developed a number of data analysis systems in a bid to improve its business analysis and operationcapabilities. It strengthened the consistency of such processes as the PSI (Purchase Sales Inventory)management model, the management of product life cycle, and spare parts management and servicesof overseas branches and promoted the consistency and collaboration of Midea’s commercial languagesand systems to increase its operational efficiency. It set up the global service platform and acceleratedthe building of overseas service capacity by establishing comprehensive service networks in NorthAmerica, including call centers, spare parts management and product maintenance. The coverage of theAmerican service network has reached 95%, and the Egypt Call Center has developed into a regional
call center that covers Middle East, Africa and Europe and offers multiple language services, includingEnglish, Arabian, Italian and German. On top of that, the global service information system has beenlaunched in countries such as Thailand and Italy, with Midea’s global service management capacity beingimproved continuously.In the first half of 2019, TLSC continued to focus on the core white goods business, promoted the synergyand unification of value chains with the business divisions of Midea Group on all fronts, optimized productstructure to increase gross profits and continually improved profitability. In particular in the Japanesemarket with fierce competition, TLSC saw varying increases in its market shares of air conditioners,washing machines and microwaves. TLSC strengthened and implemented synergistic effects withrelevant business divisions of Midea in brand building, channel layout, R&D and innovation, integrationof supply chain and quality improvement. In the first half of 2019, while promoting business synergy andintegration and deepening reforms, TLSC made structural adjustments mainly in four aspects: (1) With afocus on users and markets, improved operations by further increasing spending on user research andproduct planning at the product side, strengthened cooperation with external parties, defined the imageof high-end users, rebuilt its brand positioning at the market end, increased placement of advertisementsand brand promotion, optimized the release pace of new products, and improved product mix; (2)Following the completed integration of manufacturing platforms in 2018, further reinforced the integrationof the R&D platforms of TLSC and relevant business divisions of Midea Group, especially thecollaboration of platform development, technology sharing and product testing; (3) Continued to connectbusiness processes, systems and policies; at the beginning of 2019, TLSC launched the second phaseof its “632” business system project, in which it targeted Japan’s local business reorganization, sales andfinance processes to develop a digital operation and management system and introduce Midea’sappraisal system with an emphasis on performance orientation to motivate corporate vitality; (4)Substantially cut down costs and expenses; through the promotion of staffing optimization, the recoveryof some outsourced businesses and the strict control over expenditure in the first half of 2019, costs areexpected to decrease by approximately RMB200 million throughout the year; in addition, TLSC furtherfocused on the development of core businesses by selling some non-white goods businesses.F. In view of consumption stratification, launched multiple new brands and product suites toempower retail sales
Since October 2018, Midea has launched a number of new brands, including COLMO targeting high-endconsumers, BUGU targeting online consumers, WAHIN targeting young consumers. Integrating cutting-edge technology and rational aesthetics, COLMO released the BLANC product suite comprising sixproducts at Appliance&electronics World Expo (AWE) in March 2019, covering the four scenarios of livingroom, kitchen, bathroom and laundry. All the products in the suite have won Germany’s iF Award, withthe washing machine also winning the Red Dot Award. Furthermore, BLANC Washing Machine’s imagetechnology and washing-drying technology, the BLANC product suite’s voice solution, and the oven’simage technology and oriented heating technology are all recognized as “Internationally Advanced”. Interms of channel expansion, the full-process smart scenario experience center developed by COLMOstarted soft opening at Shanghai Magnolia Plaza in March 2019. So far COLMO products have enterednearly 700 home decoration stores, TOP stores, 3C stores and online flagship stores. To meet youngusers’ demands, the internet brand BUGU was unveiled at AWE Shanghai in March 2019, with its firstbatch of products launched in Beijing in April 2019. BUGU persists in taking the joint creation with usersas its core strategy, and builds up smart eco-scenarios primarily comprising three life scenarios and twoprofessional scenarios. BUGU’s first batch of products achieved outstanding performances. During the618 Shopping Festival in 2019, BUGU Intelligent Dishwasher ranked among the top ten list ofdishwashers on JD.com; on JD.com’s Appliances Higou Day on June 10, BUGU Intelligent Dishwasherwon double championships in both sales volume and sales, and BUGU Intelligent Rice Cooker (3L)ranked among the top ten in rice cooker sales; on June 11, BUGU Intelligent Electric Fan won thechampionship in sales among electric fan products with a price of above RMB300; on June 16, BUGUachieved over RMB1 million in sales on the Taobao shopping system, and BUGU Intelligent Electric Fanranked among the top three among electric fan products with a price of above RMB199. Unveiled in 2019,WAHIN dedicates to offering surprises to young people with “Trendy Designs, Practical Functions andFun Interactions”. It establishes connections through a diversity of marketing activities with the youngcircles characterized by AGC and pop cultures. The brand stands out with its performances in sales.Since its launch, WAHIN has been focusing on online channels. It has made continuous breakthroughsby cooperating with platforms such as JD.com. In the first half of 2019, WAHIN achieved cumulative salesof RMB160 million from air conditioners on JD.com. In June, WAHIN Air Conditioner ranked in the top tenin sales on JD.com, with a sales of more than RMB55 million on the 618 Shopping Festival alone, ranking7th on JD.com.
In view of individualized demands of different target consumer groups for home appliance design, Mideacapitalizes on the synergies of various product categories to integrate core innovative technologies andplan for product families. It has developed Midea PRO Appliances Collection, Midea Youth AppliancesCollection and product suites for Real Estate Market to form a product matrix of suite design. Consistingof 12 products and targeting middle and high-end consumers, Midea PRO Appliances Collection ischaracterized by healthiness, comfort, intelligent interactions and high quality, and will be released to themarket in the second half of 2019. Consisting of 24 products, Midea Youth Appliances Collection isfeatured with youthful Zen design, easy operation of intelligent household appliances, smart look andminimalism. It has achieved 166,000 units in sales volume for the first half of 2019. Product suites for realestate market are customized products developed for real estate developers and long-term leasingapartment operators in the real estate, and at the end of 2018, they were launched in the market oneafter another.G. Promoted innovation in robotic product development and accelerated integration andexpansion of the robotics business for the China marketThe 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, based on the three joint ventures founded by Midea and KUKA in 2018,the collaborative advantages of the two companies have started to show in various aspects, includingdevelopment of business opportunities, technology sharing, customer service, purchase collaborationand management improvement, laying a foundation for the fast growth of the industrial automationbusiness on all fronts. In the first half of 2019, the data published by the National Bureau of Statisticsshowed that the sales volume of industrial robotics in China decreased 10% year on year, whereas thatof KUKA increased against the trend. The production base (phase I) in the Shunde Technology Park inGuangdong Province is ready for production, covering the R&D, production and sales of differentcategories of products, including industrial robotics, intelligent logistics and industrial automation. Sixindustrial robot production lines in the park are expected to be completed by the end of 2019 with acapacity for diverse models.KUKA’s business continues to expand with a flood of orders, including an order of tens of millions of
euros from Faw-Volkswagen involving assembly lines used to manufacture MEB platform batteries, whichis KUKA’s first whole battery line order in the Chinese market. In addition, KUKA obtained orders ofautomatic production equipment of welding robots used in electric vehicle production lines respectivelyfrom SAIC Volkswagen and Donghee Group (South Korea), with the respective amounts reaching tensof millions of euros and millions of euros. Furthermore, it secured an order of 22 units of KMP 1,500mobile platform equipment used to process body in white from an automobile manufacturer.KUKA continues to make innovations in robotic product development and application. It is the first roboticmanufacturer in the world to introduce sensitive lightweight robots into the production plant, as well asthe first manufacturer with a product range covering cooperative robots, mobile robots and industrialheavy-duty robots. In the automotive sector, KUKA continues to maintain its advantages and unveiled theworld’s first industrial robot with digital motion model - the new-generation high-load versatile robot KRQUANTEC-2 in the first half of 2019. The robot can effectively reduce costs for customers and offerssubstantially enhanced performances, precision and speed. At AMTS 2019, KUKA demonstrated its one-stop solutions consisting of electric drive assembly and testing model lines, square shell battery assemblymodel lines, LBR iiwa cell loading and testing, KUKA Connect big data and virtual image systems. In thegeneral industrial sector, KUKA released the brand new application software package for the biggestapplication field “arc welding” of robots. In the logistics sector, targeting the industrial status where anincreasing number of orders are placed online, the new-generation robot-based order sorting solutionItemPiQ, as a perfect example of the integration of know-hows by KUKA and Swisslog, combines newrobotic technology and intelligent visual system and features efficient sorting performances and machine-learning functions. With regard to human-robot collaboration, KUKA’s Cobot LBR iisy is a sensitive,precise and easy-to-use robot with more intuitive automation design, which has developed a new field forhuman-robot collaboration. KUKA beefs up the development of application targeting the Chinese market.Through robot application packages, SimPro’s simulation of customers’ processes and production linesand KUKA Connect cloud data collection and analysis, it provides end customers with more and betterone-stop solutions, such as polishing and gumming applications in electronics and shoe productionsectors, and the mobile platform KMR production line logistics solutions in the semiconductor sector.Additionally, KUKA makes active steps to explore robot application in new areas and took the initiative todemonstrate the concept of smart store (unmanned bubble tea store) in March 2019. KUKA won a number
of 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, and the“Excellent Partner Award” granted by Faw-Volkswagen as the customer’s recognition of KUKA for itspersistence in providing efficient and stable products and automation solutions on a long-term basis.Midea continued to promote the integration and expansion of its business platforms of industrialautomation and motion control. The industrial automation business platform is engaged in the automationof production process, automation of logistics and robot services. It has completed more than 50automation projects for the business divisions of Midea. It has been widely used in welding, handling,stowing and visual inspection involving over 20 mainstream systems, which has effectively enhancedMidea Group’s intelligent manufacturing level. The robot density is planned to be increased to the levelof developed countries at 625 units per 10,000 persons. Midea’s motion control business platform isdedicated to the R&D and innovation of core components and software products. By acquiring andintegrating Servotronix, the Israeli hi-tech company with more than thirty years of experience in motioncontrol, the platform now owns a series of comprehensive and industry leading motion control productsincluding multi-axis motion controllers, servo drivers, servo motors and encoders. It has also implementedlocalization and domestication in R&D and manufacturing. Furthermore, it is capable of providingcomprehensive system solutions for the industries of robotics, numerical control, lithium batteries, 3C,semiconductors, packaging and printing. In H1 2019, in order to meet the high accuracy, high speed andhigh efficiency needs for application in high-end areas such as laser cutting, numerically-controlledmachine tools, semi-conductor, medical care and precision testing, the CDHD2 High-Performance ServoDriver was equipped with the homegrown advanced control algorithm and strong mechanical designcapability to significantly improve its performance and satisfy needs arising from various scenarios. Interms of rotary servo system development, the newly launched PRHD2 Servo Motor characterized byhigh overload capacity, low temperature-rise and low cogging torque has passed the American ULcertification and the EU CE certification. In the future, more BDHD2 Rotary Servo Drivers will be launched,which will be easier to use and have more functions to meet various needs arising from differentapplication markets. With wide application in multiple industries, this will further enhance the presence ofServotronix in the rotary servo market.H. Deepened the industrial layout for Smart Home Appliance and promote the implementation of
Smart Home Appliance StrategyIn 2019, upon the integration of its Smart Home Appliance business, Midea continued to optimize theCloud Platform, Meiju APP, intelligent connection modules, big data and after-sales services, networkedthe Group’s business divisions and operating units, and kept increasing user satisfaction. The Companyplanned and implemented intelligent scenarios, built the highly usable, strongly interactive and standardIoT platform, promoted the stable connection between users and devices, improved users’ experience inusing intelligent products, vigorously propelled external cooperation for ecological expansion and thebuilding of developers’ platform, and facilitated the development of the Group’s Smart Home Appliancebusiness. As of June 2019, Midea Group has sold over 60 million smart home appliances across theworld and more than 36 million people are using Midea’s smart home appliances and services.Internally, Midea focuses on user experience improvement, significantly reduces user operations andoptimizes the average Internet distribution time for users by more than three times. While optimizing theM-Smart agreement, the IoT company works with chip makers to develop IoT chips for smart home. Italso integrates 36 Midea mobile apps into the Meiju App 5.0 and connects it with hundreds of smartproducts. Serving as an e-commerce platform, a customer service center and a user community, it is anindustry-leading whole-house smart home appliances service management platform. In terms of dataapplication of smart products, active user service is materialized through smart warning based on real-time big data technology; products are capable of self-learning with the data-based AI model, which helpsprovide smarter product experience and save more energy; and the Smart Eyes analysis platformcontinues to provide data support for product improvement. Additionally, benchmarking itself against theinternational IoT security standards and practices, the IoT Company enhances security in all linksincluding design, production, development, testing and after-sales patch update to build a more securesmart home IoT.Externally, the IoT Company continues to promote ecosystem cooperation with external parties and builda platform of developers, improve the market competitiveness of intelligent household appliance products,enlarge the connection entrance and enhance the value of user services. In June 2019, Midea IoTDeveloper Platform was launched to provide standardized access for external partners. This platformhelps expand and deepen Midea’s cooperation with Huawei, Alibaba, OPPO, VIVO and JD in smart home.Meanwhile, Midea plays an active role in the formulation of international standards for IoT by initiating a
task group on user experience within the Wi-Fi Alliance.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 seniormanagement 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 asRMB35.7 billion since its group listing in 2013. Meanwhile, in response to the internal and externalcomplexities and fluctuations in market value in 2018, Midea Group launched the biggest-everrepurchase plan in the history of China’s A-stock market and repurchased shares with approximatelyRMB4 billion, maintaining a stable market capitalization and protecting shareholders’ interests. In 2019,it launched another share repurchase plan for its equity incentive schemes and/or employee stockownership schemes. As of 31 July 2019, Midea has used over RMB3 billion for the share repurchase.Midea’s main work plans for H2 2019 are summarized as follows:
A. Midea will stick to the three core strategies and fully implement the intelligent and digital transformationstrategies. It will firmly increase R&D investment in basic technologies and digital and intelligenttransformation in particular. Driven by technology as the fundamental approach, it will enhance productstrength, beef up product innovation, and put in place a customer-oriented value chain system. It willfurther adopt the CDOC approach and implement the R&D model of “Three Generations”. In themeantime, outside talent will be brought in to help refine the R&D organizational structure and build upan R&D-centric management model.B. Midea will keep a high-quality development direction and stick to internal, sustained and effectivegrowth. It will promote the T+3 business model reform and excellent performance through the value chainin every link from product planning to after-sales service, so as to increase profitability. In order to win incompetition, it is important to develop high-end products to refine the product mix. It will also maintain
effective investments, control non-operating expenses, increase labor productivity, improve humanresource allocation efficiency, promote lean management and provide fresh impetus for continual growththrough relentless innovation.C. Midea will enhance the basic systems to set up a unified business language and 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 promote transformation in thedomestic marketing to improve user-oriented domestic retail marketing, enhance product synergies,focus on the end market, lower the inventory level, streamline the channel hierarchy, and promote betterchannel efficiency. By promoting interactive marketing ways based on scenario and experience, it strivesto build better recognition of the Midea brand among users. Making use of multi-category synergisticadvantages, it will continuously deepen the channel layout, further promote e-commerce channeloptimization and integration, and proactively expand and build new retail channels. Meanwhile, it willcontinue to increase the efficiency of the supply chain system, enhance the advantage of to Midea’s all-channels coverage, rebuild business processes and push forward the construction of a shared inventorysystem.D. Midea will improve its multi-brand system according to different needs from different consumer groups.In terms of its Internet brands, Midea will integrate internal and external resources to provideindividualized experience for users, and establish all-scenario ecosystem cooperation with externalmanufacturers to create innovative marketing and business models. Additionally, Midea will give play toits multi-category synergistic advantages and improve its product suites and families, including the real-estate before-market product suites, to provide integrated home solutions with full categories of thehousehold appliances.E. 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.F. Midea will establish and improve overseas institutions, enhance employee skills and operating
efficiency, ensure the establishment of systems for the three key goals of retail transformation,performance orientation and compliance, and at the same time ensure rising profitability of TLSC. In orderto promote overseas channel and retail reform, Midea will enhance physical store investment, put in placea market survey and customer visit mechanism for management, and strengthen the execution of salespromotion activities and shopping guide training. Regular analysis will be carried out on the operations ofoverseas branches, particularly on products and channels, as a way to help improve operating quality.Guided by user and market needs, Midea will enhance the overseas product manager mechanism,improve the product management system, establish product suite design norms, and increase thecompetitiveness of its own brands. Meanwhile, it will increase operating efficiency by means of enhancingglobal production and marketing synergy and logistics capability building, so as to provide strong supportfor sales growth of its own-branded products.G. The integration of KUKA’s robotics business in China, as well as its localized operations will be beefedup. Relentless effort will be devoted to the development and application of robotics, as well as to the R&Dand innovation of key components and software, so as to offer competitive products and services.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 all-round intelligent transformation strategy, itwill 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 Meiju app, carry out lean operations and provide smart life experience for users.Meanwhile, it will promote smart products in its offline stores by providing smart scenario experience,upgrading the store network, providing training in relation to smart products, increasing the percentageof smart home appliances, etc.
2. Analysis of Main Business
Same with the contents presented in “1. Overview” of this section
√ Yes □ No
See “1. Overview” of this section.YoY changes in key financial data:
Unit: RMB’000
Midea Group Co., Ltd. Semi-Annual Report 2019
| H1 2019 | H1 2018 | YoY Change (%) | Main reasons for change | |
| Operating revenue | 153,770,300 | 142,623,837 | 7.82% | |
| Operating costs | 108,441,289 | 103,881,438 | 4.39% | |
| Selling expenses | 19,529,822 | 16,892,503 | 15.61% | |
| Administrative expenses | 4,110,125 | 3,335,291 | 23.23% | |
| Finance costs | -1,435,645 | -984,113 | -45.88% | Increased interest on deposits |
| Corporate income tax | 2,829,592 | 2,614,882 | 8.21% | |
| R&D expenses | 4,534,760 | 3,899,229 | 16.30% | |
| Net cash flows from operating activities | 21,787,890 | 7,613,688 | 186.17% | Increased cash received from sales of goods or rendering of services |
| Net cash flows from investing activities | -18,030,748 | -8,943,677 | -101.60% | Increased deposits with a term of over three months |
| Net cash flows from financing activities | -6,828,689 | -10,166,609 | 32.83% | Increased borrowings |
| Net increase in cash and cash equivalents | -3,055,102 | -11,404,259 | 73.21% | Increased net cash flows from operating activities |
Major changes to the profit structure or sources of the Company in the Reporting Period:
□Applicable √ N/ANo such cases in the Reporting Period.Breakdown of Midea’s main business:
Unit: RMB'000
| Operating revenue | Operating cost | Gross profit margin | YoY change of operating revenue (%) | YoY change of operating cost (%) | YoY change of gross profit margin (%) | |
| By business segment | ||||||
| Manufacturing | 141,814,013 | 97,953,313 | 30.93% | 7.72% | 4.16% | 2.36% |
| By product category | ||||||
| HVAC | 71,439,403 | 48,518,866 | 32.08% | 11.84% | 8.91% | 1.83% |
| Consumer appliances | 58,350,984 | 40,096,559 | 31.28% | 5.56% | 0.13% | 3.72% |
| Robotics and automation systems | 12,023,626 | 9,337,888 | 22.34% | -3.83% | -1.16% | -2.09% |
| By geographical segment | ||||||
| PRC | 91,664,118 | 62,719,932 | 31.58% | 9.05% | 7.99% | 0.67% |
| Outside PRC | 62,106,182 | 45,721,357 | 26.38% | 6.04% | -0.18% | 4.58% |
3. Analysis of Non-Core Business
□ Applicable √ N/A
4. Assets and Liabilities
4.1 Material changes of asset items
Unit: RMB'000
| 30 June 2019 | 31 December 2018 | 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 | 35,890,088 | 12.64% | 27,888,280 | 10.58% | 2.06% | |
| Accounts receivable | 23,017,823 | 8.10% | 19,390,174 | 7.35% | 0.75% | |
| Inventories | 24,106,604 | 8.49% | 29,645,018 | 11.24% | -2.75% | |
| Investment properties | 380,579 | 0.13% | 391,765 | 0.15% | -0.02% | |
| Long-term equity investments | 2,619,985 | 0.92% | 2,713,316 | 1.03% | -0.11% | |
| Fixed assets | 21,508,572 | 7.57% | 22,437,212 | 8.51% | -0.94% | |
| Construction in progress | 1,405,351 | 0.49% | 2,077,621 | 0.79% | -0.30% | |
| Short-term borrowings | 1,338,324 | 0.47% | 870,390 | 0.33% | 0.14% | |
| Long-term borrowings | 42,490,036 | 14.96% | 32,091,439 | 12.17% | 2.79% | |
| Item | Opening balance | Profit or loss from changes in fair value | Cumulative fair value changes charged to | Other | Purchased in the period | Sold in the period | Closing balance |
| during the period | equity | ||||||
| Financial assets | |||||||
| 1. Trading financial assets (excluding derivative financial assets) | 2,654,045 | -171,835 | - | 806 | 2,650,000 | 1,699,615 | 3,433,401 |
| 2. Derivative financial assets | 259,019 | -168,098 | -10,233 | -1,408 | - | - | 79,280 |
| 3. Investments in other debt obligations | 2,254,950 | - | - | - | 398,392 | - | 2,653,342 |
| 4. Investments in other equity instruments | 784,269 | 84,188 | - | 3,162 | 550,646 | 1,849 | 1,420,416 |
| Sub-total of financial assets | 5,952,283 | -255,745 | -10,233 | 2,560 | 3,599,038 | 1,701,464 | 7,586,439 |
| Investment properties | |||||||
| Productive living assets | |||||||
| Others | |||||||
| Sub-total of the above | 5,952,283 | -255,745 | -10,233 | 2,560 | 3,599,038 | 1,701,464 | 7,586,439 |
| Financial liabilities | 902,795 | -553,436 | -50,051 | 722 | - | - | 300,030 |
| Total investment amount of the Reporting Period (RMB’000) | Total investment amount of the same period of last year (RMB’000) | YoY Change (%) |
| 45,708,198 | 41,811,802 | 9.32% |
| Type of securities | Code of securities | Abbreviation of securities | Initial investment cost | Measurement method | Opening carrying amount | Profit or loss from changes in fair value during the period | Cumulative fair value changes charged to equity | Purchased in the period | Sold in the period | Profit or loss in the period | Closing carrying amount | Accounting title | Funding source |
| Domestically/Overseas listed stock | 1810 | XIAOMI-W | 1,272,584 | Fair value method | 1,122,609 | -250,054 | -231 | - | - | - | 872,324 | Trading financial assets | Own Funds |
| Total | 1,272,584 | -- | 1,122,609 | -250,054 | -231 | - | - | - | 872,324 | - | -- | ||
| Operating party | Relationship with the Com | Related transaction | Type of derivative | Initial investment amount | Starting date | Ending date | Opening investment amount | Purchased in Reporting Perio | Sold in Reporting Period | Amount provided for impairment (if any) | Closing investment amount | Closing investment amount as a percenta | Actual gain/loss in Reporting Period |
| pany | d | ge of the Company’s closing net assets | |||||||||||
| Futures company | No | No | Futures contracts | 276 | 01/01/2019 | 31/12/2019 | 276 | - | - | - | -1,067 | -0.0012% | 61,656 |
| Bank | No | No | Forward forex contracts | -644,052 | 01/01/2019 | 31/12/2019 | -644,052 | - | - | - | -219,683 | -0.2373% | -234,837 |
| Total | -643,776 | -- | -- | -643,776 | - | - | - | -220,750 | -0.2385% | -173,181 | |||
| Source of derivatives investment funds | All from the Company’s own 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, | 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 | ||||||||||||
| operational risk, legal risk, etc.) | 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 | 1. Profit from futures contracts during the Reporting Period was RMB61,656,000. 2. Loss from forward forex contracts during the Reporting Period was RMB-234,837,000. 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. |
| disclosed for analysis of fair value of derivatives | |
| Explanation of significant changes in accounting policies and specific financial accounting principles in respect of the Company's derivatives for the Reporting Period as compared to the previous Reporting Period | N/A |
| Special opinions expressed by independent directors concerning the Company's derivatives investment and risk control | 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 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 | Net assets (in | Operating revenue (in | Operating profit (in | Net profit (in RMB |
| RMB million) | RMB million) | RMB million) | RMB million) | million) | ||||
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | Subsidiary | Manufacturing of home appliances | USD72 million | 11,320.89 | 3,716.32 | 6,485.13 | 1,021.26 | 887.05 |
| GD Midea Air-Conditioning Equipment Co., Ltd. | Subsidiary | Manufacturing of air conditioners | RMB854 million | 34,844.42 | 4,709.97 | 29,044.64 | 524.09 | 486.25 |
| Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd. | Subsidiary | Manufacturing of home appliances | USD42 million | 9,973.83 | 5,528.36 | 5,275.78 | 918.05 | 802.17 |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | Subsidiary | Manufacturing of water heaters | RMB60 million | 8,391.52 | 1,015.84 | 6,637.41 | 939.94 | 809.52 |
10. Risks Facing by the Company and Countermeasures
A. 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 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.B. 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.C. 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.D. 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.
E. 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 2019. 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.
Section V Significant Events
1. Annual and Extraordinary General Meetings of Shareholders Convened duringReporting Period
1.1 General Meetings of Shareholders Convened during Reporting Period
| Meeting | Type | Investor participation ratio | Convened date | Disclosure date | Index to disclosed information |
| First Extraordinary General Meeting of Shareholders of 2019 | Extraordinary | 55.21% | 15/02/2019 | 16/02/2019 | Announcement No. 2019-020 on Resolutions of First Extraordinary General Meeting of Shareholders of 2019, disclosed on www.cninfo.com.cn |
| 2018 Annual General Meeting of Shareholders | Annual | 57.17% | 13/05/2019 | 14/05/2019 | Announcement No. 2019-071 on Resolutions of 2018 Annual General Meeting of Shareholders, disclosed on www.cninfo.com.cn |
3. Undertakings of the Company’s actual controller, shareholders, related parties and acquirer, as well as the Company andother commitment makers fulfilled in the Reporting Period or overdue 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 time of asset restructuring | Mr. He Xiangjian (the 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 | Fulfilled |
| Midea Holding Co., Ltd. (the controlling shareholder) | The Opinion in Principle on the Merger in a Share Swap & the Statement and Commitment Letter on any Shareholding Reduction Plan | 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 liability according to law. | 23/10/2018 | 23/10/2018-21/06/2019 | Fulfilled | |
| Statement on Irregularities Committed in the | 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), | 23/10/2018 | 23/10/2018-21/06/2019 | Fulfilled |
| Past Five Years | 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. | ||||
| 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 | Fulfilled |
| Commitment Letter on the Truthfulness, Accuracy and Completeness of the Information Provided | 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, 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. | 23/10/2018 | 23/10/2018-21/06/2019 | Fulfilled | |
| 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 | 23/10/2018 | 23/10/2018-21/06/2019 | Fulfilled |
| 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. | |||
| Whether the undertaking is fulfilled on time | Yes | ||
| Specific reasons for failing to fulfill any undertaking and plan for the next step | N/A | ||
4. Engagement and Disengagement of CPAs Firm
Have the H1 2019 financial statements been audited by a CPAs firm?
