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美的集团:2018年年度报告(英文版) 下载公告
公告日期:2019-04-20

Midea Group Co., Ltd.

The 2018 Annual Report

20 April 2019

Section I Important Statements, Contents and Definitions

The 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 Annual Report. Thereare no directors, supervisors, or senior management who do not warrant or who dispute thetruthfulness, accuracy and completeness of the contents of this Annual Report.The financial statements for 2018 have been audited by PricewaterhouseCoopers China(LLP) and have obtained a standard unqualified audit report.Mr. Fang Hongbo, Chairman of the Board and President of the Company and Ms. ZhongZheng, Director of Finance of the Company, have represented and warranted that thefinancial statements in this report are true and complete.The Board has considered and approved the following dividend payout plan for the year2018: based on the Company's total shares of 6,585,838,349 that are eligible for profitdistribution at the disclosure date of this report, it is proposed that the Company shoulddistribute a cash dividend of RMB13 (tax inclusive) per 10 shares to all the shareholdersand should not convert capital reserves into share capital. When the profit distribution planis implemented, if any change occurs to the total shares eligible for profit distribution, theprofit distribution plan shall be based on the total shares eligible for profit distribution at thebook closure date of the profit distribution, and the dividend per share shall be adjustedunder an unchanged total distribution amount.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 kindly

reminded to pay attention to possible investment risks.This report has been prepared in both Chinese and English. Should there be anydiscrepancies or misunderstandings between the two versions, the Chinese version shallprevail.

Letter to Shareholders

2018 marks great advancement of the era. Having celebrated the 40th anniversary of theChinese economic reform, and looking forward to the upcoming 70th anniversary of theestablishment of New China, new perspectives, new starting points, and new systems wereborn as Midea also celebrated its 50th anniversary. When we look back at history, therewere hard times and difficulties, glories and achievements, diligence and hard work, as wellas reformation and responsibilities. All of these have powered the advancement of ourcountry, ethnic groups, companies, and individuals.2018 was a time of changes that had not been seen for a century. Chaos amid the greatchanges have become the norm and the market settled and returned to reality after all thedust has settled. Crises and opportunities come hand-in-hand amid changes and they riseand fall in the turning cycle. In an era of swift and momentous changes, the courage forreforms becomes the purest form of heritage from Midea's fifty years of development.Despite the hard time we had in 2018, Midea achieved a total revenue of RMB 261.82 billion,which was a year-on-year increase of 8.23%; and achieved RMB 20.23billion in net profitattributable to shareholders of the Company, recording a year-on-year increase of 17.05%.At the same time, we were able to maintain stable operations and raise competitiveness. Byexpanding R&D investment, launching new products, and leveraging our advantages inchannel reforms and synergy, we have obtained great progress and results in terms ofIndustrial Internet, IoT applications, and the establishment of a multi-brand system. Midearanked 323rd in Fortune's world Top 500 enterprises in 2018 as it climbed 127 places andtook the number one ranking in China's home appliance industry. Midea was ranked 26thamong the "Top 100 Most Valuable Chinese Brands" in 2018 by BrandZ? and its brandvalue increased by 40%. It has obtained a leading position among domestic high-tech homeappliance brands. Midea ranked 138th on the top 500 list of the world's most valuable brandspublished by the British brand valuation agency Brand Finance.Midea has always upheld the value of enhancing the Company's level of governance andprotecting the interests of our shareholders. By repurchasing our stocks amounting to RMB

4 billion amid the fluctuations on the market, Midea contributed to the largest generalrepurchase completed in recent years. In addition, Midea continued to maintain a stabledividends policy and the cumulative dividends since its holistic listing will reach RMB 35.7billion (2018 profit distribution plan included). The stable business performance andoutstanding governance makes Midea one of the most popular long-term investments forforeign investors. The shareholding ratio of international investors once approached 28%.We are now in an unusual era, huge impacts on human work and the skills required in futureare being casted by artificial intelligence, machine learning, virtual reality, smart home,Industrial Internet, 5G network and more. Innovation in business models and changes in thestructure of the population lead to an endless stream of new competitors and new businessmodels. We are facing higher level of uncertainty like never before. Past advantages are nolonger a blessing, while old weaknesses are no longer obstacles for future development. Allgreat companies across the world must face challenges in different cycles. Companies thatconfine themselves to the concepts and methods of the industrial age face decline. Theymay have once flourished but they may also turn to dust in this digital age where change nolonger waits for anyone.With “Bring Great Innovations to Life” as our vision,in Midea's 50th anniversary, onlythrough rebirth can we adapt to such a great era and uphold our values and mission."Change" is our simplest answer in face of complexity.We will continue to foster changes in business models, truly placing users' demands as ourstarting point. By adopting a user-centric approach in product development and productionand engaging in painful reforms to intensify the transformation in domestic channels, we aregoing to use the "+ Internet" philosophy and methods for the integration of value chains andsystem optimization. We shall allocate all resources to areas of concern to end users andcontinue to improve user experience and optimize our services.Furthermore, we need to continue to transform our growth and achieve innate inventoryreforms by using digital channels to transform sales and retail and establish solidrelationships with users. Our systems have to be transformed from traditional marketing to

big data marketing, thus providing users with better experience and services. Meanwhile,we shall leverage our scale advantage and expand network effects.It is important to keep investing resources and increasing the growth of our R&D scale andinnovation capacity so as to use products to achieve victory. We shall provide diverseproduct suites in response to trends for more youthful, high-end and suite designed products,and make all our products smart for advancing into the future. Midea hopes to takeadvantage of innovation to foster development and invest in robotics, automation, smartlogistics, and IoT, so as to harness its advantages in the three key elements of "industrialknowledge, software, and hardware". We shall establish leading industrial Internet platformsand form digitalized solutions for the whole value chain.We shall continue to advance the digital transformation and establish a "digital Midea" byleveraging the ABC (artificial intelligence, big data, and cloud computing) and the IoT. Weshall change Midea's existing business model, reduce cost, and increase efficiency by usingsmart operations and continue to improve our operational capacity through an efficiency-driven approach.Once started, changes and rebirth with have no end. In 2018, He Xiangjian, founder of Midea,was awarded the honorary title of "Pioneer of Reform" by the CPC Central Committee andthe State Council. In the fifty years since the company’s founding, each step in Midea'sgrowth is characterized by the change of the era. Market competition has never been easyand Midea's fifty years of development was full of hardships and difficulties. In the face of arising storm of competition and the rapid changes and the huge waves of the era, everyonewho strives to step forward can transform themselves into the storms, waves, and changes.The past is gone and the future is yet far. The greatest act of kindness to the future is todedicate everything to the present.Thank you for joining us in our rebirth at 50, let's witness the re-creation of greatness together.

Board of Directors, Midea Group Co., Ltd.

April 2019

Contents

SECTION I IMPORTANT STATEMENTS, CONTENTS AND DEFINITIONS ...... 1

SECTION II COMPANY PROFILE AND KEY FINANCIAL RESULTS ...... 8

SECTION III BUSINESS PROFILE ...... 13

SECTION IV PERFORMANCE DISCUSSION AND ANALYSIS ...... 23

SECTION V SIGNIFICANT EVENTS ...... 59SECTION VI CHANGES IN SHARES AND INFORMATION ABOUT SHAREHOLDERS ... 105SECTION VII PREFERENCE SHARES ...... 114

SECTION VIII INFORMATION ABOUT DIRECTORS, SUPERVISORS, SENIORMANAGEMENT AND EMPLOYEES ...... 115

SECTION IX CORPORATE GOVERNANCE ...... 127

SECTION X FINANCIAL REPORT ...... 134

SECTION XI DOCUMENTS AVAILABLE FOR REFERENCE ...... 254

Definitions

TermDefinition
The “Company”, “Midea”, “Midea Group” or the “Group”Midea Group Co., Ltd.
Midea HoldingMidea Holding Co., Ltd.
Little SwanWuxi Little Swan Company Limited
TLSCToshiba Lifestyle Products & Services Corporation
KUKAKUKA Aktiengesellschaft
Reporting Period1 January 2018 to 31 December 2018

Section II Company Profile and Key Financial Results

1. Corporate Information

Stock abbreviationMidea GroupStock code000333
Stock exchange where the shares of the Company are listedShenzhen 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 representativeFang Hongbo
Registered addressMidea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District, Foshan City, Guangdong Province, China
Postal code528311
Business addressMidea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District, Foshan City, Guangdong Province, China
Postal code528311
Company websitehttp://www.midea.com
E-mailIR@midea.com
Company SecretaryRepresentative for Securities Affairs
NameJiang PengOu Yunbin
AddressMidea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District, Foshan City, Guangdong Province, China
Tel.0757-226077080757-23274957
Fax0757-26605456
E-mailIR@midea.com

3. Information Disclosure and Place Where the Annual Report Is Kept

Newspaper designated by the Company for information disclosureChina Securities Journal, Securities Times and Shanghai Securities News
Website designated by the China Securities Regulatory Commission (CSRC) for the publication of the Annual Reporthttp://www.cninfo.com.cn
Place where the Annual Report of the Company is keptCompany Investor Relations
Organization code91440606722473344C
Changes in main business activities since the Company was listed (if any)None
Changes of controlling shareholder of the Company (if any)None
Name of the accounting firmPricewaterhouseCoopers China (LLP)
Business address of the accounting firm11/F., PricewaterhouseCoopers Center, 2 Corporate Avenue, 202 Hu Bin Road, Huangpu District, Shanghai 200021, PRC
Name of accountants writing signaturesHuang Meimei and Qiu Xiaoying
Name of the financial advisorBusiness office of the financial advisorRepresentative of the financial advisorSupervisory period
CITIC Securities Co., Ltd.CITIC Securities Tower, No.8 Zhongxin 3rd Road, Futian District, Shenzhen, 518048, PRCWu Renjun and Li Wei2017.1.6-2018.12.31

supervisory period due to his personal reasons. Mr. Li Wei would replace him to work with Mr. Wu Renjun as arepresentative of the financial advisor during the supervisory period.

6. Key Accounting Data and Financial Indicators

Whether the Company performed a retroactive adjustment to or restatement of accounting data□Yes √No

201820172018-over-2017 change (%)2016
Operating revenues (RMB'000)259,664,820240,712,3017.87%159,044,041
Net profits attributable to shareholders of the Company (RMB'000)20,230,77917,283,68917.05%14,684,357
Net profits attributable to shareholders of the Company before non-recurring gains and losses (RMB'000)20,058,15515,614,10328.46%13,492,866
Net cash flow from operating activities (RMB'000)27,861,08024,442,62313.99%26,695,009
Basic earnings per share (RMB/share)3.082.6615.79%2.29
Diluted earnings per share (RMB/share)3.052.6315.97%2.28
Weighted average ROE (%)25.66%25.88%-0.22%26.88%
31 December 201831 December 2017Change of 31 December 2018 over 31 December 201731 December 2016
Total assets (RMB'000)263,701,148248,106,8586.29%170,600,711
Net assets attributable to shareholders of the Company (RMB'000)83,072,11673,737,43712.66%61,126,923
Total share capital of the Company on the last trading session before disclosure (share)6,585,838,349
Fully diluted earnings per share based on the latest share capital above (RMB/share)3.07

7. Differences in Accounting Data under Domestic and Overseas AccountingStandards

7.1 Differences in the net profits and net assets disclosed in the financial reports prepared underChina Accounting Standards (CAS) and International Financial Reporting Standards (IFRS)□Applicable √N/ANo such differences for the Reporting Period.7.2 Differences in the net profits and net assets disclosed in the financial reports prepared underCAS and foreign accounting standards□Applicable √N/ANo such differences for the Reporting Period.7.3 Reasons for the differences□Applicable √N/A

8. Key Financial Results by Quarter

RMB'000

2018 Q12018 Q22018 Q32018 Q4
Operating revenues69,737,52872,886,30963,132,81653,908,167
Net profits attributable to shareholders of the Company5,256,2317,680,6154,963,3932,330,540
Net profits attributable to shareholders of the Company before non-recurring gains and losses5,077,7157,422,5384,751,7972,806,105
Net cash flow from operating activities4,429,0923,184,59611,975,8928,271,500
Item201820172016Note
Profit or loss from disposal of non-current assets222,2041,363,041-134,258
Except for effectively hedging business related to normal business operations of the Company, profit or loss arising from the change in the fair value of held-for-trading financial assets and liabilities, as well as investment profit or loss produced from the disposal of held-for-trading financial assets and liabilities and available-for-sale financial assets-842,40877,484-25,408
Other non-operating income and expenditure except above-mentioned items1,091,4731,094,0581,576,426
Less: Corporate income tax207,870702,139272,925
Minority interests (after tax)90,775162,858-47,656
Total172,6241,669,5861,191,491--

Section III Business Profile

1. Business Scope in the Reporting Period

1.1 Summary of business scopeMidea 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 customers and strategic partners in different areas worldwide everyyear with satisfying products and services.Midea, a global operating company, has now established a global platform with 15 overseasmanufacturing bases, around 33,000 overseas employees, 24 operating agencies, covering more than200 countries and regions with 22 settlement currencies, as well as being 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 industryMidea has been given excellent credit ratings by the three major international credit rating agencies,Standard & Poor’s, Fitch Ratings and Moody’s. The Ratings are in leading position among homeappliance manufacturers worldwide as well as among Chinese non state-owned enterprises.Midea ranks No. 323 on the 2018 Fortune Global 500 list, a big step forward compared to No. 450 in2017, and ranks No. 32 on the 2018 Fortune China 500 list, the highest-ranking among home appliance

industry in the country. On the Forbes 2018 Global 2000 list, Midea ranks No. 245, outrunning a significantnumber of 90 compared to last year. In addition, Midea ranks No. 26 on the 2018 BrandZ? Top 100 MostValuable Chinese Brands list, topping the domestic home appliance brands with its brand value up 40%.Also, Midea takes the lead among domestic home appliance makers by ranking No. 138 and No. 41respectively on the 2018 Top 500 Most Valuable Brands list and the Top 100 Most Valuable Tech Brandslist released by Brand Finance, a British brand assessment institution. Meanwhile, on the second “ChinaBrand Day”, Midea is among the Most Popular Chinese Brands list announced by People’s Daily. Inaddition, Midea is one of the seven newcomers from China on the 2018 BCG Global Challengers list.According to data from AVC, the table below shows the offline market shares and rankings of theCompany’s primary household appliance products (by retail sales) in 2018:

Product categoryMarket shareRanking
Air conditioners25%2
Laundry appliances26%2
Refrigerators11%3
Rice cookers43%1
Food processors37%1
Electric pressure cookers44%1
Water purifiers27%1
Electric radiators45%1
Microwave ovens43%2
Water heaters16%3
Vacuum cleaners7%4
Range hoods8%4
Product categoryMarket shareRanking
Air conditioners23.3%2
Laundry appliances31.0%2
Refrigerators16.4%2
Microwave ovens48.6%1
Induction cookers43.2%1
Electric pressure cookers41.5%1
Electric water heaters32.4%1
Rice cookers31.8%1
Water dispensers

24.0%

1
Electric fans21.8%1
Gas water heaters18.8%1
Water purifiers14.1%2
Range hoods14.1%3
Gas stoves13.9%2

1.3 Industry review and outlooka.The industry of home appliancesAccording to the data published by China Household Electrical Appliance Association, in 2018, the mainbusiness revenue in the household appliances industry was RMB1.49 trillion, up 9.9% YoY; the profit wasRMB122.55 billion, up 2.5% YoY. The retail scale of China’s household appliances market reachedRMB820.4 billion, up 1% YoY, representing a slowed growth rate; the export in the household appliancesindustry reached USD68.63 billion, up 9.9% YoY, representing a continuously stable growthrate.According to the Annual Report of 2018 China’s Household Electrical Appliance Industry published byChina Household Electric Appliance Research Institute (CHEARI) and the National Household ElectricalAppliance Industry Information Center together, steady growth was seen in air conditioners, refrigerators,washing machines and small home appliances. In 2018, the household appliance market mainly took onthe following three characteristics. In terms of product, it was characterized by “Big, Aesthetic, Comfy,Intelligent and Healthy”, standing for big dimension and volume, aesthetic design, comfy experience,intelligence and health benefits respectively; from the perspective of channel, it was characterized byonline and offline deep integration and the macro trend of full scenario coverage; in terms of brandcompetition, the concentration of traditional big household appliance brands continued to rise anddomestic brands presented strong momentum.In 2018, the retail sales in the air-conditioning market reached RMB198 billion, with a year-on-yearincrease of 4.5%. In terms of product, the proportion of high-end products which are energy-efficient,

comfortable and smart increased, and particularly the sales turnover proportion of wall-mounted and floorstanding air conditioners of Class A energy efficiency increasing to above 23%; consumer demand hasdeveloped from primary function of temperature control to health-friendly functions and customers havedeveloped from all-age groups to target groups including children, pregnant women and the elderly. Thus,health awareness has become a substantial driving force for industry growth. The market share ofwindless comfy air conditioners has increased from 6.6% in 2017 to 10.9% (by retail sales).In 2018, the retail sales in the laundry appliance market reached RMB70.7 billion, up 3.1% YoY. Therewas an evident upgrading trend in the laundry appliance industry. Front-loading products, high-capacityproducts and washer-dryer combo products have already become the mainstream products of laundrymarket. Analyzing from the type of product, the retail sales proportion of front-loading washing machinesin 2018 saw a stable increase to 74%, while the year-on-year increase of the retail sales of washer-dryercombo front-loading ones exceeded 40%; the trend of high capacity continued, with the retail salesproportion of 10KG and 12KG front-loading washing machines increasing to 41.2% and 5.9% respectively.In 2018, the retail sales in the refrigerator market reached RMB96.9 billion, up 3.4% YoY. Productupgrading was impressive in the refrigerator market, with new highlights emerging on product doors andsustained development and innovation in fresh-keeping techniques. The market share of the total retailsales of multiple-door and side-by-side refrigerators increased to 72%. Under the background of greatupgrade in consumption, the fresh-keeping techniques represented by Midea’s “week-long freshness ”keep developing and the refrigerator market is transforming towards a high-end, high-quality and high-intelligence market. In 2018, the retail sales proportion of intelligent refrigerators rose to nearly 40%.In 2018, the kitchen appliances industry witnessed the first negative growth. According to the data fromAll View Cloud (AVC), the retail sales of the kitchen appliances industry was RMB64 billion, -6.4% YoY.Analyzing from the development cycle of this industry, after several decades of growth in popularity at amedium and high speed, it is graudually developing towards “popularity plus replacement”. During thisstage, market competition became fiercer and the industry was entering a more rapid reshuffle period.Analyzing from the distribution channel, the online market in 2018 remained growing. The monitoring datafrom AVC shows that the share of retail sales in the online market increased by 6.2% compared to thesame period of last year. Although markets and channels at all levels of the offline retail sales terminalswere declining at different extents, driven by the policy of “full decoration”, offline refined decoration

market channels grew against the trend with sustained increased shares.According to the data of the National Household Electrical Appliance Industry Information Center, in 2018,certain small household appliances grew at a marked speed. The retail sales of cleaing appliances sawan increase of 46% compared to the same period of last year, with the increase of robot vacuumcleaner exceeding 47% and the cordless stick vacuum cleaner being favored. As the awareness ofhealth and well-being is enhanced, in 2018 the blender market grew by over 50% with a retail salesexceeding RMB10 billion and a market scale of more than 10 million units.In 2018, the share of online retail sales of household appliances in all channels reached 36.3%, up 15.3%YoY. The online market has become an indispensable channel market in the household appliancesindustry. Currently, the trend of concentration is getting increasingly evident in the online market channel,with the industrial top three accounting for more than 93% of the market shares. In 2018, the retail salesin the offline market decreased by 4.4%. Although the overall offline market scale shrank due to the impactfrom online market, it remained a mainstream channel for the sales of air conditioners, refrigerators,washing machines and kitchen appliances. Analyzing from long-term development, it is a major trend foronline and offline businesses to achieve deep integration. While e-commerce platforms are openingphysical stores, traditional offline channels are trying to develop their business using e-commerce. Theaccelerated integration of online and offline channels has formed a relatively stable channel framework.b.The industry of robotics and industrial automationBased on the prediction of the International Federation of Robotics (IFR), the global demand for roboticsand automation will further increase. The average annual growth rate between 2018 and 2020 is expectedto be at least 15%. In 2017, the scale of the global robotics industry was over USD25 billion, which wasan increase of 20.3%, while in 2018, it rose to USD29.82 billion. Since 2013, China’s industrial robotshave been the largest application market in the world for six consecutive years. According to the data ofShenzhen Gaogong Industry Research Consulting Co., Ltd. (GGII) and IFR, in 2018, the sales volume ofChina’s industrial robots reached 156,400 units, up 14.97% YoY, and the market scale reached USD6.23billion. In 2018, two guidelines, which are the Guidelines for the Construction of National IntelligentManufacturing Standard System and the Implementation Guide for Construction and Promotion ofIndustrial Internet Platform, issued by MIIT further specified the development direction of the industrialInternet and intelligent manufacturing. Meanwhile, the emerging of a large number of innovative

enterprises in China is driving the increasingly rapid growth of the domestication of core components withthe achievement of industrialized production.Furthermore, the data of GGII shows that in 2018, the global average industrial robot density (unit per10,000 persons) was 93 while that of China was 96, exceeding the global average level for the first time.The industrial robot density in other countries such as South Korea, Japan, Germany and the U.S. alsoincreased, with South Korea ranking No. 1, which was 728. With the increase of China's aging population,the shortage of labor force and the rising of the labor cost, industrial companies' demand for automationand intelligent equipment, including industrial robots, is rising rapidly, China’s robot industry willexperience broad development space; robots will have increasingly wider applications in production;large-scale robot application demands will be seen in general-purpose machinery manufacturing industry,household appliance manufacturing industry, electronic device manufacturing industry as well as rubberand plastic products industry other than automobile manufacturing industry. Such demands are expectedto extend to the following industries: textile and logistics industries with intensive labor; national defenseand military and civil blasting industries with high risks; pharmaceutical, semiconductor and foodindustries with high requirements for the sanitation of production environment; and ceramic and brickmaking industries harming human health. According to the prediction of IFR, domestic market scale ofindustrial robots will further expand to USD9.35 billion in 2020.

2. Significant Changes in the Main Assets

2.1 Significant changes in the main assets

Main assetsReasons for any significant change
Construction in progressUp 136% YoY, primarily driven by the new construction in progress
Cash at bank and on handDown 42% YoY, primarily driven by a decrease in deposits from banks and other financial institutions
Other current assetsUp 64% YoY, primarily driven by an increase in structured deposits

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 centre 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. According to Clarivate Analytics, Midea holds the most invention patentsin the global home appliance industry for three consecutive years. While establishing its own researchcenters around the world, the Group has also signed technical cooperation agreements with domesticand foreign scientific research institutions, such as MIT, UC Berkeley, UIUC, Stanford, Purdue University,Tsinghua University and the Chinese Academy of Sciences, in order to establish joint labs and build aglobal innovation ecosystem. The Group’s long-term focus on building technology, marketing, productand open innovation systems, building a cutting-edge research system and building reserves intechnology for mid/long term, has provided a solid foundation for the Group to maintain technicalsuperiority across the globe.

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 dozens of overseasoperating agencies. Midea’s global operation system has been further improved through a reform of theinternational business organizations from a platform unit to a business entity. It also increasesinvestments in overseas business operations, focuses on the needs of the local customers and enhancesproduct competitiveness 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 expanding 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 marketcoverage. 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 online

sales exceeded RMB50 billion in 2018, up by over 22% YoY, maintaining the highest sales on China’smainstream e-commerce platforms such as JD, Tmall and Suning in various home appliance categories.With advanced smart equipment technology, Annto Logistics Technology Co., Ltd. (Annto), a subsidiaryof Midea, has possessed core competitiveness and advantages in logistics automation. Annto hasestablished an efficient, customer-oriented and quick response nationwide warehouses and directdistribution network, featuring a smooth flow of order data between the manufacturing end and the retailend through the logistics information system, as well as the fast delivery of small orders through theflexible main line transportation capacity. Relying on the 118 logistics centers nationwide, Anntoconcentrates its resources on urban distribution. It also builds up a network for distribution to towns andvillages. It can finish the delivery in 19,956 towns and villages within 24 hours and in 16,511 towns within24-48 hours, as well as 87.6% of the country’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”, Midea hassuccessfully materialized operations driven by software and data through its value chain, connecting endto end and covering R&D, PO, scheduling, flexible manufacturing, procurement, follow-up of productquality, logistics, installation & post-sale services, etc. The Group’s cloud platform has made come trueC2M flexible manufacturing, platform-based, modularized and digitalized production techniques andsimulation, intelligent logistics, digital marketing, digital customer service, etc. In October 2018, Mideaofficially launched “M.IoT”, the Midea Industrial Internet Platform, and became China’s first completeindustrial Internet platform provider covering industrial knowledge, software and hardware. M.IoT focuseson building the SCADA platform, the industrial cloud platform, the industrial big data platform andindustrial SaaS service to provide standardized, cloud-based and platform service, including C2M, supply

coordination and solutions. It has developed over 20 platform products so far. In addition to applyingthese industrial Internet platform solutions to its manufacturing bases across the world and tens ofthousands of its products, the Group has also provided these solutions for other companies in differentareas. Therefore, it is safe to say that Midea has built a solid foundation regarding industrial internetsystems.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 senior management team consistsof professional managers who have been trained and forged in the operational practices of Midea Group.They have been working for Midea on average for more than 15 years, all with rich 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 five stock option incentive schemes, two restricted share incentiveschemes and five “partner” stock ownership schemes for key managerial and technical personnel,marking the establishment of a governance structure aligning the interests of management andshareholders, as well as the formulation of an incentive scheme comprising long and short-termincentives and restrains.

Section IV Performance Discussion and Analysis

1. Overview

In 2018, guided by the three core strategies of “Leading Products, Efficiency Driven and GlobalOperations” in a complicated political and economic environment at home and abroad, Midea focused onimproving products, promoting lean management and high-performance operations in the value chain,continuously optimizing its product mix according to the consumption upgrade trends, and constructingsustainable competitiveness for the future through internal growth. As a result, the business objectivesset for 2018 were successfully fulfilled, with higher profitability, further improving indicators such as self-owned capital and channel inventories, better product quality and reputation, as well as strengthenedcompetitiveness in various product categories and global operation synergies. For 2018, Midea achieved,on a consolidated basis, total revenue of RMB261.820 billion, up 8.23% YoY; and net profits attributableto shareholders of the Company of RMB20.231 billion, up 17.05% YoY.In 2018, the Company carried out the following main tasks:

A. Focused on users, developed innovative products and steadily improved product competitiveadvantagesIn 2018, Midea launched a “customer-oriented” product experience improvement program to thoroughlyimprove the customer’s “seeing, hearing, touching, feeling and smelling” experience in all the linksincluding pre-sales consultation, buying, using and after-sales service. Meanwhile, Midea’s new productsare much easier to use in addition to more serialized and delicate exterior design. In product design,Midea won a total of 51 international design awards during 2018, including 16 Red Dot Awards (Germany),14 iF Awards (Germany) and 21 IDEA Awards (the U.S.). In product quality, Midea was granted theNational Business Quality Award at the 2018 National Business and Technology Quality Conference.——Residential Air Conditioners: Midea New Refrigerant R290 Split Air Conditioner Series, withtechnical advantages including the extremely low GWP refrigerant, high energy efficiency, low noise andrigorous material safety control, is certified by Der Blaue Engel, with Midea becoming the first A/C makeraround the world to obtain this certification, in addition to the recognition and appreciation by the UnitedNations Environment Programme “for valuable contributions and efforts in protecting the ozone layer”.