□ Yes √ No
The H1 2019 financial statements are unaudited by a CPAs firm.
5. Explanation of the Board of Directors and the Supervisory Committee Regardingthe "Non-standard Audit Opinion" for the Reporting Period
□ Applicable √ N/A
6. Explanation of the Board of Directors Regarding the "Non-standard Audit Opinion"for Last Year
□ Applicable √ N/A
7. Bankruptcy and Reorganization
□ Applicable √ N/A
No such cases in the Reporting Period.
8. Litigation
Material litigation and arbitration:
□ Applicable √ N/A
No such cases in the Reporting Period.Other legal matters:
□ Applicable √ N/A
9. Punishments and Rectifications
□ Applicable √ N/A
No such cases in the Reporting Period.
10. Credit Conditions of the Company as well as Its Controlling Shareholder andActual Controller
□ Applicable √ N/A
11. 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 third exercise period of the First Stock Option Incentive Scheme expired, the Company agreed toretire the 56,250 and 90,000 stock options that had been previously granted to Chen Lingzhi and YangHui respectively but was unexercised upon expiry.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 the 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.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 incentivereceivers. 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.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 the
Fourth Stock Option Incentive Scheme was also considered and approved. Because the exerciseconditions 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).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.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 (hereinafterreferred 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 3
rdSupervisory Committee.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 the
Implementation 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.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.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 had
been 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 to go public on 10May 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 the
remaining 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 upsubscription, 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 to go public on 10 July 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 (FangHongbo, 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 30% installment of shares under the ThirdGlobal Partner Stock Ownership Scheme and the corresponding dividends (if any) had been taken backby the administrative committee of this scheme for no compensation, and would be sold at a proper timingbefore this 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. A total of 3,318,540 of the Company’s shares were purchased for this scheme. As per the Fourth Global
Partner Stock Ownership Scheme (Draft), the administrative committee of this scheme confirmed thenumber of shares to be granted to each partner, with the total shares to be granted being 2,714,700shares (1,564,200 shares for senior management Fang Hongbo, Yin Bitong, Gu Yanmin, Wang Jianguoand Wang Jinliang, and the other 1,150,500 shares for other core management 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 remained 603,840 shares unallocated underthis 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. A total of 1,779,300 of the Company’s shares were purchased for this scheme. As per the First BusinessPartner Stock Ownership Scheme (Draft), the administrative committee of this scheme confirmed thenumber of shares to be granted to each partner, with the total shares to be granted being 1,151,687shares (182,566 shares for senior management Zhang Xiaoyi, Xiao Mingguang, Hu Ziqiang, Liu Min andJiang Peng, and the other 969,121 shares for other core management 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 remained 627,613 shares unallocated underthis 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 therelevant senior management.O. Overview of the Fifth Global Partner Stock Ownership Scheme
a. 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 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 Sixth Employee Stock Ownership Scheme” for management.b. The Second Business Partner Stock Ownership Scheme was funded by the Company’s special fund
and 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.
12. Significant Related Transactions
12.1 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 | Controlled by family member of Compa | Procurement | Procurement of goods | Market price | - | 609,122 | 0.66% | 1,500,000 | No | Payment after delivery | - | 20/04/2019 | www.cninf o.co m.cn |
| Co., Ltd. | ny’s actual controller | ||||||||||||
| Orinko Advanced Plastics Co., LTD | Controlled by family member of Company’s actual controller | Procurement | Procurement of goods | Market price | - | 684,725 | 0.75% | 1,700,000 | No | Payment after delivery | - | 20/04/2019 | www.cninf o.co m.cn |
| Total | -- | -- | 1,293,847 | -- | 3,200,000 | -- | -- | -- | |||||
| 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 | ||||||||||||
No such cases in the Reporting Period.
12.5 Other significant related transactions
√ Applicable □ N/A
The Proposal for Related Transactions Regarding Making Deposits in and Obtaining Loans from ShundeRural Commercial Bank in 2019 was reviewed and approved at the 10th Meeting of the 3rd Board ofDirectors 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.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 |
No such cases in the Reporting Period.
14.1.3 Leasing
□ Applicable √ N/A
No such cases in the Reporting Period.
14.2 Major Guarantees
√ Applicable □ N/A
14.2.1 Guarantees provided
Unit: RMB'000
| Guarantees provided by the Company 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 | 2019-4- | 2019-1- | 120,070 | Joint liability | One | No | No |
| Appliances Manufacturing Co., Ltd. | 20 | 2,080,000 | 10 | year | ||||
| 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 Technologies Co., Ltd. | 2019-4-20 | 46,000 | - | - | Joint liability | One year | No | No |
| 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 | 2019-4- | 7,200 | - | - | Joint liability | One | No | No |
| Equipment Co.,Ltd. | 20 | year | ||||||
| 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 |
| KUKA Industries Automation (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 Technology 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 | 18,891,570 | |||||
| (B2) | ||||||||
| 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) | 18,019,920 | |||||
| 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) | 18,891,570 | |||||
| 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) | 18,019,920 | |||||
| Proportion of the total actual guarantee amount (A4+B4+C4) in net assets of the Company | 19.46% | |||||||
| 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) | 8,989,590 | |||||||
| 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) | 8,989,590 | |||||||
| 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 | |||||||
No such cases in the Reporting Period.
14.3 Other significant contracts
□ Applicable √ N/A
No such cases in the Reporting Period.
15. Social Responsibility
15.1 Major environmental issues
Whether the Company or any of its subsidiaries is declared a heavily polluting business by the environmental protection authorities
√ Yes □ No
| Name of the Company or subsidiary | Major pollutants | Discharge method | Number of discharge outlets | Distribution of discharge outlets | Concentration of the discharge | Pollutant discharge standards | Total discharge(kg) | Approved total discharge (kg) | Excess discharge |
| Hubei Midea Refrigerator Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | The western side of wastewater treatment in freezer base | 130 mg/L | Regulations of Hubei Province on prevention and control of water pollution | 2,530.00 | 4,320 | No |
| Ammonia nitrogen | 12.7 mg/L | 24.40 | 700 | No | |||||
| NMHC | 15m high altitude discharge | 36 | 16 refrigerator foams, 12 squeeze plates, 4 freezer foams, 4 freezer paintings | 1.56 mg/m? | Emission standard of air pollutants for industrial kiln and furnace GB-9078-1996 | 395.97 | 648 | No | |
| Particles | 15mg/m? | 308.16 | 7,660 | No | |||||
| Guangdong Midea Kitchen Appliances Manufacturing Co., | COD | Discharge to the municipal sewage system after being treated by wastewater treatment system | 1 | The eastern side of wastewater treatment in Malong base | Less than the limit of 110mg/L | The discharge limits of water pollutants in Guangdong DB-44/26-2001 | 15,441.54 | 22,770 | No |
| Ammonia nitrogen | Less than the limit of 15mg/L | 397.98 | 4,554 | No | |||||
| Ltd. | 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 | Less than the limit of 200mg/m? | 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) | 11,580.93 | No requirements | No |
| Sulfur dioxide | Less than the limit of 50mg/m? | 17.88 | 1,055 | No | |||||
| Nitrogen oxide | Less than the limit of 200mg/m? | 322.09 | 10,314 | No | |||||
| Benzene | High altitude discharge after being treated by waste gas treatment station | Less than the limit of 1mg/m? | 31.39 | No requirements | No | ||||
| Toluene | Less than the limit of 40mg/m? | 1,109.66 | No requirements | No | |||||
| Xylene | Less than the limit of 70mg/m? | 2,488.06 | No requirements | No | |||||
| VOCs | Less than the limit of 30mg/m? | 17,353.81 | No requirements | No | |||||
| NMHC | Less than the limit of 100mg/m? | 1,149.40 | No requirements | No | |||||
| Styrene | - | 14.25 | No requirements | No |
| Fume | Less than the limit of 2mg/m? | 108.52 | No requirements | No | |||||
| Hefei Midea Laundry Appliance Co., Ltd. (monitored by the municipal government) | COD | Discharge after being treated by wastewater treatment station | 1 | The eastern side of wastewater treatment station | 75mg/L | Standards for Pipeline Access to the Western Group Wastewater Treatment Station in Feixi County, Hefei, Anhui Province | 52,500 | 58,150 | No |
| Ammonia nitrogen | 16.5mg/L | 11,550 | - | No | |||||
| 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 | Less than 20mg/m? | Integrated emission standards for atmospheric pollutants GB16297-1996 second-level | 4,320 | - | No | |
| Particles | 15m high altitude discharge after being treated by water spraying + dedusting + UV photolysis + activated carbon | 1 | 1 outlet at #1 plant, 1 outlet at #3 plant | Less than 20mg/m? | 5,040 | - | No | ||
| NMHC | 3mg/m? | 756 | - | No | |||||
| NMHC | 15m high altitude discharge after being treated by environmental protection facilities | 12 | 3 outlets at #2 plant, 6 outlets at #6 plant, 1 outlet at #1 plant, 1 outlet at #5 plant, 1 outlet at #3 plant | 2mg/m? | Emission control standard for industrial enterprises volatile organic compounds DB12/524-2014 | 12,960 | - | No | |
| GD Midea Air-Conditioning | COD | Discharge after being treated by wastewater treatment station | 1 | 4# southeastern plant | 84mg/L | The discharge standard of water pollutants for electroplating (DB441597-2015) chart 2 PRD | 3,603 | 9,590 | No |
| Ammonia nitrogen | 0.773mg/L | 29.81 | 1,510 | ||||||
| SS | 25mg/L | 1,008 | - | ||||||
| Equipment Co.,Ltd. | Petroleum products | 3.16mg/L | standard | 129.53 | - | ||||
| COD | Discharge after being treated by wastewater treatment station | 1 | 2# eastern plant | 94mg/L | The discharge limits of water pollutants in Guangdong (DB44/26-2001) | 547.2 | 1,160 | No | |
| SS | 28mg/L | 165.6 | - | ||||||
| LAS | 1.75mg/L | 6.5 | - | ||||||
| Petroleum products | 1.88mg/L | 8 | - | ||||||
| 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 | 1,440.00 | 5,930.00 | 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) | 1,324.80 | 5,930.00 | 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 | 43,200.00 | - | No | |
| NMHC (electronic) | 15m high altitude discharge after being treated by catalytic combustion | 2 | 10# plant | 6.2 | Emission limits of air pollutants (DB44/27-2001) the second time period | 267.84 | - | No | |
| Anhui | COD | Discharge after being treated by | 1 | At the southern side of | 52 mg/L | Integrated wastewater | 7,134 | - | No |
| Meizhi Precision Manufacturing Co., Ltd. | Ammonia nitrogen | wastewater treatment system and reaching the standard | No.6 shift building at the northern side of plant | 0.168mg/L | discharge standard (GB8978-1996) chart 4 third-level | 23 | - | No | |
| BOD | 13mg/L | 1,784 | - | No | |||||
| SS | 6mg/L | 823 | - | No | |||||
| Petroleum products | 0.21mg/L | 29 | - | No | |||||
| Particles | Collected by gas trap hood+21m high exhaust cylinder | 11 | 1-8# discharge outlet for the welding waste gas | 11.6mg/m? | Integrated emission standards for atmospheric pollutants GB16297-1996 chart 2 second-level | 5,237 | - | No | |
| 9#-10# discharge outlet for the welding waste gas | 12.8mg/m? | ||||||||
| Waste gas outlet of 1# heat-treating furnace | 10.7 mg/m? | Emission standard of air pollutants for industrial kiln and furnace GB9078-1996 chart 2 second-level | 1,535 | No | |||||
| Waste gas outlet of 2# heat-treating furnace | 1.2 mg/m? | ||||||||
| Waste gas outlet of 3# heat-treating furnace | 5.1 mg/m? | ||||||||
| Waste gas outlet of 4# heat-treating furnace | 2.6 mg/m? | ||||||||
| Waste gas outlet of 5# heat-treating furnace | 1 mg/m? | ||||||||
| Waste gas outlet of 6# heat-treating furnace | 3.5 mg/m? | ||||||||
| Waste gas outlet of 7# heat-treating furnace | 1.6 mg/m? | ||||||||
| Waste gas outlet of 8# heat-treating furnace | 1.7 mg/m? |
| Waste gas outlet of 9# heat-treating furnace | 10.3 mg/m? | |||||||
| Sulfur dioxide | Collected by gas trap hood+21m high exhaust cylinder | 9 | Waste gas outlet of 1# heat-treating furnace | 124 mg/m? | Emission standard of air pollutants for industrial kiln and furnace GB9078-1996 chart 2 second-level | 25,381 | - | No |
| Waste gas outlet of 2# heat-treating furnace | 34 mg/m? | |||||||
| Waste gas outlet of 3# heat-treating furnace | 5 mg/m? | |||||||
| Waste gas outlet of 4# heat-treating furnace | 143 mg/m? | |||||||
| Waste gas outlet of 5# heat-treating furnace | 6 mg/m? | |||||||
| Waste gas outlet of 6# heat-treating furnace | 146 mg/m? | |||||||
| Waste gas outlet of 7# heat-treating furnace | 106 mg/m? | |||||||
| Waste gas outlet of 8# heat-treating furnace | 4 mg/m? | |||||||
| Waste gas outlet of 9# heat-treating furnace | 334 mg/m? | |||||||
| Nitrogen oxide | Collected by gas trap hood+21m high exhaust cylinder | 9 | Waste gas outlet of 1# heat-treating furnace | 32 mg/m? | - | 9,079 | - | No |
| Waste gas outlet of 2# heat-treating furnace | 32 mg/m? | |||||||
| Waste gas outlet of 3# heat-treating furnace | 8mg/m? |
| Waste gas outlet of 4# heat-treating furnace | 18 mg/m? | ||||||||
| Waste gas outlet of 5# heat-treating furnace | 23 mg/m? | ||||||||
| Waste gas outlet of 6# heat-treating furnace | 6 mg/m? | ||||||||
| Waste gas outlet of 7# heat-treating furnace | 44 mg/m? | ||||||||
| Waste gas outlet of 8# heat-treating furnace | 19 mg/m? | ||||||||
| Waste gas outlet of 9# heat-treating furnace | 10 mg/m? | ||||||||
| VOCs | Direct-fired waste gas incinerator+21m high exhaust cylinder | 10 | 1-4# discharge outlets for drying waste gas | 4.64 mg/m? | Integrated emission standards for atmospheric pollutants GB16297-1996 chart 2 second-level | 352 | - | No | |
| 5-8# discharge outlets for drying waste gas | 6.56mg/m? | ||||||||
| 9-10# discharge outlets for drying waste gas | 4.79 mg/m? | ||||||||
| Anhui Meizhi Compressor Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | The western side of integrated wastewater treatment station | 110mg/L | Implementation of the takeover standards of the Western Hefei Group wastewater treatment plant and integrated wastewater discharge standard (GB8978-1996) third-level | 6,800 | 14,707 | No |
| Ammonia nitrogen | 1.58mg/L | 340 | 735 | No | |||||
| Particles | Collected by gas trap hood+15m high exhaust cylinder | 14 | No. 1 workshop welding soot 1#~6# discharge outlet for waste gas | <20mg/m? | Integrated emission standards for atmospheric pollutants (GB16297-1996) | 3,241 | 7,975 | No |
| No. 3 workshop welding 1#-8# discharge outlet for the welding waste gas | <20mg/m? | |||||||
| No.2 workshop 1#Chugai furnace and 2#Chugai furnace discharge outlet for waste gas | <20mg/m? | 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 | <20mg/m? | Emission standard of air pollutants for industrial kiln and furnace (GB9078-1996) | 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 | <20mg/m? | Integrated emission standards for atmospheric pollutants (GB16297-1996) | No | |||||
| No.4 workshop BAB boiler discharge outlet for waste gas | <20mg/m? | Emission standard of air pollutants for industrial kiln and furnace (GB9078- | No |
| No.2 workshop die-casting molten aluminum A/B/E discharge outlet for waste gas | <20mg/m? | 1996) | ||||||
| No.2 workshop die-casting molten aluminum C/D discharge outlet for waste gas | <20mg/m? | |||||||
| No.4 workshop die-casting molten aluminum I/J/F discharge outlet for waste gas | <20mg/m? | |||||||
| No. 4 workshop centrifugal pouring G/H and rotor furnace combined with a discharge outlet | <20mg/m? | |||||||
| The tail of 3# and 4# stator furnace and the general discharge outlet of four melting aluminum furnace | <20mg/m? | |||||||
| Furnace 1#-3# discharge outlet for waste gas | <20mg/m? | 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 | Not detected | Emission standard of air pollutants for boiler | 0 | 4.48 | No |
| Nitrogen oxide | Collected by gas trap hood+15m high exhaust cylinder | 3 | Furnace 1#-3# discharge outlet for waste gas | 128mg/m? | (GB13271-2014) | 7.62 | 10.07 | No | |
| VOCs | Direct-fired waste gas incinerator+15m high exhaust cylinder | 3 | No.1 workshop of discharge outlet for drying waste gas | 16.99mg/m? | Integrated emission standards for atmospheric pollutants (GB16297-1996) | 770.4 | 7,766 | No | |
| No.3 workshop 1# discharge outlet for drying waste gas | 25.17mg/m? | ||||||||
| No.3 workshop 2# discharge outlet for drying waste gas | 9.93 mg/m? | ||||||||
| Guangdong Meizhi Precision-Manufacturing Co., Ltd. | COD | Discharge after being treated by wastewater treatment station | 1 | Near the northern side of wastewater treatment station | 28.45 mg/m? | The discharge limits of water pollutants in Guangdong DB-44/26-2001 the second time period first-level | 6,260 | 19,880 | No |
| Ammonia nitrogen | 0.83mg/ m? | The discharge limits of water pollutants in Guangdong DB-44/26-2001 the second time period first-level | 184.5 | 2,210 | No | ||||
| Guangdong Midea Consumer | CODcr | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | Outlet of the wastewater treatment station of the water material plant | 43.5mg/L | Table 2 of the Discharge Standard of Water Pollutants from | 1,357.2 | 2,400 | No |
| Petroleum | 0.755mg/L | 23.556 | - | No | |||||
| Electric Manufacturing Co., Ltd. | Ammonia nitrogen | 6.76mg/L | Electroplating （DB44/1597-2015）: Water Pollutant Discharge Limits for New Projects and Benchmark Effluent Volume Per Unit Product/Discharge Limits of the Pearl River Delta | 210.912 | 480 | No | |||
| Benzene | High altitude discharge after being treated by waste gas treatment station | 1 | Outlet for waste gas from sheet metal spraying at the southeast side of the water material plant | Not detected | 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 | - | - | No | |
| Toluene and xylene | 5.94mg/m3 | 317.003 | - | No | |||||
| VOCs | 17.8mg/m3 | 949.94 | - | No | |||||
| Particles | High altitude discharge after being treated by waste gas treatment station | 1 | Outside the polishing room | 6.4mg/ m? | Table 2 of the Emission Limits of Air Pollutants (DB44/27-2001): Emission Limits of Industrial Waste Gas (Time Period 2), Level 2 | 69.18 | - | No | |
| NMHC | 1 | East side of the injection molding plant | 3.15mg/ m? | Table 4 of the Emission Standards of Industrial Pollutants in the Synthetic Resin Industry (GB 31572-2015): Emission Limits of Air Pollutants | 50.92 | - | No |
| Particles | High altitude discharge after being treated by waste gas treatment station | 1 | West side of the sheet metal plant | 8.2mg/ m? | The Emission Limits of Air Pollutants from Industrial Furnaces (GB9078-1996) (Level 2) (Table 2 of the Emission Limits of Air Pollutants (DB44/27-2001), Guangdong Province’s local standard: Emission Limits of Industrial Waste Gas (Time Period 2) (Level 2) for nitrogen oxide) | 437.61 | - | No | |
| Sulfur dioxide | Not detected | - | - | No | |||||
| Cooking fume | High altitude discharge after being treated by waste gas treatment station | 1 | 3rd floor of the canteen | 0.56mg/ m? | Table 2 of the Emission Standard of Cooking Fume (Trial) (GB 18483-2001): The Upper Concentration Limit for Cooking Fume and the Lowest Removal Rate of Fume Purification Facilities/for Large Catering Units | 16.919 | - | 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 | 47.9mg/ m? | Discharge Standard of Water Pollutants from Electroplating （DB44/1597-2015） | 4,190.16 | 106,520 | No |
| Petroleum | 0.77mg/ m? | 67.298 | - | No | |||||
| Ammonia nitrogen | 3.1mg/ m? | 278.38 | 21,300 | No | |||||
| Toluene and xylene | High altitude discharge after being treated by waste gas treatment station | 4 | Spraying waste gas from 3# plant and welding waste gas from 6# plant | 1.4mg/ m? | 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 | 8.11mg/ m? | 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 | 1 | Outlet of injection molding waste gas in the south side of 1# plant | 3.98mg/ m? | Table 4 of the Emission Standards of Industrial Pollutants in the Synthetic Resin Industry (GB 31572-2015): Emission Limits of Air Pollutants | 109.49 | - | No | |
| Sulfur dioxide | High altitude discharge after being treated by waste gas treatment station | 2 | Oxidation wire roof of 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 | - | 585.95 | No | |
| Drying furnace of 3# plant | Not detected | - | 585.95 | No | |||||
| Cooking fume | Discharge after being treated by waste gas treatment station | 2 | South and east section canteens | 1.13mg/ m? | Table 2 of the Emission Standard of Cooking Fume (Trial) (GB 18483-2001): The Upper Concentration Limit for Cooking Fume and the Lowest Removal Rate of Fume Purification Facilities/for Large Catering Units | 41.4 | - | 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 | 54 mg/L | Discharge Standard of Water Pollutants from Electroplating of Guangdong Province （DB44/1597-2015） | - | 1,152 | No |
| Ammonia nitrogen | Discharge after being treated by wastewater treatment station | 1.99mg/L | 171 | 230. 4 | No | ||||
| Hefei Midea Heating & Ventilating Equipment Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | East side of 1# plant | 97mg/L | Implementation of the takeover standards of the Western Hefei Group wastewater treatment plant and integrated wastewater discharge standard (GB8978-1996) third-level | 575 | 3,920 | No |
| Ammonia nitrogen | Discharge after being treated by wastewater treatment system and reaching the standard | 19.7mg/L | 192 | 390 | No | ||||
| Nitrogen oxide | High altitude discharge after being treated by waste gas treatment station | 1 | 2# plant | 5mg/m? | Integrated emission standards for atmospheric pollutants (GB16297-1996) | 49.86 | - | No | |
| NMHC | 11 | 3 in 1# plant, 4 in 2# plant, 2 in 3# plant and 2 in 4# plant | 28.97mg/m? | 484.72 | - | No | |||
| Soot | 11 | 3 in 1# plant, 4 in 2# plant, 2 in 3# plant and 2 in 4# plant | 101.5mg/m? | 1,695 | - | No | |||
| Wuhu Midea Kitchen & Bath | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | Wastewater treatment station of the plant | 80mg/L | Integrated wastewater discharge standard (GB8978-1996) | 291.84 | 70,898 | No |
| Ammonia nitrogen | 8.12 mg/L | 29.62 | 2,496 | No | |||||
| Soot | 15m high altitude discharge | 45 | Workshops of the plant | <20mg/m? | Emission standard of air | 666.20 | - | No | |
| Appliances Mfg. Co., Ltd. | Sulfur oxide | <50 mg/m? | pollutants for boiler (GB13271-2014) | 476.90 | 1,658 | No | ||
| Nitrogen oxide | <150mg/m? | 1,532.20 | 4,074.5 | No | ||||
| Soot | High altitude discharge after being treated by waste gas treatment station | <50mg/m? | Integrated emission standards for atmospheric pollutants (GB16297-1996) | 3,361.24 | 35,049 | No | ||
| Xylene | <10 mg/m? | 174.16 | - | No | ||||
| VOCs | <20 mg/m? | 224.90 | 29,650 | No |
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 accidentsAll 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 subsidiaries have formulated their own environment self-monitoring plans according to China’s relevant laws and regulations, and have entrustedthird-party qualified institutions to monitor the discharge of waste including waste water and waste gas on a regular basis. Meanwhile, 11 factories havebeen equipped with an online waste water monitoring system, and such a system is underway 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
15.2 Measures taken for targeted poverty alleviation
15.2.1 Summary of the work done for targeted poverty alleviation during the Reporting PeriodMidea attaches great importance to helping those in need as a way to meet its social responsibility andgive back to society. In 2019, in response to the call of the Guangdong provincial government, Midea hasbeen trying to help reduce poverty through industrial development, creating more jobs and givingdonations for public welfare. It has donated RMB10 million to the Beijiao Town Charity Federation for a
10th consecutive year for poverty alleviation and public welfare. And another RMB10 million has been
given on the Guangdong Poverty Alleviation Day to improve education, medical care and housing.
15.2.2 Targeted poverty alleviation plans for the coming future
In order to implement the spirit of the 19
thNational Congress of the Communist Party of China, follow theguidance of President Xi Jinping’s Thought on Socialism with Chinese Characteristics for a New Era, andcarry out the planning of the Guangdong Provincial CPC Committee and Government for povertyalleviation, Midea Group will adhere to a practical and realistic principle, beef up its poverty alleviationprograms, stick to the basic strategy of targeted poverty alleviation, and ensure the implementation ofevery relevant measure. Meanwhile, it will also ensure that all the donated money will be used properly,and that the donation receiving institutions know exactly their responsibilities and how to make good useof the donated money.
16. 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 RMB 42.04 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 rightsand obligations of Little Swan.
17. 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 | Other | Subtotal | Shares | Percentage (%) | |
| 1. Restricted shares | 147,174,760 | 2.22 | 4,799,376 | -12,064,773 | -7,265,397 | 139,909,363 | 2.02 |
| 1.1 Shares held by other domestic investors | 145,424,760 | 2.19 | 4,799,376 | -11,694,773 | -6,895,397 | 138,529,363 | 2.00 |
| Among which: Shares held by domestic corporations | - | - | 2,363,601 | - | 2,363,601 | 2,363,601 | 0.04 |
| Shares held by domestic individuals | 145,424,760 | 2.19 | 2,435,775 | -11,694,773 | -9,258,998 | 136,165,762 | 1.96 |
| 1.2 Shares held by foreign investors | 1,750,000 | 0.03 | -370,000 | -370,000 | 1,380,000 | 0.02 | |
| Shares held by foreign individuals | 1,750,000 | 0.03 | -370,000 | -370,000 | 1,380,000 | 0.02 | |
| 2. Non-restricted shares | 6,515,855,746 | 97.78 | 373,010,835 | -87,053,659 | 285,957,176 | 6,801,812,922 | 97.98 |
| 2.1 RMB common shares | 6,515,855,746 | 97.78 | 373,010,835 | -87,053,659 | 285,957,176 | 6,801,812,922 | 97.98 |
| 3. Total shares | 6,663,030,506 | 100.00 | 377,810,211 | -99,118,432 | 278,691,779 | 6,941,722,285 | 100.00 |
b. As the conditions for the second unlocking period for the first phase of the 2017 Restricted ShareIncentive Scheme had been satisfied, the 5,564,583 restricted shares of a total of 100 eligible employeeswere unlocked and allowed for public trading on 28 June 2019, including 150,000 restricted shares offoreign employees.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. In H1 2019, the incentive receivers of stock options chose to exercise 51,732,735 shares, which havebeen registered into the Company’s share capital.g. In H1 2019, locked-up shares held by senior management decreased by 841,998 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
As of 31 July 2019, the Company has cumulatively repurchased 60,252,129 shares (0.8664% of the
Company’s total share capital as of that date) by way of centralized bidding in its securities account forrepurchase. With the highest trading price being RMB55.00/share and the lowest being RMB45.62/share,the total payment amounted to RMB3,099,683,600.75 (exclusive of trading fees). The repurchase was inline with the requirements of applicable laws and regulations, as well as the repurchase plan of theCompany.Progress of any repurchased share reduction through centralized price bidding
□ Applicable √ N/A
Effects of changes in share price 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 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 reserved restricted shares under 2017 Restricted Share Incentive Scheme ① | 5,235,000 | 1,629,000 | 0 | 3,208,000 | Lockup according to the Scheme | 20 February 2019 |
| Incentive receivers of 2017 Restricted Share Incentive Scheme (first phase) ② | 14,380,000 | 5,564,583 | 0 | 7,437,500 | Lockup according to the Scheme | 28 June 2019 |
| Incentive receivers of 2018 Restricted Share Incentive Scheme (first phase) ③ | 20,570,000 | 0 | 0 | 18,332,500 | Lockup according to the Scheme | 21 June 2020 |
| Zhang Xiaoyi | 138,100 | 0 | 128,275 | 266,375 | 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 | 765,300 | 0 | 255,100 | 1,020,400 | Lockup for senior management departure | 26 March 2022 |
| Total | 42,849,650 | 8,496,358 | 2,880,777 | 33,220,652 | -- | -- |
| 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 |
| Total number of common shareholders at the end of the Reporting Period | 213,103 | Total number of preference shareholders with resumed voting rights at the period-end (if any) (see note 8) | 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 | 31.87% | 2,212,046,613 | 0 | 0 | 2,212,046,613 | Pledged | 215,000,000 | ||
| Hong Kong Exchanges and Clearing Limited | Foreign corporation | 13.95% | 968,551,080 | 68,430,913 | 0 | 968,551,080 | ||||
| China Securities Finance Co., Ltd. | State-owned corporation | 2.85% | 198,145,134 | 0 | 0 | 198,145,134 | ||||
| Fang Hongbo | Domestic individual | 1.97% | 136,990,492 | 0 | 102,742,869 | 34,247,623 | ||||
| Canada Pension Plan Investment Board－ self-owned capital (stock exchange) | Foreign corporation | 1.73% | 120,379,067 | 19,371,811 | 0 | 120,379,067 | |||
| Central Huijin Asset Management Ltd. | State-owned corporation | 1.30% | 90,169,354 | 11,694,454 | 0 | 90,169,354 | |||
| Huang Jian | Domestic individual | 1.27% | 88,043,300 | 36,200 | 0 | 88,043,300 | |||
| Hillhouse Capital Management Limited－ HCM China Fund | Foreign corporation | 0.89% | 61,831,900 | -9,632,700 | 0 | 61,831,900 | |||
| Yuan Liqun | Domestic individual | 0.75% | 52,038,500 | -580,800 | 0 | 52,038,500 | Pledged | 9,044,900 | |
| Li Jianwei | Domestic individual | 0.75% | 51,791,941 | 0 | 0 | 51,791,941 | |||
| 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 Exchanges and Clearing Limited | 968,551,080 | RMB common stock | 968,551,080 | ||||||
| China Securities Finance Co., Ltd. | 198,145,134 | RMB common stock | 198,145,134 | ||||||
| Canada Pension Plan Investment Board－ self-owned capital (stock exchange) | 120,379,067 | RMB common stock | 120,379,067 | ||||||
| Central Huijin Asset Management Ltd. | 90,169,354 | RMB common stock | 90,169,354 | ||||||
| Huang Jian | 88,043,300 | RMB common stock | 88,043,300 |
| Hillhouse Capital Management Limited－ HCM China Fund | 61,831,900 | RMB common stock | 61,831,900 |
| Yuan Liqun | 52,038,500 | RMB common stock | 52,038,500 |
| Li Jianwei | 51,791,941 | RMB common stock | 51,791,941 |
| GIC Private Limited | 51,121,146 | RMB common stock | 51,121,146 |
| 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 | N/A | ||
| Explanation on the top 10 common shareholders participating in securities margin trading (if any) (see note 4) | N/A | ||
Section VII Preference Shares
□ Applicable √ N/A
No such cases in the Reporting Period.
Section VIII Information about Directors, Supervisors and
Senior Management
1. Changes in Shareholdings of Directors, Supervisors and Senior Management
√ Applicable □ N/A
| Name | Office title | Incumbent / Former | Shares held at the year-begin (share) | Shares increased at the Reporting Period (share) | Shares decreased at the Reporting Period (share) | Shares held at the period-end (share) | Granted Restricted shares at the year-begin (share) | Restricted shares granted in the Reporting Period (share) | Granted restricted shares at the period-end (share) |
| Hu Ziqiang | Vice President | Incumbent | 300,000 | 0 | 0 | 300,000 | 300,000 | 0 | 200,000 |
| Xiao Mingguang | Vice President | Incumbent | 280,000 | 75,000 | 0 | 355,000 | 250,000 | 0 | 200,000 |
| Zhang Xiaoyi | Vice President | Incumbent | 470,800 | 105,775 | 0 | 576,575 | 240,000 | 0 | 170,000 |
| Zhong Zheng | Director of Finance | Incumbent | 200,000 | 1,152 | 0 | 201,152 | 200,000 | 0 | 140,000 |
| Xue Yunkui | Independent Director | Incumbent | 0 | 179,914 | 0 | 179,914 | 0 | 0 | 0 |
| Total | -- | -- | 1,250,800 | 361,841 | 0 | 1,612,641 | 990,000 | 0 | 710,000 |
| Name | Office title | Type of change | Date | Reason |
| Zhu Fengtao | Director and Vice President | Quitting | 2019-3-22 | Personal reason |
| Xiao Mingguang | Director of Finance | Dismissed | 2019-3-22 | Job change |
| Xiao Mingguang | Vice President | Appointed | 2019-3-22 | Job change |
| Zhong Zheng | Director of Finance | Appointed | 2019-3-22 | Senior management appointment |
Section IX Corporate BondsDoes the Company have any corporate bonds publicly issued on the stock exchange, which were unduebefore the date of this Report’s approval or were due but could not be redeemed in full?
□ Yes √ No
Section X Financial Report
1. Auditor’s Report
Have the H1 2019 financial statements been audited by a CPAs firm?
□ Yes √ No
The H1 2019 financial statements are unaudited by a CPAs firm.
2. Financial Statements
(All amounts in RMB'000 Yuan unless otherwise stated)
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY BALANCE SHEETSAS AT 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| ASSETS | Note | 30 June 2019 | 31 December 2018 | 30 June 2019 | 31 December 2018 |
| Consolidated | Consolidated | Company | Company | ||
| Current assets: | |||||
| Cash at bank and on hand | 4(1) | 35,890,088 | 27,888,280 | 25,693,887 | 15,361,626 |
| Financial assets held for trading | 4(2) | 3,433,401 | 2,549,611 | ||
| Derivative financial assets | 50,847 | 220,197 | - | - | |
| Notes receivable | 4(3) | 15,060,062 | 12,556,294 | - | - |
| Accounts receivable | 4(4) | 23,017,823 | 19,390,174 | - | - |
| Receivables financing | 2,653,342 | - | |||
| Advances to suppliers | 4(5) | 2,099,422 | 2,215,888 | 54,531 | 55,069 |
| Loans and advances | 4(6) | 14,672,687 | 11,328,392 | - | - |
| Other receivables | 4(4), 17(1) | 2,512,193 | 2,971,368 | 13,106,026 | 11,593,020 |
| Inventories | 4(7) | 24,106,604 | 29,645,018 | - | - |
| Other current assets | 4(8) | 75,464,791 | 76,473,827 | 59,283,778 | 55,052,256 |
| Total current assets | 198,961,260 | 182,689,438 | 100,687,833 | 82,061,971 | |
| Non-current assets: | |||||
| Available-for-sale financial assets | 1,906,878 | 56,579 | |||
| Long-term receivables | 1,293,523 | 34,815 | - | - | |
| Long-term equity investments | 4(9), 17(2) | 2,619,985 | 2,713,316 | 45,525,300 | 28,236,295 |
| Other non-current financial assets | 4(10) | 1,420,416 | 476,723 | ||
| Investment properties | 380,579 | 391,765 | 540,592 | 560,954 | |
| Fixed assets | 4(11) | 21,508,572 | 22,437,212 | 973,766 | 1,056,790 |
| Construction in progress | 4(12) | 1,405,351 | 2,077,621 | 84,869 | 51,872 |
| Intangible assets | 4(13) | 15,915,894 | 16,186,675 | 708,679 | 712,454 |
| Goodwill | 4(14) | 29,103,917 | 29,100,390 | - | - |
| Long-term prepaid expenses | 1,212,499 | 1,191,373 | 150,541 | 174,684 | |
| Deferred tax assets | 4(15) | 5,467,296 | 4,421,313 | 90,832 | 202,703 |
| Other non-current assets | 4,744,533 | 550,352 | 4,200,939 | 4,576 | |
| Total non-current assets | 85,072,565 | 81,011,710 | 52,752,241 | 31,056,907 | |
| TOTAL ASSETS | 284,033,825 | 263,701,148 | 153,440,074 | 113,118,878 |
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY BALANCE SHEETS (CONT’D)AS AT 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| LIABILITIES AND OWNERS’ EQUITY | Note | 30 June 2019 | 31 December 2018 | 30 June 2019 | 31 December 2018 |
| Consolidated | Consolidated | Company | Company | ||
| Current liabilities: | |||||
| Short-term borrowings | 1,338,324 | 870,390 | 529,000 | 575,000 | |
| Borrowings from the Central Bank | 19,555 | 99,754 | - | - | |
| Customer deposits and deposits from banks and other financial institutions | 64,801 | 44,386 | - | - | |
| Derivative financial liabilities | 75,195 | 756,299 | - | - | |
| Notes payable | 4(18) | 29,274,952 | 23,325,115 | - | - |
| Accounts payable | 4(19) | 39,004,928 | 36,901,626 | - | - |
| Advances from customers | 4(20) | 10,417,962 | 16,781,666 | - | - |
| Employee benefits payable | 4(21) | 4,758,403 | 5,788,004 | 559,335 | 573,632 |
| Taxes payable | 4(22) | 3,918,391 | 3,875,298 | 168,384 | 280,499 |
| Other payables | 4(23) | 3,419,347 | 3,346,129 | 94,548,901 | 74,714,012 |
| Current portion of non-current liabilities | 115,704 | 7,122,712 | - | - | |
| Other current liabilities | 4(24) | 41,516,316 | 31,319,709 | 8,495 | 44,414 |
| Total current liabilities | 133,923,878 | 130,231,088 | 95,814,115 | 76,187,557 | |
| Non-current liabilities: | |||||
| Long-term borrowings | 4(25) | 42,490,036 | 32,091,439 | 4,000,000 | - |
| Long-term payables | 45,424 | 88,890 | - | - | |
| Provisions | 292,264 | 268,887 | - | - | |
| Deferred income | 587,238 | 647,583 | - | - | |
| Long-term employee benefits payable | 4(26) | 2,500,722 | 2,480,318 | - | - |
| Deferred tax liabilities | 4(15) | 4,551,299 | 4,422,074 | 56,033 | - |
| Other non-current liabilities | 1,040,961 | 1,016,352 | - | - | |
| Total non-current liabilities | 51,507,944 | 41,015,543 | 4,056,033 | - | |
| Total liabilities | 185,431,822 | 171,246,631 | 99,870,148 | 76,187,557 | |
| Shareholders’ equity： | |||||
| Share capital | 4(27) | 6,938,903 | 6,663,031 | 6,938,903 | 6,663,031 |
| Capital surplus | 4(29) | 18,658,065 | 18,451,307 | 24,924,388 | 10,615,389 |
| Less: Treasury stock | 4(28) | (2,652,334) | (4,918,427) | (2,652,334) | (4,918,427) |
| Other comprehensive income | 4(30) | (859,738) | (1,332,153) | 12,775 | 6,020 |
| General risk reserve | 366,947 | 366,947 | - | - | |
| Surplus reserve | 4(31) | 5,079,096 | 5,079,096 | 5,079,096 | 5,079,096 |
| Undistributed profits | 4(32) | 65,058,040 | 58,762,315 | 19,267,098 | 19,486,212 |
| Total equity attributable to shareholders of the Company | 92,588,979 | 83,072,116 | 53,569,926 | 36,931,321 | |
| Minority interests | 6,013,024 | 9,382,401 | - | - | |
| Total shareholders’ equity | 98,602,003 | 92,454,517 | 53,569,926 | 36,931,321 | |
| TOTAL LIABILITIES AND OWNERS’ EQUITY | 284,033,825 | 263,701,148 | 153,440,074 | 113,118,878 |
| 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 SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Note | For the six months ended 30 June 2019 | For the six months ended 30 June 2018 | For the six months ended 30 June 2019 | For the six months ended 30 June 2018 |
| Consolidated | Consolidated | Company | Company | ||
| 1. Total revenue | 154,332,643 | 143,735,916 | 876,450 | 866,310 | |
| Including: Revenue | 4(34), 17(3) | 153,770,300 | 142,623,837 | 876,450 | 866,310 |
| Interest income | 4(35) | 561,697 | 1,112,014 | - | - |
| Fee and commission income | 646 | 65 | - | - | |
| 2. Total cost of sales | (136,218,155) | (128,041,762) | 708,863 | 43,073 | |
| Including: Cost of sales | 4(34) | (108,441,289) | (103,881,438) | (24,059) | (21,954) |
| Interest costs | 4(35) | (105,543) | (168,235) | - | - |
| Fee and commission expenses | (3,671) | (1,529) | - | - | |
| Taxes and surcharges | 4(36) | (928,590) | (847,650) | (11,003) | (17,701) |
| Selling and distribution expenses | 4(37) | (19,529,822) | (16,892,503) | - | - |
| General and administrative expenses | 4(38) | (4,110,125) | (3,335,291) | (212,140) | (167,898) |
| Research and development expenses | 4(39) | (4,534,760) | (3,899,229) | ||
| Financial expenses | 4(40) | 1,435,645 | 984,113 | 956,065 | 250,626 |
| Including: Interest expenses | (401,129) | (304,703) | (643,784) | (277,458) | |
| Interest income | 2,088,716 | 757,815 | 1,594,250 | 530,954 | |
| Add: Other income | 4(46) | 661,949 | 626,278 | 143,303 | 184,077 |
| Investment income | 4(44), 17(4) | 12,640 | 912,624 | 6,747,397 | 6,583,452 |
| Including: Share of profit of associates and joint ventures | 232,596 | 187,245 | 144,453 | 127,081 | |
| Including: Profits or losses arising from derecognition of financial assets measured at amortised costs | (709) | - | |||
| Gains on changes in fair value | 4(43) | 347,862 | (613,928) | - | - |
| Asset impairment losses | 4(41) | (144,656) | (300,087) | 286 | |
| Losses on credit impairment | 4(42) | (179,047) | (1,055) | ||
| Gains on disposals of assets | 4(45) | (13,705) | (18,759) | - | 263 |
| 3. Operating profit | 18,799,531 | 16,300,282 | 8,474,958 | 7,677,461 | |
| Add: Non-operating income | 150,363 | 150,800 | 30,188 | 4,418 | |
| Less: Non-operating expenses | (60,379) | (56,509) | (289) | (4,038) | |
| 4. Total profit | 18,889,515 | 16,394,573 | 8,504,857 | 7,677,841 | |
| Less: Income tax expenses | 4(47) | (2,829,592) | (2,614,882) | (170,074) | (7,930) |
| 5. Net profit | 16,059,923 | 13,779,691 | 8,334,783 | 7,669,911 | |
| (1) Classified by continuity of operations | |||||
| Net profit from continuing operations | 16,059,923 | 13,779,691 | 8,334,783 | 7,669,911 | |
| Net profit from discontinued operations | - | - | - | - | |
| (2) Classified by ownership of the equity | |||||
| Attributable to equity owners of the Company | 15,187,069 | 12,936,846 | 8,334,783 | 7,669,911 | |
| Minority interests | 872,854 | 842,845 | - | - | |
| 6. Other comprehensive income, net of tax | 172,153 | (586,379) | 6,755 | 96,914 | |
| Other comprehensive income attributable to equity owners of the Company, net of tax | 134,968 | (399,887) | 6,755 | 96,914 | |
| (1) Other comprehensive income items which will not be reclassified to profit or loss | (78,752) | 18,286 | - | - | |
| 1. Changes arising from remeasurement on defined benefit plans | (78,752) | 18,286 | - | - | |
| (2) Other comprehensive income items which will be reclassified to profit or loss | 213,720 | (418,173) | 6,755 | 96,914 | |
| 1. Other comprehensive income that could be reclassified to profit and loss under equity method | (251) | 45,974 | 6,755 | 34,306 | |
| 2. Changes in fair value of available-for-sale financial assets | 14,579 | - | 62,608 | ||
| 3. Cash flow hedging reserve | 34,124 | (634,467) | - | - | |
| 4. Differences arising from translation of foreign currency financial statements | 179,847 | 155,741 | - | - | |
| Other comprehensive income attributable minority shareholders, net of tax | 37,185 | (186,492) | - | - | |
| 7. Total comprehensive income | 16,232,076 | 13,193,312 | 8,341,538 | 7,766,825 | |
| Attributable to equity owners of the Company | 15,322,037 | 12,536,959 | 8,341,538 | 7,766,825 | |
| Attributable to minority interests | 910,039 | 656,353 | - | - | |
| 8. Earnings per share: | |||||
| (1) Basic earnings per share | 4(48) | 2.32 | 1.97 | Not applicable | Not applicable |
| (2) Diluted earnings per share | 4(48) | 2.30 | 1.94 | Not applicable | Not applicable |
| 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 SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Note | For the six months ended 30 June 2019 | For the six months ended 30 June 2018 | For the six months ended 30 June 2019 | For the six months ended 30 June 2018 |
| Consolidated | Consolidated | Company | Company | ||
| 1. Cash flows from operating activities | |||||
| Cash received from sales of goods or rendering of services | 126,154,956 | 101,192,080 | - | - | |
| Net increase in customer deposits and deposits from banks and other financial institutions | 20,415 | - | - | - | |
| Net decrease in deposits with the Central Bank and deposits with banks and other financial institutions | 398,114 | - | - | - | |
| Net increase in borrowings from the Central Bank | - | 30,367 | - | - | |
| Cash received for interest, fee and commission | 582,748 | 656,777 | - | - | |
| Refund of taxes and surcharges | 4,048,551 | 3,648,098 | - | - | |
| Cash received relating to other operating activities | 4(49)(a) | 2,381,473 | 3,556,377 | 20,283,213 | 9,646,377 |
| Sub-total of cash inflows | 133,586,257 | 109,083,699 | 20,283,213 | 9,646,377 | |
| Cash paid for goods and services | (68,459,015) | (62,574,802) | - | - | |
| Net increase in loans and advances | (3,399,771) | (3,345,537) | - | - | |
| Net decrease in customer deposits and deposits from banks and other financial institutions | - | (5,855) | - | - | |
| Net increase in deposits with the Central Bank | - | (1,332,232) | - | - | |
| Net decrease in borrowings from the Central Bank | (80,199) | - | - | - | |
| Cash paid for interest, fee and commission | (114,519) | (169,952) | - | - | |
| Cash paid to and on behalf of employees | (13,696,292) | (13,600,798) | (22,076) | (325,065) | |
| Payments of taxes and surcharges | (8,210,106) | (6,994,367) | (75,289) | (17,702) | |
| Cash paid relating to other operating activities | 4(49)(b) | (17,838,465) | (13,446,468) | (549,409) | (1,592,701) |
| Sub-total of cash outflows | (111,798,367) | (101,470,011) | (646,774) | (1,935,468) | |
| Net cash flows from operating activities | 4(49)(c) | 21,787,890 | 7,613,688 | 19,636,439 | 7,710,909 |
| 2. Cash flows from investing activities | |||||
| Cash received from disposal of investments | 26,879,915 | 31,793,113 | 15,451,529 | 13,502,964 | |
| Cash received from returns on investments | 695,269 | 1,007,924 | 5,866,529 | 7,568,060 | |
| Net cash received from disposal of fixed assets, intangible assets and other long-term assets | 102,266 | 36,333 | - | - | |
| Net cash received from disposal of subsidiaries and other business units | - | 30,755 | - | - | |
| Cash received relating to other investing activities | - | - | - | - | |
| Sub-total of cash inflows | 27,677,450 | 32,868,125 | 21,318,058 | 21,071,024 | |
| Cash paid to acquire fixed assets, intangible assets and other long-term assets | (1,931,628) | (2,368,539) | (74,831) | (115,266) | |
| Cash paid to acquire investments | (43,598,143) | (39,300,659) | (39,801,205) | (21,358,367) | |
| Net cash paid to acquire subsidiaries and other business units | (178,427) | (142,604) | - | - | |
| Cash paid relating to other investing activities | - | - | - | - | |
| Sub-total of cash outflows | (45,708,198) | (41,811,802) | (39,876,036) | (21,473,633) | |
| Net cash flows from investing activities | (18,030,748) | (8,943,677) | (18,557,978) | (402,609) | |
| 3. Cash flows from financing activities | |||||
| Cash received from capital contributions | 1,798,533 | 1,711,968 | 1,682,906 | 1,168,515 | |
| Including: Cash received from capital contributions by minority shareholders of subsidiaries | 115,627 | 521,351 | - | - | |
| Cash received from borrowings | 11,562,940 | 1,117,310 | 6,127,000 | - | |
| Sub-total of cash inflows | 13,361,473 | 2,829,278 | 7,809,906 | 1,168,515 | |
| Cash repayments of borrowings | (7,720,691) | (2,493,061) | (2,173,000) | - | |
| Cash payments for distribution of dividends, profits or interest expenses | (10,274,437) | (8,667,397) | (9,135,083) | (8,093,220) | |
| Including: Cash payments for dividends or profit to minority shareholders of subsidiaries | (1,314,282) | (497,161) | - | - | |
| Cash paid relating to other financing activities | (2,195,034) | (1,835,429) | (1,992,751) | (28,811) | |
| Sub-total of cash outflows | (20,190,162) | (12,995,887) | (13,300,834) | (8,122,031) | |
| Net cash flows from financing activities | (6,828,689) | (10,166,609) | (5,490,928) | (6,953,516) | |
| 4. Effect of foreign exchange rate changes on cash and cash equivalents | 16,445 | 92,339 | - | - | |
| 5. Net increase in cash and cash equivalents | (3,055,102) | (11,404,259) | (4,412,467) | 354,784 | |
| Add: Cash and cash equivalents at the beginning of the period | 17,952,282 | 21,831,653 | 10,181,934 | 25,978,543 | |
| 6. Cash and cash equivalents at the end of the period | 14,897,180 | 10,427,394 | 5,769,467 | 26,333,327 |
| 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 SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Amounts of the current period | ||||||||
| Attributable to equity owners of the Company | Minority interests | Total shareholders’ equity | |||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Surplus reserve | General risk reserve | Undistributed profits | |||
| 1. Balance at the end of the last year | 6,663,031 | 18,451,307 | (4,918,427) | (1,332,153) | 5,079,096 | 366,947 | 58,762,315 | 9,382,401 | 92,454,517 |
| Add: Changes in accounting policies | - | - | - | 337,447 | - | - | (337,447) | - | - |
| 2. Balance at the beginning of the current year | 6,663,031 | 18,451,307 | (4,918,427) | (994,706) | 5,079,096 | 366,947 | 58,424,868 | 9,382,401 | 92,454,517 |
| 3. Movements for the current year | 275,872 | 206,758 | 2,266,093 | 134,968 | - | - | 6,633,172 | (3,369,377) | 6,147,486 |
| (1) Total comprehensive income | - | - | - | 134,968 | - | - | 15,187,069 | 910,039 | 16,232,076 |
| (2) Capital contribution and withdrawal by shareholders | 275,872 | 283,662 | 2,266,093 | - | - | - | - | (3,034,147) | (208,520) |
| 1. Capital contribution from shareholders | 54,153 | 1,513,276 | (57,088) | - | - | - | - | 115,627 | 1,625,968 |
| 2. Business combinations | - | - | - | - | - | - | - | - | - |
| 3. Share-based payment included in shareholders' equity | - | (7,953) | - | - | - | - | - | 45,314 | 37,361 |
| 4. Others | 221,719 | (1,221,661) | 2,323,181 | - | - | - | - | (3,195,088) | (1,871,849) |
| (3) Profit distribution | - | - | - | - | - | - | (8,553,897) | (1,249,981) | (9,803,878) |
| 1. Appropriation to surplus reserve | - | - | - | - | - | - | - | - | - |
| 2. Appropriations to general risk reserve | - | - | - | - | - | - | - | - | - |
| 3. Profit distribution to shareholders | - | - | - | - | - | - | (8,553,897) | (1,249,981) | (9,803,878) |
| 4. Others | - | - | - | - | - | - | - | - | - |
| (4) Transfer within shareholders' equity | - | - | - | - | - | - | - | - | - |
| 1. Transfer from capital surplus to paid-in capital | - | - | - | - | - | - | - | - | - |
| 2. Transfer from surplus reserves to paid-in capital | - | - | - | - | - | - | - | - | - |
| 3. Surplus reserve used to offset accumulated losses | - | - | - | - | - | - | - | - | - |
| 4. Others | - | - | - | - | - | - | - | - | - |
| (5) Special reserve | - | - | - | - | - | - | - | - | - |
| 1. Increase in the current period | - | - | - | - | - | - | - | - | - |
| 2. Usage in the current period | - | - | - | - | - | - | - | - | - |
| (6) Others | - | (76,904) | - | - | - | - | - | 4,712 | (72,192) |
| 4. Balance at the end of the current period | 6,938,903 | 18,658,065 | (2,652,334) | (859,738) | 5,079,096 | 366,947 | 65,058,040 | 6,013,024 | 98,602,003 |
| 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' EQUITY (CONT’D)FOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Amounts of the last year | ||||||||
| Attributable to equity owners of the Company | Minority interests | Total shareholders’ equity | |||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Surplus reserve | General risk reserve | Undistributed profits | |||
| 1. Balance at the end of the last year | 6,561,053 | 15,911,504 | (366,842) | (244,692) | 3,882,232 | 366,947 | 47,627,235 | 9,187,734 | 82,925,171 |
| Add: Changes in accounting policies | - | - | - | - | - | - | - | - | - |
| 2. Balance at the beginning of the current year | 6,561,053 | 15,911,504 | (366,842) | (244,692) | 3,882,232 | 366,947 | 47,627,235 | 9,187,734 | 82,925,171 |
| 3. Movements for the current year | 101,978 | 2,539,803 | (4,551,585) | (1,087,461) | 1,196,864 | - | 11,135,080 | 194,667 | 9,529,346 |
| (1) Total comprehensive income | - | - | - | (1,087,461) | - | - | 20,230,779 | 1,291,276 | 20,434,594 |
| (2) Capital contribution and withdrawal by shareholders | 101,978 | 2,555,513 | (4,551,585) | - | - | - | - | (372,510) | (2,266,604) |
| 1. Capital contribution from shareholders | 103,679 | 2,596,878 | (717,841) | - | - | - | - | 615,092 | 2,597,808 |
| 2. Business combinations | - | - | - | - | - | - | - | 345,657 | 345,657 |
| 3. Share-based payment included in shareholders' equity | - | 356,412 | - | - | - | - | - | 117,423 | 473,835 |
| 4. Others | (1,701) | (397,777) | (3,833,744) | - | - | - | - | (1,450,682) | (5,683,904) |
| (3) Profit distribution | - | - | - | - | 1,196,864 | - | (9,095,649) | (819,804) | (8,718,589) |
| 1. Appropriation to surplus reserve | - | - | - | - | 1,196,864 | - | (1,196,864) | - | - |
| 2. Appropriations to general risk reserve | - | - | - | - | - | - | - | - | - |
| 3. Profit distribution to shareholders | - | - | - | - | - | - | (7,898,785) | (819,804) | (8,718,589) |
| 4. Others | - | - | - | - | - | - | - | - | - |
| (4) Transfer within shareholders' equity | - | - | - | - | - | - | - | - | - |
| 1. Transfer from capital surplus to paid-in capital | - | - | - | - | - | - | - | - | - |
| 2. Transfer from surplus reserves to paid-in capital | - | - | - | - | - | - | - | - | - |
| 3. Surplus reserve used to offset accumulated losses | - | - | - | - | - | - | - | - | - |
| 4. Others | - | - | - | - | - | - | - | - | - |
| (5) Special reserve | - | - | - | - | - | - | - | - | - |
| 1. Increase in the current period | - | - | - | - | - | - | - | - | - |
| 2. Usage in the current period | - | - | - | - | - | - | - | - | - |
| (6) Others | - | (15,710) | - | - | - | - | (50) | 95,705 | 79,945 |
| 4. Balance at the end of the current period | 6,663,031 | 18,451,307 | (4,918,427) | (1,332,153) | 5,079,096 | 366,947 | 58,762,315 | 9,382,401 | 92,454,517 |
| 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 SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Amounts of the current period | |||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Special reserve | Surplus reserve | Undistributed profits | Total shareholders’ equity | |
| 1. Balance at the end of the last year | 6,663,031 | 10,615,389 | (4,918,427) | 6,020 | - | 5,079,096 | 19,486,212 | 36,931,321 |
| Add: Changes in accounting policies | - | - | - | - | - | - | - | - |
| 2. Balance at the beginning of the current year | 6,663,031 | 10,615,389 | (4,918,427) | 6,020 | - | 5,079,096 | 19,486,212 | 36,931,321 |
| 3. Movements for the current year | 275,872 | 14,308,999 | 2,266,093 | 6,755 | - | - | (219,114) | 16,638,605 |
| (1) Total comprehensive income | - | - | - | 6,755 | - | - | 8,334,783 | 8,341,538 |
| (2) Capital contribution and withdrawal by shareholders | 275,872 | 14,355,340 | 2,266,093 | - | - | - | - | 16,897,305 |
| 1. Capital contribution from shareholders | 54,153 | 1,513,276 | (57,088) | - | - | - | - | 1,510,341 |
| 2. Capital contribution from owners of other equity instruments | - | - | - | - | - | - | - | - |
| 3. Share-based payment included in owners' equity | - | (26,333) | - | - | - | - | - | (26,333) |
| 4. Others | 221,719 | 12,868,397 | 2,323,181 | - | - | - | - | 15,413,297 |
| (3) Profit distribution | - | - | - | - | - | - | (8,553,897) | (8,553,897) |
| 1. Appropriation to surplus reserve | - | - | - | - | - | - | - | - |
| 2. Profit distribution to shareholders | - | - | - | - | - | - | (8,553,897) | (8,553,897) |
| 3. Others | - | - | - | - | - | - | - | - |
| (4) Transfer within shareholders' equity | - | - | - | - | - | - | - | - |
| 1. Transfer from capital surplus to paid-in capital | - | - | - | - | - | - | - | - |
| 2. Transfer from surplus reserves to paid-in capital | - | - | - | - | - | - | - | - |
| 3. Surplus reserve used to offset accumulated losses | - | - | - | - | - | - | - | - |
| 4. Others | - | - | - | - | - | - | - | - |