Midea’s innovative Air Space Station is the first home “Micro-Climate” regulator product in the world,achieving integrated regulation of “temperature, humidity, wind, cleanness and freshness”. With a 10.1-inch TFT full-colour screen clearly showing indoor air quality in detail, this product can help the user easilycontrol the indoor air and environment. With 449 patent applications, it has won the 2018 AWE GoldAward and the Product Technical Innovation Award at IFA 2018. Midea Breezeless Wall-Mounted AirConditioner upgrades on the air distribution technology of the first-generation product featuring “coolnesswithout feeling the wind”, integrating the new micro-hole air distribution structure and the multi-modesmart control technology. It provides softer and more pleasant air through thousands of micro-holes. Italso carries the most advanced high-resolution infrared sensor to monitor the body and environmenttemperatures on a real-time basis, which allows user to get the most suitable temperature with just oneclick. Midea Breezeless Floor-Standing Air Conditioner adopts the air inlet purification module and thePM2.5 sensor to further purify indoor air, as well as carries a HD smart camera so that it can switch to anenergy-saving mode when no one is in the room.——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.In terms of large complexes, Midea has successively provided integrated product solutions for DalmaMall, the largest shopping mall in Abu Dhabi; Casa Shopping Mall, the largest home decoration andbuilding material market in Latin America; Grand Comfort, the largest home decoration and buildingmaterial market in Central Asia; and Vientiane Shopping Center, the landmark shopping center in Laos.In terms of venues for international sports events, Midea won the bids for the commercial A/C projectsfor the 2018 FIFA World Cup Russia venues, etc. As for international airports, Midea becomes thecommercial A/C supplier for Terminal 2 of Guangzhou Baiyun International Airport, Terminal 3 of BeijingCapital International Airport, Singapore Changi Airport, Mauritius Sir Seewoosagur RamgoolamInternational Airport, Milan Malpensa Airport, Maputo International Airport, and Soekarno-HattaInternational Airport. Concerning “the Belt and Road”, Midea successively won the bids for thecommercial A/C projects for the Zetas Thermal Power Station, one of the biggest thermal power stationsin Turkey; Top Glove, the world’s largest rubber gloves manufacturer in Malaysia; the Vinhtan Coal PowerPlant, the largest China-invested power plant in Vietnam; the Prince Times Hotel in Cambodia; a cement

plant in Angola; a power station in Bali of Indonesia; and a semiconductor factory in Manila of thePhilippines, proving that Midea has become a representative of Chinese global brand builders. Accordingto the data from ChinaIOL.com, Midea Commercial Air Conditioners have topped the domestic marketfor five years in a row with a market share of nearly 20%. Appearing in more and more iconic internationalkey programmes, Midea Commercial Air Conditioners have won increasing recognition from consumersboth at home and abroad, including the “Excellent Supplier” recognition by Guangzhou BaiyunInternational Airport, the “Preferred High-Quality A/C Supplier for Government Procurement in the Past15 Years” award, and the “China HVAC Technology Award” in 2018. Midea Commercial Air Conditionerhas become an icon for “Made in China”.As a leading brand in China’s air-source heat pump industry, Midea is leading the technological upgradingin the industry again in 2018. The four major air energy products, including residential water heatingproducts, residential heating products, commercial water heating products and commercial heatingproducts, have all been upgraded into variable frequency products, with the fully variable frequencytechnology applied to their power units. This marks Midea entering the fully variable frequency era andbeing the first one industrywide to do so. Meanwhile, in terms of product technology innovation, Mideaalso develops a heat-pump heating product for the alpine region even Tibetan Plateau— “ClimbingFire“ series Air Source Heat Pumps.——Laundry Appliances: Little Swan under Midea has launched an ironing-free clothes dryer, which isof trans-era significance. To solve the pain points of consumers, this product is the first to provide a 15-minute ironing-free steaming function, and a 20-minute fast drying function. This healthy clothes-dryingexperience featuring “instant drying” has further strengthened the dominant position of Little Swan in thehigh-end clothes-drying market. Little Swan has also introduced the Water Magic Cube Washing Machine,which is also of trans-era significance. This product is the first to adopt the “black technology” of coldwash, which can effectively solve the problems caused by traditional hot wash, such as fading colour anddeformation, providing unprecedented top-quality experience of color and shape protection, as well astime and power saving. This product has passed the Germany VDE certification, which is considered theNobel Prize in the electrical appliance sector, representing an icon in innovation in the laundry industry.The world’s first front 45°-in-elevation loading washing machine launched by Little Swan integratesproduct technologies from Germany, Switzerland, France, Italy and South Korea. It enables front 45°-in-

elevation loading, which solves the pain point of having to bend down for the clothes. It is also the firstwashing machine that allows vertical rotation, which provides 720° rotation for thorough washing like ina vacuum state. Another worldwide unique feature is the MBS system, which reduces vibration and noise.The basic technology research and application of Midea Top-Loading Washing Machines, as well as theinnovation and application of the intelligent sensing technology in washing machines have respectivelywon the second and third prizes of National Scientific and Technological Progress Awards, with more than100 domestic and foreign patent applicaitons for these core technologies. Meanwhile, the whole-newToshiba Front Loading Washing Machine that made its debut on IFA 2018 has passed the Germany VDEcertification for being highly energy-saving. Its pioneering “THE GREATWAVES?” technology enables asmart regulation of the washing pace, with multiple innovative water flows working together to go deepinto the fabric of clothing and take away stubborn stains.——Refrigerators: In 2018, Midea launched on the market new micro-crystalline freshness seriesrefrigerator with a family appearance, solidifying Midea’s position as “a smart refrigerator leader”. The“week-long freshness” technology can help keep the meat fresh in a non-frozen state for as long as sevendays while preserving the nutrition and taste. Equipped with two smart fresh-keeping technologies ofintelligent humidity-control and PST intelligent sterilization, as well as technologies including the L-shapedlarge freezing space, the firstly initiated and new side-by-side magic separated storage design, the i-wakesoft lights, and the PST intelligent sterilizing breathing lights, Midea micro-crystalline freshness seriesrefrigerator has been certified by SGS, the world’s leading inspection, verification, testing and certificationinstitution. In addition, Midea micro-crystalline freshness series refrigeratorBCD-535WGPZV wasrecognized as a “Consumer’s Favorite 2018” at the 2018 China Household Appliance ConsumptionBehavior Census & the Release of China Household Appliance Consumption Behavior White Paper &the Awarding Ceremony. Midea new AI Refrigerator with a pioneering “3+1” model including 5M remotevoice recognition, world leading millisecond-level image recognition, worldwide pioneering 21.5-inchhidden touch screen, and big data supporting users’ control and refrigerator’s operation, has materializedan intelligent machine, intelligent interaction, intelligent scenarios, intelligent ecology and intelligentservice, which has opened up a new era of AI refrigerators. At the 2018 China Refrigerator IndustrySummit Forum held by cheaa.com under the guidance of the China Household Electrical ApplianceAssociation and the Department of Information Resource Development of the State Information Center,

owing to its excellence in product development, Midea was entitled as “2017-2018 Leading IntelligentRefrigerator Brand of China’s Refrigerator Industry”. Besides, another two refrigerators of Midea won thetitle of “2017-2018 Leading Intelligent Fresh-Keeping Refrigerator of China’s Refrigerator Industry” and“2018 Consumers’ Online Top-Choice Intelligent Odor-Free and Fresh-Keeping Refrigerator of China’sRefrigerator Industry” respectively.——Kitchen and Bathroom Appliances: Midea Built-in Dishwasher is the only product in this field withan AWE Award. With the global pioneering hot-air drying technology including nine patents, this productdries the dish effectively while removing the steam and mould to keep the dish clean and fresh for 72hours. Midea’s innovative FUN Smart Oven has a built-in HD camera with the image recognition algorithmadopted that can automatically recognize 60 kinds of different food materials under 8 major categories,as well as with a 5-inch HD TFT touch screen and a 1080P HD camera that can be controlled through anApp on the mobile phone and help post real-time videos and open up an oven-based social circle. MideaVariable Frequency Microwave Oven adopts the multi-level pulse-by-pulse and current limiting technology,the low power control technology, and the smart turn-on protection technology to increase the heatingspeed and sustain the nutritional ingredients. This product also has intelligent diagnosis and systematichealth management function. The phase change electric water heater of the Beverly “Future” Series, bydisrupting the principle of heating and heat storage and release, has made a new breakthrough in thestructure and shape of water heaters. Its size is reduced by 55% and the wall hanging mass is reducedby 30kg, so it is suitable for more usage scenarios. This product has won the AWE Innovation Award.Midea has continued to make breakthroughs and innovations in the zero cold water technology for its gaswater heaters. Its half-pipe heating technology saves users’ waiting time effectively, inching cruisingtechnology enables users to control the function of zero cold water easily at the water consumptionterminal, and supercharging technology solves conventional heater’s problem of being unable to workdue to low water pressure. Midea’s Beverly High-End Series of purification and drinking combinationsolutions won the 2018 IFA Product Technical Innovation Award. Combining global and industry leadingtechnologies, the solutions offer a number of features, including automatic machine cleaning,independent temperature segment control, instant sterilization of water tank, an easy-to-use touch screenand an ultra-long-lasting filter. Midea’s brand new Zen Series of super integrated core water purifier wonthe 2018 iF Design Award. Breaking the limitation of conventional water purifiers, the product is able to

complete five levels of purification and filtration without water storage tank and with one main body andone filter. It is 136mm thick and easy to be replaced. In addition, it adopts innovative split structure. Thelittle kitchen purifier body coupled with the worktop water kettle substantially optimizes the spatialutilization and user experience in kitchen.——Lifestyle Appliances: As a leading brand in China’s rice cooker industry, Midea’s rice cookers,which won two 2018 AWE Awards respectively in innovation and product, possess several leadingtechnologies in the industry. With the multi-section IH technology, the pressure and smart controltechnologies, and the inner tank technology, rice are perfectly cooked. In addition, dual-cooking is madeavailable to satisfy the different needs of children and the elderly. Midea Variable Frequency High-SpeedBlender carries four pioneering technologies in the industry—smart frequency, tripod heating, eccentricblending and one-button open, which help greatly improve blending effect and user experience in termsof smart control of taste, high-power even heating and easy control of lid-opening. Midea Fan can sendsoft wind to a wide space and a long distance (a pinwheel wall ten meters away for example), satisfyinguser’s different needs in the room. Midea heater adopts double-side heating through black crystals toelevate the temperature faster, and its function of avoiding water-splashing in all directions can provide amore comfortable bathing environment. Besides, it has a double-side clothes-drying shelf attached,satisfying the user’s needs anytime. Midea’s innovative Air Purifier adopts a centrifugal fan with doublegravitational forces to increase the pressure and let the air in. By adding a two-fold integrated strainerplus a five-layer specialized strainer, multiple air pollutants including formaldehyde, smog and second-hand smoke can be effectively purified, achieving double air purification efficiency. The “HorizontalCleaner Low-Noise Technology” that Midea has developed and applied to cleaner products is a uniquebionic noise reduction technology inspired by a careful observation of insects in the nature. It wasrecognized as an “International Leading” technology by China Light Industry Council in 2018. ToshibaWireless Cleaner, equipped with a high power motor with a maximum gyration rate of 0.12 million timesper minute and a “high-capacity lithium battery” with the maximum running time of 60 minutes, has wonthe “2017 IAUD Award” and the “iF Product Design Award”. In addition, the products of Midea won fourRed-Top awards at the 10

th

China High-End Household Appliances Red-Top Award Ceremony, includingrice cooker, high-speed blender and electric water heater.

B. Continued to invest in R&D to build a responsive and innovative R&D system and promoteproduct suite designMidea increased its R&D expense, made innovations with respect to mechanism, and developed moreleading products through both premium quality and differentiated technologies. It kept reforming itsproduct development model according to the “Leading Products” strategy. An innovative R&D model of“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”.Leading technologies create a high-end product system. Midea launched the COLMO high-end brand on19 October 2018 synchronously at Mont Blanc, the highest peak in Europe and in China. Its COLMOBLANC products combine a number of leading technologies, including AI technology, interdisciplinarytechnology and digital simulation and design technology. The innovative application of interdisciplinarytechnology includes the application of the disrotatory dynamic technology for aero-engines to airconditioners and purifiers in order to enhance comfort and energy efficiency; the application of the noisereduction technology used at the launch of a missile from a submarine to blenders and rice cookers inorder to bring a quiet and comfy user experience; and the application of the phase change energy storagetechnology in solar power to water heaters in order to effectively reduce product volume and achieve thehealth effect of no scale deposit. The first six products of COLMO BLANC implying “Rational Aesthetics”include refrigerator, washing machine, range hood, stove, dishwasher and full auto rice cooker. All ofthem have won the German iF design award, the “Oscar” award in the design world, with over 200 utilitypatents applications.Capitalizing on the synergies of various product categories, Midea has made efforts to plan for productfamilies and integrated core innovative technologies. It has developed Midea PRO Appliances Collection,Midea Youth Appliances Collection and product suites for Real Estate Market to form a product matrix offamily and suite design. Targeting middle and high-end consumers, Midea PRO Appliances Collection ischaracterized by healthiness, comfort, intelligent interactions and high quality; Midea Youth AppliancesCollection is featured with youthful Zen design, easy operation of intelligent household appliances, smart

look and minimalism; product suites for real estate market are customized products developed for realestate developers and long-term leasing apartment operators in the real estate, and at the end of 2018,they were launched in the market one after another.While carrying out the core technology research, Midea has attached great importance to thetransformation of R&D achievements. In 2018, 14 scientific and technological achievements made underthe leadership of Midea were all certified as “International Leading” upon professional review byauthoritative institutions and technical experts (academicians, professors, etc.), including “the Researchand Commercialization of the Low-Noise Key Technology of Horizontal Dust-Cup Cleaners”, “theResearch and Application of the Energy-Efficient Technology for the Midea Building Management System(M-BMS)”, “the Scenario-Based Dry-Burning Protection Technology and Gas-Leakage Alarm Technology”,“the Research and Application of the Efficient and Even Burning Technology”, “the Research andCommercialization of the Low Harmful-Gas Emission Technology for Gas Water Heaters”, “the Researchon the Application of the High-Efficient Phase Change Power Storage Technology in Electric WaterHeaters”, “the Research and Application of the Healthy Storage Technology for Dishwashers”, “theResearch on High-End Functions of Energy-Efficient Dishwashers”, “the Key Technology for R290(Propane) Indoor Air Conditioners and Its Application”, “the Research and Application of the StrongHeating Capacity and the High-Level Comfort Key Technology for Air Heaters”, “the Research andApplication of the Indoor Micro-Climate Multidimensional Regulation Key Technology”, “the Developmentand Application of the Ultra-Low-Temperature Gas-Liquid-Mixed Ejection Air-Source Heat Pump System”,“the R&D and Productization of the Smart Moist Control Technology” and “the R&D and Productization ofthe Week-Long Freshness Technology”. Meanwhile, “the Research and Commercialization of the KeyTechnology for Highly-Intelligent Indicator-Based Indoor Air Conditioners” won the first prize of the ChinaLight Industry Association (CLIA).In 2018, Midea filed 15,895 patent applications in total, including 6,102 inventions. At the end of 2018,the number of domestic patent applications of Midea exceeded 94,000 in total and 44,000 patents weregranted. In 2018, Midea won two gold awards, two silver awards and 11 excellence awards of ChineseOutstanding Patented Invention, which are high recognition of Midea’s competence in product R&D andtechnology innovation. The products that won the awards include “Eccentric Turbulence Mixer Blender”,which won the “Chinese Outstanding Patented Invention Gold Award” and “Beverly Qing Series Washing

Machine”, which won the “Chinese Outstanding Industrial Design Gold Award”. Midea Group has beensticking to the double drivers of “standard innovation + product innovation” and making active stepstowards contributing to the standardization of industrial technologies. In 2018, Midea led in the draftingof several national standards, including the Methods for Assessing the Quality of Rice Cooked in RiceCooker, the Food Blender, the Electric Cooker and the Energy Efficiency Limits and Levels of ElectricPressure Cooker, and in the revision of the IEC60335-2-15 international standard. In December 2018,the group standard titled Technical Specifications of Long-Lasting, Hydrophilic and Corrosion-ResistantCoated Aluminum Foil Used in Air Conditioner Fins, which had been drafted under the joint leadership ofMidea and CHEARI, was selected into the list of “2018 Top 100 Group Standard Demonstration Projectsof the Ministry of Industry and Information Technology. In addition, Midea had seven advanced corporatestandards which were selected into the 2018 Corporate Standard “Forerunner” Pilot List published byChina National Institute of Standardization.

C. Deepened the channel transformation, improved the channel efficiency and promoted a steadygrowth of the e-commerce business.Midea continued to promote channel reform and transformation, cut offline channel hierarchies, propelledthe optimized integration and empowerment of agencies, firmly continued to reduce inventories, optimizestructure and streamline SKU, and substantially improve channel efficiency. It strengthened the synergyof domestic sales of full product categories; in 2018, Midea established over 30 regional market operationcenters nationwide; by carrying out more precise joint promotional activities for diverse categories, itdrove the synergy of domestic sales towards improvements and upgrading and reinforced the long-termsustainable development capacity of channels. Midea firmly advanced retail transformation. Driven byuser experience, the Company provided Midea Smart Life household intelligent solutions. The Groupopened 139 Midea Smart Life Experience Centers along the building material and house decorationchannel and upgraded 375 flagship stores into Midea Smart Life Experience Centers to build its salescapacity of all household appliances. It built the delivery-installation integration network to provide userswith one-stop after sales service solutions in respect of all household appliances. In 2018, Mideacompleted the layout of more than 2,500 delivery-installation integration service branches nationwide andthe authorization and recognition of the delivery-installation integration capacity of 850 flagship stores.

Midea strove to expand the B2B business. In 2018, Midea established long-term strategic cooperationfor procurement with the demostic top 20 companies in real estate industry and top 20 long-term leasingapartment operators. Midea aims to provide the customers with one-stop smart product solutions. At thesame time, Midea attaches great importance to improving the service quality of strategic procurementprojects. Through the systemic management of “Selection, Appointment, Cultivation and Retainment”over regional service providers, Midea uses a digital project management system to conduct 360-degreeappraisals in order to build up its core competitiveness for the B2B business.In terms of online channels, Midea continued to focus on products and users. It built an Internet-basedbig data platform and launched strategic cooperation programmes with platforms such as JD and Tmallto continuously explore digital precision marketing models. On one hand, it tapped further into customervalue and needs, so as to develop more competitive products for the online market. On the other hand,marketing efficiency increased significantly through integrating advertisement putting and applying smartadvertisement putting tools, as well as focusing on the promotion of lean and data-based operation.Meanwhile, Midea attached importance to user operation. It concentrated on core users, connected themembership systems of Midea and e-commerce platforms, as well as linked online and offline data. Aunified member profile system was put in place with unified member identity, interests and assets. Andmember identity recognition will be boosted through long-term, fixed member privileges. Furthermore,online channel authorization control was strengthened. Appraisal mechanism has been built for the e-commerce operation and customer service systems. In 2018, Midea carried out a supply chain deepcoordination programme with e-commerce platforms, which enabled accurate prediction, smartdistribution to warehouses and automatic re-stocking through big data and system connection. Such asmart supply chain can respond quickly to consumer demand and improve shopping experience. As aresult, Midea’s online sales exceeded RMB50 billion in 2018, up by over 22% YoY, maintaining the highestsales on China’s mainstream e-commerce platforms such as JD, Tmall and Suning in various householdappliance categories.Importance was placed on the core business of integrated warehousing and distribution services.Supported by a self-developed information technology system and a distribution network across thecountry, Midea realized fully visualized direct distribution to every corner of the country for variousscenarios. It also deepened its unified warehousing and distribution strategy by cutting unnecessary links

to speed up all-channel distribution and capital turnover to build a supply chain logistics system featuring“Shared Warehouses, Unified Dispatch, Quick Response and Fast Distribution”. Based on the nationwidedistribution network established, Midea launched a number of distribution service products, includingOne-Day Delivery, Timed Delivery and Appointed Delivery, to expand external market on all fronts. In2018, the city distribution and home distribution business scale of Annto saw a year-on-year increase of300%. For example, Annto fully deepened cooperation with Cainiao in 2018 to jointly build an efficientlogistics service system. During its engagement in the Double 11 project of Tmall, Annto ranked amongthe top large piece delivery cooperators of Cainiao in the ratings by Tmall buyers. Based on the logisticscenter network in 118 cities nationwide, Annto is able to deliver to 19,956 towns and villages within 24hours and to 16,511 towns and villages within 24-48 hours, with a 48-hour distribution coverage ratio of87.6% in China.

D. Stepped up the industrial internet innovation to thoroughly improve operational efficiency ofthe 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 built industrial Internet factories and industrial Internet platforms at the productionbase pilot in Nansha, Guangzhou. It was selected into the list of “2018 Industrial Internet PilotDemonstration Project of the Ministry of Industry and Information Technology” and won the title of “2018Guangdong Province Industrial Internet Application Benchmark”. In October 2018, Midea officiallylaunched its industrial Internet platform “M.IoT” and became a provider of comprehensive industrialInternet platforms integrating autonomous industrial knowledge, software and hardware. In November2018, Midea was named as “Unit of Deputy Director-General of Guangdong Province Industrial InternetAlliance” at “China Industrial Internet Conference 2018”. 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. Sofar, more than 20 types of platform products have been established. The Group further advanced itsIndustrial Internet and Digitalization 2.0 Project, and proactively explored and implemented theapplication of the C2M model in various product categories. Through digital upgrading in the whole value

chain of R&D, production and sales and with a focus on key projects such as platform-based and modulardevelopment, flexible manufacturing and intelligent marketing, Midea implemented the business modelof individualization and customization for household appliances oriented by users’ real demands. It tookfurther steps to promote the T+3 model and carried out reforms with a focus on driving the whole supply-demand value chain as an active response to users’ demands and sore points. Midea performed in-depthreforms in synergy of production and sales, transparency of delivery time, offline direct delivery andsynergy of suppliers, and a complete set of reversed forcing mechanism and a supply-demand modeldriven by market terminals are established.Midea continued to explore the artificial intelligence field. It sets up three AI platforms integrating actualbusiness scenarios, including image quality inspection platform, face recognition platform and OCRrecognition platform. With the workshops of injection molding, final assembly and electronics as pilots,the image quality inspection platform offers a number of solutions, including electronic PCB qualityinspection, air conditioner panel appearance inspection, package appearance inspection and bearingblock quality inspection. Based on its industrial chain advantages, Midea built an ecosystem of blockchainapplication and established blockchain applications under diverse business scenarios jointly with upperand lower-stream cooperators from different fields. Based on the self-developed blockchain technologyplatform, Midea created an irreversible, encrypted and multithreading algorithm mechanism andperformed synergistic contract management in industrial upper and lower streams. The Groupestablished the Midea cloud platform, further strengthened cloud infrastructure construction andcloudified its internal systems to a great extent. In addition, Midea deepened PaaS services, enhancedcorporate service supporting capacity, constructed a container platform and a micro service framework,offered component-based services, evolved from resource flexibility to structure flexibility, in order tosupport the cloud platform of M.IoT industrial APP. Midea founded a new real-time big data processingcenter and applied it in Midea’s industrial Internet factories. The center was connected with theincremental data of all systems in real time to carry out real-time data synchronization and analysis, thusproviding powerful data support for operation and management.Midea continued to optimize and extend the applications of the CCS2.0 System, the MeiCloud SalesSystem and the RMS system to support and deepen channel reforms. The Company introduced housedecoration design software, developed the suite design capacity of household scenario and providedconsumers with all household appliance solutions and one-stop shopping experience; in 2018, it launched

the WeChat mini program of “Midea Home Delivery” to provide offline stores with an instrument of onlinechanneling, terminal sales and member operation, in order to facilitate the digital transformation ofterminal stores; based on inventory transparency and synergy of physical goods on the whole channel,Midea opened up the information flow of synergistic warehouse, established whole-channel inventorysharing and digestion rules, and enabled the automatic adjustment sytem of the channel inventory level,so as to implement shared inventory management and increase inventory turnover ratio.Through the “International 632 Project”, Midea Group established a global information system. As a result,it is able to coordinate and share global resources with “One Midea, One System, One Standard”, whichsubstantially enhanced business efficiency and standardization, and assisted TLSC to reverse lossesthrough cuting costs and increasing efficiency, as well as promoted the connectivity and expansion ofKUKA’s businesses in China.Through the implementation of its user experience 2.0 project with the customer service system, Mideaintegrated various customer service businesses, achieved the integration of service platforms andaccomplished the upgrading of over 80 service experience points. Midea improved and implementedwhole-process visualization and transparency of fee contents for its services to optimize user serviceexperience; by virtue of the reorganization of its user interaction central system, introduced IVP and IVRtechnologies to enhance user communication quality and efficiency; introduced an intelligent knowledgebase to equip front line agents and engineers, increase the rate of solving problems and faults on onecall and promote service quality and efficiency.

E. Steadily promoted Midea’s globalized business and accelerated the cooperative integration ofToshiba 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. Midea established 15 overseas manufacturing bases with around 33,000 employees, whichhas helped strengthen localized operations overseas and optimize the proportion of localized supplychain. In addition, it has 24 sales operation offices in North America, South America, Europe, Asia, Africaand Oceania, with business covering more than 200 countries and regions. Meanwhile, guided by themarket and focusing on users, Midea has also established 20 global R&D centres in 9 countries, including

the U.S., Italy, Germany, India and Singapore, to work on future products and technologies with foresight.In 2018, based on its overseas regional operation offices, Midea established Midea International Businesswith a reform of the international business organizations from a platform unit to a business entity. Undera unified global macro framework, the three regions continued to advance international corporategovernance by adjusting measures to local conditions, reinforced the integration of R&D, production andsales systems in regional markets, and further strengthened cohesion effects. Midea expanded overseasproduction layout. In 2018, the construction of Midea’s Science and Technology Park in India officiallycommenced and Midea planned to invest 13.5 billion Indian rupees in the next five years to build the Parkinto a base manufacturing consumer appliances, HVAC products and compressors. Midea continued toexpand sales channels. In 2018, the Group achieved a year-on-year double-digit growth calculated inUSD for its household appliance export with a stable increase in the proportion of its proprietary brands.It sped up the expansion of overseas e-businesses and made business breakthroughs in key marketsand key e-business platforms, such as the expansion of full category household appliances businesscooperation with Amazon platform in US and the commencement of business cooperation with AliExpressplatform in Russia. Midea explored the product manager policies in overseas branches, intensifiedlocalized product management, market investigation and product development which are centeredaround user demands, reinforced the control over overseas branches, unified regulations and promotedthe consistency and synergy of Midea’s commercial languages and systems. It set up a global after salessystem and a technical support system and promoted them to overseas branch institutions step by step.In 2018, on the basis of the existing North America Call Center, Midea completed the establishment ofMexico Call Center that covers the Latin American region. In 2019, Midea plans to build an overseasonline training system and regional call centers that cover Middle East, Africa and Europe to further refineits global after sales system.In 2018, TLSC continued to focus on the core white goods business, promoted the synergy and unificationof value chains with the product divisions of Midea Group on all fronts, optimized product structure toincrease gross profits and substantially improved profitability. The profits before tax and operating cashflow of TLSC for 2018 improved considerably compared with the previous year and the goal of reversinglosses for the year was smoothly achieved. In particular in the Japanese market with fierce competition,TLSC saw a steady increase in its market share of air conditioners, refrigerators and washing machines.

TLSC strengthened and implemented synergistic effects with relevant business divisions of Midea inbrand building, channel layout, R&D and innovation, integration of supply chain and quality improvement.In 2018, 73 synergistic projects were completed. In 2018, while promoting business synergy andintegration and deepening reforms, TLSC made structural adjustments mainly in four aspects: (1) Madeorganizational adjustments targeting users and markets, as well as focused on the core white goodsbusiness. Streamlined functional platform departments, established and refined a decentralizedmanagement system between Midea Group and TLSC, founded the User Innovation Center andincreased investment in the research on Japanese market consumers and product industrial design. (2)Completed the integration of manufacturing platforms of TLSC’s factories and Midea’s related productdivisions, strengthened mutual advantage complementation in production capacity, supply chain, costand quality, and deepened manufacturing synergy. TLSC and relevant business divisions of Midea sharedintellectual property rights and R&D achievements and reinforced technology synergy. TLSC reducedcosts substantially by relying on Midea’s concentrated procurement platform of bulk raw materials andintroducing Midea’s excellent supplier bidding system. (3) Transformed the Japanese market salessystem, founded 9 sales branches through reorganization to achieve full coverage of the 47 Prefecturesin Japan together with 57 sales outlets including the new outlet in Okinawa, unified distribution and retaillinks so as to improve the terminal sales capabilities; (4) Exerted rigid control over non-operatingexpenses. In 2018, by improving business models and optimizing supply chain, TLSC cut its sellinggeneral and administrative expenses by nearly RMB90 million.

F. 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 was accelerated. Three joint ventures wereincorporated by Midea and KUKA (each holding a 50% stake in the joint venture) to undertake thecombined KUKA’s general industrial business in China and Swisslog’s (a subsidiary of KUKA) businessin China, which provides advanced automatic solutions for hospitals, warehouses and distribution centres.This joint ventures will further expand three major businesses (industrial robots, medical care andautomatic warehousing) in the China market to satisfy China’s fast increasing demand in smartmanufacturing, smart medical care, smart logistics, new retail, etc. Through developing products and

solutions for Chinese customers, the business of robotics and industrial automation systems is expectedto see fast growth. Meanwhile, a new manufacturing base is built in the Shunde Technology Park in theGuangdong Province to develop new products, jointly develop feasible “Industry 4.0” business modelswith various partners, and invest in Human and Robot Collaboration (HRC), mobile robot platforms andother key technologies, so as to solidify KUKA’s leading position in technology. This new manufacturingbase is expected to reach an annual production capacity of 75,000 robots by 2024. Together with theexisting production capacity, the total production capacity in China will be able to reach around 100,000robots annually by that year.KUKA’s business continued to expand with a flood of orders, including an order of tens of millions ofeuros to provide industrial robots for GAC NE (a subsidiary of GAC Group) in China, an order to providearound 800 industrial robots of various kinds for the white car body production line of Daimler’s C-Seriesnew cars, and an order to expand the automatic warehouses and production capacity of Spritzer, theproducer of Malaysia’s best-selling natural spring water.KUKA continued 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 integrated the robotics, automation, power assembly,power battery and smart logistics technologies, and debuted its one-stop automotive solution at AMTS2018. In the general industrial sector, KUKA KMR CYBERTECH nano Series Robots and KRCYBERTECH Series Robots made their debut at CIIF 2018. KMR CYBERTECH nano Series Robots arethe second mobile robotic units launched by KUKA after KMR iiwa, with great advantages in automaticmaterial loading and unloading for machine tools. And KR CYBERTECH Series Robots feature high loadcapacity, a large operating range, low space occupation, etc. In the logistics sector, KUKA furtherimproved its warehouse automation solution, CarryPick, and developed the new KMP600 AGV. With afully integrated system with better performance and reliability, the new CarryPick solution can effectivelyreduce downtime and provide global service network support for better satisfaction of customer needs.With regard to human-robot collaboration, the LBR iiwa Robot launched by KUKA has laid a foundationfor human-robot collaboration by realizing direct human-robot collaboration for the first time. It canaccomplish missions requiring high sensitivity, which helps greatly save time and lower costs. The Cloud-

based platform KUKA Connect developed by KUKA can enable the customers to access to relevantrobotic data for analysis and utilization. KUKA won quite many honours in 2018, including the “Innovationand Entrepreneurship in Robotics and Automation (IERA) Award” granted by the world’s two majorrobotics institutions for its LBR Medical Care Robot, the World Excellence Award granted by Ford Motorfor its HRC application, the Volvo Cars Quality Excellence Award 2018 and a third GM Annual BestSupplier Award.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 product 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. As at the end of 2018, it had increased the robot densityto 200 units per 10,000 persons. In the future, it will further increase it to the level of developed countriesat 625 units per 10,000 persons. Midea’s motion control business platform is dedicated to the R&D andinnovation of core components and software products. By acquiring and integrating Servotronix, theIsraeli hi-tech company with more than thirty years of experience in motion control, the platform now ownsa series of comprehensive and industry leading motion control products including multi-axis motioncontrollers, servo drivers, servo motors and encoders. It has also implemented localization anddomestication in R&D and manufacturing. Furthermore, it is capable of providing comprehensive systemsolutions for the industries of robotics, numerical control, lithium batteries, 3C, semiconductors,packaging and printing. In 2018, the platform carried out the development of multiple products throughthe concerted efforts of the Chinese and Israeli teams. Those products include softMC series products,the new-generation motion controller integrating Codesys, OPC UA and WEB server technologies;CDHD2 series products, the sixth-generation servo driver with an annual sales volume of over 10,000units; BDHD2 series products, the bus servo driver with high cost performance; and RM series products,the special servo motor developed specially for SCARA and six-joint robots of below 6kg.