| (5) Special reserve | - | - | - | - | - | - | - | - |
| 1. Increase in the current year | - | - | - | - | - | - | - | - |
| 2. Usage in the current year | - | - | - | - | - | - | - | - |
| (6) Others | - | (46,341) | - | - | - | - | - | (46,341) |
| 4. Balance at the end of the year | 6,938,903 | 24,924,388 | (2,652,334) | 12,775 | - | 5,079,096 | 19,267,098 | 53,569,926 |
| 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' EQUITY (CONT’D)FOR THE SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| Item | Amounts of the last year | |||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Special reserve | Surplus reserve | Undistributed profits | Total shareholders’ equity | |
| 1. Balance at the end of the last year | 6,561,053 | 7,726,237 | (366,842) | 33,459 | - | 3,882,232 | 16,613,224 | 34,449,363 |
| Add: Changes in accounting policies | - | - | - | - | - | - | - | - |
| 2. Balance at the beginning of the current year | 6,561,053 | 7,726,237 | (366,842) | 33,459 | - | 3,882,232 | 16,613,224 | 34,449,363 |
| 3. Movements for the current year | 101,978 | 2,889,152 | (4,551,585) | (27,439) | - | 1,196,864 | 2,872,988 | 2,481,958 |
| (1) Total comprehensive income | - | - | - | (27,439) | - | - | 11,968,637 | 11,941,198 |
| (2) Capital contribution and withdrawal by shareholders | 101,978 | 2,882,425 | (4,551,585) | - | - | - | - | (1,567,182) |
| 1. Capital contribution from shareholders | 103,679 | 2,596,878 | (717,841) | - | - | - | - | 1,982,716 |
| 2. Capital contribution from owners of other equity instruments | - | 312,656 | - | - | - | - | - | 312,656 |
| 3. Share-based payment included in owners' equity | (1,701) | (27,109) | (3,833,744) | - | - | - | - | (3,862,554) |
| 4. Others | - | - | - | - | - | - | - | - |
| (3) Profit distribution | - | - | - | - | - | 1,196,864 | (9,095,649) | (7,898,785) |
| 1. Appropriation to surplus reserve | - | - | - | - | - | 1,196,864 | (1,196,864) | - |
| 2. Profit distribution to shareholders | - | - | - | - | - | - | (7,898,785) | (7,898,785) |
| 3. Others | - | - | - | - | - | - | - | - |
| (4) Transfer within shareholders' equity | - | - | - | - | - | - | - | - |
| 1. Transfer from capital surplus to paid-in capital | - | - | - | - | - | - | - | - |
| 2. Transfer from surplus reserves to paid-in capital | - | - | - | - | - | - | - | - |
| 3. Surplus reserve used to offset accumulated losses | - | - | - | - | - | - | - | - |
| 4. Others | - | - | - | - | - | - | - | - |
| (5) Special reserve | - | - | - | - | - | - | - | - |
| 1. Increase in the current year | - | - | - | - | - | - | - | - |
| 2. Usage in the current year | - | - | - | - | - | - | - | - |
| (6) Others | - | 6,727 | - | - | - | - | - | 6,727 |
| 3. Balance at the end of the year | 6,663,031 | 10,615,389 | (4,918,427) | 6,020 | - | 5,079,096 | 19,486,212 | 36,931,321 |
| 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 SIX MONTHS ENDED 30 JUNE 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 “theCompany”) and its subsidiaries (hereinafter collectively referred to as “the Group”) includeheating & ventilation, as well as air-conditioner (hereinafter referred to as “HVAC”) centred onhousehold air-conditioner, central air-conditioner, heating and ventilation systems; consumerappliances centred on kitchen appliances, refrigerators, washing machines and various smallappliances; robots and automation systems centred on KUKA Aktiengesellschaft (hereinafterreferred to as “KUKA”) and its subsidiaries (hereinafter referred to as “KUKA Group”) and otherrobots corporations of Midea Group. Other services include service platform with AnntoTechnology providing the smart supply chain integrated solutions; sale, wholesale andprocessing of raw materials of household electrical appliances; and financial business involvedin customer deposits, interbank lendings and borrowings, consumption credit, buyer’s credit andfinance lease.
The Company was set up by the Council of Trade Unions of Guangdong Midea Group Co. Ltd.,and was registered in Market Safety Supervision Bureau of Shunde District, Foshan on 7 April2000, 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 was approvedto merge and acquire Guangdong Midea Electric Co., Ltd., which was listed on Shenzhen StockExchange. On 18 September 2013, the Company’s shares listed on Shenzhen Stock Exchange.
As at 31 December 2019, the Company's registered capital is RMB 6,938,903,035 with the sharecapital of RMB 6,938,903,035, and the total number of shares in issue is 6,938,903,035, of which165,650,113 shares are restricted tradable A shares and 6,773,252,922 shares are unrestrictedtradable A shares.
The detailed information of major subsidiaries included in the consolidation scope in currentperiod is set out in Note 5 and Note 6. Entities newly included in the consolidation scope in thecurrent year include Midea Electrics Egypt, Anhui Welling Auto Parts Corporation Limited andWuxi Little Swan Electric Co., Ltd. Please refer to Note 5(1)(a) for details. The detailedinformation of subsidiaries no longer included in the consolidation scope in the current year is setout in 5(1)(b).
These financial statements were authorised for issue by the Company’s Board of Directors on 30August 2019.
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 recognition method of provision forexpected credit losses on receivables (Note 2(9)), valuation method of inventory (Note 2(11)),depreciation of fixed assets and amortisation of intangible assets (Note 2(14), (17)), impairmentof goodwill (Note 2(19)) and recognition time of revenue (Note 2(27)).
Critical judgements applied by the Group in determining significant accounting policies are setout in Note 2(33).
(1) Basis of preparation
The financial statements are prepared in accordance with the Accounting Standard for BusinessEnterprises - Basic Standard, and the specific accounting standards and other relevantregulations issued by the Ministry of Finance on 15 February 2006 and in subsequent periods(hereafter collectively referred to as the “Accounting Standards for Business Enterprises” or“CAS”) and the disclosure requirements in the Preparation Convention of Information Disclosureby Companies Offering Securities to the Public No. 15 – General Rules on Financial Reportingissued by the China Securities Regulatory Commission (“CSRC”).
The financial statements are prepared on a going concern basis.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(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 and completelypresent the consolidated and the Company’s financial position of the Company as at 30 June2019 and their financial performance, cash flows and other information for the six months ended30 June 2019.
(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 determine theirfunctional currency based on the primary economic environment in which the business isoperated, mainly including EUR, JPY, USD and HKD. The financial statements are presented inRMB.
(5) Business combinations
(a) Business combinations involving enterprises under common control
The consideration paid and net assets obtained by the absorbing party in a business combinationare measured at the carrying amount. If the absorbing party was bought by the ultimate controllerfrom a third party in prior years, the value of its assets and liabilities (including goodwill generateddue to the combination) are based on the carrying amount in the ultimate controller’s consolidatedfinancial statements. The difference between the carrying amount of the net assets obtained fromthe combination and the carrying amount of the consideration paid for the combination is treatedas an adjustment to capital surplus (share premium). If the capital surplus (share premium) is notsufficient to absorb the difference, the remaining balance is adjusted against retained earnings.Costs directly attributable to the combination are included in profit or loss in the period in whichthey are incurred. 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.
(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 the combinationexceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, thedifference is recognised as goodwill; where the cost of combination is lower than the acquirer’sinterest in the fair value of the acquiree’s identifiable net assets, the difference is recognised inprofit or loss for the current period. Costs directly attributable to the combination are included inprofit or loss in the period in which they are incurred. Transaction costs associated with the issueof equity or debt securities for the business combination are included in the initially recognisedamounts of the equity or debt securities.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 (Cont’d)
For business combinations achieved by stages involving enterprises not under common control,previously-held equity in the acquiree is remeasured at its fair value at the acquisition dates, andthe difference between its fair value and carrying amount is included in investment income forthe current period in consolidated financial statements. Where the previously-held equity in theacquiree involves other comprehensive income under equity method and shareholders’ equitychanges other than those arising from the net profit or loss, other comprehensive income andprofit distribution, the related other comprehensive income and other shareholders' equitychanges are transferred into income for the current period to which the acquisition dates belong,excluding those arising from changes in the investee's remeasurements of net liability or netasset related to the defined benefit plan. The excess of the sum of fair value of the previously-held equity and fair value of the consideration paid at the acquisition dates over share of fairvalue of identifiable net assets acquired from the subsidiary is recognised as goodwill.
(6) Preparation of consolidated financial statements
The consolidated financial statements comprise the financial statements of the Company and allof 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 financial statementsof the subsidiaries are adjusted in accordance with the accounting policies and the accountingperiod of the Company. For subsidiaries acquired from business combinations involvingenterprises not under common control, the individual financial statements of the subsidiaries areadjusted based on the fair value of the identifiable net assets at the acquisition date.
All significant intra-group balances, transactions and unrealised profits are eliminated in theconsolidated financial statements. The portion of subsidiaries’ equity and the portion ofsubsidiaries’ net profits and losses and comprehensive income for the period not attributable tothe Company are recognised as minority interests presented separately in the consolidatedfinancial statements under equity, net profits and total comprehensive income respectively.Unrealised profits and losses resulting from the sale of assets by the Company to its subsidiariesare fully eliminated against net profit attributable to owners of the parent. Unrealised profits andlosses resulting from the sale of assets by a subsidiary to the Company are eliminated andallocated between net profit attributable to owners of the parent and minority interests inaccordance with the allocation proportion of the parent in the subsidiary. Unrealised profits andlosses resulting from the sale of assets by one subsidiary to another are eliminated and allocatedbetween net profit attributable to owners of the parent and net profit attributed to minority interestsin accordance with the allocation proportion of the parent in the subsidiary. If the accountingtreatment of a transaction which considers the Group as an accounting entity is different fromthat considers the Company or its subsidiaries as an accounting entity, it is adjusted from theperspective of the Group.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(7) Recognition criteria of cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits that can be readily drawn on demand,and short-term and highly liquid investments that are readily convertible to known amounts of cashand which are subject to an insignificant risk of changes in value.
(8) Foreign currency translation
(a) Foreign currency transaction
Foreign currency transactions are translated into functional currency using the exchange ratesprevailing at the dates of the transactions.
At the balance sheet date, monetary items denominated in foreign currencies are translated intothe functional currency using the spot exchange rates on the balance sheet date. Exchangedifferences arising from these translations are recognised in profit or loss for the current period,except for those attributable to foreign currency borrowings that have been taken out specificallyfor acquisition or construction of qualifying assets, which are capitalised as part of the cost of thoseassets. Non-monetary items denominated in foreign currencies that are measured at historicalcosts are translated at the balance sheet date using the spot exchange rates at the date of thetransactions. The effect of exchange rate changes on cash is presented separately in the cash flowstatement.
(b) Translation of foreign currency financial statements
The asset and liability items in the balance sheets for overseas operations are translated at thespot exchange rates on the balance sheet date. Among the owners’ equity items, the items otherthan “undistributed profits” are translated at the spot exchange rates of the transaction dates. Theincome and expense items in the income statements of overseas operations are translated at thespot exchange rates of the transaction dates. The differences arising from the above translationare presented in other comprehensive income. The cash flows of overseas operations aretranslated at the spot exchange rates on the dates of the cash flows. The effect of exchange ratechanges on cash is presented separately in the cash flow statement.
(9) Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financialliability or equity instrument of another entity. A financial asset or a financial liability is recognisedwhen the Group becomes a party to the contractual provisions of the instrument.
(a) Financial assets
(i) Classification and measurement
Based on the business model for managing the financial assets and the contractual cash flowcharacteristics of the financial assets, financial assets are classified as: (1) financial assets atamortised cost; (2) financial assets at fair value through other comprehensive income; (3) financialassets at fair value through profit or loss.
The financial assets are measured at fair value at initial recognition. Related transaction costs thatare attributable to the acquisition of the financial assets are included in the initially recognisedamounts, except for the financial assets at fair value through profit or loss, the related transactioncosts of which are recognised directly in profit or loss for the current period.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
Accounts receivable or notes receivable arising from sales of products or rendering of services(excluding or without regard to significant financing components) are initially recognised at theconsideration that is entitled to be charged by the Group as expected.
Debt instruments
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 following threeways:
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 a basiclending arrangement, which gives rise on specified dates to the contractual cash flows that aresolely payments of principal and interest on the principal amount outstanding. The interest incomeof such financial assets is recognised using the effective interest method. Such financial assetsmainly comprise cash at bank and on hand, loans and advances, notes receivable, accountsreceivable, other receivables, structural deposits with banks, debt investments and long-termreceivables, etc. Debt investments and long-term receivables that are due within one year(inclusive) as from the balance sheet date are included in the current portion of non-current assets;debt investments with maturities of no more than one year (inclusive) at the time of acquisitionare 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 collect thecontractual cash flows and sell such financial assets, and the contractual cash flow characteristicsare consistent with a basic lending arrangement. Such financial assets are measured at fair valuethrough other comprehensive income, except for the impairment gains or losses, foreignexchange gains and losses, and interest income calculated using the effective interest methodwhich are recognised in profit or loss for the current period. Such financial assets are included inreceivables financing, other debt investments; other debt investments that are due within oneyear (inclusive) as from the balance sheet date are included in the current portion of non-currentassets; other debt investments with maturities no more than one year (inclusive) at the time ofacquisition are included in other current assets.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
Measured at fair value through profit or loss:
Debt instruments held by the Group that are not divided into those at amortised cost, or thosemeasured at fair value through other comprehensive income, are measured at fair value throughprofit or loss and included in financial assets held for trading. At initial recognition, Groupdesignates a portion of financial assets as at fair value through profit or loss to eliminate orsignificantly reduce an accounting mismatch. Financial assets that are due over one year as fromthe balance sheet date and are expected to be held over one year are included in other non-current financial assets.
Equity instruments
Investments in equity instruments, over which the Group has no control, joint control or significantinfluence, are measured at fair value through profit or loss under financial assets held for trading;investments in equity instruments expected to be held over one year as from the balance sheetdate are included in other non-current financial assets.
Derivative financial instruments
The derivative financial instruments held or issued by the Group are mainly used in controllingrisk exposures. Derivative financial instruments are initially recognised at fair value on the daywhen derivatives transaction contract was signed, and subsequently measured at fair value. Thederivative financial instruments are recorded as assets when they have a positive fair value andas liabilities when they have a negative fair value.
The recognition of changes in fair value of derivative financial instruments depends on whethersuch derivative financial instruments are designated as hedging instruments and meetrequirements for hedging instruments, and depends on the nature of hedged items in this case.For derivative financial instruments that are not designated as hedging instruments and fail tomeet requirements on hedging instruments, including those held for the purpose of providinghedging against specific risks in interest rate and foreign exchange but not conforming withrequirements of hedge accounting, the changes in fair value are recorded in gains or lossesarising from changes in fair value in the consolidated income statement.
The effective portion of gains or losses on hedging instruments is recognised in othercomprehensive income as cash flow hedging reserve, while the ineffective portion is recognisedin profit or loss for the current period. Where the hedge is a forecast transaction whichsubsequently results in the recognition of a non-financial asset or liability, the amount originallyrecognised in other comprehensive income is transferred and included in the initially recognisedamount of the asset or liability. For cash flow hedge beyond the foregoing scope, the amountoriginally recognised in other comprehensive income is transferred and included in profit or lossfor the current period during the same time in which the profit or loss is influenced by the hedgedexpected cash flow. However, if all or part of net loss recognised directly in other comprehensiveincome will not be recovered in future accounting periods, the amount not expected to berecovered should be transferred to profit or loss for the current period.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
Derivative financial instruments (Cont’d)
When the Group revokes the designation of a hedge, a hedging instrument expires or is sold,terminated or exercised, or the hedge no longer meets the criteria for hedge accounting, theGroup will discontinue the hedge accounting treatments prospectively. Where the Groupdiscontinues the hedge accounting treatment for cash flow hedging, for hedged future cash flowsthat will still happen, the accumulated gains or losses that have been recognised in othercomprehensive income are retained and subject to accounting treatment under the subsequenttreatment method of aforesaid cash flow hedging reserve; for hedged future cash flows that theforecast transaction will never happen, the accumulated gains or losses that have beenrecognised in other comprehensive income are transferred immediately and included in profit orloss for the current period.
(ii) Impairment
Loss provision for financial assets at amortised cost, investments in debt instruments at fair valuethrough other comprehensive income, as well as financial guarantee contracts is recognised onthe basis of expected credit losses.
Giving consideration to reasonable and supportable information on past events, currentconditions and forecasts of future economic conditions, and weighted by the risk of default, theGroup recognises the expected credit loss ("ECL") as the probability-weighted amount of thepresent value of the difference between the cash flows receivable from the contract and the cashflows expected to collect.
As at each balance sheet date, the expected credit losses of financial instruments at differentstages are measured respectively. 12-month ECL provision is recognised for financialinstruments in Stage 1 that have not had a significant increase in credit risk since initial recognition;lifetime ECL provision is recognised for financial instruments in Stage 2 that have had a significantincrease in credit risk yet without credit impairment since initial recognition; and lifetime ECLprovision is recognised for financial instruments in Stage 3 that have had credit impairment sinceinitial recognition.
For the financial instruments with lower credit risk on the balance sheet date, the Group assumesthere is no significant increase in credit risk since initial recognition and recognises the 12-monthECL provision.
For the financial instruments in Stage 1, Stage 2 and with lower credit risk, the Group calculatesthe interest income by applying the effective interest rate to the gross carrying amount (beforededuction of the impairment provision). For the financial instrument in Stage 3, the interest incomeis calculated by applying the effective interest rate to the amortised cost (after deduction of theimpairment provision from the gross carrying amount).
For notes receivable, accounts receivable and receivables financing, the Group recognises thelifetime ECL provision regardless of whether there exists a significant financing component.
The Group divides the receivables into certain groupings based on credit risk characteristics, thenpursuant to which, calculates the expected credit losses.
The Group, on the basis of the exposure at default and the lifetime expected credit loss rate,calculates the expected credit losses of notes receivable and receivables financing that areclassified into groupings with consideration to historical credit losses experience, currentconditions and forecasts of future economic conditions.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
With consideration to historical credit loss experience, current conditions and forecasts of futureeconomic conditions, the Group prepares the cross-reference between the number of overduedays of accounts receivable and the lifetime expected credit loss rate, and calculates theexpected credit losses of accounts receivable that are classified into groupings.
The Group, on the basis of the exposure at default and the 12-month or lifetime expected creditloss rate, calculates the expected credit losses of other receivables that are classified intogroupings with consideration to historical credit losses experience, the current conditions andforecasts of future economic conditions.
The Group recognises the loss provision made or reversed into profit or loss for the current period.For debt instruments held at fair value through other comprehensive income, the Group adjustsother comprehensive income while the impairment loss or gain is recognised in profit or loss forthe current period.
(iii) Derecognition
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 the financialasset, although the Group neither transfers nor retains substantially all the risks and rewards ofownership of the financial asset.
When a financial asset is derecognised, the difference between the carrying amount and the sumof the consideration received and the cumulative changes in fair value that are previouslyrecognised directly in other comprehensive income is recognised in profit or loss for the currentperiod, except for those as investments in other equity instruments, the difference aforementionedis recognised in retained earnings instead.
(b) Financial liabilities
Financial liabilities are classified as financial liabilities at amortised cost and financial liabilities atfair value through profit or loss at initial recognition.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(b) Financial liabilities (Cont’d)
Financial liabilities of the Group mainly comprise financial liabilities at amortised cost, includingnotes and accounts payables, other payables, borrowings, debentures payable, etc. Such financialliabilities are initially recognised at fair value, net of transaction costs incurred, and subsequentlymeasured using the effective interest method. Financial liabilities that are due within one year(inclusive) are classified as current liabilities; those with maturities over one year but are due withinone year (inclusive) as from the balance sheet date are classified as current portion of non-currentliabilities. Others are classified as non-current liabilities.
A financial liability is derecognised or partly derecognised when the underlying present obligationis discharged or partly discharged. The difference between the carrying amount of thederecognised part of the financial liability and the consideration paid is recognised in profit or lossfor 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 at the quotedprice in the active market. The fair value of a financial instrument that is not traded in an activemarket is determined by using a valuation technique. In valuation, the Group adopts valuationtechniques applicable in the current situation and supported by adequate available data and otherinformation, selects inputs with the same characteristics as those of assets or liabilities consideredin relevant transactions of assets or liabilities by market participants, and gives priority to the useof relevant observable inputs. When relevant observable inputs are not available or feasible,unobservable inputs are adopted.
(10) Receivables
Receivables comprise accounts receivable, other receivables and notes receivable. Accountsreceivable arising from sale of goods or rendering of services are initially recognised at fair valueof the contractual payments from the buyers or service recipients, and subsequently measured atamortised cost less provision for impairment using the effective interest method. Provision forimpairment of receivables are set out in Note 2(9) (a).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(11) Inventories
(a) Classification of inventories
Inventories, including raw materials, consigned processing materials, low value consumables,work in progress, completed but unsettled products and finished goods, etc., are measured at thelower of cost and net realisable value.
The amount of completed but unsettled works is determined on the basis of individual contract atthe cost of contract incurred plus profits thereof and less losses recognised and amount settled. Itis recognised as assets when the balance is positive and recognised as liabilities when the balanceis negative.
(b) Costing of inventories
Other than completed but unsettled products, cost is determined using the first-in, first-out methodwhen issued. The cost of finished goods and work in progress comprises raw materials, directlabour and systematically allocated production overhead based on the normal production capacity.
(c) Basis for determining net realisable values of inventories and method for making provision for
decline in the value of inventories
Inventories are initially measured at cost. The cost of inventories comprises purchase cost,processing cost and other expenditures to bring the inventories to current site and condition.
On the balance sheet date, inventories are measured at the lower of cost and net realisable value.
Net realisable value is determined based on the estimated selling price in the ordinary course ofbusiness, less the estimated costs to completion and estimated costs necessary to make the saleand related taxes.
Provision for decline in the value of inventories is determined at the excess amount of the cost ascalculated based on the classification of inventories over their net realisable value, and arerecognised 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 assetsor in profit or loss for the current period.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 joint venture.
Subsidiaries are the investees over which the Company is able to exercise control. A joint ventureis a joint arrangement which is structured through a separate vehicle over which the Group hasjoint control together with other parties and only has rights to the net assets of the arrangementbased on legal forms, contractual terms and other facts and circumstances. Associates are theinvestees that the Group has significant influence on their financial and operating policies.
Investments in subsidiaries are presented in the Company’s financial statements using the costmethod, and are adjusted to the equity method when preparing the consolidated financialstatements. Investments in joint ventures and associates are accounted for using the equitymethod.
(a) Determination of investment cost
For long-term equity investments acquired through a business combination: for long-term equityinvestments acquired through a business combination involving enterprises under commoncontrol, the investment cost shall be the absorbing party’s share of the carrying amount of equityof the party being absorbed in the consolidated financial statements of the ultimate controller atthe combination date; for long-term equity investment acquired through a business combinationinvolving enterprises not under common control, the investment cost shall be the combinationcost.
For business combinations achieved by stages involving enterprises not under common control,the initial investment cost accounted for using the cost method is the sum of carrying amount ofpreviously-held equity investment and additional investment cost. For previously-held equityaccounted for using the equity method, the accounting treatment of related other comprehensiveincome from disposal of the equity is carried out on a same basis with the investee's directdisposal of related assets or liabilities. Shareholders' equity, which is recognised due to changesin investee’s shareholders’ equity other than those arising from the net profit or loss, othercomprehensive income and profit distribution, is accordingly transferred into profit or loss in theperiod in which the investment is disposed.
For investment in previously-held equity accounted for using the recognition and measurementstandards of financial instruments, the initial investment cost accounted for using the cost methodis the sum of carrying amount of previously-held equity investment and additional investmentcost. The difference between the fair value and carrying amount for investment in previously-heldequity and the accumulated changes in fair value previously included in other comprehensiveincome are transferred to profit or loss for the current period accounted for using the cost method.
For long-term equity investments acquired not through a business combination: for long-termequity investment acquired by payment in cash, the initial investment cost shall be the purchaseprice actually paid; for long-term equity investments acquired by issuing equity securities, theinitial investment cost shall be the fair value of the equity securities issued.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 profit and loss
For long-term equity investments accounted for using the cost method, cash dividends or profitdistribution declared by the investees are recognised as investment income in profit or loss.
For long-term equity investments accounted for using the equity method, where the initialinvestment cost of a long-term equity investment exceeds the Group’s share of the fair value ofthe investee’s identifiable net assets at the acquisition date, the long-term equity investment ismeasured at the initial investment cost; where the initial investment cost is less than the Group’sshare of the fair value of the investee’s identifiable net assets at the acquisition date, thedifference is included in profit or loss and the cost of the long-term equity investment is adjustedupwards accordingly.
For long-term equity investments accounted for using the equity method, the Group recognisesthe investment income according to its share of net profit or loss of the investee. The Groupdiscontinues recognising its share of the net losses of an investee after the carrying amounts ofthe long-term equity investment together with any long-term interests that in substance form partof the investor’s net investment in investee are reduced to zero. However, if the Group hasobligations for additional losses and the criteria with respect to recognition of provisions underthe accounting standards on contingencies are satisfied, the Group continues recognising theinvestment losses and the provisions. The changes of the Group’s share of the investee’s owner'sequity other than those arising from the net profit or loss, other comprehensive income and profitdistribution, are recognised in the Group’s equity and the carrying amounts of the long-term equityinvestment are adjusted accordingly. The carrying amount of the investment is reduced by theGroup’s share of the profit distribution or cash dividends declared by an investee. The unrealisedprofits or losses arising from the transactions between the Group and its investees areeliminated to the extent of the Group’s equity interest in the investees, based on which theinvestment gain or losses are recognised. Any losses resulting from transactions between theGroup and its investees attributable to asset impairment losses are not eliminated.
(c) Basis for determining existence of control, jointly control or significant influence over investees
Control is the power to govern an investee and obtain variable returns from participating 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 the 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 decisions ofthe investee, but is not control or joint control over those policies.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(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 are belowtheir carrying amounts (Note 2(19)).
(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 or developedfor future use of leasing, are measured initially at cost. Subsequent expenditures incurred inrelation to an investment property are included in the cost of the investment property when it isprobable that the associated economic benefits will flow to the Group and their costs can bereliably measured; otherwise, the expenditures are recognised in profit or loss in the period inwhich they are incurred.
The Group adopts the cost model for subsequent measurement of investment properties.Buildings and land use rights are depreciated or amortised to their estimated net residual valuesover their estimated useful lives. The estimated useful lives, the estimated net residual valuesthat are expressed as a percentage of cost and the annual depreciation (amortisation) rates ofinvestment 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 -to50 years | - | 2% to 2.5% |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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
(a) Recognition and initial measurement of fixed assets
Fixed assets comprise buildings, land with permanent ownership, machinery and equipment,motor vehicles, computers and electronic equipment and office equipment.
Fixed assets are recognised when it is probable that the related economic benefits will flow to theGroup and the costs can be reliably measured. The initial cost of purchased fixed assets includepurchase price, related taxes and expenditures that are attributable to the assets incurred beforethe assets are ready for their intended use. The initial cost of self-constructed fixed assets isdetermined based on Note 2(15).
Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed asset whenit is probable that the associated economic benefits will flow to the Group and the related cost canbe reliably measured. The carrying amount of the replaced part is derecognised. All the othersubsequent expenditures are recognised in profit or loss in the period in which they are incurred.
(b) Depreciation methods of fixed assets
Fixed assets are depreciated using the straight-line method to allocate the cost of the assets totheir estimated net residual values over their estimated useful lives. For the fixed assets that havebeen provided for impairment loss, the related depreciation charge is prospectively determinedbased upon the adjusted carrying amounts over their remaining useful lives.
The estimated useful lives, the estimated net residual values expressed as a percentage of costand 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 60 years | 0% to 10% | 6.7% to 1.5% |
| 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 other equipment | 2 to 20 years | 0% to 10% | 50% to 4.5% |
| Land | Permanent | N/A | N/A |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(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 an asset isa finance lease. The leased asset is recognised at the lower of the fair value of the leased assetand the present value of the minimum lease payments. The difference between the recordedamount of the leased asset and the minimum lease payments is accounted for as unrecognisedfinance charge.
Fixed assets held under a finance lease is depreciated on a basis consistent with the depreciationpolicy adopted for self-owned fixed assets. When a leased asset can be reasonably determinedthat its ownership will be transferred at the end of the lease term, it is depreciated over the periodof expected use; otherwise, the leased asset is depreciated over the shorter period of the leaseterm 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 fromits use or disposal. The amount of proceeds from disposal on sales, transfer, retirement or damageof a fixed asset net of its carrying amount and related taxes and expenses is recognised in profitor loss for the current period.
(15) Construction in progress
Construction in progress is measured at actual cost. Actual cost comprises construction costs,installation costs, borrowing costs that are eligible for capitalisation and other costs necessary tobring the fixed assets ready for their intended use. Construction in progress is transferred to fixedassets when the assets are ready for their intended use, and depreciation is charged starting fromthe following month. The carrying amount of construction in progress is reduced to the recoverableamount when the recoverable amount is below its carrying amount (Note 2(19)).
(16) Borrowing costs
The borrowing costs that are directly attributable to the acquisition and construction of an fixedasset that needs a substantially long period of time for its intended use commence to be capitalisedand recorded as part of the cost of the asset when expenditures for the asset and borrowing costshave been incurred, and the activities relating to the acquisition and construction that arenecessary to prepare the asset for its intended use have commenced. The capitalisation ofborrowing costs ceases when the fixed asset under acquisition or construction becomes ready forits intended use and the borrowing costs incurred thereafter are recognised in profit or loss for thecurrent period. Capitalisation of borrowing costs is suspended during periods in which theacquisition or construction of an asset is interrupted abnormally and the interruption lasts for morethan 3 months, until the acquisition or construction is resumed.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(16) Borrowing costs (Cont’d)
For the specific borrowings obtained for the acquisition or construction of a fixed asset qualifyingfor capitalisation, the amount of borrowing costs eligible for capitalisation is determined bydeducting any interest income earned from depositing the unused specific borrowings in thebanks or any investment income arising on the temporary investment of those borrowings duringthe capitalisation period.For the general borrowings obtained for the acquisition or construction of a fixed asset qualifyingfor capitalisation, the amount of borrowing costs eligible for capitalisation is determined byapplying the weighted average effective interest rate of general borrowings, to the weightedaverage of the excess amount of cumulative expenditures on the asset over the amount ofspecific borrowings. The effective interest rate is the rate at which the estimated future cashflows during the period of expected duration of the borrowings or applicable shorter period arediscounted to the initial amount of the borrowings.
(17) Intangible assets
Intangible assets include land use rights, patents and non-patent technologies, trademark rights,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 of 40 to50 years. If the acquisition costs of the land use rights and the buildings located thereon cannotbe reasonably allocated between the land use rights and the buildings, all of the acquisitioncosts are recognised as fixed assets.
(b) Patents and non-patent technologies
Patents are amortised on a straight-line basis over the statutory period of validity, the period asstipulated by contracts or the beneficial period.
(c) Trademark rights
The trademark rights is measured at cost when acquired and is amortised over the estimateduseful life of 30 years. The cost of trademark rights obtained in the business combinationsinvolving enterprises not under common control is measured at fair value. As some of thetrademarks are expected to attract net cash inflows injected into the Group, the managementconsiders that these trademarks have an indefinite useful lives and are presented based uponthe carrying amounts after deducting the provision for impairment (Note 4(13)).
(d) Trademark use rights
The trademark use rights is measured at cost when acquired. The cost of trademark use rightsobtained in the business combinations involving enterprises not under common control ismeasured at fair value, and is amortised over the estimated useful life of 40 years.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(e) Periodical review of useful life and amortisation method
For an intangible asset with a finite useful life, review of its useful life and amortisation methodis performed at each year-end, with adjustment made as appropriate.
(f) Research and development (“R&D”)
The expenditure on an internal research and development project is classified into expenditureon the research phase and expenditure on the development phase based on its nature andwhether there is material uncertainty that the research and development activities can form anintangible asset at the end of the project.
Expenditure on the planned investigation, evaluation and selection for the research of productionprocesses or products is categorised as expenditure on the research phase, and it is recognisedin profit or loss when it is incurred. Expenditure on design and test for the final application of thedevelopment of production processes or products before mass production is categorised asexpenditure on the development phase, which is capitalised only if all of the following conditionsare 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 beenapproved by the management;? There is market research analysis that demonstrates the product produced by theproduction process or product has the ability of marketing;? There are sufficient technical and financial resources to support the development ofproduction 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 in profitor loss in the period in which they are incurred. Development costs previously recognised asexpenses are not recognised as an asset in a subsequent period. Capitalised expenditure onthe development phase is presented as development costs in the balance sheet and transferredto intangible assets at the date that the asset is ready for its intended use.
(g) Impairment of intangible assets
The carrying amounts of intangible assets are reduced to the recoverable amounts when therecoverable 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 expected beneficialperiod and are presented at actual expenditure net of accumulated amortisation.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(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, ajoint venture and associates are tested for impairment if there is any indication that the assetsmay be impaired at the balance sheet date. Intangible assets not ready for their intended useand land with permanent ownership 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, a provision forimpairment and an impairment loss are recognised for the amount by which the asset’s carryingamount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fairvalue less costs to sell and the present value of the future cash flows expected to be derivedfrom the asset. Provision for asset impairment is determined and recognised on the individualasset basis. If it is not possible to estimate the recoverable amount of an individual asset, therecoverable amount of a group of assets to which the asset belongs is determined. A group ofassets is the smallest group of assets that is able to generate independent cash inflows.
Goodwill that is separately presented in the financial statements is tested at least annually forimpairment, irrespective of whether there is any indication that it may be impaired. In conductingthe test, the carrying value of goodwill is allocated to the related asset groups or groups of assetgroups which are expected to benefit from the synergies of the business combination. If the resultof the test indicates that the recoverable amount of an asset groups or a group of asset groups,including the allocated goodwill, is lower than its carrying amount, the corresponding impairmentloss is recognised. The impairment loss is first deducted from the carrying amount of goodwillthat is allocated to the asset groups or group of asset groups, and then deducted from thecarrying amounts of other assets within the asset groups or group of asset groups in proportionto the carrying amounts of assets other than 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, terminationbenefits and other long-term employee benefits provided in various forms of consideration inexchange for service rendered by employees or compensations for the termination ofemployment relationship.
(a) Short-term employee benefits
Short-term employee benefits include wages or salaries, bonus, allowances and subsidies, staffwelfare, premiums or contributions on medical insurance, work injury insurance and maternityinsurance, housing funds, union running costs and employee education costs, short-term paidabsences. . The employee benefit liabilities are recognised in the accounting period in which theservice is rendered by the employees, with a corresponding charge to the profit or loss for thecurrent period or the cost of relevant assets. Employee benefits which are non-monetary benefitsare measured at fair value.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(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 to payfurther contributions; and defined benefit plans are post-employment benefit plans other thandefined contribution plans. During the reporting period, the Group's defined contribution plansmainly include basic pensions and unemployment insurance, while the defined benefit plansare that TLSC and KUKA Group, the Group’s subsidiaries, provide supplemental retirementbenefits beyond the national regulatory insurance system.
Basic pensions
The Group’s employees participate in the basic pension plan set up and administered by localauthorities of Ministry of Human Resource and Social Security. Monthly payments of premiumson the basic pensions are calculated according to prescribed bases and percentages by therelevant local authorities. When employees retire, the relevant local authorities are obliged topay the basic pensions to them. The amounts based on the above calculations are recognisedas liabilities in the accounting period in which the service has been rendered by the employees,with a corresponding charge to the profit or loss for the current period or the cost of relevantassets.
Supplementary retirement benefits
The liability recognised in the balance sheet in respect of defined benefit pension plans is thepresent value of the defined benefit obligation at the end of the reporting period less the fairvalue of plan assets. The defined benefit obligation is calculated annually by independentactuaries using the projected unit credit method at the interest rate of treasury bonds with similarobligation term and currency. The charges related to the supplemental retirement benefits(including current service costs, past-service costs and gains or losses on settlement) and netinterest costs are recognised in the statement of profit or loss or included in the cost of an asset,and the changes of remeasurement in net liabilities or net assets arising from the benefit planare charged or credited to equity in other comprehensive.
(c) Termination benefits
The Group provides compensation for terminating the employment relationship with employeesbefore the end of the employment contracts or as an offer to encourage employees to acceptvoluntary redundancy before the end of the employment contracts. The Group recognises aliability arising from compensation for termination of the employment relationship withemployees, with a corresponding charge to profit or loss for the current period at the earlier ofthe following dates: 1) when the Group cannot unilaterally withdraw the offer of terminationbenefits because of an employment termination plan or a curtailment proposal; 2) when theGroup recognises costs or expenses related to the restructuring that involves the payment oftermination benefits.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 (Cont’d)
Early retirement benefits
The 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 before thenormal retirement date prescribed by the State, as approved by the management. The Grouppays early retirement benefits to those early retired employees from the early retirement dateuntil the normal retirement date. The Group accounts for the early retirement benefits inaccordance with the treatment for termination benefits, in which the salaries and social securitycontributions to be paid to and for the early retired employees from the off-duty date to thenormal retirement date are recognised as liabilities with a corresponding charge to the profit orloss for the current period. The differences arising from the changes in the respective actuarialassumptions of the early retirement benefits and the adjustments of benefit standards arerecognised 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) Financial assets sold under agreements to repurchase
Assets sold under agreements to repurchase at a specific future date are not derecognised fromthe balance sheet. The corresponding proceeds are recognised on the balance sheet under“Repurchase agreements”. The difference between the sale price and the repurchase price istreated as interest expense and is accrued over the life of the agreement using the effectiveinterest method.
(22) General reserve
General 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, available-for-salefinancial assets, long-term equity investments, deposits with banks and other financialinstitutions and other receivables of subsidiary engaged in financial business.
(23) Dividend distribution
Cash dividend is recognised as a liability for the period in which the dividend is approved by theshareholders’ meeting.
(24) Provisions
Provisions for product warranties, onerous contracts, etc. are recognised when the Group hasa present obligation, it is probable that an outflow of economic benefits will be required to settlethe obligation, and the amount of the obligation can be measured reliably.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(24) 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, uncertaintiesand the time value of money, are taken into account as a whole in reaching the best estimateof a provision. Where the effect of the time value of money is material, the best estimate isdetermined by discounting the related future cash outflows. The increase in the discountedamount of the provision arising from passage of time is recognised as interest expense.
The carrying amount of provisions is reviewed at each balance sheet date and adjusted toreflect the current best estimate.
The provisions expected to be settled within one year since the balance sheet date are classifiedas current liabilities.
(25) Share-based payments
(a) Type of share-based payment
Share-based payment is a transaction in which the entity acquires services from employees asconsideration for equity instruments of the entity or by incurring liabilities for amounts based onthe equity instruments. Equity instruments include equity instruments of the Company, its parentcompany or other accounting entities of the Group. Share-based payments are divided intoequity-settled and cash-settled payments. The Group’s share-based payments are equity-settled payments.
Equity-settled share-based payment
The 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 the fairvalue of the equity instruments at grant date and the equity instruments are tradable orexercisable when services in vesting period are completed or specified performance conditionsare met. In the vesting period, the services obtained in current period are included in relevantcost and expenses at the fair value of the equity instruments at grant date based on the bestestimate of the number of tradable or exercisable equity instruments, and capital surplus isincreased accordingly. If the subsequent information indicates the number of tradable orexercisable equity instruments differs from the previous estimate, an adjustment is made and,on the exercise date, the estimate is revised to equal to the number of actual vested equityinstruments.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Share-based payments (Cont’d)
(b) Determination of the fair value of equity instruments
The Group determines the fair value of share options using option pricing model, which is Black- Scholes option pricing model.
The fair value of other equity instruments are based on the share prices, the price that incentiveobjects pay and the number of the shares on the grant date, taking into account the effects ofclause 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 options thatare expected to vest based on the non-marketing performance and service conditions. On theexercise or desterilisation date, the final number of estimated exercisable or tradable equityinstruments is consistent with the number of exercised or tradable equity instruments.
(26) Treasury stock
The Group’s treasury stock mainly comes from the repurchase of equity instruments and theissuance of restricted shares and so on.
Consideration and transaction costs paid by the Group for repurchasing equity instruments arededucted from equity and not recognised as financial assets. The considerations paid by theGroup for repurchasing equity instruments are measured as treasury stock and the relatedtransaction costs are included into owners' equity.
On the grant day of restricted shares, the Group recognise bank deposits and share capital andcapital reserves (share premium) when receiving subscription from the employees. In themeanwhile, the Group measure the repurchase obligation as treasury stocks and liability. On theday of release of restricted shares, relevant treasury stocks, liabilities and capital surplusrecognised in the vesting period are reverse based on the actual vesting results.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Revenue
The amount of revenue is determined in accordance with the fair value of the considerationreceived or receivable for the sale of goods and services in the ordinary course of the Group’sactivities. 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 the specificcriteria of revenue recognition have been met for each type of the Group’s activities as describedbelow:
(a) Sales of products
The Group are principally engaged in the manufacturing and sales of home appliances (mainlycomprises HVAC and consumer appliances), and robots and automatic system (mainly comprisesrobots and automatic system).
Revenue from domestic sales is recognised when 1) the goods are delivered to buyers by theGroup pursuant to contracts; 2) the amount of revenue is confirmed; 3) payments for goods arecollected or receipts are acquired; and 4) the related economic benefits will flow to the Group; andthe related costs can be measured reliably. Upon confirming the acceptance, the buyer has theright to sell the products at its discretion and takes the risks of any price fluctuations andobsolescence and loss of the products.
Revenue from overseas sales is recognised when 1) the goods have been declared to the customsand shipped out of the port; 2) the amount of revenue is confirmed; 3) payments for goods arecollected or obtain related receipts; and 4) the related economic benefits will flow to the Group andthe related costs can be measured reliably.
Revenue from sales of robots and automatic system is recognised when 1) the goods are deliveredto buyers by the Group pursuant to contracts; 2) the amount of revenue is confirmed; 3) paymentsfor goods are collected or receipts are acquired; and 4) the related economic benefits will flow tothe Group; and the related costs can be measured reliably.
(b) Rendering of services
Revenue from transportation service, storage service, distribution service and installation serviceas provided by the Group is recognised when the services are completed.
Revenue from providing automation system business and intelligent logistics integration solutionis recognised according to the percentage of completion.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Revenue (Cont’d)
(c) Construction contract
Where the outcome of a construction contract can be estimated reliably, revenue and costs thereofare recognised using the “percentage-of-completion” method as at the balance sheet date. Thestage of completion is measured by reference to the contract costs incurred up to the end of thereporting period as a percentage of total estimated costs for each contract.
The outcome of a construction contract can be estimated reliably when all of the followingconditions are concurrently met: (1) the total contract revenue can be measured reliably; (2) it ishighly probable that the economic benefits associated with the contract will flow to the enterprise;
(3) the contract costs incurred thus far can be clearly identified and measured reliably; (4) both thestage of completion and the costs necessary to complete the contract can be reliably measured.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue isrecognised 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 costs arerecognised as expenses immediately, not as contract revenue. If the unexpected factors no longerexist which make construction contract unable to be estimated reliably, revenue and costs arerecognised using the percentage-of-completion method.
When it is probable that total contract costs will exceed total contract revenue, the expected lossis 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 should berecognised as the revenue for the current period. Similarly, the total contract costs multiply thepercentage of completion incurred less the total contract costs recognised in previous accountingperiods 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 or discounts,or the amortisation based on effective rates of other difference between the initial carrying amountand the due amount of interest-earning assets.
The effective interest method is a method of calculating the amortised cost of a financial asset orliability and the interest income or expense based on effective rates. Actual interest rate is the rateat which the estimated future cash flows during the period of expected duration of the financialinstruments or applicable shorter period are discounted to the current carrying amount of thefinancial instruments. When calculating the effective interest rate, the Group estimates cash flowsby considering all contractual terms of the financial instrument (e.g. early repayment options,similar options, etc.), but without considering future credit losses. The calculation includes all feesand interest paid or received that are an integral part of the effective interest rate, transaction costs,and all other premiums or discounts.
Interest income from impaired financial assets is calculated at the interest rate that is used fordiscounting estimated future cash flow when measuring the impairment loss.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Revenue (Cont’d)
(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 serviceis provided. The Group defers the initial charge income or commitment fee income arising from theforming or acquisition of financial assets as the adjustment to effective interest rate. If the loansare not lent when the loan commitment period is expired, related charges are recognised as feeand commission income.
(28) Government grants
Government grants are transfers of monetary or non-monetary assets from the government to theGroup 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 thegovernment grant can be received. For a government grant in the form of transfer of monetaryassets, the grant is measured at the amount received or receivable. For a government grant in theform of transfer of non-monetary assets, it is measured at fair value; if the fair value is not reliablydeterminable, the grant is measured at nominal amount.
Government grants related to assets are grants that are acquired by an enterprise and used foracquisition, construction or forming long-term assets in other ways. Government grants related toincome are government grants other than government grants related to assets.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(28) Government grants (Cont’d)
Government grants related to assets are recorded as deferred income reasonably andsystematically 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 expensesor losses to be incurred by the Group in the subsequent periods, the grant is recognised as deferredincome, 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 Group applies the presentation method consistently to the similar government grants in thefinancial statements.
Government grants that are related to ordinary activities are included in operating profit, otherwise,they are recorded in non-operating income.
Loans to the Group at political preferential rate are recorded at the actual amount received, andthe related loan expenses are calculated based on the principal and the political preferential rate.Finance discounts directly received offset related loans expenses.
(29) 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 can becarried forward to subsequent years for deduction of the taxable profit in accordance with the taxlaws. No deferred tax liability is recognised for a temporary difference arising from the initialrecognition of goodwill. No deferred tax asset or deferred tax liability is recognised for thetemporary differences resulting from the initial recognition of assets or liabilities due to a transactionother than a business combination, which affects neither accounting profit nor taxable profit (ordeductible loss). At the balance sheet date, deferred tax assets and deferred tax liabilities aremeasured at the tax rates that are expected to apply to the period when the asset is realised or theliability is settled.
Deferred tax assets are only recognised for deductible temporary differences, deductible tax lossesand tax credits to the extent that it is probable that taxable profit will be available in the futureagainst which the deductible tax temporary differences, deductible losses and tax credits can beutilised.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Deferred tax assets and deferred tax liabilities (Cont’d)
Deferred tax liabilities are recognised for temporary differences arising from investments insubsidiaries, associates and joint ventures, except where the Group is able to control the timing ofreversal of the temporary difference, and it is probable that the temporary difference will not reversein the foreseeable future. When it is probable that the temporary differences arising frominvestments in subsidiaries, associates and joint ventures will be reversed in the foreseeable futureand that the taxable profit will be available in the future against which the temporary differencescan be utilised, the corresponding deferred tax assets are recognised.
Deferred tax assets and liabilities are offset when:
? the deferred taxs are related to the same tax payer within the Group and the same taxationauthority; and,? that tax payer within the Group has a legally enforceable right to offset current tax assetsagainst current tax liabilities.
(30) Leases
(a) Operating leases
Rental expenses for assets held under operating leases are recognised as the cost of relevantassets or expenses on a straight-line basis over the lease period. Contingent rentals arerecognised as profit and loss for the current period when incurred.
Fixed assets leased out under operating leases, other than investment prosperities (Note 2(13)),are depreciated in accordance with the depreciation policy stated in Note 2(14)(b) and provided forimpairment loss in accordance with the policy stated in Note 2(19). Rental income from operatingleases is recognised as revenue on a straight-line basis over the lease period. Initial direct costsin large amount arising from assets leased out under operating leases are capitalised whenincurred and recognised as profit and loss for the current period over the lease period on a samebasis with revenue recognition; initial direct costs in small amount are directly recognised as profitand loss for the current period. Contingent rentals are recognised as profit and loss for the currentperiod when incurred.
(b) Finance leases
The leased asset is recognised at the lower of the fair value of the leased asset and the presentvalue of the minimum lease payments. The difference between the recorded amount of the leasedasset and the minimum lease payments is accounted for as unrecognised finance charge and isamortised using the effective interest method over the period of the lease. A long-term payable isrecorded at the amount equal to the minimum lease payments less the unrecognised financecharge.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Held for sale and discontinued operations
A non-current asset or a disposal group is classified as held for sale when all of the followingconditions are satisfied: (1) the non-current asset or the disposal group is available for immediatesale in its present condition subject only to terms that are usual and customary for sales of suchnon-current asset or disposal group; (2) the Group has entered a legally enforceable salesagreement with other party and obtained relevant approval, and the sales transaction is expectedto be completed within one year.
Non-current assets (except for financial assets, investment properties measured at fair value anddeferred tax assets) that meet the recognition criteria for held for sale are recognised at the amountequal to the lower of the fair value less costs to sell and the carrying amount, and the excess of theoriginal carrying amount over the fair value less costs to sell is recognised as asset impairment loss.
Such non-current assets and assets and liabilities included in disposal groups classified as held forsale are classified as current assets and current liabilities respectively, and are separately presentedin the balance sheet.