G. Deepened the industrial layout for Smart Home Appliance and promote the implementation ofSmart Home Appliance Strategy

In 2018, Midea integrated its Smart Home Appliance business, established an IoT company, continuedto optimize the Cloud Platform, Meiju APP, intelligent connection modules, big data and after-salesservices, networked the Group’s business divisions and operating units, and kept increasing usersatisfaction. The Company planned and implemented intelligent scenarios, built the highly usable,strongly interactive and standard IoT platform, promoted the stable connection between users anddevices, improved users’ experience in using intelligent products, vigorously propelled externalcooperation for ecological expansion and the building of developers’ platform, and facilitated thedevelopment of the Group’s Smart Home Appliance business.Internally, the Company published the standard white paper to specify the production standards for theSmart Home Appliance business within the Group and dedicate to improving the connection experience.In 2018, on one hand, through using and programming on domestic chips, IoT Company further enhancedthe application scope and standardization of intelligent connection, reinforced market layout, completedthe connection of experience optimization 1.0 version at three terminals, and launched Meiju APP 5.0after internal integration; on the other hand, it integrated IoT big data, developed the value of intelligentdevices and user data to a big depth and drove the intelligence of products. In addition, in the Smart Eyesproject, with big data as the penetration point, it inspected user experience in a digital manner andprovided visualized data support for production and operation.Externally, IoT Company continued to strengthen technical development and market layout in intelligenthousehold appliances, improve the market competitiveness of intelligent household appliance products,expand the external ecosystem, enlarge the connection entrance and enhance the value of user services.In 2018, IoT completed the launch of a number of projects in cooperation with the platforms andmanufacturers including Alibaba Cloud, Tmall, Huawei, OPPO, VIVO and Skyworth. Furthermore, itinvolved in the establishment of domestic and international IoT related standards and continued to speedup the connection and integration with external parties to build Midea’s Smart Home Appliance ecosystem.

H. Deepened the long-term incentive and protected the interests of shareholdersIn 2018, 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 Fifth Stock Option Incentive Scheme, the Second Restricted Share Incentive Scheme,

the Fourth Global Partner Stock Ownership Scheme and the First 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 holistic listing in 2013. Meanwhile, in response to the internal and externalcomplexities and fluctuations in market value, Midea Group has launched the biggest-ever repurchaseplan in the history of China’s A-stock market. This plan, with a limit of RMB4 billion, is aimed to maintaina stable market capitalization and protect shareholders’ interests. Up to the end of December 2018, Mideahas used a total of approximately RMB4 billion for the share repurchase, marking the completion of theexecution of the repurchase plan and the fulfillment of its commitment.

2. Analysis of Main Business

2.1 OverviewSame with the contents presented in “1. Overview” of this section√Yes □NoSee “1. Overview” of this section.2.2 Revenues and Costs2.2.1 Breakdown of operating revenues

Unit: RMB’000

20182017YoY Change (%)
AmountAs a percentage of total operating revenues (%)AmountAs a percentage of total operating revenues (%)
Total259,664,820100%240,712,301100%7.87%
By business segment
Manufacturing238,065,37691.68%221,137,52991.87%7.65%
By product category
HVAC109,394,64942.13%95,352,44939.62%14.73%
Consumer appliances102,992,80339.66%98,748,01841.02%4.30%
Robotics and automation systems25,677,9249.89%27,037,06211.23%-5.03%
By geographical segment
PRC149,257,31157.48%136,756,26956.81%9.14%
Outside PRC110,407,50942.52%103,956,03243.19%6.21%
Operating RevenueOperating costGross profit marginYoY change of operating revenue (%)YoY change of operating cost (%)YoY change of gross profit margin (%)
By business segment
Manufacturing238,065,376168,655,78929.16%7.65%3.78%2.65%
By product category
HVAC109,394,64975,886,32630.63%14.73%12.15%1.59%
Consumer appliances102,992,80372,959,46629.16%4.30%1.72%1.79%
Robotics and automation systems25,677,92419,809,99722.85%-5.03%-14.33%8.37%
By geographical segment
PRC149,257,311103,686,12130.53%9.14%6.42%1.78%
Outside PRC110,407,50984,478,43623.48%6.21%1.75%3.35%
Business segmentItemUnit20182017YoY Change (%)
Home appliancesSalesIn thousand416,926.4408,024.52.18%
units/sets
OutputDitto421,938.4420,739.30.28%
InventoryDitto50,972.247,235.07.91%
Business segmentItem20182017YoY Change (%)
AmountAs a percentage of total operating cost (%)AmountAs a percentage of total operating cost (%)
Home appliancesRaw materials127,402,50885.59%119,259,56485.56%6.83%
Labor costs9,154,0166.15%8,502,6106.10%7.66%
Depreciation2,599,9991.75%2,495,0281.79%4.21%
Energy2,188,0331.47%2,090,8061.50%4.65%

2.2.7 Major changes in the business, products or services in the Reporting Period□Applicable √N/A2.2.8 Main customers and suppliersMajor customers of the Company

Total sales to top five customers (RMB'000)25,322,676
Total sales to top five customers as a percentage of the total sales for the year (%)9.76%
Total sales to related parties among top five customers as a percentage of the total sales for the year (%)0
No.CustomerSales revenue (RMB'000)As a percentage of the total sales revenue (%)
1Customer A12,661,3704.88%
2Customer B5,341,5162.06%
3Customer C2,777,3761.07%
4Customer D2,281,2350.88%
5Customer E2,261,1790.87%
Total--25,322,6769.76%
Total purchases from top five suppliers (RMB'000)8,546,011
Total purchases from top five suppliers as a percentage of the total purchases for the year (%)4.99%
Total purchases from related parties among top five suppliers as a percentage of the total purchases for the year (%)0
No.SupplierPurchase (RMB'000)As a percentage of the total purchases (%)
1Supplier A2,307,4581.35%
2Supplier B1,731,1871.01%
3Supplier C1,645,1540.96%
4Supplier D1,558,3510.91%
5Supplier E1,303,8610.76%
Total--8,546,0114.99%

2.3 Expense

Unit: RMB'000

20182017YoY Change (%)Reason for any significant change
Selling and distribution expenses31,085,87926,738,67316.26%
General and Administrative expenses9,571,6397,510,10227.45%
Finance costs-1,823,040815,949-323.43%Change in exchange gain/loss
R&D expenses8,377,2017,270,13415.23%
20182017YoY Change (%)
Number of R&D personnel12,32110,52017.12%
R&D personnel as a percentage10.74%10.33%0.41%
of total employees
R&D input (RMB’000)9,810,8058,478,29215.72%
R&D input as a percentage of operating revenues3.78%3.52%0.26%
Capitalized R&D input (RMB’000)1,433,6041,208,15818.66%
Capitalized R&D input as a percentage of total R&D investment14.61%14.25%0.36%
Item20182017YoY Change (%)
Subtotal of cash inflows from operating activities226,341,706207,315,6129.18%
Subtotal of cash outflows due to operating activities198,480,626182,872,9898.53%
Net cash flow from operating activities27,861,08024,442,62313.99%
Subtotal of cash inflows from investing activities67,998,04689,296,086-23.85%
Subtotal of cash outflows due to investing activities86,640,334124,035,694-30.15%
Net cash flow from investing activities-18,642,288-34,739,60846.34%
Subtotal of cash inflows from financing activities5,237,68163,838,091-91.80%
Subtotal of cash outflows due to financing activities18,624,84544,186,446-57.85%
Net cash flow from financing activities-13,387,16419,651,645-168.12%
Net increase in cash and cash equivalents-3,879,3719,317,923-141.63%

Explanation of why the data above varied significantly√Applicable □N/Aa. Primarily driven by the acquisition of subsidiary KUKA last year, net cash flow from investing activitiesincreased 46.34% from last year.b. Primarily driven by decrease in borrowings obtained, net cash flow from financing activities decreased168.12% from last year.c. Primarily driven by decrease in net cash flow from financing activities, net increase in cash and cashequivalents decreased 141.63% from last year.Explanation of main reasons leading to the material difference between net cash flow from operatingactivities during the Reporting Period and net profit for the year□ Applicable √ N/A

3. Analysis of Non-Core Business

□Applicable √N/A

4. Assets and Liabilities

4.1 Material changes of asset items

Unit: RMB'000

31 December 201831 December 2017Change in percentage (%)Explanation about any material change
AmountAs a percentage of total assets (%)AmountAs a percentage of total assets (%)
Cash and cash equivalents27,888,28010.58%48,274,20019.46%-8.88%
Accounts receivable19,390,1747.35%17,528,7177.06%0.29%
Inventories29,645,01811.24%29,444,16611.87%-0.63%
Other current assets76,473,82729.00%46,694,84118.82%10.18%
Investment properties391,7650.15%420,8020.17%-0.02%
Long-term equity investments2,713,3161.03%2,633,6981.06%-0.03%
Fixed assets22,437,2128.51%22,600,7249.11%-0.60%
Construction in2,077,6210.79%879,5760.35%0.44%
progress
Short-term borrowings870,3900.33%2,584,1021.04%-0.71%
Long-term borrowings32,091,43912.17%32,986,32513.30%-1.13%
ItemOpening balanceProfit or loss from change in fair value during the periodCumulative fair value change charged to equityOtherPurchased in the periodSold in the periodClosing balance
Financial assets
1. Financial assets with fair value changes included in profit or loss (excluding derivative financial assets)
2. Derivative financial assets714,185-141,646-322,0368,516259,019
3. Financial assets available for sale22,213,426-343,741-9,4283,529,69622,684,0872,705,866
Sub-total of financial assets22,927,611-141,646-665,777-9123,529,69622,684,0872,964,885
Investment properties
Productive living assets
Others
Sub-total of the above22,927,611-141,646-665,777-9123,529,69622,684,0872,964,885
Financial liabilities92,308668,804144,619-2,936902,795

4.3 Restricted asset rights as of the end of this Reporting PeriodAs of the end of this Reporting Period, there were no such circumstances where any main assets of theCompany were sealed, distrained, frozen, impawned, pledged or limited in any other way.

5. Investment made

5.1 Total investment amount√Applicable □N/A

Total investment amount of Reporting Period (RMB’000)Total investment amount of last year (RMB’000)YoY Change (%)
86,640,334124,035,694-30.15%
Type of securitiesCode of securitiesAbbreviation of securitiesInitial investment costMeasurement methodOpening carrying amountProfit or loss from change in fair value during the periodCumulative fair value change charged to equityPurchased in the periodSold in the periodProfit or loss in the periodClosing carrying amountAccounting titleFunding source
Domestically/Overseas listed1810XIAOMI-W1,272,584Fair value method---325,9521,448,561--1,122,609Financial assets availablSelf-funded
stocke for sale
Total1,272,584-----325,9521,448,561--1,122,609---
Operating partyRelationship with the CompanyRelated transactionType of derivativeInitial investment amountStarting dateEnding dateOpening investment amountPurchased in Reporting PeriodSold in Reporting PeriodAmount provided for impairment (if any)Closing investment amountClosing investment amount as a percentage of the Company’s closing net assetsActual gain/loss in Reporting Period
Futures companyNoNoFutures contracts65,88201/01/201831/12/201865,882---2760.0003%-236,067
BankNoNoForward forex contracts555,99501/01/201831/12/2018555,995----644,052-0.7753%-1,800,548
Total621,877----621,877----643,776-0.7750%-2,036,615
Source of derivatives investment fundsAll from the Company’s own money
Litigation involved (if applicable)N/A
Disclosure date of the announcement about the board’s consent for the derivative investment (if any)31/03/2018
Disclosure date of the24/04/2018
announcement about the general meeting’s consent for the derivative investment (if any)
Risk analysis of positions held in derivatives during the Reporting Period and explanation of control measures (Including but not limited to market risk, liquidity risk, credit risk, operational risk, legal risk, etc.)For the sake of eliminating the cost risk of the Company's bulk purchases of raw materials as a result of significant fluctuations in raw material prices, the Company not only carried out futures business for some of the materials, but also made use of bank financial instruments and promoted forex funds business, with the purpose of avoiding the risks of exchange and interest rate fluctuation, realizing the preservation and appreciation of forex assets, reducing forex liabilities, as well as achieving locked-in costs. The Company has performed sufficient evaluation and control against derivatives investment and position risks, details of which are described as follows: 1. Legal risk: The Company's futures business and forex funds businesses shall be conducted in compliance with laws and regulations, with clearly covenanted responsibility and obligation relationship between the Company and the agencies. Control measures: The Company has designated relevant responsible departments to enhance learning of laws and regulations and market rules, conducted strict examination and verification of contracts, defined responsibility and obligation well, and strengthened compliance check, so as to ensure that the Company's derivatives investment and position operations meet the requirements of the laws and regulations and internal management system of the Company. 2. Operational risk: Imperfect internal process, staff, systems and external issues may cause the Company to suffer from loss during the course of its futures business and forex funds business. Control measures: The Company has not only developed relevant management systems that clearly defined the assignment of responsibility and approval process for the futures business and forex funds business, but also established a comparatively well-developed monitoring mechanism, aiming to effectively reduce operational risk by strengthening risk control over the business, decision-making and trading processes. 3. Market risk: Uncertainties caused by changes in the prices of bulk commodity and exchange rate fluctuations in foreign exchange market could lead to greater market risk in the futures business and forex funds business. Meanwhile, inability to timely raise sufficient funds to establish and maintain hedging positions in futures operations, or the forex funds required for performance in forex funds operations being unable to be credited into account could also result in loss and default risks. Control measures: The futures business and forex funds business of the Company shall always be conducted by adhering to prudent operation principles. For futures business, the futures transaction volume and application have been determined strictly according to the requirements of production & operations, and the stop-loss mechanism has been implemented. Besides, to determine the prepared margin amount which may be required to be supplemented, the futures risk measuring system has been established to measure and calculate the margin amount occupied, floating gains and losses, margin amount available and margin amount required for intended positions. As for forex funds business, a hierarchical management mechanism has been implemented, whereby the operating unit which has submitted application for funds business
should conduct risk analysis on the conditions and environment affecting operating profit and loss, evaluate the possible greatest revenue and loss, and report the greatest acceptable margin ratio or total margin amount, so that the Company can update operating status of the funds business on a timely basis to ensure proper funds arrangement before the expiry dates.
Changes in market prices or fair value of derivative products during the Reporting Period, specific methods used and relevant assumption and parameter settings shall be disclosed for analysis of fair value of derivatives1. Loss from futures contracts during the Reporting Period was RMB236,067,000. 2. Loss from forward forex contracts during the Reporting Period was RMB1,800,548,000. 3. Public quotations in futures market or forward forex quotations announced by the Bank of China are used in the analysis of derivatives fair value.
Explanation of significant changes in accounting policies and specific financial accounting principles in respect of the Company's derivatives for the Reporting Period as compared to the previous Reporting PeriodNo change
Special opinions expressed by independent directors concerning the Company's derivatives investment and risk controlThe 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.

6. Sale of Major Assets and Equity Interests

6.1 Sale of major assets□Applicable √N/ANo such cases in the Reporting Period.6.2 Sale of major equity interests□ Applicable √ N/A

7. Analysis of Major Subsidiaries

Main subsidiaries and joint stock companies with an over 10% influence on the Company’s net profit

Company nameCompany typeBusiness scopeRegistered capitalTotal assets (in RMB million)Net assets (in RMB million)Operating revenue (in RMB million)Operating profit (in RMB million)Net profit (in RMB million)
Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd.SubsidiaryManufacturing of home appliancesUSD72 million10,818.632,803.5013,613.961,583.351,374.17
GD Midea Air-Conditioning Equipment Co.,Ltd.SubsidiaryManufacturing of air conditionersRMB854 million32,215.694,115.9346,062.66855.07701.75
Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd.SubsidiaryManufacturing of home appliancesUSD42 million9,392.794,714.8810,383.941,655.991,425.05
Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd.SubsidiaryManufacturing of water heatersRMB60 million7,918.37985.599,146.731,004.95794.68

the companies deconsolidated in the current year, see Note 5, 5.2, (b).

8. Structured Bodies Controlled by the Company

□Applicable √N/A

9. Outlook for the Future Development of the Company

9.1 Development strategies of the CompanyWith “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, deepens its transformation, as well as keeps developingleading products based on the customer’s needs by way of technological innovation, quality improvementand quality product programs. It will promote efficiency driven growth by improving management,manufacturing and asset efficiency to create more cost efficiency. It will also promote global operationsand try to lay a solid foundation in this regard through promoting its own branded products andstrengthening compliance management. Additionally, it will strengthen its robotics and industrialautomation operations to build new business platform and growth points. Meanwhile, it will deepen itsDigitalization 2.0 program to improve operation and management through digitalization of the entire valuechain, so as to construct its own industrial internet ecosystem.9.2 Key operation points in 2019a. Adhering to the three core strategies to increase R&D investments, accelerate product innovation andefficiency improvement, put in place a customer-oriented value chain system, strengthen the capabilitiesof developing innovative and leading products through adopting the CDOC approach and the R&D modelof “Three Generations”, and provide competitive products and services for customers in a highly efficientway;b. Continuing to enhance the basic systems to set up a unified business language and rules, strengthen“One Midea, One System, One Standard”, make use of the advangtages of synergies, reinforce the result-oriented process control and improve operating efficiency;c. Promoting transformation in the domestic marketing to improve user-oriented domestic retail marketing,enhance product synergies, focuse on the end market, lower the inventory level, streamline the channel

hierarchy, promote better channel efficiency as well as stabilize the channel structure and interests;promoting interactive marketing ways based on scenario and experience to build better recognition of theMidea brand among users; making use of multi-category synergistic advantages to continuously deepenthe channel layout, further promote e-commerce channel optimization and integration, and proactivelyexpand and building new retail channels; continuing to increase the efficiency of the supply chain system,enhance the advantage of to Midea’s all-channels coverage, rebuild business processes and pushforward the construction of a shared inventory system;d. Further improving the multi-brand system according to different needs from different consumer groups,as well as improving Midea’s product suites and families, including the real-estate before-market productsuites, to provide integrated home solutions with full categories of the household appliances;e. Strengthening the building of Midea as a digitalized enterprise by improving the digital operationalmethods and systems to support the integration of every link of Midea’s value chain and optimizeefficiency, value creation and the fulfillment of operating objectives, as well as by further building andoptimizing digitalized industrial Internet factories; and continuing to promote and optimize theInternational 632 program to strengthen digital support for the “Global Operations” strategy; andf. Continuing to improve the global operation and control competence; optimizing the overseas R&D,production and marketing, speeding up the development of the Company’s own brands, andstrengthening overseas compliance management to control business risks; continuing to improve theprofitability of the TLSC and promote localized operations of the China-based joint venture incorporatedby Midea and KUKA to offer competitive products and services; promoting the switch to lean managementof overseas channels, and significantly increasing the channel coverage in the ASEAN and India; andbuilding a global service system, optimizing the service delivery network and constantly improving theglobal after-sales system.9.3 Key capital expenditure plan in futureTo adapt to changes in the industry environment, the Company will focus its 2019 investments ontechnological innovation, product quality improvement, robotics and industrial automation systems,digitalization, e-commerce channel expansion and new retail channels construction, new brand marketing,global operation capability improvement and the smart home strategy. Meanwhile, the Company willstrictly control investment in infrastructure and capacity expansion, as well as non-operating expenditures.

The capital expenditures will primarily come from the Company’s own capital.9.4 Main risks in future developmenta. 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 macroeconomic control. If the globaleconomy encounters a heavy hit, or the domestic economy consumer demand slows down in growth, thegrowth of the household appliance industry, to which the Company belongs, will slow down accordingly,and as a result, this may affect the product sales of Midea Group.b. Risks in the fluctuation of production 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 barriers

Due 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.

10. Visits Paid to the Company for Purposes of Research, Communication, Interview,etc.

10.1 In the Reporting Period√Applicable □N/A

Date of visitWay of visitType of visitorIndex to main inquiry information
25~26 January 2018One-on-one meetingInstitutionLog Sheet of Investor Relations Activities for 25~26 January 2018 disclosed on www.cninfo.com.cn
28 February~13 March 2018DittoDittoLog Sheet of Investor Relations Activities for 28 February~13 March 2018 disclosed on www.cninfo.com.cn
2 April 2018DittoDittoLog Sheet of Investor Relations Activities for 2 April 2018 disclosed on www.cninfo.com.cn
10~11 May 2018DittoDittoLog Sheet of Investor Relations Activities for 10~11 May 2018 disclosed on www.cninfo.com.cn
16 May 2018DittoDittoLog Sheet of Investor Relations Activities for 16 May 2018 disclosed on www.cninfo.com.cn
11~14 June 2018DittoDittoLog Sheet of Investor Relations Activities for 11~14 June 2018 disclosed on www.cninfo.com.cn
20~21 June 2018DittoDittoLog Sheet of Investor Relations Activities for 20~21 June 2018 disclosed on www.cninfo.com.cn
11~12 July 2018DittoDittoLog Sheet of Investor Relations Activities for 11~12 July 2018 disclosed on www.cninfo.com.cn
16~23 July 2018DittoDittoLog Sheet of Investor Relations Activities for 16~23 July 2018 disclosed on www.cninfo.com.cn
2~5 September 2018DittoDittoLog Sheet of Investor Relations Activities for 2~5 September 2018 disclosed on www.cninfo.com.cn
20~21 September 2018DittoDittoLog Sheet of Investor Relations Activities for 20~21 September 2018 disclosed on www.cninfo.com.cn
8~9 November 2018DittoDittoLog Sheet of Investor Relations Activities for 8~9 November 2018 disclosed on www.cninfo.com.cn
16 November 2018DittoDittoLog Sheet of Investor Relations Activities for 16 November 2018 disclosed on www.cninfo.com.cn
14 December 2018DittoDittoLog Sheet of Investor Relations Activities for 14 December 2018 disclosed on www.cninfo.com.cn
Times of visit221
Number of visiting institutions2,003
Number of visiting individuals105
Number of other visitors0
Significant undisclosed information disclosed, revealed or leakedNo

Section V Significant Events

1. Profit Distribution and Converting Capital Reserves into Share Capital for CommonShareholders

Formulation, execution or adjustments of profit distribution policy, especially cash dividend policy, forcommon shareholders in the Reporting Period□Applicable √N/APlans (or preliminary plans) for profit distribution and converting capital reserves into share capital forcommon shareholders for the past three years (including the Reporting Period)For 2016, based on its total of 6,465,677,368 shares, the Company distributed a cash dividend of RMB10(tax inclusive) per 10 shares to all shareholders. The book closure day was 9 May 2017 and the ex-dividend day 10 May 2017.For 2017, based on its total of 6,584,022,574 shares, the Company distributed a cash dividend of RMB12(tax inclusive) per 10 shares to all shareholders. The book closure day was 3 May 2018 and the ex-dividend day 4 May 2018.For 2018, based on the Company's 6,585,838,349 shares at the disclosure date of this report (the totalshares minus the 17,584,338 repurchased shares in the repo securities account), it is proposed that theCompany should distribute a cash dividend of RMB13 (tax inclusive) per 10 shares to all the shareholdersand should not convert capital reserves into share capital. When the profit distribution plan is implemented,if any change occurs to the total shares eligible for profit distribution, the profit distribution plan shall bebased on the total shares eligible for profit distribution at the book closure date of the profit distribution,and the dividend per share shall be adjusted under an unchanged total distribution amount. The proposalhas been considered and approved by the 10th Meeting of the 3rd Board of the Company and will laterbe submitted to the 2018 annual general meeting of shareholders for further consideration.In 2018, the Company repurchased and retired its shares worth as much as RMB4 billion by the end ofJanuary 2019. Attaching importance to reasonable return for investors, the Company has reviewed in2019 its shareholder return planning for the next three years to ensure the sustainability and consistencyof the profit distribution policy. During the review process, the requirements and wishes of shareholders,particularly the minority shareholders, were fully taken into account to ensure the sufficient protection of

their legal interests.

Cash dividend to common shareholders in the past three years (including the Reporting Period)

Unit: RMB

YearCash dividends (tax included)Net profit attributable to common shareholders of the Company in the consolidated statement in the yearRatio of cash dividends to net profit attributable to common shareholders in the consolidated statement in the yearCash dividends in other forms (such as share repurchase)Ratio of cash dividends in other forms to net profit attributable to common shareholders in the consolidated statement in the yearTotal cash dividends (inclusive of those in other forms)Ratio of total cash dividends (inclusive of those in other forms) to net profit attributable to common shareholders in the consolidated statement in the year
20188,561,589,853.7020,230,779,000.0042.32%4,000,000,00019.77%12,561,589,853.7062.09%
20177,900,827,088.8017,283,689,000.0045.71%0.000.007,900,827,088.8045.71%
20166,465,677,368.0014,684,357,000.0044.03%0.000.006,465,677,368.0044.03%
Bonus shares for every 10 shares (share)0
Dividend for every 10 shares (RMB) (tax13.00
included)
Additional shares converted from capital reserves for every 10 shares (share)0
Total shares as the basis for the preliminary plan for profit distribution (share)6,585,838,349
Cash dividends (RMB) (tax inclusive)8,561,589,853.70
Cash dividends in other forms (such as share repurchase) (RMB)4,000,000,000.00
Total cash dividends (inclusive of those in other forms) (RMB) (tax inclusive)12,561,589,853.70
Distributable profits (RMB)19,486,212,000.00
Percentage of total cash dividends (inclusive of those in other forms) in the total distributed profit (%)100%
Details about the preliminary plan for profit distribution and converting capital reserves into share capital
As audited by PricewaterhouseCoopers China (LLP), the Company realized net profit of RMB11,968,637,000 for 2018. Pursuant to the relevant provisions under the Articles of Association, it provided 10% as statutory surplus reserves, namely RMB1,196,864,000. Plus undistributed profit at the beginning of the year of RMB16,613,224,000 and minus the profit distributed in the year of RMB7,898,785,000, the actual distributable profit would be RMB19,486,212,000. For 2018, based on the Company's 6,585,838,349 shares at the disclosure date of this report (the total shares minus the 17,584,338 repurchased shares in the repo securities account), it is proposed that the Company should distribute a cash dividend of RMB13 (tax inclusive) per 10 shares to all the shareholders and should not convert capital reserves into share capital. When the profit distribution plan is implemented, if any change occurs to the total shares eligible for profit distribution, the profit distribution plan shall be based on the total shares eligible for profit distribution at the book closure date of the profit distribution, and the dividend per share shall be adjusted under an unchanged total distribution amount. The said plan shall be submitted to the Company’s 2018 annual general meeting of shareholders for further consideration.