A discontinued operation is a component of the Group that either has been disposed of or isclassified as held for sale, and is separately identifiable and satisfies one of the following conditions:
(1) it represents a separate major line of business or geographical area of operations; (2) it is partof a single co-ordinated plan to dispose of a separate major line of business or geographical areaof operations; and (3) it is a subsidiary acquired exclusively with a view to resale.
The net profit from discontinued operations in the income statement includes operating profit or lossand disposal gains or losses of discontinued operations.
(32) Segment information
The Group identifies operating segments based on the internal organisation structure, managementrequirements and internal reporting system, and discloses segment information of reportablesegments which is determined on the basis of operating segments.
An operating segment is a component of the Group that satisfies all of the following conditions: (1)the component is able to earn revenue and incur expenses from its ordinary activities; (2) whoseoperating results are regularly reviewed by the Group’s management to make decisions aboutresources to be allocated to the segment and to assess its performance, and (3) for which theinformation on financial position, operating results and cash flows is available to the Group. Two ormore operating segments that have similar economic characteristics and satisfy certain conditionscan be aggregated into one single operating segment.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(33) Critical accounting estimates and judgements
The Group continually evaluates the critical accounting estimates and key judgements appliedbased on historical experience and other factors, including expectations of future events that arebelieved to be reasonable.
Critical accounting estimates and key assumptions
The critical accounting estimates and key assumptions that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within the next accounting yearare outlined below:
(i) Provision for impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment. The recoverable amountof the asset groups and the combination of asset groups that contain the apportioned goodwill isdetermined by the higher value between the use value and the net value that is calculated by thefair value less the disposal costs. Accounting estimate is required for the calculation of therecoverable amount. The impairment testing is performed by assessing the recoverable amount ofthe groups of assets containing the relevant goodwill, based on the present value of cash flowsforecasts. Key assumptions adopted in the impairment testing of goodwill included expectedrevenue growth rates, EBITDA margins, perpetual annual growth rates, discount rates, etc. whichinvolved critical accounting estimates and judgement.
(ii) Income tax
The Group is subject to income taxes in numerous jurisdictions. There are many transactions andevents for which the ultimate tax determination is uncertain during the ordinary course of business.Significant judgement is required from the Group in determining the provision for income taxes ineach of these jurisdictions. Where the final tax outcome of these matters is different from theamounts that were initially recorded, such differences will impact the income tax and deferred taxprovisions in the period in which such determination is made.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(34) Significant changes in accounting policies
The Ministry of Finance released CAS 22 - Recognition and Measurement of FinancialInstruments, CAS 23 - Transfer of Financial Assets, 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 of the Ministry of Finance onRevising and Issuing the Formats of Corporate Financial Statements for 2019 (Cai Kuai [2019]No. 6) in 2019. The financial statements for the six months ended 30 June 2019 are preparedin accordance with the above standards and circular, and impacts are as follows:
(i) As at 1 January 2019, the financial assets were classified and measured according to the
old/new accounting standards for financial instruments as follows:
The Group
| Old financial instruments standards | New financial instruments standards | ||||
| Item | Measurement | Amount | Item | Measurement | Amount |
| 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 | Measured at 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 |
| Available-for-sale financial assets | Measured at fair value through other comprehensive income (equity instruments) | 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 | |||
| Measured at cost (equity instruments) | 722,019 | Other non-current financial assets | Fair value through profit or loss | 722,019 | |
| Old financial instruments standards | New financial instruments standards | ||||
| Item | Measurement | Amount | Item | Measurement | Amount |
| Other current assets | Measured at 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 |
| Available-for-sale financial assets | Measured at 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 SIX MONTHS ENDED 30 JUNE 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)
(34) Significant changes in accounting policies (Cont’d)
Table 1: Financial assets at amortised cost under the new financial instruments standards
| Carrying amount | ||
| Cash at bank and on hand | The Group | The Company |
| 31 December 2018 | 27,888,280 | 15,361,626 |
| Less: Transfer to financial assets at fair value through profit or loss | - | - |
| 1 January 2019 | 27,888,280 | 15,361,626 |
| 31 December 2018 | 34,968,549 | 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) | - |
| Remeasurement: Total expected credit losses | - | - |
| 1 January 2019 | 32,703,170 | 11,593,020 |
| 31 December 2018 | 11,328,392 | - |
| Less: Transfer to financial assets at fair value through other comprehensive income | - | - |
| Remeasurement: Total expected credit losses | - | - |
| 1 January 2019 | 11,328,392 | - |
| 31 December 2018 | 70,402,509 | 53,164,300 |
| Less: Transfer to financial assets at fair value through profit or loss | - | - |
| 1 January 2019 | 70,402,509 | 53,164,300 |
| Total financial assets measured at amortised cost (new financial instruments standards) | 142,322,351 | 80,118,946 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(34) Significant changes in accounting policies (Cont’d)
Table 2: Financial assets at fair value through profit or loss under the new financial instruments standards
Carrying amount
| Financial assets held for trading | The Group | The Company |
| 31 December 2018 | - | - |
| Add: Transferred from derivative financial instruments | - | - |
| 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: Transfer from other receivables | 10,429 | - |
| 1 January 2019 | 2,654,045 | 1,521,007 |
| 31 December 2018 | 220,197 | - |
| Less: Transfer to financial assets held for trading | - | - |
| 1 January 2019 | 220,197 | - |
| 31 December 2018 | 1,521,007 | 1,521,007 |
| Less: Transfer to financial assets held for trading | (1,521,007) | (1,521,007) |
| 1 January 2019 | - | - |
| 31 December 2018 | 38,822 | - |
| Less: Transfer to financial assets held for trading | - | - |
| 1 January 2019 | 38,822 | - |
| 31 December 2018 | - | - |
| Add: Transferred from available-for-sale financial assets | 784,269 | 56,579 |
| Remeasurement: From amortised cost to fair value | - | - |
| 1 January 2019 | 784,269 | 56,579 |
| 31 December 2018 | 1,906,878 | 56,579 |
| Less: Transfer to financial assets held for trading | (1,122,609) | - |
| Less: Transfer to other non-current financial assets | (784,269) | (56,579) |
| 1 January 2019 | - | - |
| Total financial instruments at fair value through profit or loss (new financial instruments standards) | 3,697,333 | 1,577,586 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(34) Significant changes in accounting policies (Cont’d)
Table 3: Financial assets at fair value through other comprehensive income under the new financial
instruments standards
Carrying amount
| Receivables financing | The Group | The Company |
| 31 December 2018 | - | - |
| Add: Transfer from receivables | 2,254,950 | - |
| Remeasurement: From amortised cost to fair value | - | - |
| 1 January 2019 | 2,254,950 | - |
| Total financial assets at fair value through other comprehensive income (new financial instruments standards) | 2,254,950 | - |
| 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 | 154,006 | - | - | 154,006 |
| Provision for bad debts of other receivables | 42,730 | - | - | 42,730 |
| 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 |
| 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 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
3 Taxation
(1) Main tax category and rate
| Category | Tax base | Tax rate |
| Corporate income tax (a) | Levied based on taxable income | 5%, 15%, 16.5%, 17%, 20 to 31.5%, 32% or 34.25% |
| Value-added tax (“VAT”) (b) | Taxable value-added amount (Tax payable is calculated using the taxable sales amount multiplied by the applicable tax rate less deductible input VAT of the current period) | 5%, 6%, 9%, 11%, 13%, 17% or 19% |
| 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 is subject to 12% tax rate for the rental income. | 1.2% or 12% |
(a-1) The following subsidiaries of the Company are subject to a corporate income tax rate of 15%
in 2019 as they qualified as high-tech enterprises and obtained the High-tech EnterpriseCertificate.
| Name of tax payer | No. of the High-tech Enterprise Certificate | Dates of issuance | Effective period |
| Jiangsu Midea Cleaning Appliances Company Limited | GR201732001675 | 17 November 2017 | 3 years |
| Guangdong Midea Environment Appliances Manufacturing Co., Ltd. | GR201644002286 | 30 November 2016 | 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 | GR201644000331 | 30 November 2016 | 3 years |
| Foshan Shunde Midea Electric Science and Technology Co., Ltd. | GR201644000358 | 30 November 2016 | 3 years |
| Guangdong Midea Heating & Ventilation Equipment Co., Ltd. | GR201844008219 | 28 November 2018 | 3 years |
| Hefei Midea Heating & Ventilation Equipment Co., Ltd. | GR201634000207 | 21 October 2016 | 3 years |
| Anhui Meizhi Precision Manufacturing Co., Ltd. | GR201834000890 | 24 July 2018 | 3 years |
| Guangzhou Midea Hualing Refrigerator Co., Ltd. | GR201644002925 | 30 November 2016 | 3 years |
| Guangdong Welling Motor Manufacturing Co., Ltd. | GR201744002062 | 9 November 2017 | 3 years |
| Foshan Welling Washer Motor Manufacturing Co., Ltd. | GR201744001025 | 9 November 2017 | 3 years |
| Huaian Weiling Motor Manufacturing Co., Ltd. | GR201632004278 | 30 November 2016 | 3 years |
| Annto Logistics Technology Co., Ltd. | GR201834001306 | 24 July 2018 | 3 years |
| Wuxi Little Swan Company Limited | GR201832001394 | 24 October 2018 | 3 years |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 corporate income tax rate of the principal tax payers with different tax rates (Cont'd)
(a-1) The following subsidiaries of the Company are subject to a corporate income tax rate of 15%
in 2019 as they qualified as high-tech enterprises and obtained the High-tech EnterpriseCertificate (Cont'd):
| Name of tax payer | No. of the High-tech Enterprise Certificate | Dates of issuance | Effective period |
| Wuxi Filin Electronics Co., Ltd. | GR201832001053 | 24 October 2018 | 3 years |
| Wuxi Little Swan General Appliance Co., Ltd. | GR201832001100 | 24 October 2018 | 3 years |
| Guangdong 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 |
| 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. | GR201634000994 | 5 December 2016 | 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 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 corporate 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 theSingapore Economic Development Board, which approves that qualified income exceeding acertain amount is subject to corporate income tax at the rate of 5% while the unqualified incomeis subject to the corporate income tax at the rate of 17%. Midea Singapore Trading Co.Pte.Ltd.and Little Swan International (Singapore) Co.,Pte Ltd., the Company's subsidiaries, are subject tocorporate 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, MideaInternational Corporation Company Limited, Midea Home Appliances Investments (Hong Kong)Co., Limited, Century Carrier Residential Air-conditioning Equipment Co., Limited, MideaRefrigeration (Hong Kong) Limited, Welling Holding Limited (Hong Kong), Welling InternationalHong Kong Ltd, and Midea Investment (Asia) Company Limited.
(a-6) The Company's subsidiaries in BVI and Cayman Islands are exempted from corporate income
tax. Such subsidiaries include Mecca International (BVI) Limited, Titoni Investments DevelopmentLtd., Midea Investment Holding (BVI) Limited, Midea Electric Investment (BVI) Limited, WellingHolding (BVI) Ltd., Midea Holding (Cayman Islands) Ltd. and Midea Investment DevelopmentCompany Limited.
(a-7) Springer Carrier Ltda., the Company's subsidiary in Brazil, is subject to Brazil corporate income
tax at the rate of 34%.
(a-8) TLSC, the Company's subsidiary in Japan, and its subsidiaries, are subject to Japan corporate
income tax at the rate of 30.58%.
(a-9) Clivet S.P.A and Clivet Espa?a S.A.U. (“Clivet”), the Company's subsidiaries in Italy, are subject
to Italy corporate income tax at the rate between 20% and 31.4%.
(a-10) KUKA Group, the Company's subsidiary in Germany, is subject to Germany corporate income tax
at the rate of 32%.
(a-11) SMC, the Company's subsidiary in Israel, is subject to Israel corporate income tax at the rate of
23%.
(a-12) Miraco, the Company's subsidiary in Egypt, is subject to Egyptian corporate income tax at the rate
of 22.5%.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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
(b-1) Pursuant to the No. 39 Notice in 2019 and related regulations jointly issued by the Ministry of
Finance, the State Administration of Taxation and the Customs Head Office, the applicable taxrate of revenue arising from sales of goods and rendering of repairing and replacement servicesof the Company’s certain subsidiaries is 13% from 1 April 2019, while it was 16% before then.
(b-2) Pursuant to the No. 39 Notice in 2019 and related regulations jointly issued by the Ministry of
Finance, the State Administration of Taxation and the Customs Head Office, the applicable taxrate of revenue 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%.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements
(1) Cash at bank and on hand
| Item | Ending Balance | Opening Balance |
| Cash on hand | 2,214 | 3,803 |
| Cash at bank (a) | 32,262,828 | 15,857,413 |
| Other cash balances (b) | 256,203 | 123,197 |
| Statutory reserve deposits with the Central Bank (c) | 728,058 | 1,126,172 |
| Surplus reserve with the Central Bank | 255,357 | 204,073 |
| Deposits with banks and other financial institutions (d) | 2,385,428 | 10,573,622 |
| Total | 35,890,088 | 27,888,280 |
| Including: Total amounts deposited with foreign banks (including Hong Kong, Singapore, Japan, Italy, Brazil and Germany, etc.) | 4,937,131 | 6,316,807 |
| Item | Ending Balance | Opening Balance |
| Wealth management products (a) | 2,561,077 | - |
| Equity investments and others | 872,324 | - |
| Total | 3,433,401 | - |
| Item | Ending Balance | Opening Balance |
| Bank acceptance notes | 15,060,062 | 12,556,294 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(3) Notes receivable (Cont’d)
(a) As at 30 June 2019, the Group's notes receivable endorsed or discounted but not matured were
as follows:
| Item | Derecognised | Recognised |
| Bank acceptance notes | 22,077,062 | - |
| Item | Ending Balance | Opening Balance |
| Accounts receivable | 24,056,858 | 20,372,283 |
| Less: Provision for bad debts | (1,039,035) | (982,109) |
| Total | 23,017,823 | 19,390,174 |
| Item | Ending Balance | Opening Balance |
| Within 1 year | 23,637,383 | 19,990,263 |
| 1 to 2 years | 236,904 | 187,071 |
| 2 to 3 years | 86,661 | 88,294 |
| 3 to 5 years | 61,627 | 84,069 |
| Over 5 years | 34,283 | 22,586 |
| Sub-total | 24,056,858 | 20,372,283 |
| Categories | Ending Balance | |||
| Carrying amount | Provision for bad debts | |||
| Amount | % of total balance | Amount | Provision ratio | |
| With amounts that are individually significant and that the related provision for bad debts is provided on the individual basis | - | - | - | - |
| Provision for bad debts on grouping basis using the ageing analysis method | 23,647,630 | 98.30% | 1,013,580 | 4.29% |
| With amounts that are not individually significant but that the related provision for bad debts is provided on the individual basis | 409,228 | 1.70% | 25,455 | 6.22% |
| Total | 24,056,858 | 100.00% | 1,039,035 | 4.32% |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Receivables (Cont’d)
(a) Accounts receivable (Cont’d)
| Ageing | Ending Balance | ||
| Carrying amount | Provision for bad debts | ||
| Amount | Amount | Lifetime expected credit loss rate | |
| Within 1 year | 23,273,508 | 838,964 | 3.60% |
| 1 to 2 years | 193,637 | 50,709 | 26.19% |
| 2 to 3 years | 86,641 | 45,705 | 52.75% |
| 3 to 5 years | 61,004 | 45,362 | 74.36% |
| Over 5 years | 32,840 | 32,840 | 100.00% |
| Total | 23,647,630 | 1,013,580 | 4.29% |
| Item | Amount | Provision for bad debts | % of total balance |
| Total amount of the five largest accounts receivable | 1,825,366 | 91,268 | 7.59% |
| Item | Ending Balance | Opening Balance |
| Other receivables | 2,451,958 | 2,838,170 |
| Interest receivable | 113,580 | 175,928 |
| Sub-total | 2,565,538 | 3,014,098 |
| Less: Provision for bad debts | (53,345) | (42,730) |
| Total | 2,512,193 | 2,971,368 |
| Item | Ending Balance | Opening Balance |
| Within 1 year | 2,203,400 | 2,629,558 |
| 1 to 2 years | 180,053 | 118,049 |
| 2 to 3 years | 31,066 | 60,259 |
| 3 to 5 years | 28,066 | 20,900 |
| Over 5 years | 9,373 | 9,404 |
| Sub-total | 2,451,958 | 2,838,170 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Receivables (Cont’d)
(b) Other receivables (Cont’d)
Provision for losses and changes in book balance statements:
| Item | Stage 1 | ||||
| Expected credit losses in the following 12 months (grouping) | Expected credit losses in the following 12 months (individual) | Sub-total | |||
| Ending balance | Provision for bad debts | Ending balance | Provision for bad debts | Provision for bad debts | |
| 31 December 2018 | 2,668,855 | 42,730 | 169,315 | - | 42,730 |
| Changes in accounting policies | - | - | - | - | - |
| 1 January 2019 | 2,668,855 | 42,730 | 169,315 | - | 42,730 |
| Increase in the current period | - | 17,192 | 116,046 | - | 17,192 |
| Decrease in the current period | (502,258) | - | - | - | - |
| Including: Write-off in the current period | - | - | - | - | - |
| Derecognition | (502,258) | - | - | - | - |
| Reversal in the current period | - | (6,779) | - | - | (6,779) |
| Currency translation differences | - | 202 | - | - | 202 |
| 30 June 2019 | 2,166,597 | 53,345 | 285,361 | - | 53,345 |
| Name of entity | Ending balance | Provision for bad debts | Provision ratio | Reason |
| China Securities Depository and Clearing Corporation Limited Shenzhen Branch | 285,361 | - | - | Receivables related to share options without bad debt risks |
| Name of entity | Amount | Provision for bad debts | % of total balance |
| Total balance of top 5 other receivables | 341,174 | 2,791 | 17.84% |
| Item | Ending Balance | Opening Balance |
| Advances paid for raw materials and others | 2,099,422 | 2,215,888 |
| Ageing | Ending Balance | Opening Balance | ||
| Amount | % of total balance | Amount | % of total balance | |
| Within 1 year | 1,967,498 | 93.72% | 2,112,343 | 95.33% |
| 1 to 2 years | 73,349 | 3.49% | 78,764 | 3.55% |
| 2 to 3 years | 46,277 | 2.20% | 11,870 | 0.54% |
| Over 3 years | 12,298 | 0.59% | 12,911 | 0.58% |
| Sub-total | 2,099,422 | 100.00% | 2,215,888 | 100.00% |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Advances to suppliers (Cont’d)
(a) The ageing of advances to suppliers is analysed below (Cont’d):
As at 30 June 2019, advances to suppliers over 1 year with a carrying amount of RMB131,924,000 (31 December 2018: RMB 103,545,000) were mainly unsettled advances paid forraw materials.
As at 30 June 2019, the five largest advances to suppliers aggregated by debtors weresummarised and analysed as follows:
| Item | Amount | % of total balance |
| Total balance of top five advances to suppliers | 466,259 | 22.21% |
| Item | Ending Balance | Opening Balance |
| Loans and advances measured at amortised cost | ||
| Loans and advances to individuals | 1,151,442 | 894,392 |
| Loans and advances to corporations | 13,730,727 | 10,588,006 |
| Loans and advances measured at amortised cost | 14,882,169 | 11,482,398 |
| Less: Provision for loan impairments | (209,482) | (154,006) |
| Total loans and advances measured at amortised cost | 14,672,687 | 11,328,392 |
| Loans and advances measured at fair value through other comprehensive income | ||
| Loans and advances to corporations | - | - |
| Total loans and advances measured at fair value through other comprehensive income | - | - |
| Total | 14,672,687 | 11,328,392 |
| Item | Ending Balance | Opening Balance |
| Unsecured loans | 1,078,469 | 814,657 |
| Guaranteed loans | 1,166,228 | 614,688 |
| Secured loans by monetary assets | 12,637,472 | 10,053,053 |
| Sub-total | 14,882,169 | 11,482,398 |
| Less: Loan impairment provision | (209,482) | (154,006) |
| Total | 14,672,687 | 11,328,392 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Inventories
(a) Inventories are summarised by categories as follows:
| Item | Ending Balance | Opening Balance | ||||
| Carrying amount | Provision for declines in the value of inventories | Carrying amount | Carrying amount | Provision for declines in the value of inventories | Carrying amount | |
| Finished goods | 13,318,209 | (396,346) | 12,921,863 | 18,600,407 | (320,022) | 18,280,385 |
| Raw materials | 4,546,247 | (86,595) | 4,459,652 | 5,181,916 | (60,822) | 5,121,094 |
| Work in progress | 1,612,640 | - | 1,612,640 | 2,040,228 | - | 2,040,228 |
| Consigned processing material | 209,226 | - | 209,226 | 239,741 | - | 239,741 |
| Low value consumables | 42,382 | - | 42,382 | 38,763 | - | 38,763 |
| Completed but unsettled | 4,860,841 | - | 4,860,841 | 3,924,807 | - | 3,924,807 |
| Total | 24,589,545 | (482,941) | 24,106,604 | 30,025,862 | (380,844) | 29,645,018 |
| Item | Opening Balance | Increase in the current period | Decrease of reversal or write-off in the current period | Currency translation differences | Ending Balance |
| Finished goods | 320,022 | 109,735 | (34,642) | 1,231 | 396,346 |
| Raw materials | 60,822 | 39,209 | (14,736) | 1,300 | 86,595 |
| Total | 380,844 | 148,944 | (49,378) | 2,531 | 482,941 |
| Item | Basis for provision for decline in the value of inventories | Reason for the write-off of provision for decline in the value of inventories in the current period |
| Finished goods | Stated at the lower of cost and net realisable value | Sales |
| Raw materials | Stated at the lower of cost and net realisable value | Requisition for production |
| Item | Ending Balance | Opening Balance |
| Wealth management products | - | 1,521,007 |
| Structural deposits and swap deposits | 71,649,301 | 70,402,509 |
| Deductible input VAT | 2,011,769 | 2,803,315 |
| Prepaid expenses | 753,915 | 647,648 |
| Others | 1,049,806 | 1,099,348 |
| Total | 75,464,791 | 76,473,827 |
| Item | Ending Balance | Opening Balance |
| Investment in associates (a) | 2,619,985 | 2,713,316 |
| Less: Provision for impairment of long-term equity investments | - | - |
| Total | 2,619,985 | 2,713,316 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(10) Other non-current financial assets
| Item | Ending Balance | Opening Balance |
| Measured at fair value | ||
| - Equity of unlisted companies | 1,420,416 | - |
| Sub-total | 1,420,416 | - |
| Less: Provision for impairment of assets | - | - |
| Total | 1,420,416 | - |
| Item | Buildings | Land | Machinery and equipment | Motor vehicles | Electronic equipment and others | Total |
| Original carrying amount | ||||||
| Opening Balance | 17,396,391 | 1,289,251 | 18,935,114 | 747,441 | 4,151,719 | 42,519,916 |
| Increase in the current period | 29,610 | - | 632,865 | 11,313 | 270,479 | 944,267 |
| 1) Purchase | 13,669 | - | 628,762 | 11,313 | 260,953 | 914,697 |
| 2) Transfers from construction in progress | 15,941 | - | 4,103 | - | 9,526 | 29,570 |
| Decrease in the current period | (217,033) | - | (179,587) | (18,518) | (146,080) | (561,218) |
| 1) Disposal or retirement | - | - | (179,587) | (18,518) | (146,080) | (344,185) |
| 2) Others | (217,033) | - | - | - | - | (217,033) |
| Differences on translation of foreign currency financial statements | 32,835 | 14,658 | 38,405 | 108 | 4,484 | 90,490 |
| Ending Balance | 17,241,803 | 1,303,909 | 19,426,797 | 740,344 | 4,280,602 | 42,993,455 |
| Accumulated depreciation | ||||||
| Opening Balance | 6,561,909 | - | 10,235,762 | 477,072 | 2,774,680 | 20,049,423 |
| Increase in the current period | 428,368 | - | 849,317 | 44,968 | 336,467 | 1,659,120 |
| 1) Depreciation charged | 428,368 | - | 849,317 | 44,968 | 336,467 | 1,659,120 |
| Decrease in the current period | - | - | (132,125) | (16,873) | (127,365) | (276,363) |
| 1) Disposal or retirement | - | - | (132,125) | (16,873) | (127,365) | (276,363) |
| Differences on translation of foreign currency financial statements | 6,115 | - | 14,541 | 30 | 1,023 | 21,709 |
| Ending Balance | 6,996,392 | - | 10,967,495 | 505,197 | 2,984,805 | 21,453,889 |
| Provision for impairment loss | ||||||
| Opening Balance | 6,674 | 5,849 | 20,107 | 206 | 445 | 33,281 |
| Increase in the current period | - | - | - | - | 77 | 77 |
| 1) Provision | - | - | - | - | 77 | 77 |
| Decrease in the current period | - | - | (2,329) | - | (447) | (2,776) |
| 1) Disposal or retirement | - | - | (2,329) | - | (447) | (2,776) |
| Differences on translation of foreign currency financial statements | 83 | 182 | 124 | 9 | 14 | 412 |
| Ending Balance | 6,757 | 6,031 | 17,902 | 215 | 89 | 30,994 |
| Carrying amount at the end of the period | 10,238,654 | 1,297,878 | 8,441,400 | 234,932 | 1,295,708 | 21,508,572 |
| Carrying amount at the beginning of the period | 10,827,808 | 1,283,402 | 8,679,245 | 270,163 | 1,376,594 | 22,437,212 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(12) Construction in progress
(a) Movement of significant projects of construction in progress