3. Performance of Undertakings

3.1 Undertakings of the Company’s actual controller, shareholders, related parties and acquirer, as well as the Company and othercommitment makers fulfilled in the Reporting Period or ongoing at the period-end√ Applicable □ N/A

UndertakingUndertaking giverType of undertakingDetails of undertakingDetails of undertakingTermParticulars on the performance
Undertaking made in offering documents or shareholding alternation documentsControlling shareholder and actual controllerMaintenance of independence1. Midea Holding and He Xiangjian have undertaken as follows: He Xiangjian, Midea Holding and their controlled enterprises will remain independent from Midea Group in respect of personnel, finance, assets, business and institutions, in accordance with relevant laws and regulations and regulatory documents. They will faithfully fulfill the above undertaking, and assume the corresponding legal liability. If they fail to fulfill their obligations and responsibilities conferred by the undertaking, they will bear the corresponding legal liabilities according to relevant laws, rules, regulations and regulatory documents.28/03/2013Long-standing1. There has been no violation of this undertaking.
Controlling shareholder and actual controllerAvoiding competition within the industry2. In order to avoid possible competition within the industry between Midea Group and Midea Holding and its controlled enterprises as well as He Xiangjian, his immediate family and his controlled companies, Midea Holding and He Xiangjian have undertaken as follows: (1) None of the entities or individuals mentioned above is or will be engaged in the same or similar business as the existing main business of Midea Group and its controlled companies. They are not or will not be engaged or participate in such business that is28/03/2013Long-standing2. There has been no violation of this undertaking.
laws, rules, regulations and regulatory documents.
Controlling shareholder and actual controllerRegulation of related transactions3. In order to regulate matters of related transactions that may occur in the future between Midea Group and Midea Holding and its controlled companies as well as He Xiangjian, his immediate family and his controlled companies, Midea Holding and He Xiangjian have undertaken as follows: (1) They will regulate any related transactions with Midea Group and its controlled companies using their utmost efforts to reduce them. For unavoidable related transactions with Midea Group and its controlled companies, including but not limited to commodity trading, providing services to each other or as agent, they will sign legal normative agreements with Midea Group, and go through approval procedures in accordance with related laws, regulations, rules, other regulatory documents, and relevant provisions of the Articles of Association of Midea Group. They guarantee to offer fair prices for related transactions, and fulfill the information disclosure obligations in respect of the related transactions according to related laws, regulations, rules, other regulatory documents, and relevant provisions of the Articles of Association of Midea Group. They also guarantee not to illegally transfer the funds or profits from Midea Group, or damage the interests of its shareholders at their advantages during the related transactions. (2) They shall fulfill the obligation of withdrawing from voting that involves the above mentioned related transactions at the general meeting of Midea Group; (3) The related subject mentioned above shall not require Midea Group to offer more favorable conditions than those to any independent third party in any fair market transactions.28/03/2013Long-standing3. There has been no violation of this undertaking.
(4) In accordance with effective laws, regulations or other regulatory documents of People's Republic of China, as long as Midea Holding is identified as the controlling shareholder of Midea Group, and He Xiangjian the actual controller, they shall not change or terminate this undertaking. (5) Midea Holding and He Xiangjian will faithfully fulfill the above undertaking and assume the corresponding legal liabilities. If they fail to fulfill their obligations and responsibilities conferred by the undertaking, they will bear the corresponding legal responsibilities according to relevant laws, rules, regulations and regulatory documents.
Controlling shareholder and actual controllerOn Midea Trade Union Committee transferring its limited equity of Midea Group4. On 4 January 2001, the Midea Trade Union Committee signed the "Equity Transfer Contract" with five people, namely He Xiangjian, Chen Dajiang, Feng Jingmei, Chen Kangning and Liang Jieyin, where it transferred all its limited equity of Midea Group (22. 85%) respectively to those five people. According to the confirmation letter issued by members of the Midea Trade Union Committee at that time, the equity transfer price was determined after mutual discussion on the basis of their true opinions, therefore there was no dispute or potential dispute. On 28 June 2013, Foshan Shunde Beijiao General Union, superior department of Midea Trade Union Committee, issued a confirmation letter to the fact that the Midea Trade Union Committee funded the establishment of Midea Group Co., Ltd. In addition the letter also confirmed that the council of Midea Trade Union Committee is entitled to dispose any property of the committee, and such property disposal does not need any agreement from all staff committee members. Midea Holding and He Xiangjian, respectively the controlling28/03/2013Long-standing4. So far, this shareholding transfer has not brought about any loss caused by any dispute or potential disputes. There has been no violation of this undertaking.
shareholder and actual controller of Midea Group Co., Ltd. have undertaken as follows: For any loss to Midea Group caused by any dispute or potential dispute arising from the matters of equity transfer mentioned above, they are willing to assume full liability for such loss.
Controlling shareholder and actual controllerIssues about Payment of the Staff Social Insurance and the Housing Provident Fund involved in Midea Group's Overall Listing5. Midea Holding and He Xiangjian have undertaken to be liable for (1) paying such expenses and related expenses on time based on the requirements of relevant state departments if Midea Group is required to be liable for the payment of staff social insurance, housing provident fund and the payment required by relevant state authorities prior to this merger, (2) paying corresponding compensation for all direct and indirect losses incurred by Midea Group and its subsidiaries due to this merger, (3) indemnifying and holding harmless Midea Group and its subsidiaries in time from such expenses when Midea Group and its subsidiaries are required to pay them in advance.28/03/2013Long-standing5. So far, the payment of the staff social insurance and the housing provident fund has not brought about any controversy or potential disputes. There has been no violation of this undertaking.
Controlling shareholder and actual controllerIssues about asset alteration, asset flaw and house leasing of6. Undertakings on issues about asset alteration, asset flaw and house leasing of Midea Group and its subsidiaries Midea Holding and He Xiangjian have undertaken as follows: (1) Midea Holding will do its utmost to assist and urge Midea Group (including its subsidiaries) to complete renaming procedures of related assets, such as land, housing, trademarks, patents and stock rights, declared in the related files of this merger. Midea Holding will be liable for all compensations28/03/2013Long-standing6. So far, the issues about asset alteration, asset flaw and house leasing of Midea Group and its subsidiaries have not brought about any controversy or potential disputes. There has been no violation of this undertaking. And Midea Holding shall honor this undertaking before its expiration.
Midea Group and its subsidiariesof losses caused by issues about renaming procedures of related assets mentioned above to Midea Group. (2) Midea Holding shall do its utmost to assist Midea Group (including its subsidiaries) to apply for ownership certificates of land and housing or property declared in related files of this merger. (3) Midea Holding shall assist Midea Group (including its subsidiaries) to re-apply for corresponding construction procedures and apply for their ownership certificates for houses without complete procedures, as happened in the past, to apply for the ownership certificate. If the competent authorities requires Midea Group to dismantle buildings that cannot acquire the re-application for real estate registration procedures, Midea Holding shall do its utmost to provide assistance and be liable for any related expenses used in dismantling such buildings by Midea Group (including its subsidiaries). (4) Under any circumstances that Midea Group suffers from losses incurred from no longer using these properties or presently using the land or house above due to failing to obtain or collect in time the ownership certificates of the land or house above or any losses caused by any other reasons, Midea Holding shall compensate any loss for these reasons in time and in full. Midea Holding shall compensate the actual loss Midea Group suffers from any circumstances above resulting in penalties subjected to from competent authorities or through claims from any other third party. (5) Based on issues of defective house leasing declared in related files of this merger, Midea Holding shall provide sufficient compensations for all economic losses incurred by Midea Group (including its subsidiaries) where the leasehold relations above
become invalid or other disputes occur, which are caused by rights claims from a third party or by means of an administrative authority exercising a right and therefore results in any economic losses due to eviction from rental houses, or any penalties subjected to by competent government departments or any recourse from related parties. (6) Based on the issues of defective land leasing declared in related files of this merger, when leasehold relations become invalid caused by defects of land leasing or when other disputes occur, resulting in any economic losses to Midea Group (including its subsidiaries) or through any penalties administered by competent government departments. Likewise if the lessor cannot compensate for losses caused by such defective leasing, Midea Holding shall compensate Midea Group for losses caused by such defective land leasing. Midea Holding has further undertaken that where a violation of guarantees and undertakings referred to previously occurs or such guarantees and undertakings are not consistent with the reality and Midea Group has suffered any loss therefrom, Midea Holding shall compensate in cash or make up for Midea Group’s loss upon Midea Group’s notice in writing within 30 days when the loss occurs and the loss amount is definite.
Undertakings given in time of IPO or refinancingXiaomi TechnologyPrivate issueXiaomi Technology has given an undertaking that it shall not transfer the shares that it had subscribed for in this private placement with Midea Group within 36 months from the completion date of this offering (26 June 2015, the listing date for this offering).26/06/201536 months from the listing date of this private placement, i.e. to 26 June 2018This undertaking has expired. And there has been no violation of this undertaking.
WhetherYes
the undertaking is fulfilled on time
Specific reasons for failing to fulfill any undertaking and plan for the next stepN/A

3.2 Where any earnings forecast was made for any of the Company’s assets or projects and theReporting Period is still within the forecast period, the Company shall explain whether theperformance of the asset or project reaches the earnings forecast and why□Applicable √N/A

4. Occupation of the Company’s Capital by the Controlling Shareholder or Its RelatedParties for Non-Operating Purposes

□Applicable √N/ANo such cases in the Reporting Period.

5. Explanation of the Board of Directors, the Supervisory Committee and IndependentDirectors (If Any) Regarding the "Non-standard Audit Opinion" for the ReportingPeriod

□Applicable √N/A

6. Reason for Changes in Accounting Policies, Accounting Estimates and AccountingMethods as Compared to the Financial Report for the Prior Year

√ Applicable □ N/AAs per the Notice of the Ministry of Finance on Revising and Issuing the Format of 2018 Annual FinancialStatements of General Enterprises (CK [2018] No. 15) issued in 2018, the Company has revised theformat of its financial statements as follows: With regard to the balance sheet, the two items of “notesreceivable” and “accounts receivable” have been combined into one item, “notes and accountsreceivable”; “interest receivable” has excluded from “other current assets” and included into “otherreceivables”; “notes payable” and “accounts payable” have been combined into “notes and accountspayable”; “interest payable”, “dividends payable” and “other payables” have been combined into “otherpayables”; and “long-term payables” and “payables for specific projects” have been combined into “long-term payables”. Regarding the income statement, “R&D expenses” has been separated from “generaland administrative expenses”; and two sub-items, “interest expenses” and “interest income” have beenadded under “finance expenses”. The comparative data have been retrospectively adjusted accordingly.

7. Reason for Retrospective Restatement of Major Accounting Errors during theReporting Period

□Applicable √N/A

No such cases in the Reporting Period.

8. Reason for Changes in Scope of the Consolidated Financial Statements asCompared to the Financial Report for the Prior Year

√ Applicable □ N/AFor the main subsidiaries included in the consolidated financial statements of the current year, pleaserefer to Note 5 and Note 6 to the Financial Statements herein. For the newly consolidated companies,see Note 5, 5.1 and 5, 5.2, (a), and they primarily include: Miraco International Trading Company、IRTSA Neuchatel Switzerland、Mor-Tech Manufacturing Inc.、Mor-Tech Design Inc.、Midea Home AppliancesUK Ltd., Shanghai COLMO Lifestyle Products&Services Co. Ltd. and Guangdong Welling Auto Parts Co.Ltd. For the companies deconsolidated in the current year, see Note 5, 5.2, (b).

9. Engagement and Disengagement of CPA Firm

CPA firm at present

Name of the domestic CPA firmPricewaterhouseCoopers China (LLP)
The Company’s payment to the domestic CPA firmRMB8.7 million
Consecutive years of the audit service provided by the domestic CPA firmFour years
Names of the certified public accountants from the domestic CPA firmHuang Meimei and Qiu Xiaoying
Consecutive years of the audit service provided by the certified public accountants from the domestic CPA firmFour years

of shareholders, the Board will handle the merger as soon as possible.

10. Possibility of Listing Suspension and Termination after Disclosure of this AnnualReport

□Applicable √N/A

11. Bankruptcy and Reorganization

□Applicable √N/ANo such cases in the Reporting Period.

12. Material Litigation and Arbitration

□Applicable √N/ANo such cases in the Reporting Period.

13. Punishments and Rectifications

□Applicable √N/ANo such cases in the Reporting Period.

14. Credit Conditions of the Company as well as Its Controlling Shareholder andActual Controller

□Applicable √N/A

15. Implementation of any Equity Incentive Scheme, Employee Stock OwnershipScheme or Other Incentive Measures for Employees

√Applicable □N/AA. Overview of the First Stock Option Incentive Schemea. On 26 April 2018, the Announcement on the 2017 Annual Profit Distribution was disclosed by theCompany, with a decision to distribute a cash dividend of RMB12.00 per 10 shares to all the shareholdersbased on the total of 6,584,022,574 shares of the Company. The book closure date was 3 May 2018 andthe ex-dividend date was 4 May 2018.b. The Company convened the 33rd Meeting of the 2nd Board of Directors on 7 May 2018, at which theProposal for the Adjustments to the Exercise Price for the First Stock Option Incentive Scheme was

reviewed and approved. As the 2017 Annual Profit Distribution had been carried out, the exercise pricefor the First Stock Option Incentive Scheme was revised from RMB10.01 to RMB8.81 per share.B. Overview of the Second Stock Option Incentive Schemea. The Company convened the 33rd Meeting of the 2nd Board of Directors on 7 May 2018, at which theProposal for the Adjustments to the Exercise Price for the Second Stock Option Incentive Scheme wasreviewed and approved. As the 2017 Annual Profit Distribution had been carried out, the exercise pricefor the Second Stock Option Incentive Scheme was revised from RMB18.56 to RMB17.36 per share.b. The Company convened the 35th Meeting of the 2nd Board of Directors on 4 June 2018, at which theProposal for the Adjustments to the Incentive Receivers and Their Exercisable Stock Options of theSecond Stock Option Incentive Scheme was reviewed and approved. As such, it was agreed to adjustthe incentive receivers and their exercisable stock options for the Second Stock Option Incentive Schemedue to the departure, positional changes, low performance appraisals or other factors of some incentivereceivers. Upon the adjustments, the number of incentive receivers decreased from 583 to 554, and thenumber of locked-up stock options granted to them was also reduced from 33,255,000 to 31,470,000.The Proposal for Matters Related to the Stock Option Exercise for the Third Exercise Period of the SecondStock Option Incentive Scheme was also considered and approved. Because the exercise conditionshave grown mature for the third exercise period, a total of 550 incentive receivers who have been verifiedfor the Second Stock Option Incentive Scheme have been allowed to exercise 31,470,000 stock optionsin the third exercise period (ended 27 May 2020).C. Overview of the Third Stock Option Incentive Schemea. The Company convened the 33rd Meeting of the 2nd Board of Directors on 7 May 2018, at which theProposal for the Adjustments to the Exercise Price for the Third Stock Option Incentive Scheme wasreviewed and approved. As the 2017 Annual Profit Distribution had been carried out, the exercise pricefor the Third Stock Option Incentive Scheme was revised from RMB20.35 to RMB19.15 per share.b. The Company convened the 36th Meeting of the 2nd Board of Directors on 3 July 2018, at which theProposal for the Adjustments to the Incentive Receivers and Their Exercisable Stock Options of the ThirdStock Option Incentive Scheme was reviewed and approved. As such, it was agreed to adjust theincentive receivers and their exercisable stock options for the Third Stock Option Incentive Scheme dueto the departure, positional changes, low performance appraisals or other factors of some incentive

receivers. Upon the adjustments, the number of incentive receivers decreased from 891 to 850, and thenumber of locked-up stock options granted to them was also reduced from 81,090,000 to 76,149,557.The Proposal for Matters Related to the Stock Option Exercise for the Second Exercise Period of theThird Stock Option Incentive Scheme was also considered and approved. Because the exerciseconditions have grown mature for the second exercise period, a total of 840 incentive receivers who havebeen verified for the Third Stock Option Incentive Scheme have been allowed to exercise 38,079,557stock options in the second exercise period (ended 27 June 2020).D. Overview of the Fourth Stock Option Incentive Schemea. The Company convened the 33rd Meeting of the 2nd Board of Directors on 7 May 2018, at which theProposal for the Adjustments to the Exercise Price for the Fourth Stock Option Incentive Scheme wasreviewed and approved. As the 2017 Annual Profit Distribution had been carried out, the exercise pricefor the Fourth Stock Option Incentive Scheme was revised from RMB32.72 to RMB31.52 per share.b. The Company convened the 34th Meeting of the 2nd Board of Directors on 21 May 2018, at which theProposal for the Adjustments to the Incentive Receivers and Their Exercisable Stock Options of theFourth Stock Option Incentive Scheme was reviewed and approved. As such, it was agreed to adjust theincentive receivers and their exercisable stock options for the Fourth Stock Option Incentive Scheme dueto the departure, positional changes, low individual or business division performance appraisals or otherfactors of some incentive receivers. Upon the adjustments, the number of incentive receivers decreasedfrom 1,463 to 1,354, and the number of locked-up stock options granted to them was also reduced from98,274,000 to 90,185,800.The Proposal for Matters Related to the Stock Option Exercise for the First Exercise Period of the FourthStock Option Incentive Scheme was also considered and approved. Because the exercise conditionshave grown mature for the first exercise period, a total of 1,339 incentive receivers who have been verifiedfor the Fourth Stock Option Incentive Scheme have been allowed to exercise 29,509,800 stock optionsin the first exercise period (ended 11 May 2019).E. Overview of the Fifth Stock Option Incentive Schemea. On 29 March 2018, the Fifth Stock Option Incentive Scheme (Draft) of Midea Group Co., Ltd(hereinafter referred to as the “Fifth Stock Option Incentive Scheme (Draft)”) and its abstract werereviewed and approved at the 30th Meeting of the 2nd Board of Directors, and the incentive receiver list

for the Fifth Stock Option Incentive Scheme (Draft) was examined at the 22nd Meeting of the 2ndSupervisory Committee.b. On 23 April 2018, the Company convened the 2017 Annual General Meeting of Shareholders, at whichthe Proposal on the Fifth Stock Option Incentive Scheme (Draft) and Its Abstract, the Proposal on theImplementation and Appraisal Measures for the Fifth Stock Option Incentive Scheme, the Proposal forAsking the Meeting of Shareholders to Authorize the Board to Handle Mattes Related to the Fifth StockOption Incentive Scheme and other relevant proposals were reviewed and approved.For this Incentive Scheme, the Company intended to grant 62,080,000 stock options, including55,080,000 stock options (88.72% of the total grant) to 1,341 incentive receivers for the first phase withthe exercise price being RMB57.54 per share, and 7,000,000 reserved stock options (11.28% of the totalgrant).c. In light of the authorization given at the 2017 Annual General Meeting of Shareholders, the Companyconvened the 33rd Meeting of the 2nd Board of Directors on 7 May 2018, at which the Proposal for theAdjustments to the Exercise Price for the First Phase, Incentive Receiver List and Number of StockOptions to Be Granted for the Fifth Stock Option Incentive Scheme, the Proposal for the Determinationof the Grant Date for the First Phase of the Fifth Stock Option Incentive Scheme and the Proposal for theFirst-Grant-Related Matters for the Fifth Stock Option Incentive Scheme were reviewed and approved.As such, the Company agreed to grant 54,520,000 stock options to 1,330 incentive receivers on 7 May2018 for the first phase with the exercise price revised from RMB57.54 per share to RMB56.34 per share.The Company originally intended to grant 54,520,000 stock options to 1,330 incentive receivers for thefirst phase. However, due to departure from the Company before the registration of the grant, twoincentive receivers were no longer eligible for the Fifth Stock Option Incentive Scheme. Therefore, thenumber of incentive receivers who were registered for the first phase of the Fifth Stock Option IncentiveScheme on 21 June 2018 was 1,328, down from 1,330, with 54,420,000 stock options, down from54,520,000.d. 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.

F. Overview of the 2017 Restricted Share Incentive Schemea. In light of the authorization given at the 2016 Annual General Meeting of Shareholders, the Companyconvened the 29th Meeting of the 2nd Board of Directors on 29 December 2017, at which the Proposalon Grant of 2017 Reserved Restricted Shares to Incentive Receivers was reviewed and approved. Assuch, the Company agreed to grant 5,475,000 reserved restricted shares to 55 incentive receivers on 29December 2017 at the price of RMB27.99 per share. And the incentive receiver list was examined at the21st Meeting of the 2nd Supervisory Committee.b. The Company had intended to grant 5,475,000 reserved restricted shares to 55 incentive receivers.However, after the date of grant, one incentive receiver left the Company and the 90,000 reservedrestricted shares that had been granted to this incentive receiver were cancelled. As such, the Companyactually granted 5,385,000 reserved restricted shares to 54 incentive receivers. PricewaterhouseCoopersChina (LLP) issued on 26 January 2018 the Capital Verification Report PwC China CV (2018) No. 0061,verifying the corresponding increase in the Company’s registered capital and the payment thereof as of24 January 2018. As verified, as of 24 January 2018, the Company had received RMB150,726,150 from54 incentive receivers for reserved restricted share subscription, representing an increase ofRMB5,385,000 in share capital and an increase of RMB145,341,150 in capital reserves.c. As per the CSRC’s Measures for the Administration of Equity Incentives of Listed Companies, and asconfirmed by the Shenzhen Stock Exchange and China Securities Depository and Clearing Co., Ltd.(Shenzhen branch), the reserved shares in the Company’s 2017 Restricted Share Incentive Scheme hadbeen registered and were to go public on 7 February 2018.d. The Proposal on the Cancellation of the Remaining Reserved Restricted Shares for 2017 wasapproved at the 30th Meeting of the 2nd Board of Directors on 29 March 2018. The Company decided tocancel the remaining 75,000 such shares as there were no other personnel that met the conditions forthe restricted share incentives within the effective period.e. The Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2017Restricted Share Incentive Scheme was approved at the 34th Meeting of the 2nd Board of Directors on21 May 2018. As such, it was agreed to repurchase and retire 1,701,834 restricted shares that had beengranted to 31 personnel but were still in lockup, for the reason of their departure, violation of companyrules, business unit’s 2017 performance appraisal result being “just so-so”, positional change or otherfactors.

Also, the Proposal on the Satisfaction of the Conditions for the First Unlocking Period for the First Phaseof the 2017 Restricted Share Incentive Scheme was approved at the aforesaid meeting. A total of 131personnel were eligible for this unlocking, with 7,198,166 restricted shares unlocked and allowed forpublic trading on 31 May 2018, accounting for 0.11% of the Company’s existing total shares.f. Up to 29 June 2018, the Company had returned an aggregate amount of RMB28,810,587.24 in cashto the incentive receivers, representing a decrease of RMB1,701,834.00 in share capital and a decreaseof RMB27,108,753.24 in capital reserves. This matter was verified by GP Certified Public Accountants,which issued the Capital Verification Report GP CV [2018] No. G18026510012.The Company submitted the application to China Securities Depository and Clearing Co., Ltd. (Shenzhenbranch) for the retirement of the 1,701,834 restricted shares that had been granted but were still in lockup.On 30 July 2018, as confirmed by the said institution, the retirement of the said restricted shares hadbeen completed.G. Overview of the 2018 Restricted Share Incentive Schemea. On 29 March 2018, the 2018 Restricted Share Incentive Scheme (Draft) of Midea Group Co., Ltd.(hereinafter referred to as the “2018 Restricted Share Incentive Scheme (Draft)”) and its abstract werereviewed and approved at the 30th Meeting of the 2nd Board of Directors, and the incentive receiver listfor the 2018 Restricted Share Incentive Scheme (Draft) was examined at the 22nd Meeting of the 2ndSupervisory Committee.b. On 23 April 2018, the Company convened the 2017 Annual General Meeting of Shareholders, at whichthe Proposal on the 2018 Restricted Share Incentive Scheme (Draft) and Its Abstract, the Proposal onthe Implementation and Appraisal Measures for the 2018 Restricted Share Incentive Scheme, theProposal for Asking the Meeting of Shareholders to Authorize the Board to Handle Mattes Related to the2018 Restricted Share Incentive Scheme and other relevant proposals were reviewed and approved. Forthis scheme, the Company intended to grant 25,010,000 restricted shares, including 22,210,000restricted shares (88.80% of the total grant) to 344 incentive receivers for the first phase with the pricebeing RMB28.77/share, and 2,800,000 reserved restricted shares (11.20% of the total grant).c. In light of the authorization given at the 2017 Annual General Meeting of Shareholders, the Companyconvened the 33rd Meeting of the 2nd Board of Directors on 7 May 2018, at which the Proposal for theAdjustments to the Grant Price, Incentive Receiver List and Number of Restricted Shares to Be Grantedfor the First Phase of the 2018 Restricted Share Incentive Scheme, the Proposal for the Determination

of the Grant Date for the First Phase of the 2018 Restricted Share Incentive Scheme and the Proposalfor the Grant-Related Matters for the First Phase of the 2018 Restricted Share Incentive Scheme werereviewed and approved. As such, the Company agreed to grant 22,150,000 restricted shares to 343incentive receivers on 7 May 2018 for the first phase of the said scheme with the price revised fromRMB28.77 per share to RMB27.57 per share.d. For the first phase of this scheme, the Company intended to grant 22,150,000 restricted shares to 343incentive receivers, but after the grant date, 24 of them decided to waive their subscription right to a totalof 1,580,000 restricted shares. Therefore, the Company actually granted 20,570,000 restricted shares to319 incentive receivers. GP Certified Public Accountants (LLP) issued the Capital Verification Report GPCV [2018] No. G18027340015 on 8 June 2018, verifying the increase in the Company’s registered capitaland the payment thereof as of 6 June 2018 due to the Company’s issue of restricted shares of its A-stockto 319 incentive receivers in the first phase of its 2018 Restricted Share Incentive Scheme. As verified,as of 6 June 2018, the Company had received RMB567,114,900.00 from 319 incentive receivers forrestricted share subscription, representing an increase of RMB20,570,000.00 in share capital and anincrease of RMB546,544,900.00 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 China Securities Depository and Clearing Co., Ltd.(Shenzhen branch), the shares in the first phase of the Company’s 2018 Restricted Share IncentiveScheme had been registered and were to go public on 21 June 2018.H. Overview of the First Partner Stock Ownership Schemea. The Company disclosed the Reminder of the Advanced Completion of the Vesting under the FirstPartner Stock Ownership Scheme on 28 April 2018. As such, the final 30% installment of shares underthe First Partner Stock Ownership Scheme had been vested, marking the completion of this scheme. Atotal of 1,796,850 shares had been vested in the Company’s incumbent senior management (FangHongbo, Yin Bitong, Zhu Fengtao, Gu Yanmin, Wang Jinliang, Wang Jianguo and Xiang Weimin), 906,000shares had been vested in other incentive receivers, and the remaining unvested 240,150 shares andthe corresponding dividends (if any) had been taken back by the administrative committee of this schemefor no compensation, and sold at a proper timing before this scheme expired. The earnings on the salebelonged to the Company.I. Overview of the Second Partner Stock Ownership Scheme

a. The Company disclosed the Announcement on the Vesting of the Second Installment under the SecondPartner Stock Ownership Scheme on 28 April 2018. As such, the second 30% installment of shares underthe Second Partner Stock Ownership Scheme was vested. A total of 615,459 shares were vested in theCompany’s incumbent senior management (Fang Hongbo, Yin Bitong, Zhu Fengtao, Gu Yanmin, WangJinliang, Wang Jianguo and Xiang Weimin), and 332,091 shares were vested in other incentive receivers.J. Overview of the Third Partner Stock Ownership Schemea. According to the Announcement on the Share Allocation and the Vesting of the First Installment underthe Third Partner Stock Ownership Scheme disclosed on 22 May 2018, the Company’s performancerequirement for the Third Partner Stock Ownership Scheme is a weighted average ROE not lower than20% for 2017. According to the 2017 Annual Auditor’s Report for Midea Group Co., Ltd. issued byPricewaterhouseCoopers China (LLP), this ROE requirement has been met at 25.88%.b. After the Company’s performance requirement for this scheme had been met, the shares for eachpartner were determined according to how well the performance objectives of the Company, its businessdivisions and operating units for 2017 had been achieved and how much a partner had contributed tothat. And then the shares would be vested in the partners in three installments with a 12-month interval.c. A total of 2,846,445 of the Company’s shares have been purchased for this scheme. As per the relevantrules, the administrative committee of this scheme has confirmed the number of shares to be granted toeach partner, with the total shares to be granted being 2,774,565 shares (1,926,385 shares for seniormanagement Fang Hongbo, Yin Bitong, Zhu Fengtao, Gu Yanmin, Wang Jinliang, Wang Jianguo, XiangWeimin and Xiao Mingguang, and the remaining 848,180 shares for other seven core managementpersonnel). The committee has also confirmed the first 40% installment (1,109,826 shares in total) forthis scheme. The remaining 71,880 shares and the corresponding dividends (if any) will be taken backby the administrative committee for no compensation, and will be sold before this scheme expires. Theearnings on the sale will belong to the Company.K. Overview of the Fourth Global Partner Stock Ownership Schemea. The Fourth Core Management and Global Partner Stock Ownership Scheme was approved at the 30thMeeting of the 2nd Board of Directors on 29 March 2018 and the 2017 Annual General Meeting ofShareholders on 23 April 2018. As resolved by a meeting of the partners of the Fourth Global PartnerStock Ownership Scheme, China International Capital Corporation Limited (CICC) was entrusted to

conduct the “CICC Directional Asset Management Scheme for Midea Group’s Fourth Global PartnerStock Ownership Scheme” with Midea Group shares purchased from the secondary market.b. From 14 to 15 May 2018, CICC, the scheme administrator, purchased a total of 3,318,540 Midea Groupshares at an average price of RMB54.98/share from the secondary market. The funds used for the sharepurchase were sourced from Midea Group’s special fund for this scheme of RMB182.50 million. As such,the shares needed by this scheme have been purchased, with a lock-up period from 16 May 2018 to 15May 2019.L. Overview of the First Business Partner Stock Ownership Schemea. The First Core Management and Business Partner Stock Ownership Scheme was approved at the30th Meeting of the 2nd Board of Directors on 29 March 2018 and the 2017 Annual General Meeting ofShareholders on 23 April 2018. As resolved by a meeting of the partners of the First Business PartnerStock Ownership Scheme, China International Capital Corporation Limited (CICC) was entrusted toconduct the “CICC Directional Asset Management Scheme for Midea Group’s First Business PartnerStock Ownership Scheme” with Midea Group shares purchased from the secondary market.b. From 14 to 15 May 2018, CICC, the scheme administrator, purchased a total of 1,779,300 Midea Groupshares at an average price of RMB54.98/share from the secondary market. The funds used for the sharepurchase were sourced from Midea Group’s special fund for this scheme and part of the seniormanagement’s performance bonuses of an aggregate amount of RMB97.85 million. As such, the sharesneeded by this scheme have been purchased, with a lock-up period from 16 May 2018 to 15 May 2019.