| Project name | Opening Balance | Increase in the current period | Transfer to fixed assets | Transfer to intangible assets | Other decreases | Translation of foreign currency financial statements | Ending Balance | Accumulative amount of capitalised borrowing costs | Including: Borrowing costs capitalised in the current period | Capitalisation rate of borrowing costs in the current period | Source of funds |
| Kuka Toledo Production Operations | 1,152,820 | 126,102 | - | - | (1,248,841) | (29,138) | 943 | - | - | - | Self-financing |
| Media Kuka Intelligent Manufacturing Plant | 173,549 | 41,740 | - | - | - | - | 215,289 | Self-financing | |||
| Other projects | 751,252 | 493,111 | (29,570) | (20,435) | (8,140) | 2,901 | 1,189,119 | - | - | - | Self-financing |
| Total | 2,077,621 | 660,953 | (29,570) | (20,435) | (1,256,981) | (26,237) | 1,405,351 | - | - |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Intangible assets
| Item | Land use rights | Patents and non-patent technologies | Trademark rights | Trademark use rights | Others | Total |
| Original carrying amount | ||||||
| Opening Balance | 4,586,857 | 2,061,849 | 5,005,403 | 2,601,880 | 4,721,765 | 18,977,754 |
| Increase in the current period | 18,875 | 5,162 | - | - | 336,518 | 360,555 |
| 1) Purchase | 18,875 | 5,162 | - | - | 122,941 | 146,978 |
| 2) Others | - | - | - | - | 213,577 | 213,577 |
| Decrease in the current period | - | (327) | - | - | (173,036) | (173,363) |
| 1) Disposal | - | (327) | - | - | (173,036) | (173,363) |
| Differences on translation of foreign currency financial statements | 595 | 2,539 | (18,080) | 81,100 | 6,956 | 73,110 |
| Ending Balance | 4,606,327 | 2,069,223 | 4,987,323 | 2,682,980 | 4,892,203 | 19,238,056 |
| Accumulated amortisation | ||||||
| Opening Balance | 819,030 | 488,412 | 75,176 | 168,088 | 1,228,235 | 2,778,941 |
| Increase in the current period | 46,299 | 54,310 | 16,373 | 30,478 | 371,495 | 518,955 |
| 1) Amortisation charged | 46,299 | 54,310 | 16,373 | 30,478 | 371,495 | 518,955 |
| Decrease in the current period | - | (139) | - | - | (10,774) | (10,913) |
| 1) Disposal | - | (139) | - | - | (10,774) | (10,913) |
| Differences on translation of foreign currency financial statements | 30 | 5,494 | (245) | 6,428 | 10,862 | 22,569 |
| Ending Balance | 865,359 | 548,077 | 91,304 | 204,994 | 1,599,818 | 3,309,552 |
| Provision for impairment loss | ||||||
| Opening Balance | - | 10,951 | - | - | 1,187 | 12,138 |
| Increase in the current period | - | 118 | - | - | - | 118 |
| 1) Depreciation charged | - | 118 | - | - | - | 118 |
| Decrease in the current period | - | (39) | - | - | - | (39) |
| 1) Disposal | - | (39) | - | - | - | (39) |
| Differences on translation of foreign currency financial statements | - | 354 | - | - | 39 | 393 |
| Ending Balance | - | 11,384 | - | - | 1,226 | 12,610 |
| Carrying amount at the end of the period | 3,740,968 | 1,509,762 | 4,896,019 | 2,477,986 | 3,291,159 | 15,915,894 |
| Carrying amount at the beginning of the period | 3,767,827 | 1,562,486 | 4,930,227 | 2,433,792 | 3,492,343 | 16,186,675 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(14) Goodwill
The Group’s goodwill had been allocated to the asset groups and groups of asset groups at theacquisition date, and the allocation is as follows:
| Name of investee | Ending Balance | Opening Balance |
| Wuxi Little Swan Company Limited | 1,361,306 | 1,361,306 |
| TLSC | 2,971,561 | 2,881,760 |
| KUKA Group | 22,244,400 | 22,330,623 |
| Others | 2,526,650 | 2,526,701 |
| Sub-total | 29,103,917 | 29,100,390 |
| Less: Provision for impairment | - | - |
| Total | 29,103,917 | 29,100,390 |
| Item | Ending Balance | Opening Balance | ||
| Deductible temporary differences and deductible losses | Deferred tax assets | Deductible temporary differences and deductible losses | Deferred tax assets | |
| Deductible losses | 1,914,509 | 562,596 | 1,844,308 | 558,896 |
| Provision for asset impairments | 1,445,987 | 251,716 | 1,332,124 | 272,227 |
| Employee benefits payable | 1,815,584 | 430,481 | 1,371,756 | 330,923 |
| Other current liabilities | 23,723,344 | 4,730,963 | 16,549,427 | 3,572,039 |
| Others | 3,936,214 | 876,993 | 5,201,746 | 1,087,280 |
| Total | 32,835,638 | 6,852,749 | 26,299,361 | 5,821,365 |
| Deferred tax liabilities | Ending Balance | Opening Balance | ||
| Taxable temporary differences | Deferred tax liabilities | Taxable temporary differences | Deferred tax liabilities | |
| Changes in fair value | 270,010 | 63,994 | 49,939 | 11,131 |
| Business combination involving enterprise not under common control | 12,394,324 | 3,483,846 | 12,533,188 | 3,663,691 |
| Others | 8,217,215 | 2,388,912 | 8,308,900 | 2,147,304 |
| Total | 20,881,549 | 5,936,752 | 20,892,027 | 5,822,126 |
| Item | Balance after offsetting at the end of the period | Balance after offsetting at the beginning of the year |
| Deferred tax assets | 5,467,296 | 4,421,313 |
| Deferred tax liabilities | 4,551,299 | 4,422,074 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Details of provision for asset impairments
| Item | 31 December 2018 | Changes in accounting policies | 1 January 2019 | Increase in the current period | Decrease in the current period | Currency translation differences | 30 June 2019 | |
| Reversal | Write-off | |||||||
| Provision for bad debts | 1,178,845 | 1,178,845 | 328,053 | (149,006) | (57,331) | 1,301 | 1,301,862 | |
| Including: Provision for bad debts of accounts receivable | 982,109 | 982,109 | 255,385 | (142,227) | (57,331) | 1,099 | 1,039,035 | |
| Provision for impairment of loans | 154,006 | 154,006 | 55,476 | - | - | - | 209,482 | |
| Provision for bad debts of other receivables | 42,730 | 42,730 | 17,192 | (6,779) | - | 202 | 53,345 | |
| Provision for decline in the value of inventories | 380,844 | 380,844 | 148,944 | (4,483) | (44,895) | 2,531 | 482,941 | |
| Provision for impairment of available-for-sale financial assets | 2,287 | (2,287) | - | - | - | - | - | - |
| Provision for impairment of fixed assets | 33,281 | 33,281 | 77 | - | (2,776) | 412 | 30,994 | |
| Provision for impairment of intangible assets | 12,138 | 12,138 | 118 | - | (39) | 393 | 12,610 | |
| Provision for impairment of investment properties | 12,576 | 12,576 | - | - | - | - | 12,576 | |
| Total | 1,619,971 | (2,287) | 1,617,684 | 477,192 | (153,489) | (105,041) | 4,637 | 1,840,983 |
| Item | Ending Balance | Opening Balance |
| Cash at bank and on hand | 20,264,850 | 5,809,826 |
| Balances with the Central Bank | 728,058 | 1,126,172 |
| Deposits with banks and other financial institutions | - | 3,000,000 |
| Total | 20,992,908 | 9,935,998 |
| Item | Ending Balance | Opening Balance |
| Bank acceptance notes | 29,274,952 | 23,325,115 |
| Item | Ending Balance | Opening Balance |
| Material expenses payable | 36,053,524 | 32,605,437 |
| Others | 2,951,404 | 4,296,189 |
| Total | 39,004,928 | 36,901,626 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(20) Advances from customers
| Item | Ending Balance | Opening Balance |
| Advances for goods | 7,490,301 | 14,521,809 |
| Settled but not completed | 2,927,661 | 2,259,857 |
| Total | 10,417,962 | 16,781,666 |
| Item | Ending Balance | Opening Balance |
| Short-term employee benefits payable (a) | 4,643,021 | 5,624,918 |
| Others | 115,382 | 163,086 |
| Total | 4,758,403 | 5,788,004 |
| Item | Opening Balance | Increase in the current period | Decrease in the current period | Ending Balance |
| Wages and salaries, bonus, allowances and subsidies | 5,057,019 | 10,988,930 | (11,924,319) | 4,121,630 |
| Staff welfare | 407,405 | 373,590 | (387,445) | 393,550 |
| Social security contributions | 101,292 | 852,938 | (875,458) | 78,772 |
| Including: Medical insurance | 98,652 | 826,753 | (848,147) | 77,258 |
| Work injury insurance | 1,933 | 12,377 | (12,980) | 1,330 |
| Maternity insurance | 707 | 13,808 | (14,331) | 184 |
| Housing funds | 30,631 | 206,390 | (213,315) | 23,706 |
| Labour union funds and employee education funds | 19,310 | 44,112 | (44,140) | 19,282 |
| Other short-term employee benefits | 9,261 | 83,315 | (86,495) | 6,081 |
| Sub-total | 5,624,918 | 12,549,275 | (13,531,172) | 4,643,021 |
| Item | Ending Balance | Opening Balance |
| Corporate income tax payable | 2,592,269 | 2,530,018 |
| Unpaid VAT | 738,702 | 853,187 |
| Others | 587,420 | 492,093 |
| Total | 3,918,391 | 3,875,298 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(23) Other payables
| Item | Ending Balance | Opening Balance |
| Other payables | 3,296,863 | 3,140,082 |
| Interest payable | 86,677 | 94,852 |
| Dividends payable | 35,807 | 111,195 |
| Total | 3,419,347 | 3,346,129 |
| Item | Ending Balance | Opening Balance |
| Accrued sales rebate | 26,133,544 | 19,583,366 |
| Accrued installation and maintenance expenses | 8,057,806 | 5,634,323 |
| Accrued sales promotion expenses | 2,482,494 | 1,780,246 |
| Accrued transportation expenses | 849,309 | 688,536 |
| Others | 3,993,163 | 3,633,238 |
| Total | 41,516,316 | 31,319,709 |
| Item | Ending Balance | Opening Balance |
| Mortgage borrowings (a) | 28,917,871 | 29,049,580 |
| Guaranteed borrowings | 6,551,066 | 2,126,618 |
| Unsecured borrowings | 7,060,184 | 3,081,282 |
| Total | 42,529,121. | 34,257,480. |
| Less: Current portion of mortgage borrowings | (39,085) | (39,236) |
| Current portion of guaranteed borrowings | - | (2,126,618) |
| Current portion of unsecured borrowings | - | (187) |
| Total | 42,490,036 | 32,091,439 |
| Item | Ending Balance | Opening Balance |
| Supplementary retirement benefits (a) | 2,352,877 | 2,329,652 |
| Others | 147,845 | 150,666 |
| Total | 2,500,722 | 2,480,318 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(27) Share capital
| Item | Opening Balance | Movements for the current year | Ending Balance | ||||
| Share-based payment incentive plan | Desterilisation | Share issuance | Write-offs of repurchase | Sub-total | |||
| RMB-denominated ordinary shares - | (a) | ||||||
| RMB-denominated ordinary shares subject to trading restriction | 147,175 | 30,980 | (8,051) | 2,379 | (6,833) | 18,475 | 165,650 |
| RMB-denominated ordinary shares not subject to trading restriction | 6,515,856 | 23,173 | 8,051 | 321,278 | (95,105) | 257,397 | 6,773,253 |
| 6,663,031 | 54,153 | - | 323,657 | (101,938) | 275,872 | 6,938,903 | |
| Item | Opening Balance | Movements for the current year | Ending Balance | |
| Increase in the current period | Decrease in the current period | |||
| Shares for share-based incentives | 918,171 | 2,049,839 | (315,676) | 2,652,334 |
| Shares for write-offs of repurchase | 4,000,256 | - | (4,000,256) | - |
| 4,918,427 | 2,049,839 | (4,315,932) | 2,652,334 | |
| Item | Opening Balance | Increase in the current period | Decrease in the current period | Ending Balance |
| Share premium (a) | 14,478,244 | 4,347,267 | (4,055,652) | 14,769,859 |
| Share option incentive plan (b) | 1,299,655 | 347,445 | (355,398) | 1,291,702 |
| Others | 2,673,408 | 41 | (76,945) | 2,596,504 |
| Total | 18,451,307 | 4,694,753 | (4,487,995) | 18,658,065 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(30) Other comprehensive income
| Other comprehensive income in the balance sheet | Other comprehensive income in the income statement | |||||||||
| Item | 31 December 2018 | Changes in accounting policies | 1 January 2019 | Attributable to the parent company after tax | 30 June 2019 | Amount arising before income tax for current period | 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 | ||||||||||
| Remeasurement of changes in defined-benefit plan | 50,068 | - | 50,068 | (78,752) | (28,684) | (105,602) | - | 22,306 | (78,752) | (4,544) |
| Other comprehensive income items which will be reclassified to profit or loss | ||||||||||
| Other comprehensive income accounted for using equity method which will be reclassified subsequently to profit or loss | (59,146) | - | (59,146) | (251) | (59,397) | (251) | - | - | (251) | - |
| Gains or losses arising from changes in fair value of available-for-sale financial assets | (337,447) | 337,447 | - | - | - | - | - | - | - | - |
| Cash flow hedge reserves | (101,270) | - | (101,270) | 34,124 | (67,146) | (67,856) | 107,674 | (5,455) | 34,124 | 239 |
| Difference on translation of foreign currency financial statement | (884,358) | - | (884,358) | 179,847 | (704,511) | 221,337 | - | - | 179,847 | 41,490 |
| Total | (1,332,153) | 337,447 | (994,706) | 134,968 | (859,738) | 47,628 | 107,674 | 16,851 | 134,968 | 37,185 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(31) Surplus reserve
| Item | Opening Balance | Increase in the current period | Decrease in the current period | Ending Balance |
| Statutory surplus reserve | 5,079,096 | - | - | 5,079,096 |
| Item | Current figure | Comparative figure |
| Undistributed profits at the end of the prior year | 58,762,315 | 47,627,235 |
| Changes in accounting policies | (337,447) | - |
| Undistributed profits at the beginning of the current year | 58,424,868 | 47,627,235 |
| Add: Net profit attributable to the parent company for the current period | 15,187,069 | 12,936,846 |
| Less: Ordinary share dividends payable | (8,553,897) | (7,898,785) |
| Appropriation to general reserve | - | - |
| Undistributed profits at the end of the period | 65,058,040 | 52,665,296 |
| Item | Current figure | Comparative figure |
| Revenue from main operations | 143,143,028 | 133,077,713 |
| Other operating income | 10,627,272 | 9,546,124 |
| Sub-total | 153,770,300 | 142,623,837 |
| Item | Current figure | Comparative figure |
| Cost of sales from main operations | 99,246,019 | 95,385,475 |
| Cost of sales from other operations | 9,195,270 | 8,495,963 |
| Sub-total | 108,441,289 | 103,881,438 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(34) Revenue and cost of sales (Cont’d)
(a) Revenue and cost of sales from main operations
| Product or business type | Current figure | Comparative figure | ||
| Revenue | Cost of sales | Revenue | Cost of sales | |
| Heating & ventilation, as well as air-conditioner | 71,439,403 | 48,518,866 | 63,873,960 | 44,548,938 |
| Consumer appliances | 58,350,984 | 40,096,559 | 55,279,120 | 40,043,342 |
| Robots and automatic system | 12,023,626 | 9,337,888 | 12,502,301 | 9,447,728 |
| Others | 1,329,014 | 1,292,705 | 1,422,332 | 1,345,467 |
| Sub-total | 143,143,027 | 99,246,018 | 133,077,713 | 95,385,475 |
| Item | Current figure | Comparative figure | ||
| Revenue | Cost of sales | Revenue | Cost of sales | |
| Revenue from sales of material | 9,528,368 | 8,934,613 | 8,605,866 | 8,225,748 |
| Others | 1,098,904 | 260,657 | 940,258 | 270,215 |
| Sub-total | 10,627,272 | 9,195,270 | 9,546,124 | 8,495,963 |
| Item | Current figure | Comparative figure |
| Interest income from loans and advances | 503,691 | 430,800 |
| Interest income from deposits with banks and other financial institutions and Central Bank | 58,006 | 681,214 |
| Interest income | 561,697 | 1,112,014 |
| Interest expenses | (105,543) | (168,235) |
| Item | Current figure | Comparative figure |
| City maintenance and construction tax | 400,925 | 377,860 |
| Educational surcharge | 292,839 | 274,527 |
| Others | 234,826 | 195,263 |
| Total | 928,590 | 847,650 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Selling and distribution expenses
| Item | Current figure | Comparative figure |
| Selling and distribution expenses | 19,529,822 | 16,892,503 |
| Item | Current figure | Comparative figure |
| General and administrative expenses | 4,110,125 | 3,335,291 |
| Item | Current figure | Comparative figure |
| Research and development expenses | 4,534,760 | 3,899,229 |
| Item | Current figure | Comparative figure |
| Interest costs | 401,129 | 304,703 |
| Less: Interest income | (2,088,716) | (757,815) |
| Add: Exchange gains or losses | 160,162 | (585,871) |
| Add: Others | 91,780 | 54,870 |
| Total | (1,435,645) | (984,113) |
| Item | Current figure | Comparative figure |
| (Reversal)/Loss from bad debts (Note 4(4)) | - | 215,759 |
| Losses on decline in the value of inventories (Note 4(7)) | 144,461 | 27,045 |
| Impairment loss on fixed assets (Note 4(11)) | 77 | 7,079 |
| Impairment loss on intangible assets (Note 4(13)) | 118 | 82 |
| (Reversal)/Loss from impairment of loans (Note 4(6)) | - | 50,122 |
| Total | 144,656 | 300,087 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Losses on credit impairment
| Item | Current figure | Comparative figure |
| (Reversal)/Loss from bad debts (Note 4(4)) | 123,571 | - |
| (Reversal)/Loss from impairment of loans (Note 4(6)) | 55,476 | - |
| Total | 179,047 | - |
| Item | Current figure | Comparative figure |
| Financial instruments at fair value through profit or loss | 347,862 | (613,928) |
| Source of investment income | Current figure | Comparative figure |
| Investment income from wealth management products purchased from financial institutions | 78,219 | 347,371 |
| Investment income from disposal of financial assets at fair value through profit or loss | (422,174) | 92,213 |
| Investment income from long-term equity investment under equity method | 232,596 | 187,245 |
| Others | 123,999 | 285,795 |
| Total | 12,640 | 912,624 |
| Item | Current figure | Comparative figure |
| Gains on disposal of non-current assets | 13,803 | 17,902 |
| Losses on disposal of non-current assets | (27,508) | (36,661) |
| Total | (13,705) | (18,759) |
| Item | Current figure | Comparative figure | Assets related/Income related |
| Special subsidy | 661,949 | 626,278 | Income related |
| Item | Current figure | Comparative figure |
| Current income tax expenses | 3,786,798 | 3,098,450 |
| Deferred income tax expenses | (957,206) | (483,568) |
| Total | 2,829,592 | 2,614,882 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(47) Income tax expenses (Cont’d)
The reconciliation from income tax calculated based on the applicable tax rates and total profitpresented in the consolidated financial statements to the income tax expenses is listed below:
| Item | Current figure | Comparative figure |
| Total profit | 18,889,515 | 16,394,573 |
| Income tax calculated at tax rate of 25% | 4,722,379 | 4,098,643 |
| Effect of different tax rates applicable to subsidiaries | (1,363,283) | (1,018,015) |
| Effect of income tax annual filing for prior periods | (85,020) | (88,464) |
| Income not subject to tax | (86,580) | (156,177) |
| Costs, expenses and losses not deductible for tax purposes | 172,898 | 154,906 |
| Utilisation of previously unrecognised tax losses | (810) | (83,582) |
| Effect of the deductible temporary differences or deductible losses for which no deferred tax asset was recognised in the current period | 10,633 | 18,168 |
| Others | (540,625) | (310,597) |
| Income tax expenses | 2,829,592 | 2,614,882 |
| Item | Unit | Current figure | Comparative figure |
| Consolidated net profit attributable to ordinary shareholders of the parent company | RMB’000 | 15,187,069 | 12,936,846 |
| Weighted average number of outstanding ordinary shares | Thousands shares | 6,542,991 | 6,575,678 |
| Basic earnings per share | RMB Yuan/share | 2.32 | 1.97 |
| Item | Unit | Current figure | Comparative figure |
| Consolidated net profit attributable to ordinary shareholders of the Company | RMB’000 | 15,187,069 | 12,936,846 |
| Weighted average number of outstanding ordinary shares | Thousands shares | 6,542,991 | 6,575,678 |
| Weighted average number of ordinary shares increased from share options | Thousands shares | 47,639 | 95,007 |
| Weighted average number of diluted outstanding ordinary shares | Thousands shares | 6,590,630 | 6,670,685 |
| Diluted earnings per share | RMB Yuan/share | 2.30 | 1.94 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(49) Notes to the cash flow statement
(a) Cash received relating to other operating activities
| Item | Current figure | Comparative figure |
| Non-operating income | 144,360 | 148,745 |
| Other income | 657,717 | 649,291 |
| Other operating income | 1,061,576 | 908,034 |
| Financial interest income | 225,405 | 140,352 |
| Others | 292,415 | 1,709,955 |
| Total | 2,381,473 | 3,556,377 |
| Item | Current figure | Comparative figure |
| General and administrative expenses and research and development expenses (excluding employee benefits and taxes and surcharges) | 4,715,126 | 3,210,192 |
| Selling and distribution expenses (excluding employee benefits and taxes and surcharges) | 12,234,373 | 10,057,941 |
| Others | 888,966 | 178,335 |
| Total | 17,838,465 | 13,446,468 |
| Supplementary information | Current figure | Comparative figure |
| 1) Reconciliation from net profit to cash flows from operating activities: | ||
| Net profit | 16,059,923 | 13,779,691 |
| Add: Provision for asset impairment | 144,656 | 300,087 |
| Provision for credit impairments | 179,047 | - |
| Depreciation and amortisation | 2,443,803 | 2,431,629 |
| Net losses on disposal of non-current assets | 13,705 | 18,759 |
| Losses on changes in fair value | (347,862) | 613,928 |
| Financial expenses | (1,352,564) | (356,164) |
| Investment income | (12,640) | (912,624) |
| Share-based payments | 392,759 | 545,531 |
| Decrease in deferred tax assets | (1,027,243) | (581,702) |
| Increase in deferred tax liabilities | 139,686 | 105,493 |
| Decrease in inventories | 5,763,508 | 5,575,127 |
| Decrease in operating receivables | (12,882,038) | (19,845,991) |
| Increase in operating payables | 12,273,150 | 5,939,924 |
| Net cash flows from operating activities | 21,787,890 | 7,613,688 |
| 2) Net increase/(decrease) in cash and cash equivalents | ||
| Cash at the end of the period | 14,897,180 | 10,427,394 |
| Less: Cash at the beginning of the period | (17,952,282) | (21,831,653) |
| Net increase in cash and cash equivalents | (3,055,102) | (11,404,259) |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(49) Notes to the cash flow statement (Cont’d)
(d) Composition of cash and cash equivalents
| Item | Current figure | Comparative figure |
| Cash on hand | 2,214 | 5,232 |
| Cash at bank that can be readily drawn on demand | 12,189,067 | 8,748,778 |
| Other cash balances that can be readily drawn on demand | 65,114 | 59,123 |
| Deposits with the Central Bank that can be readily drawn on demand | 255,357 | 81,100 |
| Deposits with banks and other financial institutions | 2,385,428 | 1,533,161 |
| Cash and cash equivalents at the end of the period | 14,897,180 | 10,427,394 |
| Item | 30 June 2019 | ||
| Foreign currency balance | Exchange rate | RMB balance | |
| Cash at bank and on hand | |||
| USD | 726,666 | 6.8747 | 4,995,611 |
| JPY | 4,936,129 | 0.0638 | 315,004 |
| HKD | 154,016 | 0.8797 | 135,482 |
| EURO | 127,951 | 7.8170 | 1,000,193 |
| BRL | 98,498 | 1.7939 | 176,699 |
| Other currencies | Not applicable | Not applicable | 1,098,796 |
| Sub-total | 7,721,785 | ||
| Accounts receivable | |||
| USD | 1,196,162 | 6.8747 | 8,223,255 |
| JPY | 17,119,280 | 0.0638 | 1,092,484 |
| HKD | 58,136 | 0.8797 | 51,140 |
| EURO | 370,295 | 7.8170 | 2,894,596 |
| BRL | 386,485 | 1.7939 | 693,327 |
| Other currencies | Not applicable | Not applicable | 2,630,296 |
| Sub-total | 15,585,098 | ||
| Other receivables | |||
| USD | 55,570 | 6.8747 | 382,027 |
| JPY | 4,107,857 | 0.0638 | 262,147 |
| HKD | 397,221 | 0.8797 | 349,419 |
| EURO | 38,611 | 7.8170 | 301,822 |
| BRL | 96,917 | 1.7939 | 173,862 |
| Other currencies | Not applicable | Not applicable | 168,340 |
| Sub-total | 1,637,617 | ||
| Total | 24,944,500 | ||
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Monetary items denominated in foreign currency (Cont'd)
| Item | 30 June 2019 | ||
| Foreign currency balance | Exchange rate | RMB balance | |
| Short-term borrowings | |||
| JPY | 3,000,000 | 0.0638 | 191,448 |
| EURO | 97,776 | 7.8170 | 764,315 |
| BRL | 82,640 | 1.7939 | 148,250 |
| Other currencies | Not applicable | Not applicable | 234,311 |
| Sub-total | 1,338,324 | ||
| Accounts payable | |||
| USD | 208,575 | 6.8747 | 1,433,891 |
| JPY | 10,895,967 | 0.0638 | 695,337 |
| HKD | 51,784 | 0.8797 | 45,552 |
| EURO | 243,822 | 7.8170 | 1,905,957 |
| BRL | 196,597 | 1.7939 | 352,681 |
| Other currencies | Not applicable | Not applicable | 1,218,137 |
| Sub-total | 5,651,555 | ||
| Other payables | |||
| USD | 9,813 | 6.8747 | 67,461 |
| JPY | 6,330,826 | 0.0638 | 404,008 |
| HKD | 157,693 | 0.8797 | 138,716 |
| EURO | 1,774 | 7.8170 | 13,867 |
| Other currencies | Not applicable | Not applicable | 75,678 |
| Sub-total | 699,730 | ||
| Current portion of non-current liabilities | |||
| EURO | 7,048 | 7.8170 | 55,094 |
| JPY | 124,472 | 0.0638 | 7,943 |
| Other currencies | Not applicable | Not applicable | 52,667 |
| Sub-total | 115,704 | ||
| Long-term borrowings | |||
| USD | 149,484 | 6.8747 | 1,027,658 |
| EURO | 4,215,027 | 7.8170 | 32,948,866 |
| JPY | 69,459,994 | 0.0638 | 4,432,659 |
| Other currencies | Not applicable | Not applicable | 80,853 |
| Sub-total | 38,490,036 | ||
| Total | 46,295,349 | ||
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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) Monetary items denominated in foreign currency (Cont'd)
| Item | 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 |
| EURO | 120,307 | 7.8473 | 944,084 |
| BRL | 209,297 | 1.7714 | 370,748 |
| Other currencies | Not applicable | Not applicable | 1,047,083 |
| 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 |
| EURO | 336,710 | 7.8473 | 2,642,265 |
| BRL | 524,032 | 1.7714 | 928,271 |
| Other currencies | Not applicable | Not applicable | 1,821,932 |
| 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 |
| EURO | 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 SIX MONTHS ENDED 30 JUNE 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) Monetary items denominated in foreign currency (Cont'd)
| Item | 31 December 2018 | ||
| Foreign currency balance | Exchange rate | RMB balance | |
| Short-term borrowings | |||
| USD | 22,169 | 6.8632 | 152,148 |
| EURO | 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 |
| EURO | 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 |
| EURO | 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 |
| EURO | 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 |
| EURO | 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 | ||
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
5 Changes in the consolidation scope
(1) Changes in consolidation scope due to other reasons
(a) Increase of consolidation scope
The Company’s wholly-owned subsidiaries Midea Electric Trading (Singapore) Co. Pte. Ltd. andMidea Electrics Netherlands B.V. established Midea Electric by cash of 250,000 Egyptian poundsin March 2019, holding 99% and 1% of equity respectively. The Company's wholly-ownedsubsidiary Guangdong Welling Auto Parts Corporation Limited. established Anhui Welling AutoParts Corporation Limited. In May 2019. The Company established Wuxi Little Swan Electric Co.,Ltd. in May 2019.