16. Significant Related Transactions

16.1 Related transactions arising from routine operation√Applicable □N/A

Related transaction partyRelationType of the transactionContents of the transactionPricing principleTransaction priceTransaction amount (RMB’000)Proportion in the total amounts of transaction of the sameApproved transaction line (RMB’000)Over approved lineMode of settlementObtainable market price for the transaction of the same kindDisclosure dateIndex to the disclosed information
kind (%)
Infore Environment Technology Group Co., Ltd.Controlled by family member of Company’s actual controllerProcurementProcurement of goodsMarket price-1,129,7600.66%1,550,000YesPayment after delivery-2018-3-31www.cninfo.com.cn
Orinko Plastics GroupControlled by family member of Company’s actual controllerProcurementProcurement of goodsMarket price-332,9900.19%450,000YesPayment after delivery-2018-3-31www.cninfo.com.cn
Total----1,462,750--2,000,000----------
Details of any sales return of a large amountZero
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 periodIn the year, the actual routine transaction amount between the Company and the related parties and its subsidiaries did not exceed the total amount of routine related transactions estimated by the Company by type.
Reason for any significant difference between the transaction price and the market reference price (if applicable)N/A

16.3 Related transitions arising from joint investments in external parties√Applicable □N/A

Joint investorRelationship with the CompanyInvesteeCore business of investeeRegistered capital of investeeTotal assets of investee (RMB’000)Net assets of investee (RMB’000)Net profit of investee (RMB’000)
Guangdong Smart Investment Co. Ltd.Controlled by Mr. Li Feide, a former director of the CompanyMidea Capital Corporation LimitedEquity investment and management, asset managementRMB20 million19,54019,540-460
Progress of any major ongoing construction of the investee (if any)N/A
Title of announcementDisclosure dateDisclosure website
Announcement on Related Transactions Regarding Making Deposits in and Obtaining Loans from Shunde Rural Commercial Bank in 201831/03/2018www.cninfo.com.cn

17. Significant Contracts and Their Execution

17.1 Trusteeship, contracting and leasing17.1.1 Trusteeship□Applicable √N/ANo such cases in the Reporting Period.17.1.2 Contracting□Applicable √N/ANo such cases in the Reporting Period.17.1.3 Leasing□Applicable √N/ANo such cases in the Reporting Period.17.2 Major Guarantees√Applicable □N/A17.2.1 Guarantees provided

Unit: RMB'000

Guarantees provided by the Company and its subsidiaries for external parties (excluding those for subsidiaries)
Guaranteed partyDisclosure date of the guarantee line announcementLine of guaranteeActual occurrence date (date of agreement signing)Actual guarantee amountType of guaranteeTerm of guaranteeDue or notGuarantee for a related party or not
Misr Regrigeration and Air Conditioning Manufacturing Co.2018-3-3111,000-0Joint liabilityOne yearNoNo
Total external guarantee line approved during the Reporting Period (A1)11,000Total actual external guarantee amount during the Reporting Period (A2)0
Total approved external guarantee line at the end of11,000Total actual external0
the Reporting Period (A3)guarantee balance at the end of the Reporting Period (A4)
Guarantees provided by the Company for its subsidiaries
Guaranteed partyDisclosure date of the guarantee line announcementLine of guaranteeActual occurrence date (date of agreement signing)Actual guarantee amountType of guaranteeTerm of guaranteeDue or notGuarantee for a related party or not
Midea Group Finance Co., Ltd.2018-3-318,380,0002018-2-280Joint liabilityOne yearNoNo
GD Midea Air-Conditioning Equipment Co.,Ltd.2018-3-3111,886,0002018-1-119,550Joint liabilityOne yearNoNo
Guangzhou Hualing Refrigerating Equipment Co.,ltd.2018-3-311,196,0002018-2-910Joint liabilityOne yearNoNo
Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd.2018-3-313,960,0002018-1-8257,020Joint liabilityOne yearNoNo
Foshan Shunde Midea Washing Appliances Manufacturing Co., Ltd.2018-3-312,070,0002018-1-1277,700Joint liabilityOne yearNoNo
Guangdong Witol Vacuum Electronic Manufacture Co.,Ltd2018-3-31180,0002018-1-122,380Joint liabilityOne yearNoNo
Guangdong Midea Precision Molding Technology Co., Ltd.2018-3-31114,000-0Joint liabilityOne yearNoNo
Guangdong De Yi Jie Appliances Co., Ltd.2018-3-31360,000-0Joint liabilityOne yearNoNo
GD Midea Heating & Ventilating Equipment Co., Ltd.2018-3-311,332,0002018-1-292,880Joint liabilityOne yearNoNo
Guangdong Midea-SIIX Electronics Co., Ltd.2018-3-31151,2002018-1-820Joint liabilityOne yearNoNo
Guangdong Midea Consumer Electric Manufacturing Co., Ltd.2018-3-3150,0002018-1-16520Joint liabilityOne yearNoNo
Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd.2018-3-31100,0002018-1-10220Joint liabilityOne yearNoNo
Guangdong Midea Kitchen & Bath Appliances Manufacturing Co., Ltd.2018-3-3130,000-0Joint liabilityOne yearNoNo
Foshan Shunde Midea Water Dispenser Manufacturing Company Limited2018-3-31456,0002018-1-90Joint liabilityOne yearNoNo
Foshan Midea Chungho Water Purification Equipment. Co., Ltd.2018-3-3136,000-0Joint liabilityOne yearNoNo
GD Midea Environment Appliances Mfg. Co.,Ltd.2018-3-31352,0002018-4-27810Joint liabilityOne yearNoNo
Guangdong Meizhi Compressor Limited2018-3-31140,0002018-1-990Joint liabilityOne yearNoNo
Guangdong Meizhi Precision-Manufacturing Co., Ltd2018-3-3190,0002018-3-1330Joint liabilityOne yearNoNo
Guangdong Welling Motor Manufacturing Co., Ltd.2018-3-31116,0002018-1-91,330Joint liabilityOne yearNoNo
Foshan Welling Washer Motor Manufacturing Co., Ltd.2018-3-31362,0002018-1-219,250Joint liabilityOne yearNoNo
Guangdong Midea Environmental Technologies Co., Ltd.2018-3-3148,0002018-7-110Joint liabilityOne yearNoNo
Ningbo Midea United Materials Supply Co. Ltd.2018-3-31448,8002018-1-91,100Joint liabilityOne yearNoNo
Foshan Welling Materials Supply Co., Ltd.2018-3-3130,0002018-1-260Joint liabilityOne yearNoNo
Guangzhou Kaizhao Commercial and Trading Co.,Ltd2018-3-317,2002018-1-120Joint liabilityOne yearNoNo
Guangdong Midea Intelligent Robotics Co., Ltd.2018-3-3124,000-0Joint liabilityOne yearNoNo
Midea Group E-Commerce Co., Ltd.2018-3-3160,000-0Joint liabilityOne yearNoNo
Annto Logistics Technology Co., Ltd.2018-3-3140,0002018-3-93,140Joint liabilityOne yearNoNo
GD Midea Group Wuhu Air-Conditioning Equipment Co.,Ltd.2018-3-311,720,000-0Joint liabilityOne yearNoNo
Wuhu Maty Air-Conditioning Equipment Co., Ltd2018-3-31110,000-0Joint liabilityOne yearNoNo
Wuhu Midea Kitchen Appliances Manufacturing Co., Ltd.2018-3-31146,000-0Joint liabilityOne yearNoNo
Hefei Hualing Co., Ltd.2018-3-3160,0002018-4-1340Joint liabilityOne yearNoNo
Hubei Midea Refrigerator Co., Ltd.2018-3-31480,0002018-2-560Joint liabilityOne yearNoNo
Hefei Midea Refrigerator Co., Ltd.2018-3-31886,6002018-4-100Joint liabilityOne yearNoNo
Guangzhou Midea Hualing Refrigerator Co., Ltd.2018-3-31400,000-0Joint liabilityOne yearNoNo
Hefei Midea Heating & Ventilating Equipment Co., Ltd.2018-3-3190,0002018-1-1170Joint liabilityOne yearNoNo
Hefei Midea -SIIX Electronics Co., Ltd.2018-3-31105,0002018-1-1180Joint liabilityOne yearNoNo
Hefei M&B Air Conditioning Equipment Co., Ltd.2018-3-3110,000-0Joint liabilityOne yearNoNo
Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd.2018-3-31384,0002018-1-129,260Joint liabilityOne yearNoNo
Anhui Meizhi Compressor Co., Ltd.2018-3-3130,0002018-2-270Joint liabilityOne yearNoNo
Anhui Meizhi Precision Manufacturing Co., Ltd.2018-3-3136,0002018-3-110Joint liabilityOne yearNoNo
Welling (Wuhu) Motor Manufacturing Co., Ltd.2018-3-3124,000-0Joint liabilityOne yearNoNo
Hefei Midea Laundry Appliance Co., Ltd.2018-3-311,270,0002018-1-180Joint liabilityOne yearNoNo
Jiangsu Midea Cleaning Appliances Co., Ltd.2018-3-31335,0002018-1-103,000Joint liabilityOne yearNoNo
Chongqing Midea General Refrigeration Equipment Co., Ltd.2018-3-3140,000-0Joint liabilityOne yearNoNo
Jiangxi Midea Guiya Lighting Co., Ltd.2018-3-31197,0002018-6-8590Joint liabilityOne yearNoNo
Changzhou Welling Motor Manufacturing Co., Ltd.2018-3-3124,000-0Joint liabilityOne yearNoNo
Huaian Welling Motor Manufacturing Co., Ltd.2018-3-3120,0002018-7-11,380Joint liabilityOne yearNoNo
Zhejiang Meizhi Compressor Co., Ltd.2018-3-311,800,000-0Joint liabilityOne yearNoNo
Midea International Corporation Company Limited2018-3-316,678,4402018-1-12,115,040Joint liabilityOne yearNoNo
Midea International Trading Company Limited2018-3-31833,5002018-1-1279,670Joint liabilityOne yearNoNo
Midea Investment Development Company Limited2018-3-317,000,0002018-1-14,575,160Joint liabilityOne yearNoNo
Main Power Electrical Factory Ltd2018-3-31348,060-0Joint liabilityOne yearNoNo
Midea Electric Investment (BVI) Limited2018-3-31807,800-0Joint liabilityOne yearNoNo
Midea Refrigeration (Hong Kong) Limited2018-3-3135,000-0Joint liabilityOne yearNoNo
Welling International Hong Kong Limited2018-3-31321,000-0Joint liabilityOne yearNoNo
Midea Electric Trading (Singapore) Co., Pte. Ltd.2018-3-315,384,0002018-1-590,660Joint liabilityOne yearNoNo
Toshiba Lifestyle Products & Services Corporation and its subsidiaries2018-3-314,197,6002018-1-15541,060Joint liabilityOne yearNoNo
Midea Consumer Electric (Vietnam) Co., Ltd.2018-3-31130,000-0Joint liabilityOne yearNoNo
Springer Carrier Ltda.2018-3-311,261,0002018-1-40Joint liabilityOne yearNoNo
Climazon Industrial Ltda.2018-3-31Joint liabilityOne yearNoNo
Midea India private limited2018-3-3169,000-0Joint liabilityOne yearNoNo
Carrier(Chile) S.A.2018-3-3135,0002018-1-300Joint liabilityOne yearNoNo
Midea Middle East2018-3-31103,000-0Joint liabilityOne yearNoNo
Midea America (Canada) Corp.2018-3-3155,000-0Joint liabilityOne yearNoNo
Midea Austria GmbH2018-3-3134,000-0Joint liabilityOne yearNoNo
Midea Electric Trading (Thailand) Limited2018-3-31103,0002018-2-150Joint liabilityOne yearNoNo
Midea America Corp.2018-3-31182,000-0Joint liabilityOne yearNoNo
PT. Midea Planet Indonesia2018-3-31151,000-0Joint liabilityOne yearNoNo
Midea Europe GmbH2018-3-3169,000-0Joint liabilityOne yearNoNo
Midea México, S. De R.L. De C.V.2018-3-31138,000-0Joint liabilityOne yearNoNo
Midea Electric Netherlands(Ⅰ)B.V.2018-3-3129,600,0002018-1-128,855,280Joint liabilityOne yearNoNo
Foshan Midea Carrier Air-Conditioning Equipment Co., Ltd.2018-8-311,000,0000Joint liabilityOne yearNoNo
Guangdong Midea Smart Link Technologies Co., Ltd.2018-8-3150,0000Joint liabilityOne yearNoNo
Total guarantee line for subsidiaries approved during the Reporting Period (B1)98,772,200Total actual guarantee amount for subsidiaries during the Reporting Period (B2)53,962,070
Total approved guarantee line for subsidiaries at the end of the Reporting Period (B3)98,772,200Total actual guarantee balance for subsidiaries at the end of the Reporting Period (B4)36,937,620
Guarantees between subsidiaries
Guaranteed partyDisclosure date of the guarantee line announcementLine of guaranteeActual occurrence date (date of agreement signing)Actual guarantee amountType of guaranteeTerm of guaranteeDue or notGuarantee 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)98,783,200Total actual guarantee amount during the Reporting Period (A2+B2+C2)53,962,070
Total approved guarantee line at the end of the Reporting Period (A3+B3+C3)98,783,200Total actual guarantee balance at the end of the Reporting Period (A4+B4+C4)36,937,620
Proportion of the total actual guarantee amount (A4+B4+C4) in net assets of the Company44.46%
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)34,714,240
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)34,714,240
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
TypeSource of capitalAmountUndue amountUnrecovered overdue amount
Bank’s wealth management productsThe Company’s own money1,550,0001,521,0000
Total1,550,0001,521,0000

government, the community and other stakeholders, the Company sticks to harmonious common growthwith them, honors its commitments, abides by law and moral principles, and continue to contribute to thesustainable development of the society and the environment. For further information, see the Company’sCorporate Social Responsibility Report 2018 released on www.cninfo.com.cn.18.2 Measures taken for targeted poverty alleviationA. Summary of the work done for targeted poverty alleviation during the yearAs an enterprise growing up in China’s reform and opening up, Midea Group has been dedicated tovarious work for the public good and proactively shouldering social responsibility.In January 2018, Midea donated RMB10 million to the Beijiao Charity Federation for the ninth consecutiveyear, with a cumulative amount of RMB90 million, which were used for poverty alleviation, education andother charity activities in the local community. At the Guangdong Poverty Alleviation Day & RuralRevitalization “Enterprises Helping Villages” Ceremony held in June 2018, Midea made another donationof RMB10 million. This was the ninth consecutive year of Midea’s participation in this ceremony, with thecumulative amount donated reaching RMB155 million, helping people in Foshan, Shunde, Beijiao, Yingde,Liannan and other regions. The donations were primarily used to help the orderly, the poor, those in need,education, new village building and other social welfare activities. With the donation receiving institutionsknowing exactly their responsibilities and how to use the donated money properly, all the donated moneyhas been made good use of and produced positive effects in the society.At the Midea Strategy Conference held on 19 October 2018, Midea Group announced a donation ofRMB16.70 million to the Huanglong Village to promote rural revitalization in Shunde, and anotherRMB100 million to support the local government to achieve the poverty alleviation goal by 2020 throughimproving health, education and industry.B. Targeted poverty alleviation plans for the coming futureIn 2019, Midea will continue to attach great importance to helping those in need as a way to meet itssocial responsibility and give back to society. In response to the call of the Guangdong provincialgovernment and the government’s office, Midea has been trying to help reduce poverty through industrialdevelopment, creating more jobs and giving donations for public welfare. It has continued to donateRMB10 million to the Beijiao Charity Federation for poverty alleviation and public welfare. And another

RMB10 million has been given on the Guangdong Poverty Alleviation Day to improve education, medicalcare and housing in poor villages of the province.

18.3 Environmental protectionWhether the Company or any of its subsidiaries is declared a heavily polluting business by the environmental protection authoritiesYes.

Name of the Company or subsidiaryMajor pollutantsDischarge methodNumber of discharge outletsDistribution of discharge outletsConcentration of the dischargePollutant discharge standardsTotal discharge(kg)Approved total discharge (kg)Excess discharge
Hubei Midea Refrigerator Co., Ltd.CODDischarge after being treated by wastewater treatment system and reaching the standard1The western side of wastewater treatment in freezer base130 mg/LRegulations of Hubei Province on prevention and control of water pollution2,5304,320No
Ammonia nitrogenDischarge after being treated by wastewater treatment system and reaching the standard12.7 mg/L24.40700No
NMHC15m high altitude discharge3616 refrigerator foams, 12 squeeze plates, 4 freezer foams, 4 freezer paintings1.56 mg/m?Emission standard of air pollutants for industrial kiln and furnace GB-9078-1996395.97648No
Particles15m high altitude discharge15 mg/m?308.167,660No
Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd.CODDischarge after being treated by wastewater treatment system and reaching the standard1The eastern side of wastewater treatment in Malong base110 mg/LThe discharge limits of water pollutants in Guangdong DB-44/26-200141,964.9747,520No
Ammonia nitrogen15 mg/L11,005.896,480No
Soot20m high altitude discharge154 outlets at A1 plant, 7 outlets at A2 plant,4 outlets at C2 plant200 mg/m?Emission standard of air pollutants for industrial kiln and furnace (GB-9078-1996) /The emission limit of gas pollutants in Guangdong8,753.8540,480No
Sulfur dioxide22 mg/m?3,162,6410,120No
Nitrogen oxide98.2mg/m?19,213/No
BenzeneHigh altitude discharge after being treated by waste gas treatment station12 mg/m?(DB-44/27-2007)0.00/No
Toluene40 mg/m?132.73/No
Xylene70 mg/m?79.99/No
NMHC120 mg/m?1,213.04/No
Hefei Midea Laundry Appliance Co., Ltd.CODDischarge after being treated by wastewater treatment station1The eastern side of wastewater treatment station75mg/m?COD emission standard 380mg/L, Ammonia nitrogen emission standard 35mg/L52,50058,150No
Ammonia nitrogenThe eastern side of wastewater treatment station16.5mg/m?11,550/No
Particles15m high altitude discharge after being treated by cyclone + filter cartridge dust collector21 outlet at #2 plant, 1 outlet at #6 plantless than 20mg/m?Integrated emission standards for atmospheric pollutants GB16297-1996 second-level4,320/No
Particles15m high altitude discharge after being treated by water spraying + UV photolysis + activated carbon11 outlet at #3 plantless than 20mg/m?Integrated emission standards for atmospheric pollutants GB16297-1996 second-level5,040/No
NMHC3mg/m?756/No
NMHC15m high altitude discharge after being treated by spray tower + activated carbon123 outlets at #2 plant, 6 outlets at #6 plant, 1 outlet at #1 plant, 1 outlet at #5 plant, 1 outlet at #3 plant2mg/m?Emission control standard for industrial enterprises volatile organic compounds DB12/524-201412,960/No
Anhui Meizhi Precision Manufacturing Co., Ltd.CODDischarge after being treated by wastewater treatment system and reaching the standard1At the southern side of No.6 shift building at the northern side of plant61 mg/LIntegrated wastewater discharge standard (GB8978-1996) chart 4 third-level20,11533,000No
Ammonia nitrogen0.052 mg/L2,9873,300No
BOD15.5 mg/L8,87416,500No
SS14mg/L4,61616,500No
Petroleum0.14 mg/L1,8956,600No
products
ParticlesCollected by gas trap hood+21m high exhaust cylinder91-8# discharge outlet for the welding waste gas<20mg/m?120(Integrated emission standards for atmospheric pollutants GB16297-1996 chart 2 second-level)22,66036,000No
9#-10# discharge outlet for the welding waste gas<20mg/m?
Stator + rotor heat-treating furnace 2# discharge outlet<20mg/m?200(Emission standard of air pollutants for industrial kiln and furnace GB9078-1996 chart 2 second-level)5,512No
2# stator heat-treating furnace 3# discharge outlet<20mg/m?
Stator + rotor heat-treating furnace 1# discharge outlet<20mg/m?
The head of discharge outlet of 3# stator furnace<20 mg/m?
The head of discharge outlet of 2# stator furnace and 4# rotor furnace<20 mg/m?
The tail of 3# and 4# stator furnace and the general discharge outlet of four melting aluminum furnace<20 mg/m?
The discharge outlet for the waste gas of melting aluminum furnace<20mg/m?
Sulfur dioxideCollected by gas trap hood+21m high exhaust cylinder7Stator + rotor heat-treating furnace 2# discharge outlet28 mg/m?850(Emission standard of air pollutants for industrial kiln and furnace GB9078-1996 chart 2 second-level)12,94120,000No
2#stator heat-treating furnace 3# discharge outlet40 mg/m?
Stator + rotor heat-treating furnace 1# discharge outletND
The head of discharge outlet of 3# stator furnace128 mg/m?
The head of discharge outlet of 2# stator furnace and 4# rotor furnace35 mg/m?
The tail of 3# and 4# stator furnace and the general discharge outlet of four melting aluminum furnace24 mg/m?
The discharge outlet for the waste gas of melting aluminum furnace34 mg/m?
Nitrogen oxideCollected by gas trap hood+21m high exhaust cylinder3Stator + rotor heat-treating furnace 2# discharge outlet154 mg/m?/8,55318,000No
2#stator heat-treating furnace 3# discharge outlet95 mg/m?
Stator + rotor heat-treating furnace 1# discharge outlet206 mg/m?
VOCsDirect-fired waste gas incinerator+21m high exhaust cylinder21-4# discharge outlet for drying waste gas13.09 mg/m?120(Integrated emission standards for atmospheric pollutants GB16297-1996 chart 2 second-level)3,0335,000No
5-10# discharge outlet for drying waste gas30.36 mg/m?
Guangdong Meizhi Precision-CODDischarge after being treated by wastewater treatment station1Near the northern side of wastewater treatment station19.88 mg/m?The discharge limits of water pollutants in Guangdong DB-44/26-2001 the second time6,13819,880No
Manufacturing Co., Ltd.period first-level
Ammonia nitrogenDischarge after being treated by wastewater treatment station1Near the northern side of wastewater treatment stationThe discharge limits of water pollutants in Guangdong DB-44/26-2001 the second time period first-level40-No
Anhui Meizhi Compressor Co., Ltd.CODDischarge after being treated by wastewater treatment system and reaching the standard1The western side of integrated wastewater treatment station148 mg/LImplementation of the takeover standards of the Western Hefei Group wastewater treatment plant and integrated wastewater discharge standard (GB8978-1996) third-level10.2015.1No
Ammonia nitrogen5.99mg/L0.511.77No
ParticlesCollected by gas trap hood+15m high exhaust cylinder121. No. 1 workshop welding soot 1#~6# discharge outlet for waste gas 2. No. 3 workshop welding 1#-8# discharge outlet for the welding waste gas 3. 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)10.2012.82No
4. No.2 workshop 1#Chugai furnace and 2#Chugai furnace discharge outlet for waste gas 5. No.4 workshop 4#Chugai<20mg/m?Emission standard of air pollutants for industrial kiln and furnace (GB9078-1996)
furnace and Samchully furnace discharge outlet for waste gas 6. No.4 workshop BAB boiler discharge outlet for waste gas 7. No.2 workshop die-casting molten aluminum A/B/E discharge outlet for waste gas 8. No.2 workshop die-casting molten aluminum C/D discharge outlet for waste gas 9. No.4 workshop die-casting molten aluminum I/J/F discharge outlet for waste gas 10. No. 4 workshop centrifugal pouring G/H and rotor furnace combined with a discharge outlet 11. The tail of 3# and 4# stator furnace and the general discharge outlet of four melting aluminum furnace 12. Furnace 1#-3# discharge outlet for waste gas<20mg/m?Emission standard of air pollutants for industrial kiln and furnace (GB9078-1996)
<20mg/m?
<20mg/m?
<20mg/m?
<20mg/m?
<20mg/m?
<20mg/m?Emission standard of air pollutants for boiler (GB13271-2014)
Sulfur dioxideCollected by gas trap hood+15m high exhaust cylinder3Furnace 1#-3# discharge outlet for waste gasNDEmission standard of air pollutants for boiler (GB13271-2014)3.534.12No
Nitrogen oxideCollected by gas trap hood+15m high exhaust cylinderFurnace 1#-3# discharge outlet for waste gas99 mg/m?7.629No
VOCsDirect-fired waste gas3No.1 workshop of discharge5.79 mg/m?Integrated emission3.215.74No
incinerator+15m high exhaust cylinderoutlet for drying waste gasstandards for atmospheric pollutants (GB16297-1996)
No.3 workshop 1# discharge outlet for drying waste gas2.46 mg/m?
No.3 workshop 2# discharge outlet for drying waste gas3.75 mg/m?
GD Midea Air-Conditioning Equipment Co.,Ltd.CODDischarge after being treated by wastewater treatment station14# southeastern plant46 mg/LThe discharge standard of water pollutants for electroplating (DB441597-2015) chart 2 PRD standard9,0729,590No
Ammonia nitrogen0.22 mg/L1,1261,510No
SS28 mg/L6,050Not requiredNo
Petroleum products1.55 mg/L330Not requiredNo
CODDischarge after being treated by wastewater treatment station12# eastern plant87 mg/LThe discharge limits of water pollutants in Guangdong (DB44/26-2001)2,8459,590No
SS25 mg/L900Not requiredNo
LAS0.18 mg/L60Not requiredNo
Petroleum products1.84 mg/L610Not requiredNo
VOCs(dusting)15m high altitude discharge after being treated by spray tower + activated carbon34# plant20 mg/m?Emission standard of volatile organic compounds for furniture manufacturing (DB44/814-2010) the second time period1,4405,930.00No
VOCs(scre15m high altitude discharge after41#, 5#, 9#, 11# plant4.6 mg/m?Emission standard of volatile organic compounds for1,324.805,930.00No
en printing)being treated by green facilitiesprinting industry (DB44/815-2010)
NMHC(evaporator & condenser)15m high altitude discharge after being treated by green facilities62#, 5# plant10 mg/m?Emission limits of air pollutants (DB44/27-2001) the second time period43,200Not requiredNo
NMHC (electronic)15m high altitude discharge after being treated by catalytic combustion210# plant6.2 mg/m?Emission limits of air pollutants (DB44/27-2001) the second time period267.84Not requiredNo

treated with spraying, defogging, UV photolysis and activated carbon adsorption devices, and organic waste gas from oil spray lines for metal workingand plastic injection is treated with molecular sieve wheel adsorption and RCO catalytic combustion devices. Waste gas is discharged at a high altitudeafter emission concentration of benzene, toluene, xylene and VOCs in it is up to the Emission Limits of Air Pollutants, a local standard. Dust producingequipment operates in a closed environment, with a fully automatic dust sucker or powder dust collector treating powder dust without discharging itoutwards.C. Prevention and control of noise pollution: Noise produced in the operating process of the main noise equipment in the production processes ofvarious factories including punching machines, powder spray coating line, oil spray line, plastic injection machine, wire winding machine, waste waterand gas treatment facilities is 60~90dB (A). The company has taken the following preventive and control measures: 1) Select environmentally friendlylow noise equipment, deploy various equipment in the workshop rationally and take basic shock absorption and enclosed sound insulation measuresfor the equipment; 2) Ensure sound insulation by making use of factory buildings and doors and windows, and especially in the air fan room with bignoise, doors and windows with good sound insulation effect are recommended being set; 3) Forestation in the factory area and on the border of projectsis strengthened and green plants are set rationally there, which both beautify the environment and assist in noise adsorption and sound insulation. Aftertaking the above noise prevention and control measures, noise in the factory area can be up to third-level standard in the Emission Standard for IndustrialEnterprises noise at Boundary(GB12348-2008): ≤65dB(A)at daytime and ≤55dB(A)at nighttime.D. Solid waste treatments: The solid waste from subsidiaries is classified into general solid waste, hazardous solid waste, and household solid waste.Hazardous solid waste, according to laws and regulations, is required to be treated by qualified treatment institutions; general solid waste, after beingclassified at the subsidiaries, is collected and treated by resource recycling plants; and household solid waste is treated by the local sanitationadministration, which is in compliance with the relevant regulations.The environmental effect evaluation of construction projects and other administrative permits in relation to environmental protectionAll subsidiaries strictly observe the laws and regulations governing environmental protection, and all construction projects are in compliance with the

environmental 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 approval and acceptance 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 subsidiaries’ contingency plans, new contingency pools havebeen built and block valves have been put at the master rain discharge outlets to avoid the spread of accidents.According to the accident levels, subsidiaries have formulated rules covering working principles, contingency plans, risk prevention measures,commanding departments, responsibilities and labor division, and have filed these contingency plans with the government.Environment self-monitoring plansAll the subsidiaries have formulated their own environment self-monitoring plans according to China’s relevant laws and regulations, , which include: 1)Waste gas pollution source monitoring: Sampling points are set at various discharge ports of waste gas for monitoring on a quarterly basis; 2) Wastewater pollution source monitoring: Samples are fetched at intake and outlet ports of waste water treatment stations to monitor changes of pollutionsource of waste water and up-to-standard emission of waste water after being treated at the waste water treatment stations. Monitoring items includeCODcr, SS and petroleum products, etc. The data is uploaded to the governmental monitoring authority online and the government authority conductsreal-time monitoring; 3) Noise monitoring: Noise monitoring points are set at noise sensitive points and on the border of factories. Noise is monitoredonce in spring and summer respectively and at daytime and at nighttime respectively each time; 4) Solid waste pollution source monitoring: Hazardouswaste produced from the subsidiaries is handed over to the units with qualifications for treatment, monitoring systems are established, and related

management forms and accounts are set up.Other environment-related information that should be made publicAccording 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, companywebsites, etc. on a regular basis.

19. Other Significant Events

√Applicable □N/AMidea’s merger with Little Swan in a share swap via A-share offering and the related transactionA. On 10 September 2018, the Company disclosed the Announcement on the Board’s Review of an AssetRestructuring and the Trading Suspension of the Company Stock. Since the Company was planning anasset restructuring involving controlled subsidiary Wuxi Little Swan Company Limited, upon theCompany’s application to the Shenzhen Stock Exchange, trading of the Company stock was suspendedsince the opening of the morning trading session on 10 September 2018.B. On 23 October 2018, the Proposal on the Plan of Midea Group Co., Ltd. to Merge with Wuxi LittleSwan Company Limited in a Share Swap via A-share Offering and other relevant proposals wereconsidered and approved at the 2nd Meeting of the 3rd Board, and the Plan of Midea Group Co., Ltd. toMerge with Wuxi Little Swan Company Limited in a Share Swap via A-share Offering and the RelatedTransaction, together with other relevant documents were later disclosed. Upon a post review by theShenzhen Stock Exchange of the merger documents, the Company received on 25 October 2018 theEnquiry Letter on the Restructuring Involving Midea Group Co., Ltd. Merging with Wuxi Little SwanCompany Limited in a Share Swap via A-share Offering (〔2018〕No. 31) (hereinafter referred to as the“Enquiry Letter”) issued by the stock exchange. On 29 October 2018, the Company disclosed theAnnouncement on the Reply to the Restructuring Enquiry Letter of the Shenzhen Stock Exchange,revised and supplemented to the Plan of Midea Group Co., Ltd. to Merge with Wuxi Little Swan CompanyLimited in a Share Swap via A-share Offering and the Related Transaction and other relevant documentsaccording to the requirements of the Enquiry Letter, as well as disclosed the Plan of Midea Group Co.,Ltd. to Merge with Wuxi Little Swan Company Limited in a Share Swap via A-share Offering and theRelated Transaction (Revised) and other relevant documents. As per the applicable laws, regulations anddisciplinary documents and upon application to the stock exchange, trading of the Company stockresumed on 29 October 2018.C. On 21 November 2018, the Proposal on the Review of the Report of Midea Group Co., Ltd. on Mergingwith Wuxi Little Swan Company Limited in a Share Swap via A-share Offering and the Related Transaction(Draft) and Its Summary, together with other relevant proposals, were considered and approved at the4th Meeting of the 3rd Board. And the draft report and other relevant documents were later disclosed. On

21 December 2018, the Proposal on the Plan of Midea Group Co., Ltd. to Merge with Wuxi Little SwanCompany Limited in a Share Swap via A-share Offering, together with other relevant proposals, wereconsidered and approved at the 3

rd

Special Meeting of Shareholders of 2018.D. On 2 January 2019, the Company received the CSRC Administrative Permission ApplicationAcceptance Form (Case No. 182251). Upon an examination of the administrative permission applicationmaterials submitted by the Company—the Application of Merger or Split of Midea Group Co., Ltd. as aListed Company, the CSRC decided to accept the application on the ground that the application materialswere complete and in compliance with the legal form.E. On 25 January 2019, the Company received the CSRC’s First Feedback on Administrative PermissionApplication (No. 182251). The Company then replied to the questions asked in the feedback anddisclosed the Reply to the No. 182251 Feedback, the revised Report of Midea Group Co., Ltd. on Mergingwith Wuxi Little Swan Company Limited in a Share Swap via A-share Offering and the Related Transactionand other relevant documents on 11 February 2019. Within two working days after the disclosure of thereply to the feedback, the Company submitted the reply materials to the CSRC.F. On 20 February 2019, the CSRC’s Review Committee for Mergers, Acquisitions and Restructurings ofListed Company convened the 4th work conference of 2019 to review the Company’s merger with LittleSwan in a share swap via A-share offering and the related transaction. As a result, the merger wasapproved unconditionally.G. 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). According to therequirements of the aforesaid approve document and the authorization of the meeting of shareholders,the Board of the Company will handle the merger with Wuxi Little Swan Company Limited in a share swapvia A-share offering and the related transaction as soon as possible, as well as perform the duty ofinformation disclosure in a timely manner.

20. Significant Events of Subsidiaries

□Applicable √N/A

Section VI Changes in Shares and Information about

Shareholders

1. Changes in Shares

1.1 Changes in shares

Unit: share

BeforeIncrease/decrease in Reporting Period (+/-)After
SharesPercentage (%)New issueShares as dividend converted from retained earningsShares as dividend converted from capital reservesOtherSubtotalSharesPercentage (%)
1.Restricted shares212,022,9103.2325,955,000-90,803,150-64,848,150147,174,7602.22
1.1 Shares held by the state
1.2 Shares held by state-owned corporations
1.3 Shares held by other domestic investors211,272,9103.2224,645,000-90,493,150-65,848,150145,424,7602.19
Among which: Shares held by domestic corporations82,500,0001.26-82,500,000-82,500,00000
Shares held by domestic individuals128,772,9101.9624,645,000-7,993,15016,651,850145,424,7602.19
1.4 Shares held by750,0000.011,310,000-310,0001,000,0001,750,0000.03
foreign investors
Among which: Shares held by foreign corporations
Shares held by foreign individuals750,0000.011,310,000-310,0001,000,0001,750,0000.03
2. Non-restricted shares6,349,030,40996.7777,724,02189,101,316166,825,3376,515,855,74697.79
2.1 RMB common shares6,349,030,40996.7777,724,02189,101,316166,825,3376,515,855,74697.79
2.2 Domestically listed shares for foreign investors
2.3 Overseas listed shares for foreign investors
2.4 Other
3. Total shares6,561,053,319100103,679,021-1,701,834101,977,1876,663,030,506100

the Company’s share capital.g. In 2018, locked-up shares held by senior management increased by 596,850 shares.

Approval of share changes□Applicable √N/ATransfer of share ownership□Applicable √N/AProgress of any share repurchase√Applicable □N/AThe Proposal on the Plan for the Repurchase of Some Public Shares was approved at the 37th Meetingof the 2nd Board of Directors on 4 July 2018 and later at the 2018 First Extraordinary General Meeting ofShareholders on 23 July 2018. As such, the Company was agreed to repurchase, with its own capital ofno more than RMB4 billion, some of its shares through bidding at the stock exchange at a price notexceeding RMB50/share. The Report on the Repurchase of Some Public Shares was disclosed on 26July 2018.The Company repurchased 95,105,015 shares (1.4274% of the Company’s total shares on 28 December2018) during the period from 26 July 2018 to 28 December 2018, with a total payment of around RMB4billion (to be specific, RMB3,999,655,845, exclusive of transaction charges), with the highest trading pricebeing RMB48.40/share and the lowest being RMB36.49/share. The amount used in the repurchase hasreached the ceiling, marking the end of the repurchase plan. And the 95,105,015 repurchased shareshave been retired with the Shenzhen branch of China Securities Depository and Clearing CorporationLimited.Progress of any repurchased share reduction through bidding at the stock exchange□ Applicable √ N/AEffects of changes in shares on the 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/AOther 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 shareholderOpening restricted sharesUnlocked in current periodIncreased in current periodClosing restricted sharesReason for changeDate of unlocking
Incentive receivers of reserved restricted shares under 2017 Restricted Share Incentive Scheme①005,385,0005,235,000Lockup according to the Scheme20 February 2019
Incentive receivers of 2018 Restricted Share Incentive Scheme0020,570,00020,570,000Lockup according to the Scheme7 May 2020
Incentive receivers of 2017 Restricted Share Incentive Scheme (first phase)②23,130,0007,198,166014,380,000Lockup according to the Scheme12 May 2018
Xiaomi Technology Co., Ltd.82,500,00082,500,00000Promised lockup of privately issued shares29 June 2018
Li Feide843,7500351,2501,195,000Lockup for senior management departure26 March 2019
Zhang Xiaoyi00138,100138,100Lockup of new shares for senior management position-
Jiang Peng458,75027,500135,000566,250Lockup for senior management position-
Total106,932,50089,725,66626,579,35042,084,350----

2. Issuance and Listing of Securities

2.1 Securities (excluding preference shares) issued in the Reporting Period□ Applicable √ N/A2.2 Changes in total shares of the Company and the shareholder structure, as well as the assetand liability structures√ Applicable □ N/AThe total shares of the Company were 6,561,053,319 at the beginning of the Reporting Period. Duringthe Reporting Period, 77,724,021 awarded stock options were exercised and registered, 5,385,000reserved restricted shares were granted under the 2017 Restricted Share Incentive Scheme, 20,570,000restricted shares were granted in the first phase of the 2018 Restricted Share Incentive Scheme, and1,701,834 restricted shares under the 2017 Restricted Share Incentive Scheme were repurchased andretired. As such, the total shares rose to 6,663,030,506 at the end of the Reporting Period.2.3 Existing staff-held shares□Applicable √N/A

3. Shareholders and Actual Controller

3.1 Total number of shareholders and their shareholdings

Unit: share

Total number of common shareholders at the end of the Reporting Period228,273Total number of common shareholders at the prior month-end before the disclosure date of the annual report188,843Total number of preference shareholders with resumed voting rights at the period-end (if any)0Total number of preference shareholders with resumed voting rights at the prior month-end before the disclosure date of the annual report (if any)0
5% or greater shareholders or top 10 shareholders
Name of shareholderNature of shareholderShareholding perceTotal shares held at the period-endIncrease/decrease during the ReportingIncrease/decrease during the ReportingNumber of non-restricted shares heldPledged or frozen shares
StatShares
ntage (%)PeriodPeriodus
Midea Holding Co., Ltd.Domestic non-state-owned corporation33.202,212,046,613002,212,046,613Pledged666,065,000
Hong Kong Exchanges and Clearing LimitedForeign corporation13.51900,120,167273,172,6720900,120,167
China Securities Finance Co., Ltd.State-owned corporation2.97198,145,134-24,532,5210198,145,134
Fang HongboDomestic individual2.06136,990,4920102,742,86934,247,623
Canada Pension Plan Investment Board- self-owned capital (stock exchange)Foreign corporation1.52101,007,25675,842,6450101,007,256
The securities account for repurchase of Midea Group Co., Ltd.Domestic non-state-owned corporation1.4395,105,01595,105,015095,105,015
Huang JianDomestic individual1.3288,007,10027,100088,007,100
Xiaomi Technology Co., Ltd.Domestic non-state-owned corporation1.2482,500,0000082,500,000
Central Huijin Asset Management Ltd.State-owned corporation1.1878,474,9000078,474,900
Hillhouse Capital Management Limited- HCM China FundForeign corporation1.0771,464,600-42,426,538071,464,600
Strategic investors or general corporations becoming top-ten shareholders due to placing of new shares (if any)N/A
Related-parties or acting-in-concert parties among the shareholders aboveN/A
Top 10 non-restricted shareholders
Name of shareholderNumber of non-restricted shares held at the period-endType of shares
TypeShares
Midea Holding Co., Ltd.2,212,046,613RMB common stock2,212,046,613
Hong Kong Exchanges and Clearing Limited900,120,167RMB common stock900,120,167
China Securities Finance Co., Ltd.198,145,134RMB common stock198,145,134
Canada Pension Plan Investment Board- self-owned capital (stock exchange)101,007,256RMB common stock101,007,256
The securities account for repurchase of Midea Group Co., Ltd.95,105,015RMB common stock95,105,015
Huang Jian88,007,100RMB common stock88,007,100
Xiaomi Technology Co., Ltd.82,500,000RMB common stock82,500,000
Central Huijin Asset Management Ltd.78,474,900RMB common stock78,474,900
Hillhouse Capital Management Limited- HCM China Fund71,464,600RMB common stock71,464,600
Yuan Liqun52,619,300RMB common stock52,619,300
Related-parties or acting-in-concert parties among the top ten non-restricted shareholders and between the top ten non-restricted shareholders and the top ten shareholdersN/A
Explanation on the top 10 common shareholders participating in securities margin trading (if any)N/A
Name of controlling shareholderLegal representative / company principalDate of establishmentCredibility codeMain business scope
Midea Holding Co., Ltd.He Xiangjian2002-08-05914406067429989733Manufacture and commerce investment; domestic commerce and materials supply and marketing industry (excluding state-designated monopoly); CP software and hardware development; industrial product

94.55%

design; information technology consultingservices, providing investment consultantand consulting services; installation,maintenance and after-sales service ofelectric appliances; real estate intermediaryservice and forwarding agent service.

design; information technology consulting services, providing investment consultant and consulting services; installation, maintenance and after-sales service of electric appliances; real estate intermediary service and forwarding agent service.
Shareholdings of the controlling shareholder in other controlled or non-controlled listed companies at home or abroad during the Reporting PeriodApart from a direct control over the Company, Midea Holding does not directly control or have shares in other listed companies at home or abroad.
Name of the actual controllerNationalityRight of residence in other countries or regions
He XiangjianThe People's Republic of ChinaNo
Main occupation and dutyIncumbent board chairman of Midea Holding
Used-to-be-holding listed companies home and abroad in the last 10 yearsMidea Group (000333.SZ), Little Swan (A: 000418.SZ; B: 200418), KUKA (KU2.DE) and Welling Holding (00382.HK) (delisted)

He Xiangjian0.68%

0.68%

Midea Holding Co., Ltd.

Midea Holding Co., Ltd.33.20%

33.20%Midea Group Co., Ltd.

The actual controller controls the Company via trust or other ways of asset management□Applicable √N/A3.4 Other corporate shareholders with a shareholding percentage above 10%□Applicable √N/A3.5 Limits on the Company’s shares held by its controlling shareholder, actual controller,reorganizer and other commitment subjects□Applicable √N/A

Section VII Preference Shares

□Applicable √N/ANo such cases in the Reporting Period.

Section VIII Information about Directors, Supervisors, Senior

Management and Employees

1. Changes in Shareholdings of Directors, Supervisors and Senior Management

NameOffice titleIncumbent/ FormerGenderAgeStarting date of tenureEnding date of tenureShares held at the year-begin (share)Shares increased at the Reporting Period (share)Shares decreased at the Reporting Period (share)Other increase/decrease (share)Shares held at the period-end (share)
Fang HongboChairman of the Board and PresidentIncumbentMale522012-8-252021-9-25136,990,492000136,990,492
He JianfengDirectorIncumbentMale522012-8-252021-9-2500000
Yin BitongDirector and Vice PresidentIncumbentMale512016-12-162021-9-252,109,6550002,109,655
Gu YanminDirector and Vice PresidentIncumbentMale562014-4-212021-9-2500000
Yu GangDirectorIncumbentMale602018-9-262021-9-2500000
Xue YunkuiIndependent DirectorIncumbentMale552018-9-262021-9-2500000
Guan QingyouIndependent DirectorIncumbentMale422018-9-262021-9-2500000
Han JianIndependent DirectorIncumbentFemale472018-9-262021-9-2500000
Liu MinChairman of the SupervisoryIncumbentFemale422016-2-12021-9-2500000
Committee
Zhao JunSupervisorIncumbentMale442014-4-212021-9-2500000
Liang HuimingEmployee SupervisorIncumbentFemale362017-3-302021-9-2500000
Wang JianguoVice PresidentIncumbentMale432017-12-152021-9-2500000
Zhang XiaoyiVice PresidentIncumbentMale462018-4-232021-9-25000470,800470,800
Xiao MingguangVice PresidentIncumbentMale492019-3-222021-9-25000280,000280,000
Hu ZiqiangVice PresidentIncumbentMale622014-8-182021-9-2500000
Wang JinliangVice PresidentIncumbentMale522014-8-182021-9-2500000
Zhong ZhengDirector of FinanceIncumbentFemale372019-3-222021-9-2500000
Jiang PengCompany SecretaryIncumbentMale462013-10-302021-9-25575,0000143,700180,000611,300
Zhu FengtaoDirector and Vice PresidentFormerMale512014-4-212019-3-221,020,4000001,020,400
Li FeideDirector and Vice PresidentFormerMale422012-8-312018-9-251,335,00000100,0001,435,000
Wu ShinongIndependent DirectorFormerMale632013-3-42018-9-2500000
Rui MengIndependent DirectorFormerMale522015-9-182018-9-2500000
Guo XuejinIndependent DirectorFormerMale602013-3-42018-9-2500000
Li WenjingIndependent DirectorFormerMale402013-3-42018-9-2500000
Xiang WeiminVice PresidentFormerMale532017-7-202018-12-2600000
Xiao MingguangDirector of FinanceFormerMale492016-7-162019-3-22000280,000280,000
Total------------142,030,5470143,7001,310,800143,197,647
NameOffice titleType of changeDateReason
Li FeideDirector and Vice PresidentLeft upon expiry of tenure2018-9-25Left upon expiry of tenure
Wu ShinongIndependent DirectorLeft upon expiry of tenure2018-9-25Left upon expiry of tenure
Rui MengIndependent DirectorLeft upon expiry of tenure2018-9-25Left upon expiry of tenure
Guo XuejinIndependent DirectorLeft upon expiry of tenure2018-9-25Left upon expiry of tenure
Li WenjingIndependent DirectorLeft upon expiry of tenure2018-9-25Left upon expiry of tenure
Xiang WeiminVice PresidentResigned2018-12-26Personal reason
Zhu FengtaoDirector and Vice PresidentResigned2019-3-22Personal reason

Mr. He Jianfeng, male, holder of a Bachelor's degree, is a Director of Midea Group. He is also theChairman of the Board and President of Infore Investments Holding Group Co., Ltd.Mr. Yin Bitong, male, a Master's graduate, joined Midea in 1999 and served as GM Assistant andMarketing Director of the Residential Air Conditioning Division as well as GM and Executive Director ofWuxi Little Swan Co. Ltd. He is now an Executive Director and Vice President of Midea Group and thePresident of Midea Residential Air Conditioning Division.Mr. Gu Yanmin, male, holder of a Doctoral degree, joined Midea in 2000 and has functioned as the Headof Planning & Investment, Head of Overseas Strategy & Development, Vice President and Head ofOverseas Business Development of Midea Air-Conditioning & Refrigeration Group, Head of OverseasStrategy of Midea Group. Currently he is an Executive Director, Vice President of the Company as wellas the Chairman of the Supervisory Committee of KUKA.Mr. Yu Gang, male, holder of a Doctoral degree given by the Wharton School of the University ofPennsylvania, is the Honorary Chairman and a co-founder of YHD.COM. He once served as the GlobalSupply Chain Vice President of Amazon and the Global Procurement Vice President of Dell. He is nowthe Executive Chairman of the Board of Directors and a co-founder of 111, Inc., as well as a Director ofMidea Group.Mr. Xue Yunkui, male, is a holder of a Doctoral degree given by the Southwest University and a holderof a Post-Doctoral degree given by the Shanghai University of Finance and Economics. He used to bethe associate dean and a doctoral supervisor at the School of Accountancy of Shanghai University ofFinance and Economics, a Founding Vice President of Shanghai National Accounting Institute andCheung Kong Graduate School of Business, the Secretary-General of China Association of AccountingProfessors, a Vice Chairman of the Steering Committee of the National Accounting Institute under theMinistry of Finance, etc. He is now an accounting professor of Cheung Kong Graduate School of Business,an Independent Director of Midea Group and an Independent Director of several other listed companies.Mr. Guan Qingyou, male, is a holder of a Doctoral degree in economics given by the Chinese Academyof Social Sciences and a holder of a Post-Doctoral degree given by the Tsinghua University. He onceworked as a Vice President and the Director of the Research Institute of Minsheng Securities. Currently,he serves as the President and Chief Economist of the Reality Institute of Advanced Finance (anindependent research institute), an Independent Director of Midea Group, a senior researcher at ChinaSociety of Economic Reform, a special expert in the Fiscal Reform and Development Think Tank under

the Ministry of Finance, a member of the Expert Advisory Committee on Industrial Economic Operationunder the Ministry of Industry and Information Technology, a member of the Think Tank Committee of theAll-China Federation of Industry and Commerce, etc.Ms. Han Jian, female, holder of a Doctoral degree given by the Cornell University, is an associateprofessor of management in China Europe International Business School, a co-director of the SinoEuropean Innovation Institute in China and the Sino European Digital Economy and Intelligent EnterpriseResearch Center, as well as an Independent Director of Midea Group.Ms. Liu Min, female, a Master’s degree graduate, joined Midea in 1998. She used to be the GeneralManager of the Overseas Marketing Company under Midea’s Residential Air-Conditioning Division andthe Director of Midea Executive Office. She is now the Chairman of the Supervisory Committee, the ChiefHR Officer of Midea as well as a member of KUKA’s Supervisory Board.Mr. Zhao Jun, male, a Master's degree graduate, joined Midea in 2000 and has functioned as the Directorand the CFO of GD Midea Holding Co., Ltd. He is now a Supervisor of the Company, a Vice Presidentand the CFO in Midea Holding Co., Ltd., as well as a Non-Executive Director of Midea Real Estate HoldingLimited.Ms. Liang Huiming, female, is a holder of a Bachelor’s degree. Joining Midea in 2007, she used to serveas the Chief Business Administration Commissioner in Midea Group’s Administration and HumanResources Department. She is now the Employee Supervisor and a Legal Advisor of Midea Group.Mr. Wang Jianguo, male, a Master’s degree holder, joined Midea in 1999. He was once the Director ofthe Supply Chain Management Department of Midea Group’s Residential Air Conditioner Division, theDirector of the Administration and Human Resources Department of Midea Group, and the GeneralManager of Midea Group’s Refrigeration Division. Currently, he is a Vice President of Midea Group andthe President of Midea International.Mr. Zhang Xiaoyi, male, is a holder of a Master’s degree. Joining Midea Group in 2010, he used to serveas the head of the overseas process IT system, the head of the supply chain system of Midea Group, etc.He is now a Vice President, the Chief Information Officer and the IT Director of Midea Group.Mr. Xiao Mingguang, male, a holder of a Master’s degree, joined Midea in 2000. He once was the DeputyDirector of the Financial Management Department and the Director of the Operational ManagementDepartment of Midea Group, the Director of the Audit and Supervision Department and a Director of GDMidea Holding Co., Ltd., as well as the Director of Finance of Midea Group, etc. He is now a Vice

President of Midea Group and a Director of Wuxi Little Swan Company Limited.Mr. Hu Ziqiang, male, holder of a Doctoral degree, joined Midea in 2012, and has formerly worked forGE and Samsung and as a Vice GM in Wuxi Little Swan Co., Ltd. At present he is a Vice President andthe CTO of the Company.Mr. Wang Jinliang, male, holder of a Master’s degree, joined Midea in 1995 and previously worked asthe Vice President of China Marketing in the Company, and was GD Midea Holding’s Vice President andMarketing Head. He is now a Vice President and the Director of the Department of Legal Affairs in theCompany.Ms. Zhong Zheng, female, a holder of a Master’s degree, joined Midea in 2002. She once was theFinancial Manager of the factory in Guangzhou of the Residential Air Conditioner Division and of domesticand overseas marketing subsidiaries, the Director of Finance of the Financial Center and the ComponentDivision, as well as the Audit Director of Midea Group, etc. She is now the Director of Finance of MideaGroup.Mr. Jiang Peng, male, holder of a Master’s degree, joined Midea in 2007 and used to be theRepresentative for Securities Affairs and Company Secretary for GD Midea Holding Co., Ltd. He is nowthe Company Secretary, the Investor Relations Director of Midea Group, as well as a Director in WuxiLittle Swan Co., Ltd.

Posts held in shareholding entities√Applicable □N/A

NameShareholding entityPositionBeginning date of office termEnding date of office termAllowance from the shareholding entity
He JianfengMidea Holding Co., Ltd.President2016-01-No
Zhao JunMidea Holding Co., Ltd.Vice President and CFO2013-01-01-Yes
NoteN/A
NameOther entityPositionBeginning date of office termEnding date of office termAllowance from the entity
Fang HongboWuxi Little Swan Co., Ltd.Chairman of the Board2008-052021-08No
KUKAMember of the Supervisory Committee2017-032024-06Yes
He JianfengInfore Investments Holding Group Co., Ltd.Chairman of the Board and President1995-06-Yes
Gu YanminKUKAChairman of the Supervisory Committee2017-012024-06Yes
Yu Gang111, Inc.Executive Chairman of the Board2011-04-Yes
Xue YunkuiShanghai Baosight Software Co., Ltd.Independent Director2016-042019-04Yes
DAZZLE Fashion Co., Ltd.Independent Director2016-042019-04Yes
Guan QingyouBeijing Rushi Research Information Consulting Service Co., Ltd.Chairman of the Board2017-12-Yes
Liu MinKUKAMember of the Supervisory Committee2017-012024-06Yes
Xiao MingguangWuxi Little Swan Co., Ltd.Director2010-012021-08No
Jiang PengWuxi Little Swan Co., Ltd.Director2017-042021-08No
NoteN/A

remuneration is proposed by the Board Compensation Committee and approved by the Board. Decisionsare made finally after the deliberation of shareholders' meeting.The remuneration of directors, supervisors and senior executives consist of basic annual payments andperformance-related annual payments according to the Salary Management System for the Directors,Supervisors and Senior Executives which has been approved by the Company. Basic payment isdetermined based on the responsibility, risk and pressure of directors, supervisors and senior executives.The basic annual payment remains stable. Performance-related annual payment is related to thecompletion rate of corporate profit, the assessment result of target responsibility system and theperformance evaluation structure of their own department. The remuneration system for directors,supervisors and senior executives serves the Company's strategy, and shall be adjusted with theCompany's operating conditions in order to meet the Company’s development requirements. The basisfor adjusting the remuneration of directors, supervisors and senior executives are as follows:

a. Wage growth in the industryb. Inflationc. Corporate earningsd. Organizational structure adjustmente. Individual adjustment due to a change in position

Remuneration of directors, supervisors and senior executives during the Reporting Period

Unit: RMB'000

NamePositionGenderAgeIncumbent/ FormerTotal before-tax remuneration from the CompanyRemuneration from related parties of the Company
Fang HongboChairman of the Board and PresidentMale52Incumbent8,080
He JianfengDirectorMale52Incumbent-Yes
Yin BitongDirector and Vice PresidentMale51Incumbent5,310
Gu YanminDirector and Vice PresidentMale56Incumbent2,840
Yu GangIndependent DirectorMale60Incumbent-
Xue YunkuiIndependent DirectorMale55Incumbent-
Guan QingyouIndependent DirectorMale42Incumbent-
Han JianIndependent DirectorFemale47Incumbent-
Liu MinChairman of the Supervisory CommitteeFemale42Incumbent1,580
Zhao JunSupervisorMale44Incumbent-Yes
Liang HuimingEmployee SupervisorFemale36Incumbent170
Wang JianguoVice PresidentMale43Incumbent2,960
Zhang XiaoyiVice PresidentMale46Incumbent3,850
Hu ZiqiangVice PresidentMale62Incumbent3,200
Wang JinliangVice PresidentMale52Incumbent2,170
Jiang PengCompany SecretaryMale46Incumbent1,700
Zhu FengtaoDirector and Vice PresidentMale51Former3,740
Li FeideDirector and Vice PresidentMale42Former2,280
Wu ShinongIndependent DirectorMale63Former150
Rui MengIndependent DirectorMale52Former150
Guo XuejinIndependent DirectorMale60Former150
Li WenjingIndependent DirectorMale40Former150
Xiang WeiminVice PresidentMale53Former1,010
Xiao MingguangDirector of FinanceMale49Incumbent2,100
Total--------41,590--
NameOffice titleExercisable share options for the Reporting PeriodExercised share options in the Reporting PeriodExercise price for exercised share options in the Reporting Period (RMB / share)Market price at the end of the Reporting Period (RMB / share)Restricted shares held at the beginning of the Reporting PeriodUnlocked shares in the Reporting PeriodRestricted shares granted in the Reporting PeriodGrant price of the restricted shares (RMB/share)Restricted shares held at the end of the Reporting Period
Li FeideDirector and Vice President00-36.86210,00070,000100,00027.57240,000
Hu ZiqiangVice President00-36.86300,000100,000100,00027.57300,000
Xiao MingguangDirector of Finance210,00070,00019.1536.86150,0000100,00027.57250,000
Jiang PengCompany Secretary180,000180,00017.3636.8600000
Zhang XiaoyiVice President112,500112,5008.8136.86210,00070,000100,00027.57240,000
230,00050,00018.5636.86
Total--732,500412,500----870,000240,000400,000--1,030,000
Note (if any)105,000 stock options of Mr. Xiao Mingguang under the Third Stock Option Incentive Scheme were unlocked during the Reporting Period, leaving 105,000 stock options in lockup under the Third Stock Option Incentive Scheme. 90,000 stock options of Mr. Jiang Peng under the Second Stock Option Incentive Scheme were unlocked during the Reporting Period, leaving no stock options in lockup under the Second Stock Option Incentive Scheme. 90,000 stock options of Mr. Zhang Xiaoyi under the Second Stock Option Incentive Scheme were unlocked during the Reporting Period, leaving no stock options in lockup under the Second Stock Option Incentive Scheme. Mr. Li Feide, Mr. Hu Ziqiang, Xiao Mingguang and Mr. Zhang Xiaoyi were awarded 100,000 restricted shares respectively during the Reporting Period, which were allowed for public trading on 21 June 2018.
Number of in-service staff of the Company1,339
Number of in-service staff of main subsidiaries113,426
Total number of in-service staff114,765
Total number of staff with remuneration in the period114,765
Number of retirees to whom the Company or its main subsidiaries need to pay retirement pension1,913
Functions
FunctionNumber of staff
Production96,149
Sales4,106
Technical/R&D12,321
Financial1,328
Administrative861
Total114,765
Educational backgrounds
Educational backgroundNumber of staff
Master and doctor3,750
Bachelor21,708
College, technical secondary school46,793
Others42,514
Total114,765

and language trainings were carried out, where 60,239 staff were trained for a total of 217,628.7 man-hours.d. Improving individual comprehensive ability. 81 external trainings for individuals at junior, middle andsenior levels were organized, where 513 staff were trained for a total of 11,161 man-hours.e. In order to help new graduates develop themselves fast and foster a new power for the Company, 61relevant programs such as the Re-Education of New Graduates and the Training Camp for NewGraduates were organized, where 8,025 new graduates were trained for a total of 200,091.5 man-hours.f. 18,000 staff visited Meike, a mobile app developed by Midea for online training, for a total of 518,000times in 2018.g. Facilitating organizational learning by developing 744 internal trainers. Their annual teaching time was8,912.3 hours in total. And a total of 829 courses were designed in the year.h. 14,161 key technical staff and working team leaders were trained for a total of 274,534 hours.5.4 Labor outsourcing□Applicable √N/A

Section IX Corporate Governance

1. Basic Situation of Corporate Governance

The Company is constantly improving its corporate governance in strict accordance with the CompanyLaw, the Securities Law and the relevant regulations of the China Securities Regulatory Commission.There are four special committees under the Board, namely the Strategy Committee, the AuditingCommittee, the Nomination Committee as well as the Remuneration and Appraisal Committee. Theywere designed to provide consultation and advice to the Board and validate the professionalization andefficiency of discussions and decision-making. The Company has established clear rules of procedurefor its shareholders' general meeting, board of directors, Supervisory Committee and special committeesunder the board, as well as the Work Rules for Company Secretary. It has also established a set ofstandard documents including Information Disclosure Management System, Funds Raising ManagementSystem, Connected Transaction Management System, Wealth Management Entrustment ManagementSystem, Insider Registration System, External Guaranty Decision-making System, Foreign InvestmentManagement System, and Management System for Finance Flow with Connected Parties, InternalAuditing System. The shareholders' meeting, the Board, Supervisory Committee and operationsmanagement departments have clear authority and responsibility. Each performs its own functions andmaintains its stability effectively. Their scientific decision-making and coordinated operations have laid afirm foundation for the sustained, healthy and steady development of the Company.The Company has also launched core management team shareholding plans and equity incentive plansfor core research, quality control, technical, production and management staff, which helps to develop asound shareholding structure for the future growth of the Company.In 2018, the Company won the following honors for its corporate governance:

No. 26 on the “2018 BrandZ? Top 100 Most Valuable Chinese Brands” list jointly released by WPP andKantar Millward Brown; No. 138 on the “2018 Top 500 Most Valuable Brands” list released by BrandFinance; the “Listed Company Most Respected by Investors 2017” by the China Association for PublicCompanies; “China’s Top 10 Listed Companies in 2018” by CCTV; “2018 National Brand Plan Top Brand”by CCTV; No. 323 on the “Global Top 500” list by the Fortune; No. 245 on the “Global Top 2,000 Listed

Companies” by the Forbes; “2018 Jinzhi Award—Mostly Socially Responsible” by JRJ.com; and “TheEnterprise with Excellent Governance” at “The Golden Round Table Awards 2018” presented by theDirectors & Boards magazine.Any incompliance with the regulatory documents issued by the CSRC governing the governance of listedcompanies□Yes √NoNo such cases in the Reporting Period.