(b) Decrease of consolidation scope
Decrease of consolidation scope mainly includes deregistration of subsidiaries. Details are asfollows:
| 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 SIX MONTHS ENDED 30 JUNE 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 (%) | Method of acquisition | |
| Direct | Indirect | |||||
| Guangdong Midea Air-Conditioning Equipment Co., Ltd. | Foshan, PRC | Foshan, PRC | Manufacture and sales of air conditioner | 73% | 7% | Business combinations involving enterprises not under common control |
| Guangdong Midea Group Wuhu Air-Conditioning Equipment Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Manufacture and sales of air conditioner | 73% | 7% | Business combinations involving enterprises 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 & Ventilation 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 compressor | 100% | - | Establishment |
| Hefei Midea Refrigerator Co., Ltd. | Hefei, PRC | Hefei, PRC | Manufacture of refrigerator | 75% | 25% | Business combinations involving enterprises not under common control |
| Ningbo Midea United Material Supply Co., Ltd. | Ningbo, PRC | Ningbo, PRC | Import and export of materials | 100% | - | Establishment |
| 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 |
| Wuxi Little Swan Company Limited | Wuxi, PRC | Wuxi, PRC | Manufacture of washing machine | 85% | 15% | Business combinations involving enterprises not under common control |
| 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 combinations involving enterprises 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 |
| Midea Investment Development Company Limited | British Virgin Islands | British Virgin Islands | 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 combinations involving enterprises not under common control |
| TLSC | Japan | Japan | Manufacture of home appliances | - | 100% | Business combinations involving enterprises not under common control |
| KUKA | Germany | Germany | Manufacture and sales of robots | - | 94.55% | Business combinations involving enterprises not under common control |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
6 Interests in other entities (Cont'd)
(2) Interests in associates and joint ventures
The Group’s associates and joint ventures have no significant influence on the Group and aresummarised as follows:
| Item | Current figure | Comparative figure |
| Aggregated carrying amount of investments | 2,619,985 | 2,753,940 |
| Aggregate of the following items in proportion | ||
| Net profit (i) | 232,596 | 187,245 |
| Other comprehensive income (i) | (251) | 45,751 |
| Total comprehensive income | 232,345 | 232,996 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 for the six months ended 30 June 2019 and as at 30 June 2019 is as follows:
| Item | Current figure | |||||
| Heating & ventilation, as well as air-conditioner | Consumer appliances | Robots and automatic system | Other segments and unallocated amount | Offsetting | Total | |
| Revenue from external customers | 79,778,444 | 60,426,835 | 12,084,387 | 2,042,977 | - | 154,332,643 |
| Inter-segment revenue | 993,792 | 264,787 | 47,256 | 3,661,828 | (4,967,663) | - |
| Operating expenses | (71,907,225) | (52,887,636) | (12,140,447) | (4,260,502) | 4,977,655 | (136,218,155) |
| Segment profit | 8,865,011 | 7,803,986 | (8,804) | 1,444,303 | 9,992 | 18,114,488 |
| Other profit or loss | 775,027 | |||||
| Total profit | 18,889,515 | |||||
| Total assets | 121,477,633 | 103,830,902 | 30,350,434 | 94,354,997 | (65,980,141) | 284,033,825 |
| Total liabilities | 82,545,313 | 68,130,341 | 28,194,003 | 86,580,130 | (80,017,965) | 185,431,822 |
| Long-term equity investments in associates and joint ventures | 188,801 | 86,822 | 95,577 | 2,248,785 | - | 2,619,985 |
| Investment income from associates and joint ventures | 56,685 | (3,690) | (14,086) | 193,687 | - | 232,596 |
| Increase in non-current assets (excluding long-term equity investments, financial assets, goodwill and deferred tax assets) | 859,981 | 586,123 | 385,257 | 186,190 | - | 2,017,551 |
| Losses on/(Reversal of) asset impairment | 95,918 | (5,346) | 51,295 | 2,789 | - | 144,656 |
| Losses on/(Reversal of) credit impairment | 240,705 | 92,404 | (111,056) | 1,406 | (44,412) | 179,047 |
| Depreciation and amortisation | 799,036 | 832,223 | 528,676 | 283,868 | - | 2,443,803 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 for the six months ended 30 June 2018 and as at 30 June 2018 is as follows:
| Item | Comparative figure | |||||
| Heating & ventilation, as well as air-conditioner | Consumer appliances | Robots and automatic system | Other segments and unallocated amount | Offsetting | Total | |
| Revenue from external customers | 71,054,762 | 57,431,088 | 12,527,883 | 2,722,183 | - | 143,735,916 |
| Inter-segment revenue | 683,380 | 169,729 | 27,628 | 3,026,975 | (3,907,712) | - |
| Operating expenses | (63,576,472) | (51,468,763) | (12,482,078) | (4,452,768) | 3,938,319 | (128,041,762) |
| Segment profit | 8,161,670 | 6,132,054 | 73,433 | 1,296,390 | 30,607 | 15,694,154 |
| Other profit or loss | 700,419 | |||||
| Total profit | 16,394,573 | |||||
| Total assets | 102,561,819 | 91,717,760 | 27,920,064 | 95,439,400 | (66,641,242) | 250,997,801 |
| Total liabilities | 69,244,032 | 64,756,334 | 19,205,830 | 89,728,014 | (79,875,011) | 163,059,199 |
| Long-term equity investments in associates and joint ventures | 328,824 | 65,662 | 114,220 | 2,245,234 | - | 2,753,940 |
| Investment income from associates and joint ventures | 41,003 | (3,538) | (10,705) | 160,485 | - | 187,245 |
| Increase in non-current assets (excluding long-term equity investments, financial assets, goodwill and deferred tax assets) | 731,745 | 932,421 | 1,217,350 | 118,287 | - | 2,999,803 |
| Losses on/(Reversal of) asset impairment | 206,497 | (20,413) | 24,230 | 121,847 | (32,074) | 300,087 |
| Losses on/(Reversal of) credit impairment | - | - | - | - | - | - |
| Depreciation and amortisation | 770,940 | 890,286 | 513,702 | 256,701 | - | 2,431,629 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 (excluding long-term equity investments,financial assets, goodwill and deferred tax assets) located domestically and in foreign countriesor geographical areas (including Germany, Japan, Hong Kong, Macau, Singapore and Brazil,etc.) are as follows:
| Revenue from external customers | Current figure | Comparative figure |
| Domestic | 92,226,461 | 85,166,057 |
| In other countries/geographical areas | 62,106,182 | 58,569,859 |
| Total | 154,332,643 | 143,735,916 |
| Total non-current assets | Current figure | Comparative figure |
| Domestic | 22,478,988 | 22,617,962 |
| In other countries/geographical areas | 18,488,441 | 18,262,671 |
| Total | 40,967,429 | 40,880,633 |
| Name of the parent company | Relationship | Place of registration | Nature of business |
| Midea Holding Co., Ltd. | Controlling shareholder | Shunde District, Foshan | Commercial |
| Name of the parent company | Registered capital |
| Midea Holding Co., Ltd. | 330,000 |
| Name of the parent company | Ending | Opening | ||||
| Shareholding (%) | Voting rights (%) | Shareholding (%) | Voting rights (%) | |||
| Direct | Indirect | Direct | Indirect | |||
| Midea Holding Co., Ltd. | 31.87% | - | 31.87% | 33.20% | - | 33.20% |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
(2) Information of the Company's subsidiaries
Please refer to Note 6(1) for the information of the Company’s main subsidiaries.
(3) 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 shareholders |
| Anhui Wellkey Electrician Material Co., Ltd. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholders |
| Guangdong Infore Material-Tech Co., Ltd. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholders |
| Orinko New Material Co., Ltd | Under the common control of the direct relatives of the Company’s ultimate controlling shareholders |
| Foshan Micro Midea Filter MFG Co., Ltd. | Associates of the Company |
| Foshan Shunde Rural Commercial Bank Co., Ltd. | Associates of the Company |
| Related parties | Nature of related party transactions | Pricing policies of related party transactions | Current figure | Comparative figure |
| Orinko New Material Co., Ltd | Purchase of goods | Agreed price | 684,725 | 170,578 |
| Guangdong Wellkey Electrician Material Co., Ltd. | Purchase of goods | Agreed price | 449,341 | 449,123 |
| Foshan Micro Midea Filter MFG Co., Ltd. | Purchase of goods | Agreed price | 136,125 | 93,526 |
| Anhui Wellkey Electrician Material Co., Ltd. | Purchase of goods | Agreed price | 159,781 | 165,746 |
| Total | 1,429,972 | 878,973 |
| Item | Related parties | Ending Balance | Opening Balance |
| Cash at bank and on hand | Foshan Shunde Rural Commercial Bank Co., Ltd. | 3,000,108 | 88,084 |
| Item | Related parties | Ending Balance | Opening Balance |
| Accounts payable | Guangdong Wellkey Electrician Material Co., Ltd. | 184,128 | 169,592 |
| Foshan Micro Midea Filter MFG Co., Ltd. | 46,989 | 60,885 | |
| Orinko New Material Co., Ltd | 116,023 | 59,011 | |
| Anhui Wellkey Electrician Material Co., Ltd. | 61,722 | 25,321 | |
| Sub-total | 408,862 | 314,809 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
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 3rd Board of Directors held during the year2019, the Company granted 5,340,000 share options with exercise price of RMB 47.17 to 97employees. Under the circumstance that the Company meets expected performance, 1/4 of thetotal share options granted will become effective after 2 years, 3 years, 4 years and 5 yearsrespectively 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% |
| 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% |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 of share options during the six months
| Item | For the six months ended 30 June 2019 (share options in thousands) | For the six months ended 30 June 2018 (share options in thousands) |
| Share options issued at the beginning of the year | 229,836 | 253,541 |
| Share options granted during current period | 51,880 | 54,520 |
| Share options exercised during current period | (51,733) | (41,605) |
| Share options lapsed during current period | (8,916) | (501) |
| Share options issued at the end of the year | 221,067 | 265,955 |
| Item | For the six months ended 30 June 2019 (share options in thousands) | For the six months ended 30 June 2018 (share options in thousands) |
| Restricted shares issued at the beginning the of the year | 40,185 | 28,605 |
| Restricted shares granted during current period | 30,980 | 20,570 |
| Restricted shares unlocked at the beginning of the period | (7,193) | (7,198) |
| Restricted shares lapsed during current period | (6,833) | (1,876) |
| Restricted shares issued at the end of the period | 57,139 | 40,101 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
10 Share-based payment (Cont'd)
(2) Restricted shares (Cont’d)
(c) Impact of restricted the Company's transactions on financial position and financial performance
The total expenses on restricted share recognised for the six months ended 30 June 2019 wereRMB 168,292,000 (for the six months ended 30 June 2018: RMB 198,872,000).
11 Contingencies
As at 30 June 2019, the amount in tax disputes involving Brasilian subsidiary with 51% interestsheld by the Company is about BRL 669 million (equivalent to RMB 1,201 million) (Some caseshave lasted for more than 10 years. The above amount includes the principal and interest). As at30 June 2019, relevant cases are still at court. Original shareholders of Brazilian subsidiary haveagreed to compensate the Company according to verdict results of the above tax disputes. Themaximum compensation amount is about BRL 157 million (equivalent to RMB 282 million). Withreference to judgements of third-party attorneys, management believes that the probability oflosing lawsuits and making compensation is small, and expects no significant risk of debt default,therefore, no provisions are made and appropriate disclosures are made in the financialstatements.
12 Commitments
The Group has no significant commitments at the balance sheet date.
13 Subsequent events
Nil
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 risk
The following mainly relates to the above risk exposures and relevant causes, objectives, policiesand process of risk management and method of risk measurement, etc.
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. Pursuantto the risk management objective, the Group has made risk management policies to identify andanalyse the risks it is exposed to and set appropriate risk resistant level and design relevantinternal control procedures to monitor the Group’s risk level. The Group reviews regularly theserisk management policies and relevant internal control systems to adapt to changes in marketcondition or its operating activities.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
14 Financial risk (Cont’d)
(1) Market risk
(a) Foreign exchange risk
The Group mainly operates in Mainland China, Europe, America, Asia, Brazil and Africa for themanufacturing, sales, investments and financing activities. Any foreign currency denominatedmonetary assets and liabilities other than in RMB would subject the Group to foreign exchangeexposure.
The Group’s finance department at its headquarters has a professional team to manage foreignexchange risk, with approach of the natural hedge for settling currencies, signing forward foreignexchange hedging contracts and controlling the scale of foreign currency assets and liabilities,to minimise foreign exchange risk, and to reduce the impact of exchange rate fluctuations onbusiness 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 the Groupto cash flow interest rate risk. Financial liabilities issued at fixed rates expose the Group to fairvalue interest rate risk. The Group determines the relative proportions of its fixed rate and floatingrate contracts depending on the prevailing market conditions. As at 30 June 2019, the Group hadno long-term interest bearing borrowings at floating rates (31 December 2018: nil) (Note 4(25)).
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 and theinterest expenses with respect to the Group’s outstanding floating rate borrowings, and thereforecould have a material adverse effect on the Group’s financial performance. The Group makesadjustments timely with reference to the latest market conditions and may enter into interest rateswap agreements to mitigate its exposure to interest rate risk.
(c) Other price risk
The Group's other price risk arises mainly from financial assets held for trading measured at fairvalue (Note 4(2)) and other non-current financial assets (Note 4(10)) held by the Group. As at 30June 2019, the expected price changes of the above investments held by the Group will affectthe Group’s profit or loss arising from changes in fair value.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 mainly arises from cash at bank and on hand, deposits with the Central Bank, depositswith banks and other financial institutions, notes receivable, accounts receivable, receivablesfinancing, loans and advances, other receivables and derivative financial assets at fair valuethrough profit or loss that are not included in impairment assessment. As at the balance sheetdate, the carrying amount of the Group’s financial assets represented the largest credit exposure.The Group didn’t provided any guarantee that made the Group possibly undertake the credit risk.
The Group expects that there is no significant credit risk associated with cash at bank, depositswith the Central Bank and deposits with banks and other financial institutions since they aredeposited at state-owned banks and other medium or large size listed banks. Management doesnot expect that there will be any significant losses from non-performance by these counterparties.
In addition, the Group has policies to limit the credit exposure on notes receivable, accountsreceivable, receivables financing, loans and advances, other receivables and other structuraldeposits in current assets. The Group assesses the credit quality of and sets credit limits on itscustomers by taking into account their financial position, the availability of guarantee from thirdparties, their credit history and other factors such as current market conditions. The credit historyof the customers is regularly monitored by the Group. In respect of customers with a poor credithistory, the Group will use written payment reminders, or shorten or cancel credit periods, toensure the overall credit risk of the Group is limited to a controllable extent.
(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 to cashto meet operational needs, while maintaining sufficient headroom on its undrawn committedborrowing facilities from major financial institutions so that the Group does not breach borrowinglimits or covenants on any of its borrowing facilities to meet the short-term and long-term liquidityrequirements. As at the balance sheet date, monetary assets held by the Group, including cashat bank and on hand, note assets, discounted assets, wealth management funds and structuraldeposits and other monetary assets amounted to RMB 136,846,044,000.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 maturity datesbelow at their undiscounted contractual cash flows:
| 30 June 2019 | |||||
| Item | Within 1 year | 1 to 2 years | 2 to 5 years | Over 5 years | Total |
| Short-term borrowings (including interest) | 1,362,924 | - | - | - | 1,362,924 |
| Borrowings from the Central Bank (including interest) | 19,555 | - | - | - | 19,555 |
| Customer deposits and deposits from banks and other financial institutions | 64,801 | - | - | - | 64,801 |
| Notes payable | 29,274,952 | - | - | - | 29,274,952 |
| Accounts payable | 39,004,928 | - | - | - | 39,004,928 |
| Other payables | 3,419,347 | - | - | - | 3,419,347 |
| Derivative financial liabilities | 75,195 | - | - | - | 75,195 |
| Other current liabilities | 15,382,772 | - | - | - | 15,382,772 |
| Current portion of non-current liabilities (including interest) | 116,071 | - | - | - | 116,071 |
| Long-term borrowings (including interest) | 521,501 | 1,767,891 | 41,703,394 | - | 43,992,786 |
| Other non-current liabilities | 189,761 | 185,188 | 666,012 | 1,040,961 | |
| Sub-total | 89,242,046 | 1,957,652 | 41,888,582 | 666,012 | 133,754,292 |
| 31 December 2018 | |||||
| Item | 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 |
| Other non-current liabilities | - | 190,496 | 159,844 | 666,012 | 1,016,352 |
| Sub-total | 84,466,050 | 1,799,921 | 31,613,286 | 666,012 | 118,545,269 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 |
| Item | Fair value at the end of the period | |||
| Level 1 | Level 2 | Level 3 | Total | |
| Financial assets at fair value - | ||||
| Financial assets held for trading | 872,324 | - | 2,561,077 | 3,433,401 |
| Derivative financial assets | - | 50,847 | - | 50,847 |
| Receivables financing | 2,653,342 | 2,653,342 | ||
| Other current assets - hedging instruments | - | 28,433 | - | 28,433 |
| Other non-current financial assets | - | - | 1,420,416 | 1,420,416 |
| Total assets | 872,324 | 2,732,622 | 3,981,493 | 7,586,439 |
| Financial liabilities at fair value - | ||||
| Derivative financial liabilities | - | 75,195 | - | 75,195 |
| Other financial liabilities - hedging instruments | - | 224,835 | - | 224,835 |
| Total liabilities | - | 300,030 | - | 300,030 |
| Item | Fair value at the beginning of the year | |||
| Level 1 | Level 2 | Level 3 | Total | |
| Financial assets 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 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 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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)
The changes in Level 3 financial assets are analysed below:
| Item | Amount |
| 1 January 2019 | 1,583,257 |
| Impact of changes in standards | 732,448 |
| Increase | 3,200,646 |
| Decrease | (1,701,464) |
| Total gains of current period | |
| Investment income recognised in the income statement | 162,407 |
| Gains recognised in other comprehensive income | 4,199 |
| 30 June 2019 | 3,981,493 |
| Item | Amount |
| 1 January 2018 | 22,174,966 |
| Increase | 1,576,579 |
| Decrease | (22,660,142) |
| Total gains of current period | |
| Investment income recognised in the income statement | 519,042 |
| Gains recognised in other comprehensive income | (27,188) |
| 31 December 2018 | 1,583,257 |
| Information about the Level 3 fair value measurement is as follows: | ||||||||||||
| Fair value as at 30 June 2019 | Valuation technique | Inputs | ||||||||||
| Name | Range | Relationship with fair value | Observable/ Unobservable | |||||||||
| Financial assets held for trading - | ||||||||||||
| Wealth management products | 2,561,077 | Discounting cash flow | Estimated annual yield | 3.0% to 5.3% | Positive | Unobservable | ||||||
| Other non-current financial assets (a) | 1,420,416 | |||||||||||
| 3,981,493 | ||||||||||||
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 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 |
| Item | Ending Balance | Opening Balance |
| Total liabilities | 185,431,822 | 171,246,631 |
| Total assets | 284,033,825 | 263,701,148 |
| Gearing ratio | 65.29% | 64.94% |
| Item | Ending Balance | Opening Balance |
| Other receivables | 11,621,451 | 11,171,833 |
| Interest receivable | 102,857 | 117,138 |
| Dividends receivable | 1,389,613 | 310,889 |
| Sub-total | 13,113,921 | 11,599,860 |
| Less: Provision for bad debts | (7,895) | (6,840) |
| Total | 13,106,026 | 11,593,020 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the Company’s financial statements (Cont’d)
(1) Other receivables (Cont’d)
(a) Other receivables are analysed by ageing as follows:
| Ageing | Ending Balance | Opening Balance |
| Within 1 year | 11,541,886 | 11,146,053 |
| 1 to 2 years | 74,876 | 21,110 |
| 2 to 3 years | 4,689 | 4,670 |
| Sub-total | 11,621,451 | 11,171,833 |
| Less: Provision for bad debts | (7,895) | (6,840) |
| Total | 11,613,556 | 11,164,993 |
| Item | Stage 1 | ||||
| Expected credit losses in the following 12 months (grouping) | Expected credit losses in the following 12 months (individual) | Sub-total | |||
| Ending balance | Provision for bad debts | Ending balance | Provision for bad debts | Provision for bad debts | |
| 31 December 2018 | 129,368 | 6,840 | 11,042,465 | - | 6,840 |
| Changes in accounting policies | - | - | - | - | - |
| 1 January 2019 | 129,368 | 6,840 | 11,042,465 | - | 6,840 |
| Increase in the current period | 17,283 | 1,055 | 432,335 | - | 1,055 |
| Decrease in the current period | - | - | - | - | - |
| Including: Write-off in the current period | - | - | - | - | - |
| Derecognition | - | - | - | - | - |
| Reversal in the current period | - | - | - | - | - |
| Currency translation differences | - | - | - | ||
| 30 June 2019 | 146,651 | 7,895 | 11,474,800 | - | 7,895 |
| Name of entity | Nature | Carrying amount | Ageing | % of total balance | Provision for bad debts |
| Company A | Current accounts | 6,611,700 | Within 1 year | 57% | - |
| Company B | Current accounts | 4,000,000 | Within 1 year | 34% | - |
| Company C | Exercise of options | 285,361 | Within 1 year | 2% | - |
| Company D | Current accounts | 167,890 | Within 1 year | 1% | - |
| Company E | Current accounts | 150,000 | Within 1 year | 1% | - |
| Sub-total | 11,214,951 | 95% | - |
| Item | Ending Balance | Opening Balance |
| Subsidiaries (a) | 44,059,630 | 26,586,165 |
| Associates (b) | 1,465,670 | 1,650,130 |
| Sub-total | 45,525,300 | 28,236,295 |
| Less: Provision for impairment | - | - |
| Total | 45,525,300 | 28,236,295 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the Company’s financial statements (Cont’d)
(2) Long-term equity investments (Cont’d)
(a) Subsidiaries
| Name of investee | Opening Balance | Movements for the current year | Ending Balance | Cash dividends declared in the current year | |||
| Increase in investment | Movements from share-based payments | Decrease in investment | Others (Note) | ||||
| Wuxi Little Swan Company Limited | 2,822,571 | - | 27,119 | - | 17,247,707 | 20,097,397 | 955,792 |
| Midea Group Finance Co., Ltd. | 3,354,009 | - | 4,179 | - | - | 3,358,188 | - |
| 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 | - |
| Guangdong Midea Air-Conditioning Equipment Co., Ltd. | 1,436,506 | - | 107,706 | - | - | 1,544,212 | - |
| Hefei Midea Heating & Ventilation Equipment Co., Ltd. | 1,065,941 | - | 3,165 | - | - | 1,069,106 | 1,132,080 |
| Guangdong Midea Consumer Electric Manufacturing Co., Ltd. | 1,073,448 | - | 16,344 | - | - | 1,089,792 | - |
| Hubei Midea Refrigerator Co., Ltd. | 843,928 | - | 1,545 | - | - | 845,473 | - |
| Anhui Meizhi Precision Manufacturing Co., Ltd. | 821,916 | - | 2,411 | - | - | 824,327 | 621,624 |
| Wuhu Maty Air-Conditioning Equipment Co., Ltd | 753,225 | - | 2,545 | - | - | 755,770 | - |
| GD Midea Heating & Ventilation Equipment Co., Ltd. | 645,564 | - | 25,977 | - | - | 671,541 | 1,305,613 |
| Hefei Midea Refrigerator Co., Ltd. | 500,247 | - | 7,794 | - | - | 508,041 | - |
| Ningbo Midea United Material Supply Co., Ltd. | 491,350 | - | 1,748 | - | - | 493,098 | 593,117 |
| Guangdong Midea Group Wuhu Air-Conditioning Equipment Co., Ltd. | 352,041 | - | - | - | - | 352,041 | - |
| Midea International Corporation Company Limited | 176,974 | - | - | - | - | 176,974 | - |
| Others | 7,419,404 | 50,000 | 126,873 | (151,648) | - | 7,444,629 | 1,666,981 |
| Total | 26,586,165 | 50,000 | 327,406 | (151,648) | 17,247,707 | 44,059,630 | 6,275,207 |
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2019(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the Company’s financial statements (Cont’d)
(2) Long-term equity investments (Cont’d)
(b) Associates
Investment in associates mainly refers to the investments in Foshan Shunde Rural CommercialBank Co., Ltd. and Hefei Royalstar Motor Co., Ltd. and other companies by the Group.
(3) Operating Income
Revenue mainly comprises other operating income including the brand royalty income, rentalincome and management fee income, etc. obtained by the parent company from the subsidiaries.
(4) Investment income
| Item | Current figure | Comparative figure |
| Income from long-term equity investment under cost method | 6,275,207 | 6,275,165 |
| Investment income from wealth management products purchased from financial institutions | 78,219 | 257,771 |
| Investment income from long-term equity investment under equity method | 144,453 | 127,081 |
| Others | 249,518 | (76,565) |
| Total | 6,747,397 | 6,583,452 |
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
| Item | Current figure | Comparative figure |
| Disposal gains of non-current assets, including the portion written off in provision for asset impairment | (13,705) | 266,895 |
| Except for the effective hedging activities related to the Group’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 and other non-current financial assets and investment income from disposal of financial assets held for trading, derivative financial assets, financial liabilities held for trading, derivative financial liabilities and other non-current financial assets | (74,312) | (521,715) |
| Others | 944,851 | 1,065,178 |
| Sub-total | 856,834 | 810,358 |
| Less: Corporate Income tax effect (of which the decrease is represented by “-”) | (227,883) | (253,535) |
| Minority interests effect (after tax) | 2,444 | (120,230) |
| Net non-recurring profit or loss attributable to shareholders of the parent company | 631,395 | 436,593 |
| Item | Weighted average return on net assets (%) | Earnings per share (RMB/share) | ||||
| Basic earnings per share | Diluted earnings per share | |||||
| Current figure | Comparative figure | Current figure | Comparative figure | Current figure | Comparative figure | |
| Net profit attributable to shareholders of the Company | 16.97% | 16.43% | 2.32 | 1.97 | 2.30 | 1.94 |
| Net profit attributable to shareholders of the Company net of non-recurring profit or loss | 16.27% | 15.88% | 2.22 | 1.90 | 2.21 | 1.87 |
Section XI Documents Available for Reference
1.The original of The Semi-Annual Report 2019 of Midea Group Co., Ltd. signed bythe legal representative;
2.The financial statements signed and stamped by the legal representative, the ChiefFinancial Officer and the accounting supervisor;
3.The originals of all company documents and announcements that are disclosed tothe public via newspaper designated for information disclosure during the ReportingPeriod; and
4.The electronic version of The Semi-Annual Report 2019 that is released onhttp://www.cninfo.com.cn.
Midea Group Co., Ltd.Legal Representative: Fang Hongbo
31 August 2019