2. Independency of businesses, personnel, assets, organizations, and finance whichare separate from the controlling shareholder

The Company is totally autonomous with respect to business, personnel, assets, organizations, andfinance from Midea Holding Co., Ltd., the controlling shareholder of the Company, therefore maintainingintegrity and independency in both business and operations.2.1 Business independence:

The Company has a complete industrial chain for its manufacturing business, a completely distinctpurchase and sales system, and an independent and comprehensive business operation capability.2.2 Personnel independence:

The Company is completely autonomous from the controlling shareholder regarding its personnel. Thelabor, personnel and remuneration management of the company are totally unrelated. All seniormanagement members received remuneration from the Company except those that hold only a director’sposition in the controlling shareholder.2.3 Asset integrity:

The Company has its own independent production system as well as ancillary production systems andfacilities. Intangible assets such as industrial rights, trademark ownership and non-patent technology areheld by the Company.2.4 Organization independence:

The Company has set up an independent organizational structure which maintains its independentoperation. The Company has the right to appoint or remove any personnel so there is no overlapping withthe controlling shareholder.2.5 Financial independence:

The Company's financial management is independent from the controlling shareholder. The Companyhas its own accounting department, accounting system, financial management system, and bankaccounts and independently makes financial decisions and pays its own taxes according to relevant laws.

3. Horizontal Competition

□Applicable √N/A

4. Annual Meeting of Shareholders and Special Meetings of Shareholders Convenedduring the Reporting Period

4.1 Meetings of shareholders convened during the Reporting Period

MeetingTypeInvestor participation ratioConvened dateDisclosure DateDisclosure Index
2017 Annual Meeting of ShareholdersAnnual meeting of shareholders48.2203%23 April 201824 April 2018Announcement No. 2018-016, disclosed on www.cninfo.com.cn
2018 First Special Meeting of ShareholdersSpecial meeting of shareholders50.0866%23 July 201824 July 2018Announcement No. 2018-063, disclosed on www.cninfo.com.cn
2018 Second Special Meeting of ShareholdersSpecial meeting of shareholders50.5496%25 September 201826 September 2018Announcement No. 2018-080, disclosed on www.cninfo.com.cn
2018 Third Special Meeting of ShareholdersSpecial meeting of shareholders60.7965%21 December 201822 December 2018Announcement No. 2018-105, disclosed on www.cninfo.com.cn
Attendance of independent directors in Board meetings
Independent directorPresence due in thePresence on site (times)Presence by telecommunicatPresence through a proxyAbsence (times)Absence for two
Reporting Period (times)ion (times)(times)consecutive times
Wu Shinong91800No
Rui Meng91800No
Guo Xuejin91800No
Li Wenjing91800No
Xue Yunkui41300No
Guan Qingyou41300No
Han Jian41300No
Presence of independent directors in meetings of shareholders (times)1

Audit Work, The Proposal for Appointing an Auditor for the 2018 Annual Result, The Proposal forAppointing an Auditor for the Internal Control in 2018, The Proposal for Writing off Asset ImpairmentProvisions, The Report on the First Quarter of 2018, The 2018 Semi-Annual Report and The Report onthe Third Quarter of 2018.6.2 The Remuneration and Appraisal Committee under the Board convened one meeting in the ReportingPeriod, at which The Proposal for the Remuneration Standards for Independent Directors and ExternalDirectors was considered and approved.6.3 The Nomination Committee under the Board convened two meetings in the Reporting Period, at whichthe following proposals were considered and approved: The Proposal for Vice President Appointment,The Proposal for the Re-Election of the Board and the Nomination of Non-Independent DirectorCandidates and The Proposal for the Re-Election of the Board and the Nomination of IndependentDirector Candidates.

7. Performance of Duties by the Supervisory Committee

Were there any risks to the Company identified by the Supervisory Committee when performing its dutiesduring the Reporting Period□Yes √NoThe Supervisory Committee of the Company had no objection to the matters of supervision during theReporting Period.

8. Assessment and Incentive Mechanism for the Senior Management

The Company established an appraisal system on the basis of its target-oriented responsibility systemand adopted an appraisal agreement for senior management members, which determines the appraisalcriterion, appraisal method and measures taken based on the appraisal result. During the ReportingPeriod, the Company has carried out appraisals of senior management members on the basis of itstarget-oriented responsibility system and the appraisal result was reflected in the annual performance-based incentive rewards. Meanwhile, the Company promoted the unification of interests betweenmanagers and shareholders through high-level staff and core management teams' shareholding schemesas well as multiple stock option or restricted share incentive schemes, laying a good foundation for thefuture growth of the Company.

9. Internal Control

9.1 Serious internal control defects found in the Reporting Period□Yes √No9.2 Self-evaluation report on internal control

Disclosure date of the internal control self-evaluation report20 April 2019
Index to the disclosed internal control self-evaluation reportFor details, please refer to the 2018 Self-Evaluation Report on Internal Control, which has been disclosed on www.cninfo.com.cn
Ratio of the total assets of the appraised entities to the consolidated total assets70%
Ratio of the operating revenues of the appraised entities to the consolidated operating revenues70%
Defect identification standards
TypeFinancial-report relatedNon-financial-report related
Nature standardFor details, please refer to “(c) Basis for internal control evaluation and identification standards for internal control defects” under Section III of The 2018 Self-Evaluation Report on Internal Control disclosed on www.cninfo.com.cn dated 20 April 2019.For details, please refer to “(c) Basis for internal control evaluation and identification standards for internal control defects” under Section III of The 2018 Self-Evaluation Report on Internal Control disclosed on www.cninfo.com.cn dated 20 April 2019.
Quantitative standardFor details, please refer to “(c) Basis for internal control evaluation and identification standards for internal control defects” under Section III of The 2018 Self-Evaluation Report on Internal Control disclosed on www.cninfo.com.cn dated 20 April 2019.For details, please refer to “(c) Basis for internal control evaluation and identification standards for internal control defects” under Section III of The 2018 Self-Evaluation Report on Internal Control disclosed on www.cninfo.com.cn dated 20 April 2019.
Number of serious financial-report-related defects0
Number of serious non-financial-report-related defects0
Number of important financial-report-related defects0
Number of important non-financial-report-related defects0

10. Auditor’s Report on Internal Control

√Applicable □N/A

Opinion paragraph in the auditor’s report on internal control
The internal control auditor holds the view that on 31 December 2018, Midea Group maintained an effective internal control of a financial report in all significant aspects based on the General Specifications of Company Internal Control and relevant specifications.
Auditor’s report on internal control disclosed or notDisclosed on www.cninfo.com.cn
Date of disclosing the full text of the auditor’s report on internal control20 April 2019
Index to the disclosed full text of the auditor’s report on internal controlFor details, please refer to the 2018 Auditor’s Report on Internal Control, which has been disclosed on www.cninfo.com.cn
Type of the auditor’s opinionUnmodified unqualified opinion
Serious non-financial-report-related defectsNo

Section X Financial Report

1. Auditor’s report

Type of auditor’s opinionStandard & unqualified
Signing date of auditor’s report18 April 2019
Name of auditorPricewaterhouseCoopers China (LLP)
No. of auditor’s reportPwC ZT Shen Zi (2019) No. 10017
Names of certified public accountantsHuang Meimei, Qiu Xiaoying
Auditor’s Report
PwC ZT Shen Zi (2019) No. 10017
(Page 1 of 6)
To the shareholders of Midea Group Co., Ltd.,
Opinion
What we have audited
We have audited the accompanying financial statements of Midea Group Co., Ltd. (hereinafter “the Group”), which comprise: ? the consolidated and company balance sheets as at 31 December 2018; ? the consolidated and company income statements for the year then ended; ? the consolidated and company cash flow statements for the year then ended; ? the consolidated and company statements of changes in shareholders’ equity for the year then ended; and ? notes to the financial statements.
Our opinion
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated and company’s financial position of the Group as at 31 December 2018, and their financial performance and cash flows for the year then ended in accordance with the requirements of the Accounting Standards for Business Enterprises (“ CASs”).
Basis for Opinion
We conducted our audit in accordance with China Standards on Auditing (“CSAs”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of the Group in accordance with the Code of Ethics for Professional Accountants of the Chinese Institute of Certified Public Accountants (“CICPA Code”), and we have fulfilled our other ethical responsibilities in accordance with the CICPA Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matters identified in our audit are summarised as follows:
? Recognition of revenue from sales of household appliances
? Impairment testing of goodwill
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Key Audit Matters (Cont’d)How our audit addressed the Key Audit Matter
Recognition of revenue from sales of household appliances Refer to Note 2(28)(a) “Revenue - sales of goods” and Note 4(35) “Operating income” to the financial statements. Revenue is recognised when it’s probable that the economic benefits associated with the transaction will flow to the Group, the related revenue can be reliably measured, and the specific criteria of revenue recognition have been met for each type of the Group’s activities. In 2018, the Group’s consolidated operating income was RMB259,664,820,000, and the revenue from sales of household appliances accounted for over 80% of the consolidated operating income. We focused on recognition of revenue from sales of household appliances mainly due to the Group’s numerous clients and big sales volume at home and abroad achieved by its varied distribution channels.Regarding the Group’s revenue from sales of household appliances, we performed procedures as follows: We interviewed management from operation and financial departments in terms of sales processes of all distribution channels to understand and evaluate the internal control of processes relating to the revenue from sale of household appliances designed by management and tested the operating effectiveness of key controls; We checked the household appliance sales contract template entered into by and between the Group and the clients from all distribution channels, and analysed and evaluated the Group’s accounting policies on the revenue from sales of household appliances based on our interview with management, understanding of the Group’s selling operation and audit experience. Regarding the sales of household appliances through all distribution channels, we performed the procedures as follows: ? We performed such risk assessment procedures as analysis of fluctuation in revenue from sales of household appliances on a monthly basis and analysis of fluctuation in gross profit rates; ? We checked supporting documents relevant to recognition of revenue from sales of household appliances on sample basis, including sales contracts, orders, sales invoices, shipping orders, acknowledgement of goods receipts signed by customers, billing agreements with customers, etc.; ? We checked the amount of revenue by sending confirmations to customers on a sampling basis; ? We checked revenue from sales of household appliances recognised around the balance sheet date against acknowledgement of goods receipts signed by customers, billing agreements with customers or other supporting documents to evaluate if the revenue was recognised over appropriate period. We concluded that the Group’s recognition of revenue from sales of household appliances complied with its applicable accounting policies based on the audit procedures performed.
PwC ZT Shen Zi (2019) No. 10017
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Key Audit Matters (Cont’d)How our audit addressed the Key Audit Matters
Impairment testing of goodwill Please refer to Note 4(13) “Goodwill” to the financial statements. As at 31 December 2018, the goodwill recorded in the consolidated balance sheet of the Group amounted to RMB29,100,390,000, including RMB22,330,623,000 and RMB2,881,760,000 arising from business acquisition of KUKA Aktiengesellschaft (“KUKA Group”) and Toshiba Lifestyle Products & Services Corporation (“TLSC”), respectively. Management believed that it was not necessary to make impairment provision for the goodwill based on the impairment testing prepared in accordance with the accounting policies stated in Note 2(20) to the consolidated financial statements. The impairment testing is performed by assessing the recoverable amount of the groups of assets containing the relevant goodwill, based on the present value of cash flows forecasts. Key assumptions adopted in the impairment testing of goodwill included expected revenue growth rates, EBITDA margins, perpetual annual growth rates, discount rates, etc. which required key accounting estimates and judgement. We focused on the impairment risk of the goodwill totalling RMB25,212,383,000 arising from the business acquisition of KUKA Group and TLSC because the amount is significant and the impairment testing of goodwill involved key accounting estimates and judgements.Regarding the impairment testing of goodwill arising from the acquisition of KUKA Group and TLSC, we performed the procedures as followings: 1. We understood and evaluated the internal controls relevant to the impairment testing of goodwill, and tested the operating effectiveness of key control, including review and approval of key assumptions applied and internal control of calculation of the recoverable amounts of the asset groups containing the allocated goodwill. 2. We evaluated the appropriateness of methodologies of impairment testing of goodwill adopted by management with the assistance of internal valuers, and evaluated and recalculated the discount rates adopted in the test by comparing industry or market data; 3. We tested the accuracy of arithmetic applied in the calculating process during the impairment testing of goodwill; 4. We evaluated the accuracy of historical estimates on future cash flows by comparing the actual financial performance of current year with the forecasts of prior year, so as to check whether there was any bias from management during the evaluation of the impairment testing of goodwill; 5. We evaluated the reasonableness of key assumptions on expected revenue growth rates, EBITDA margins, perpetual annual growth rates, discount rates, etc. adopted in the impairment testing of goodwill by interviewing with management and considering the market developments. We concluded that the audit evidence we have obtained could support the accounting estimates and judgement applied by management in the evaluation of impairment testing of goodwill based on the audit procedures performed.
PwC ZT Shen Zi (2019) No. 10017
(Page 4 of 6)
Other Information
Management of the Group is responsible for the other information. Other information comprises all the information included in the 2018 annual report of the Group other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management of the Group is responsible for the preparation and fair presentation of these financial statements in accordance with the CASs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing these financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
PwC ZT Shen Zi (2019) No. 10017
(Page 5 of 6)
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether these financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with CSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
? Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
? Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.
? Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
? Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in these financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
? Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
? Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
PwC ZT Shen Zi (2019) No. 10017
(Page 6 of 6)
Auditor’s Responsibilities for the Audit of the Financial Statements (Cont’d)
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
PricewaterhouseCoopers Zhong Tian LLPSigning CPAHuang MeiMei (Engagement Partner)
Shanghai, the People’s Republic of China
18 April 2019Signing CPAQiu XiaoYing

MIDEA GROUP CO., LTD.

CONSOLIDATED AND COMPANY BALANCE SHEETS31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

ASSETSNote31 December 201831 December 201731 December 201831 December 2017
ConsolidatedConsolidatedCompanyCompany
Current assets
Cash at bank and on hand4(1)27,888,28048,274,20015,361,62629,349,926
Derivative financial assets220,197353,327--
Notes and accounts receivable4(2)31,946,46828,382,943--
Advances to suppliers4(4)2,215,8881,672,24855,06923,877
Loans and advances4(5)11,328,39212,178,953--
Other receivables4(3), 18(1)2,971,3682,809,99811,593,0209,385,663
Inventories4(6)29,645,01829,444,166--
Other current assets4(7)76,473,82746,694,84155,052,25627,226,405
Total current assets182,689,438169,810,67682,061,97165,985,871
Non-current assets
Available-for-sale financial assets4(8)1,906,8781,831,05156,57956,868
Long-term receivables34,815362,248--
Long-term equity investments4(9), 18(2)2,713,3162,633,69828,236,29524,540,601
Investment properties391,765420,802560,954597,200
Fixed assets4(10)22,437,21222,600,7241,056,7901,245,998
Construction in progress4(11)2,077,621879,57651,87236,313
Intangible assets4(12)16,186,67515,167,036712,454231,154
Goodwill4(13)29,100,39028,903,785--
Long-term prepaid expenses4(14)1,191,373859,106174,684121,452
Deferred tax assets4(15)4,421,3134,023,334202,703152,069
Other non-current assets550,352614,8224,5769,700
Total non-current assets81,011,71078,296,18231,056,90726,991,355
TOTAL ASSETS263,701,148248,106,858113,118,87892,977,226

MIDEA GROUP CO., LTD.

CONSOLIDATED AND COMPANY BALANCE SHEETS (CONT’D)31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

LIABILITIES AND OWNERS' EQUITYNote31 December 201831 December 201731 December 201831 December 2017
ConsolidatedConsolidatedCompanyCompany
Current liabilities
Short-term borrowings870,3902,584,102575,000-
Borrowings from the Central Bank99,754---
Customer deposits and deposits from banks and other financial institutions44,386108,926--
Derivative financial liabilities756,29990,432--
Notes and accounts payable4(18)60,226,74160,352,562--
Advances from customers4(19)16,781,66617,409,063--
Employee benefits payable4(20)5,788,0045,247,500573,632427,806
Taxes payable4(21)3,875,2983,544,154280,49945,179
Other payables4(22)3,346,1293,360,52374,714,01258,014,048
Current portion of non-current liabilities4(23)7,122,712136,605--
Other current liabilities4(24)31,319,70926,257,99044,41440,830
Total current liabilities130,231,088119,091,85776,187,55758,527,863
Non-current liabilities
Long-term borrowings4(25)32,091,43932,986,325--
Bonds payable-4,553,054--
Long-term payables88,890250,536--
Provisions268,887330,736--
Deferred income647,583536,443--
Long-term employee benefits payable4(26)2,480,3182,465,854--
Deferred tax liabilities4(15)4,422,0743,972,823--
Other non-current liabilities4(27)1,016,352994,059--
Total non-current liabilities41,015,54346,089,830--
Total liabilities171,246,631165,181,68776,187,55758,527,863
Shareholders' equity:
Share capital4(28)6,663,0316,561,0536,663,0316,561,053
Capital surplus4(30)18,451,30715,911,50410,615,3897,726,237
Less: Treasury stock4(29)(4,918,427)(366,842)(4,918,427)(366,842)
Other comprehensive income4(31)(1,332,153)(244,692)6,02033,459
General risk reserve366,947366,947--
Surplus reserve4(32)5,079,0963,882,2325,079,0963,882,232
Undistributed profits4(33)58,762,31547,627,23519,486,21216,613,224
Total equity attributable to shareholders of the Company83,072,11673,737,43736,931,32134,449,363
Minority interests9,382,4019,187,734--
Total shareholders' equity92,454,51782,925,17136,931,32134,449,363
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY263,701,148248,106,858113,118,87892,977,226
The accompanying notes form an integral part of these financial statements.
Legal representative:Principal in charge of accounting:Head of accounting department:
Fang HongboZhong ZhengChen Lihong

MIDEA GROUP CO., LTD.

CONSOLIDATED AND COMPANY INCOME STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

ItemNote2018201720182017
ConsolidatedConsolidatedCompanyCompany
Total revenue261,819,635241,918,8961,767,1611,565,670
Including: Operating revenue4(35),18(3)259,664,820240,712,3011,767,1611,565,670
Interest income4(36)2,154,3921,206,582--
Fee and commission income42313--
Less: Cost of sales4(35)(188,164,557)(180,460,552)(39,632)(38,819)
Interest costs4(36)(189,490)(250,925)--
Fee and commission expenses(3,214)(2,717)--
Taxes and surcharges4(37)(1,617,566)(1,416,428)(40,601)(26,607)
Selling and distribution expenses4(38)(31,085,879)(26,738,673)--
General and administrative expenses4(39)(9,571,639)(7,510,102)(879,563)(694,314)
Research and development expenses4(40)(8,377,201)(7,270,134)--
Financial income/(expenses)4(41)1,823,040(815,949)975,062(328,000)
Including: Interest expenses(703,991)(967,208)(758,024)(750,290)
Interest income2,155,8621,143,8371,780,258405,523
Asset impairment losses4(42)(447,864)(269,112)(6,051)(50)
Add: Other income4(46)1,316,9041,311,123421,3779,996
Losses on changes in fair value4(43)(810,450)(25,045)--
Investment income4(44),18(4)907,3261,830,2219,720,09410,214,403
Including: Investment income from associates349,321310,016239,418209,908
(Losses)/gains on disposal of assets4(45)(34,934)1,327,25145,614(95)
Operating profit25,564,11121,627,85411,963,46110,702,184
Add: Non-operating income434,756467,2046,4191,961
Less: Non-operating expenses(225,809)(240,284)(4,124)(1,216)
Total profit25,773,05821,854,77411,965,75610,702,929
Less: Income tax expenses4(47)(4,122,639)(3,243,584)2,88174,702
Net profit21,650,41918,611,19011,968,63710,777,631
(1) Classified by continuity of operations
Net profit from continuing operations21,650,41918,611,19011,968,63710,777,631
Net profit from discontinued operations----
(2) Classified by ownership of the equity
Attributable to equity owners of the Company20,230,77917,283,68911,968,63710,777,631
Minority interests1,419,6401,327,501--

MIDEA GROUP CO., LTD.

CONSOLIDATED AND COMPANY INCOME STATEMENTS (CONT’D)FOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

ItemNote2018201720182017
ConsolidatedConsolidatedCompanyCompany
Other comprehensive income, net of tax(1,215,825)(310,628)(27,439)42,528
Other comprehensive income attributable to shareholders of the Company, net of tax(1,087,461)(257,817)(27,439)42,528
(1) Other comprehensive income items which will not be reclassified subsequently to profit or loss(1,023)(31,132)--
1) Changes arising from remeasurement of defined benefit plan(1,023)(31,132)--
(2) Other comprehensive income items which will be reclassified subsequently to profit or loss(1,086,438)(226,685)(27,439)42,528
1) Other comprehensive income that will be transferred subsequently to profit or loss under the equity method51,924(36,017)39,520(24,431)
2) Changes in fair value of available-for-sale financial assets(489,228)(240,597)(66,959)66,959
3) Effective portion of cash flow hedging gains or losses(424,417)318,553--
4) Translation of foreign currency financial statements(224,717)(268,624)--
Other comprehensive income attributable to minority shareholders, net of tax(128,364)(52,811)--
Total comprehensive income20,434,59418,300,56211,941,19810,820,159
Attributable to shareholders of the Company19,143,31817,025,87211,941,19810,820,159
Minority interests1,291,2761,274,690--
Earnings per share
Basic earnings per share (RMB Yuan)4(48)3.082.66Not applicableNot applicable
Diluted earnings per share (RMB Yuan)4(48)3.052.63Not applicableNot applicable
The accompanying notes form an integral part of these financial statements.
Legal representative:Principal in charge of accounting:Head of accounting department:
Fang HongboZhong ZhengChen Lihong

MIDEA GROUP CO., LTD.

CONSOLIDATED AND COMPANY CASH FLOW STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

ItemNote2018201720182017
ConsolidatedConsolidatedCompanyCompany
1. Cash flows from operating activities
Cash received from sales of goods or rendering of services211,230,723195,820,338--
Net decrease in loans and advances864,209---
Net increase in customer deposits from and from banks and other financial institutions-72,218--
Net decrease in deposits with the Central Bank708,879---
Net increase in borrowings from the Central Bank99,754---
Cash received for interest, fee and commission2,174,6611,175,477--
Refund of taxes and surcharges5,705,2595,476,543--
Cash received relating to other operating activities4(49)(a)5,558,2214,771,03619,248,1749,432,057
Sub-total of cash inflows226,341,706207,315,61219,248,1749,432,057
Cash paid for goods and services(127,367,813)(116,508,042)--
Net increase in loans and advances-(1,933,348)--
Net decrease in customer deposits and deposits from banks and other financial institutions(64,540)---
Net increase in deposits with the Central Bank-(1,158,040)--
Cash paid for interest, fee and commission(198,761)(253,650)--
Cash paid to and on behalf of employees(24,709,578)(22,740,541)(298,323)(117,436)
Payments of taxes and surcharges(13,739,262)(11,139,448)(102,575)(104,073)
Cash paid relating to other operating activities4(49)(b)(32,400,672)(29,139,920)(2,986,732)(276,406)
Sub-total of cash outflows(198,480,626)(182,872,989)(3,387,630)(497,915)
Net cash flows from operating activities4(49)(c)27,861,08024,442,62315,860,5448,934,142
2. Cash flows from investing activities
Cash received from disposal of investments65,711,62285,127,38227,315,23149,824,940
Cash received from returns on investments2,097,9482,727,60311,075,86410,054,584
Net cash received from disposal of fixed assets, intangible assets and other long-term assets164,0701,441,1011,82512,049
Net cash received from disposal of subsidiaries and other business units24,406---
Sub-total of cash inflows67,998,04689,296,08638,392,92059,891,573
Cash paid to acquire fixed assets, intangible assets and other long-term assets(5,611,851)(3,218,402)(715,778)(246,073)
Cash paid to acquire investments(80,713,830)(94,967,122)(59,593,512)(45,264,526)
Net cash paid to acquire subsidiaries and other business units(314,653)(25,850,170)--
Sub-total of cash outflows(86,640,334)(124,035,694)(60,309,290)(45,510,599)
Net cash flows from investing activities(18,642,288)(34,739,608)(21,916,370)14,380,974
3. Cash flows from financing activities
Cash received from capital contributions2,713,3661,668,2052,098,2731,625,153
Including: Cash received from capital contributions by minority shareholders of subsidiaries615,09243,052--
Cash received from borrowings2,524,31562,169,8861,000,0001,600,000
Sub-total of cash inflows5,237,68163,838,0913,098,2733,225,153
Cash repayments of borrowings(3,378,492)(36,074,251)(425,000)(1,600,000)
Cash payments for interest expenses and distribution of dividends or profits(9,303,222)(7,908,056)(8,385,248)(7,136,641)
Including: Cash payments for dividends or profit to minority shareholders of subsidiaries(815,998)(815,164)--
Cash payments relating to other financing activities(5,943,131)(204,139)(4,028,808)-
Sub-total of cash outflows(18,624,845)(44,186,446)(12,839,056)(8,736,641)
Net cash flows from financing activities(13,387,164)19,651,645(9,740,783)(5,511,488)
4. Effect of foreign exchange rate changes on cash and cash equivalents289,001(36,737)--
5. Net (decrease)/increase in cash and cash equivalents(3,879,371)9,317,923(15,796,609)17,803,628
Add: Cash and cash equivalents at the beginning of the year21,831,65312,513,73025,978,5438,174,915
6. Cash and cash equivalents at the end of the year4(49)(d)17,952,28221,831,65310,181,93425,978,543
The accompanying notes form an integral part of these financial statements.
Legal representative:Principal in charge of accounting:Head of accounting department:
Fang HongboZhong ZhengChen Lihong

MIDEA GROUP CO., LTD.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

ItemEquity attributable to the CompanyMinority interestsTotal shareholders’ equity
Share capitalCapital reserveLess: Treasury stockOther comprehensive incomeGeneral reserveSurplus reserveUndistributed profits
(Note 4(28))(Note 4(30))(Note 4(29))
Balance at 1 January 20176,458,76713,596,569-13,125148,6022,804,46938,105,3917,849,77368,976,696
Movements for the year ended 31 December 2017
Total comprehensive income
Net profit------17,283,6891,327,50118,611,190
Other comprehensive income, net of tax---(257,817)---(52,811)(310,628)
Total comprehensive income---(257,817)--17,283,6891,274,69018,300,562
Capital contribution and withdrawal by shareholders
Ordinary shares invested by shareholders102,2861,947,025(366,842)----43,0521,725,521
Business combinations-------647,230647,230
Share-based payment included in shareholders' equity-326,005-----106,263432,268
Profit distribution
Appropriations to general risk reserve----218,345-(218,345)--
Appropriation to surplus reserve-----1,077,763(1,077,763)--
Profit distribution to shareholders------(6,465,677)(733,274)(7,198,951)
Transfer from capital surplus to paid-in capital---------
Others-41,905----(60)-41,845
Balance at 31 December 20176,561,05315,911,504(366,842)(244,692)366,9473,882,23247,627,2359,187,73482,925,171

MIDEA GROUP CO., LTD.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT’D)FOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

ItemEquity attributable to the CompanyMinority interestsTotal shareholders’ equity
Share capitalCapital reserveLess: Treasury stockOther comprehensive incomeGeneral reserveSurplus reserveUndistributed profits
(Note 4(28))(Note 4(30))(Note 4(29))
Balance at 1 January 20186,561,05315,911,504(366,842)(244,692)366,9473,882,23247,627,2359,187,73482,925,171
Movements for the year ended 31 December 2018
Total comprehensive income
Net profit------20,230,7791,419,64021,650,419
Other comprehensive income, net of tax---(1,087,461)---(128,364)(1,215,825)
Total comprehensive income---(1,087,461)--20,230,7791,291,27620,434,594
Capital contribution and withdrawal by shareholders
Ordinary shares invested by shareholders103,6792,596,878(717,841)----615,0922,597,808
Business combinations-------345,657345,657
Share-based payment included in shareholders' equity-356,412-----117,423473,835
Others(1,701)(397,777)(3,833,744)----(1,450,682)(5,683,904)
Profit distribution
Appropriations to general risk reserve---------
Appropriation to surplus reserve-----1,196,864(1,196,864)--
Profit distribution to shareholders------(7,898,785)(819,804)(8,718,589)
Transfer from capital surplus to paid-in capital---------
Others-(15,710)----(50)95,70579,945
Balance at 31 December 20186,663,03118,451,307(4,918,427)(1,332,153)366,9475,079,09658,762,3159,382,40192,454,517
The accompanying notes form an integral part of these financial statements.
Legal representative:Principal in charge of accounting:Head of accounting department:
Fang HongboZhong ZhengChen Lihong

MIDEA GROUP CO., LTD.

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

ItemShare capitalCapital reserveLess: Treasury stockOther comprehensive incomeSurplus reserveUndistributed profitsTotal shareholders’ equity
Balance at 1 January 20176,458,7675,455,268-(9,069)2,804,46913,379,03328,088,468
Movements for the year ended 31 December 2017
Total comprehensive income
Net profit-----10,777,63110,777,631
Other comprehensive income, net of tax---42,528--42,528
Total comprehensive income---42,528-10,777,63110,820,159
Capital contribution and withdrawal by shareholders
Ordinary shares invested by shareholders102,2861,947,025(366,842)---1,682,469
Share-based payment included in shareholders' equity-284,329----284,329
Profit distribution
Appropriation to surplus reserves----1,077,763(1,077,763)-
Profit distribution to shareholders-----(6,465,677)(6,465,677)
Transfer from capital surplus to paid-in capital-------
Others-39,615----39,615
Balance at 31 December 20176,561,0537,726,237(366,842)33,4593,882,23216,613,22434,449,363

MIDEA GROUP CO., LTD.

COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT’D)FOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

ItemShare capitalCapital reserveLess: Treasury stockOther comprehensive incomeSurplus reserveUndistributed profitsTotal shareholders’ equity
Balance at 1 January 20186,561,0537,726,237(366,842)33,4593,882,23216,613,22434,449,363
Movements for the year ended 31 December 2018
Total comprehensive income
Net profit-----11,968,63711,968,637
Other comprehensive income, net of tax---(27,439)--(27,439)
Total comprehensive income---(27,439)-11,968,63711,941,198
Capital contribution and withdrawal by shareholders
Ordinary shares invested by shareholders103,6792,596,878(717,841)---1,982,716
Share-based payment included in shareholders' equity-312,656----312,656
Others(1,701)(27,109)(3,833,744)---(3,862,554)
Profit distribution
Appropriation to surplus reserves----1,196,864(1,196,864)-
Profit distribution to shareholders-----(7,898,785)(7,898,785)
Transfer from capital surplus to paid-in capital-------
Others-6,727----6,727
Balance at 31 December 20186,663,03110,615,389(4,918,427)6,0205,079,09619,486,21236,931,321
The accompanying notes form an integral part of these financial statements.
Legal representative:Principal in charge of accounting:Head of accounting department:
Fang HongboZhong ZhengChen Lihong

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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. (hereafter referred to as “theCompany”) and its subsidiaries (hereafter collectively referred to as “the Group”) include heating& ventilation, as well as air-conditioner (hereinafter referred to as “HVAC”) centred on householdair-conditioner, central air-conditioner, heating and ventilation systems; consumer appliancescentred on kitchen appliances, refrigerators, washing machines and various small appliances;robots and automation systems centred on KUKA Aktiengesellschaft (hereafter referred to as“KUKA”) and its subsidiaries (hereinafter referred to as “KUKA Group”) and other robotscorporations of Midea Group. Other services include service platform with Annto Technologyproviding the smart supply chain integrated solutions; sale, wholesale and processing of rawmaterials of household electrical appliances; and financial business involved in customerdeposits, interbank lendings and borrowings, consumption credit, buyer’s credit and financelease.The Company was set up by the Council of Trade Unions of GD Midea Group Co. Ltd., and wasregistered in Market Safety Supervision Bureau of Shunde District, Foshan on 7 April 2000, withits headquarters located in Foshan, Guangdong. On 30 August 2012, the Company wastransformed into a limited liability company. On 29 July 2013, the Company was approved tomerge 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 2018, the Company's registered capital is RMB 6,663,030,506 with theshare capital of RMB 6,663,030,506, and the total number of shares in issue is 6,663,030,506,of which 147,174,760 shares are restricted tradable A shares and 6,515,855,746 shares areunrestricted tradable A shares.The detailed information of major subsidiaries included in the consolidation scope in currentperiod is set out in Notes 5 and 6. Entities newly included in the consolidation scope in thecurrent year include Miraco International Trading Company、IRT SA Neuchatel Switzerland、Mor-Tech Manufacturing Inc. 、Mor-Tech Design Inc.、Midea Home Appliances UK Ltd.,Shanghai COLMO Lifestyle Products&Services Co. Ltd. and Guangdong Welling AutomotiveParts Co., Ltd. etc.. Please refer to Note 5(1) and (2)(a) for details. The detailed information ofsubsidiaries no longer included in the consolidation scope in the current year is set out in 5(2)(b).These financial statements were authorised for issue by the Company’s Board of Directors on18 April 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 forbad debts of accounts receivable (Note 2(10)), valuation method of inventory (Note 2(12)),depreciation of fixed assets and amortisation of intangible assets (Note 2(15), (18)), impairmentof goodwill (Note 2(20)) and recognition time of revenue (Note 2(28)).Critical judgements applied by the Group in determining significant accounting policies are setout in Note 2(34).

(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 InformationDisclosure by Companies Offering Securities to the Public No. 15 – General Rules on FinancialReporting issued 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 YEAR ENDED 31 DECEMBER 2018

(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 2018 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 31December 2018 and their financial performance, cash flows and other information for the yearthen ended.

(3) Accounting period

The Company’s accounting year starts on 1 January and ends on 31 December.

(4) Functional currency

The functional currency of the Company is Renminbi (“RMB”). The subsidiaries 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 presentedin RMB.

(5) Business combinations

(a) Business combinations involving enterprises under common control

The consideration paid and net assets obtained by the absorbing party in a businesscombination are measured at the carrying amount. If the absorbing party was bought by theultimate controller from a third party in prior years, the value of its assets and liabilities (includinggoodwill generated due to the combination) are based on the carrying amount in the ultimatecontroller’s consolidated financial statements. The difference between the carrying amount ofthe net assets obtained from the combination and the carrying amount of the consideration paidfor the combination is treated as an adjustment to capital surplus (share premium). If the capitalsurplus (share premium) is not sufficient to absorb the difference, the remaining balance isadjusted against retained earnings. Costs directly attributable to the combination are includedin profit or loss in the period in which they are incurred. Transaction costs associated with theissue of equity or debt securities for the business combination are included in the initiallyrecognised amounts of the equity or debt securities.

(b) Business combinations involving enterprises not under common control

The cost of combination and identifiable net assets obtained by the acquirer in a businesscombination are measured at fair value at the acquisition date. Where the cost of thecombination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable netassets, the difference is recognised as goodwill; where the cost of combination is lower thanthe acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference isrecognised in profit or loss for the current period. Costs directly attributable to the combinationare included in profit or loss in the period in which they are incurred. Transaction costsassociated with the issue of equity or debt securities for the business combination are includedin the initially recognised amounts of the equity or debt securities.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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,and the difference between its fair value and carrying amount is included in investment incomefor the current period in consolidated financial statements. Where the previously-held equity inthe acquiree involves other comprehensive income under equity method and shareholders’equity changes other than those arising from the net profit or loss, other comprehensive incomeand profit 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 andall of its subsidiaries.

Subsidiaries are consolidated from the date on which the Group obtains control and are de-consolidated from the date that such control ceases. For a subsidiary that is acquired in abusiness combination involving enterprises under common control, it is included in theconsolidated financial statements from the date when it, together with the Company, comesunder common control of the ultimate controlling party. The portion of the net profits realisedbefore the combination date is presented separately in the consolidated income statement.

In preparing the consolidated financial statements, where the accounting policies and theaccounting periods of the Company and subsidiaries are inconsistent, the 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 subsidiariesare adjusted 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 of asubsidiaries’ net profits and losses and comprehensive income for the period not attributable toCompany are recognised as minority interests and 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 itssubsidiaries are fully eliminated against net profit attributable to owners of the parent.Unrealised profits and losses resulting from the sale of assets by a subsidiary to the Companyare eliminated and allocated between net profit attributable to owners of the parent and minorityinterests in accordance with the allocation proportion of the parent in the subsidiary. Unrealisedprofits and losses resulting from the sale of assets by one subsidiary to another are eliminatedand allocated between net profit attributable to owners of the parent and minority interests inaccordance 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 YEAR ENDED 31 DECEMBER 2018

(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 ondemand, and short-term and highly liquid investments that are readily convertible to knownamounts of cash and which are subject to an insignificant risk of changes in value.

(8) Foreign currency translation

(a) Foreign currency transaction

Foreign currency transactions are translated into RMB using the exchange rates prevailing atthe dates of the transactions.

At the balance sheet date, monetary items denominated in foreign currencies are translatedinto the functional currency using the spot exchange rates on the balance sheet date. 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 the acquisition or construction of qualifying assets, which are capitalised as part of the costof those assets. Non-monetary items denominated in foreign currencies that are measured athistorical costs are translated at the balance sheet date using the spot exchange rates at thedate of the transactions. The effect of exchange rate changes on cash is presented separatelyin the cash flow statement.

(b) Translation of foreign currency financial statements

The asset and liability items in the balance sheets for overseas operations are translated at thespot exchange rates on the balance sheet date. Among the owners’ equity items, the itemsother than “undistributed profits” are translated at the spot exchange rates of the transactiondates. The income and expense items in the income statements of overseas operations aretranslated at the spot exchange rates of the transaction dates. The differences arising from theabove translation are presented in other comprehensive income. The cash flows of overseasoperations are translated at the spot exchange rates on the dates of the cash flows. The effectof exchange rate changes on cash is presented separately in the cash flow statement.

(9) Financial instruments

(a) Financial assets

(i) Classification of financial assets

Financial assets are classified into the following categories at initial recognition: financial assetsat fair value through profit or loss, loans and receivables and available-for-sale financial assets.The classification of financial assets depends on the Group’s intention and ability to hold thefinancial assets.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss include financial assets held for the purposeof selling in the short term and derivative financial instruments.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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 of financial assets (Cont'd)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable paymentsthat are not quoted in an active market, including cash at bank and on hand, deposits with theCentral Bank, deposits with banks and other financial institutions, loans and advances, interestreceivable, dividends receivable, receivables and structural deposits with banks.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are either designatedin this category or not classified in any of the other categories at initial recognition. Available-for-sale financial assets are included in other current assets on the balance sheet ifmanagement intends to dispose of them within one year (inclusive) after the balance sheet date.

(ii) 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.The derivative financial instruments are recorded as assets when they have a positive fair valueand as 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.

At the inception of the transaction, the Group prepares formal written documents for relationsbetween hedging instruments and hedged items, risk management objectives and hedgingstrategies. The Group also makes written assessment of the effectiveness of hedginginstruments in offsetting changes in the fair value or cash flow of hedged items. These criteriashould be met before hedging accounting is determined as applicable to such hedges.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(9) Financial instruments (Cont’d)

(a) Financial assets (Cont’d)

(ii) Derivative financial instruments (Cont’d)

Cash flow hedging

Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to aparticular risk associated with a recognised asset or liability (such as all or some future interestpayments on variable rate debt) or a highly probable forecast transaction that could ultimatelyaffect the profit or loss.

The effective portion of changes in the fair value of hedging instruments that are designatedand qualify as cash flow hedges is recognised in other comprehensive income in current periodand accumulated in equity in the “other comprehensive income”. The ineffective portion isrecognised immediately in the profit or loss.

Accumulated profits or loss originally included in equities of shareholders are reclassified to theprofit or loss in the same periods when the hedged item affects the profit or loss.

When a hedging instrument expires or is sold, or the hedge designation is revoked or when ahedge no longer meets the criteria for hedge accounting, any cumulative gain or loss on thehedging instrument existing in equity at that time remains in equity and is reclassified to theprofit or loss when the forecast transaction ultimately occurs. When a forecast transaction is nolonger expected to occur, the cumulative gain or loss existing in equity is immediatelytransferred to the profit or loss.

(iii) Recognition and measurement

Financial assets are recognised at fair value on the balance sheet when the Group becomes aparty to the contractual provisions of the financial instrument. In the case of financial assets atfair value through profit or loss, the related transaction costs incurred at the time of acquisitionare recognised in profit or loss for the current period. For other financial assets, transactioncosts that are attributable to the acquisition of the financial assets are included in their initiallyrecognised amounts.

Financial assets at fair value through profit or loss and available-for-sale financial assets aresubsequently measured at fair value. Investments in equity instruments are measured at costwhen they do not have a quoted market price in an active market and whose fair value cannotbe reliably measured. Receivables and held-to-maturity investments are measured at amortisedcost using the effective interest method.

Gains or losses arising from change in the fair value of financial assets at fair value throughprofit or loss are recognised in profit or loss. Interests and cash dividends received during theperiod in which such financial assets are held, as well as the gains or losses arising fromdisposal of these assets are recognised in profit or loss for the current period.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(9) Financial instruments (Cont’d)

(a) Financial assets (Cont’d)

(iii) Recognition and measurement (Cont’d)

Gains or losses arising from change in fair value of available-for-sale financial assets arerecognised directly in shareholder’s equity, except for impairment losses and foreign exchangegains and losses arising from translation of monetary financial assets. When such financialassets are derecognised, the cumulative gains or losses previously recognised directly intoequity are recycled into profit or loss for the current period. Interests on available-for-saleinvestments in debt instruments calculated using the effective interest method during the periodin which such investments are held and cash dividends declared by the investee on available-for-sale investments in equity instruments are recognised as investment income, which isrecognised in profit or loss for the period.

(iv) Impairment of financial assets

The Group assesses the carrying amounts of financial assets other than those at fair valuethrough profit or loss at each balance sheet date. If there is objective evidence that a financialasset is impaired, an impairment loss is provided for.

Objective evidence indicating impairment of financial assets refers to the matter that actuallyoccurs after the initial recognition of financial assets, it will affect estimated future cash flows offinancial assets, and its impact can be reliably measured.

Objective evidence indicating impairment of available-for-sale investments in equityinstruments includes a significant or prolonged decline in the fair value of an investment in anequity instrument. The Group reviews available-for-sale investments in equity instruments onan individual basis at the balance sheet date. If the fair value of an equity instrument investmentat the balance sheet date is lower than 50% (inclusive) of its initial cost for more than one year(inclusive), it indicates that the impairment has occurred. If the fair value at the balance sheetdate is lower than 20% (inclusive) but no more than 50%, the Group considers other relevantfactors, such as price fluctuation rate, to determine whether an impairment of equity instrumentinvestment occurs. The Group calculates the initial cost of available-for-sale equity instrumentusing weighted average method.

When an impairment loss on a financial asset carried at amortised cost has occurred, theamount of loss is provided for at the difference between the asset’s carrying amount and thepresent value of its estimated future cash flows (excluding future credit losses that have notbeen incurred). If there is objective evidence that the value of the financial asset recovered andthe recovery is related objectively to an event occurring after the impairment was recognised,the previously recognised impairment loss is reversed and the amount of reversal is recognisedin profit or loss.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(9) Financial instruments (Cont’d)

(a) Financial assets (Cont’d)

(iv) Impairment of financial assets (Cont'd)

If an impairment loss on available-for-sale financial assets measured at fair value is incurred,the cumulative losses arising from the decline in fair value that had been recognised directly inshareholders' equity are transferred out from equity and into impairment loss. For an investmentin debt instrument classified as available-for-sale on which impairment losses have beenrecognised, if, in a subsequent period, its fair value increases and the increase can beobjectively related to an event occurring after the impairment loss was recognised in profit orloss, the previously recognised impairment loss is reversed into profit or loss for the currentperiod. For an investment in an equity instrument classified as available-for-sale on whichimpairment losses have been recognised, the increase in its fair value in a subsequent periodis recognised directly in equity.

If available-for-sale financial asset, which is measured at cost model, is impaired, the amountof loss is measured as the difference between the asset’s carrying amount and the presentvalue of estimated future cash flows discounted at the current market rate of return for a similarfinancial asset. Impairment losses on these assets are recognised in profit or loss for the currentperiod. The previously recognised impairment loss will not be reversed in subsequent periods.

Please refer to Note 2(10) for accounting policies related to impairment of receivables.

(v) Derecognition of financial assets

A financial asset is derecognised when any of the below criteria is met: (1) the contractual rightsto receive the cash flows from the financial asset expire; (2) the financial asset has beentransferred and the Group transfers substantially all the risks and rewards of ownership of thefinancial asset to the transferee; or (3) the financial asset has been transferred and the Grouphas not retained control of the financial asset, although the Group neither transfers nor retainssubstantially all the risks and rewards of ownership of the financial asset.

On derecognition of a financial asset, the difference between the carrying amount and the sumof the consideration received and the cumulative changes in fair value that had been recogniseddirectly in equity, is recognised in profit or loss.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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

Financial liabilities are classified into two categories at initial recognition: financial liabilities atfair value through profit or loss and other financial liabilities. The Group's financial liabilitiesinclude derivative financial liabilities, payables, notes payable, borrowings, customer depositsand deposits from banks and other financial institutions, financial assets sold under repurchaseagreements and interest payable.

Payables comprise notes and accounts payable and other payables, and are recognised at fairvalue at initial recognition. Payables are subsequently measured at amortised cost using theeffective interest method.

Borrowings and bonds payable are recognised initially at fair value, net of transaction costsincurred, and subsequently measured at amortised cost using the effective interest method.

Other financial liabilities of which the period is within one year (inclusive) are classified as thecurrent liabilities; the period is over one year while will be due within one year (inclusive) sincethe balance sheet date are classified as current portion of non-current liabilities; and the othersare classified as non-current liabilities.

A financial liability (or a part of a financial liability) is derecognised when all or part of theobligation is extinguished. The difference between the carrying amount of a financial liability (orpart of a financial liability) extinguished and the consideration paid, shall be recognised in profitor loss.

(c) Determination of fair value of financial instruments

The fair value of a financial instrument that is traded in an active market is determined at thequoted price in the active market. The fair value of a financial instrument that is not traded in anactive market is determined by using a valuation technique. During valuation, the Group usesvaluation technique appropriate in the current situation with sufficient available data and othersupporting information, and select input with the same feature of assets or liabilities which aretaken into consideration by market participants in transactions of related assets and liabilities,and observable inputs are preferential. When relevant observable inputs are impossible or notpracticable be obtained, unobservable inputs are used.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(10) Receivables

Receivables comprise notes and accounts receivable and other receivables. Accountsreceivable arising from sales of goods or rendering of services are initially recognised at fairvalue of the contractual payments from the buyers or service recipients.

(a) Receivables with amounts that are individually significant and subject to separate assessment

for provision for bad debts

Receivables with amounts that are individually significant are subject to separate assessmentfor impairment. If there exists objective evidence that the Group will not be able to collect theamount under the original terms, a provision for impairment of that receivable is made.

The judgement standard for individually significant amount is an individual amount exceedingRMB 5,000,000 for accounts receivable and RMB 500,000 for other receivables.

The method of providing for bad debts for those individually significant amounts is as follows:

the amount of the present value of the future cash flows expected to be derived from thereceivable below its carrying amount.

(b) Receivables that are subject to provision for bad debts on the grouping basis

Accounts receivable and other receivables with amounts that are not individually significant andthose receivables that have been individually assessed for impairment and have not been foundimpaired are classified into certain groupings based on their credit risk characteristics. Theprovision for bad debts is determined based on the historical loss experience for the groupingsof receivables with similar credit risk characteristics, taking into consideration of the currentcircumstances.

Notes receivable of the Group are bank acceptance notes, for which the Company believesthere is relatively low risk due to non-performance of financial institutions; therefore, noprovision for bad debts is recorded on the grouping basis.

The Company's subsidiaries in Mainland China classify the credit risk groupings by taking theageing of receivables as the risk characteristics and determine different provision ratios basedon business features:

Within 1 year1 to 2 years2 to 3 years3 to 5 yearsOver 5 years
HVAC5%10%30%50%100%
Consumer appliances5%10%30%50%100%
Robots and automatic system5%10%30%50%100%
Others5%10%30%50%100%

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(10) Receivables (Cont’d)

(b) Receivables that are subject to provision for bad debts on the grouping basis (Cont'd)

The Company's subsidiaries in Hong Kong, Macau, Singapore and Italy make bad debtsprovision for receivables on an individual basis. For those receivables that have been assessedfor impairment on an individual basis and have not been found impaired, the Company’ssubsidiaries classify the credit risk groupings by taking the ageing of receivables as the riskcharacteristics.

The Company's subsidiaries in Brazil make no bad debts provision for receivables with theageing within one year and adopt 100% provision ratio for those with the ageing over one year.

The Company's subsidiaries in Germany classify the credit risk groupings by taking the expiringdate of receivables as the risk characteristics.

The Company's subsidiaries in Israel classify the credit risk groupings by taking the ageing ofreceivables as the risk characteristics.

(c) Receivables with amounts that are not individually significant but subject to separate

assessment for provision for bad debts

The reason for making separate assessment for provision for bad debts is that there existsobjective evidence that the Group will not be able to collect the amount under the original termsof the receivable.

The provision for bad debts is determined based on the amount of the present value of thefuture cash flows expected to be derived from the receivable below its carrying amount.

(d) When the Group transfers the accounts receivable to the financial institutions without recourse,

the difference between the proceeds received from the transaction and their carrying amountsand the related taxes is recognised in profit or loss for the current period.

(11) Provision for bad debts of loans and advances

The provision for bad debts of loans and advances is provided by five-tier loan classification ofending balances of loans and advances as follows:

The Five-class ClassificationProvision ratio
Pass Risk Assets1.5%
Special Mention Risk Assets3.0%
Substandard Risk Assets30.0%
Doubtful Risk Assets60.0%
Loss Risk Assets100.0%

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(12) Inventories

(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 atthe lower of cost and net realisable value.

The amount of completed but unsettled works is determined on the basis of individual contractat the cost of contract incurred plus profits thereof and less losses recognised and amountsettled. It is recognised as assets when the balance is positive and recognised as liabilitieswhen the balance is negative.

(b) Costing of inventories

Other than completed but unsettled products, cost is determined using the first-in first-outmethod when issued. The cost of goods of finished goods and work in progress comprises rawmaterials, direct labour and systematically allocated production overhead based on the normalproduction 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 realisablevalue.

Net realisable value is determined based on the estimated selling price in the ordinary courseof business, less the estimated costs to completion and estimated costs necessary to make thesale and related taxes.

Provision for decline in the value of inventories is determined at the excess amount of the costas calculated 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 relatedassets or in profit or loss for the current period.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(13) Long-term equity investments

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 jointventure is a joint arrangement which is structured through a separate vehicle over which theGroup has joint control together with other parties and only has rights to the net assets of thearrangement based on legal forms, contractual terms and other facts and circumstances.Associates are the investees that the Group has significant influence on their financial andoperating policies.

Investments in subsidiaries are presented in the Company’s financial statements using the costmethod, and are adjusted to the equity method when preparing the consolidated financialstatements. Investments in a joint venture 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 amountof previously-held equity investment and additional investment cost. For previously-held equityaccounted for using the equity method, the accounting treatment of related othercomprehensive income from disposal of the equity is carried out on a same basis with theinvestee's direct disposal of related assets or liabilities. Shareholders' equity, which isrecognised due to changes in investee’s shareholders’ equity other than those arising from thenet profit or loss, other comprehensive income and profit distribution, is accordingly transferredinto profit or loss in the period 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 costmethod is the sum of carrying amount of previously-held equity investment and additionalinvestment cost. The difference between the fair value and carrying amount for investment inpreviously-held equity and the accumulated changes in fair value previously included in othercomprehensive income are transferred to profit or loss for the current period accounted for usingthe 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 YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(13) Long-term equity investments (Cont’d)

(b) Subsequent measurement and recognition of related profit and loss

For long-term equity investments accounted for using the cost method, they are measured atthe initial investment costs, and cash dividends or profit distribution declared by the investeesare 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 amountsof the long-term equity investment together with any long-term interests that in substance formpart of the investor’s net investment in the investee are reduced to zero. However, if the Grouphas obligations for additional losses and the criteria with respect to recognition of provisionsunder the accounting standards on contingencies are satisfied, the Group continuesrecognising the investment losses and the provisions. The changes of the Group’s share of theinvestee’s owner's equity other than those arising from the net profit or loss, othercomprehensive income and profit distribution, are recognised in the Group’s equity and thecarrying amounts of the long-term equity investment are adjusted accordingly. The carryingamount of the investment is reduced by the Group’s share of the profit distribution or cashdividends declared by an investee. The unrealised profits or losses arising from the transactionsbetween the Group and its investees are eliminated in proportion to the Group’s equity interestin the investees, based on which the investment gain or losses are recognised. Any lossesresulting from transactions between the Group and its investees attributable to assetimpairment 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 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 YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(13) Long-term equity investments (Cont’d)

(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(20)).

(14) 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 for 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 livesEstimated net residual valuesAnnual depreciation (amortisation) rates
Buildings20 to 40 years5%2.38% to 4.75%
Land use rights40 to 50 years-2% to 2.5%

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(15) Fixed assets

(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 tothe Group and the costs can be reliably measured. The initial cost of purchased fixed assetsinclude purchase price, related taxes and expenditures that are attributable to the assetsincurred before the assets are ready for their intended use. The initial cost of self-constructedfixed assets is determined based on Note 2(16).

Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed assetwhen it is probable that the associated economic benefits will flow to the Group and the relatedcost can be reliably measured. The carrying amount of the replaced part is derecognised. Allthe other subsequent expenditures are recognised in profit or loss in the period in which theyare 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 thathave been provided for impairment loss, the related depreciation charge is prospectivelydetermined based upon the adjusted carrying amounts over their remaining useful lives.

The estimated useful lives, the estimated net residual values expressed as a percentage of costand the annual depreciation rates of the Group's fixed assets are as follows:

CategoriesEstimated useful livesEstimated net residual valuesAnnual depreciation rates
Buildings15 to 60 years0% to 10%6.7% to 1.5%
Machinery and equipment2 to 18 years0% to 10%50% to 5.0%
Motor vehicles2 to 20 years0% to 10%50% to 4.5%
Electronic equipment and other equipment2 to 20 years0% to 10%50% to 4.5%
LandPermanentN/AN/A

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(15) Fixed assets (Cont'd)

(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 assetis a finance lease. A lease that transfers substantially all the risks and rewards incidental toownership of an asset is a finance lease. The leased asset is recognised at the lower of the fairvalue of the leased asset and the present value of the minimum lease payments. The differencebetween the recorded amount of the leased asset and the minimum lease payments isaccounted for as unrecognised finance charge.

Fixed assets held under a finance lease is depreciated on a basis consistent with thedepreciation policy adopted for fixed assets that are self-owned. When a leased asset can bereasonably determined that its ownership will be transferred at the end of the lease term, it isdepreciated over the period of expected use; otherwise, the leased asset is depreciated overthe shorter period of the lease term and the period of expected use.

(d) The carrying amount of a fixed asset is reduced to the recoverable amount when the

recoverable amount is below the carrying amount (Note 2(20)).

(e) Disposal of fixed assets

A fixed asset is derecognised on disposal or when no future economic benefits are expectedfrom its use or disposal. The amount of proceeds from disposal on sales, transfer, retirement ordamage of a fixed asset net of its carrying amount and related taxes and expenses isrecognised in profit or loss for the current period.

(16) Construction in progress

Construction in progress is measured at actual cost. Actual cost comprises construction costs,installation costs, borrowing costs that are eligible for capitalisation and other costs necessaryto bring the fixed assets ready for their intended use. Construction in progress is transferred tofixed assets when the assets are ready for their intended use, and depreciation begins from thefollowing month. The carrying amount of construction in progress is reduced to the recoverableamount when the recoverable amount is below the carrying amount (Note 2(20)).

(17) Borrowing costs

The borrowing costs that are directly attributable to the acquisition and construction of a fixedasset that needs a substantially long period of time for its intended use commence to becapitalised and recorded as part of the cost of the asset when expenditures for the asset andborrowing costs have been incurred, and the activities relating to the acquisition andconstruction that are necessary to prepare the asset for its intended use have commenced. Thecapitalisation of borrowing costs ceases when the asset under acquisition or constructionbecomes ready for its intended use and the borrowing costs incurred thereafter are recognisedin profit or loss for the current period. Capitalisation of borrowing costs is suspended duringperiods in which the acquisition or construction of an asset is interrupted abnormally and theinterruption lasts for more than 3 months, until the acquisition or construction is resumed.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(17) Borrowing costs (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.

(18) 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 periodas stipulated by contracts or the beneficial period.

(c) Trademark rights

The trademark rights is measured at cost when acquired and is amortised over the estimated

useful 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(12)).

(d) Trademark use rights

The trademark use rights is measured at cost when acquired. The cost of trademark use rights

obtained in the business combinations involving enterprises not under common control 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 YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(18) Intangible assets (Cont'd)

(e) Periodical review of useful life and amortisation method

For an intangible asset with a finite useful life, review of its useful life and amortisation 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 ofproduction processes or products is categorised as expenditure on the research phase, and itis recognised in profit or loss when it is incurred. Expenditure on design and test for the finalapplication of the development of production processes or products before mass production iscategorised as expenditure on the development phase, which is capitalised only if all of thefollowing conditions are satisfied:

? The development of production processes or products has been fully justified by

technical team;

? The budget on the development of production processes or products has been

approved by the management;

? There is market research analysis that demonstrates the product produced by the

production process or product has the ability of marketing;

? There are sufficient technical and financial resources to support the development of

production processes or products and subsequent mass production; and

? Expenditure attributable to the development of production processes or products can

be reliably measured.

Other development expenditures that do not meet the conditions above are recognised 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(20)).

(19) 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 YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(20) Impairment of long-term assets

Fixed assets, construction in progress, intangible assets with finite useful lives, 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 provisionfor impairment and an impairment loss are recognised for the amount by which the asset’scarrying amount exceeds its recoverable amount. The recoverable amount is the higher of anasset’s fair value less costs to sell and the present value of the future cash flows expected tobe derived from the asset. Provision for asset impairment is determined and recognised on theindividual asset basis. If it is not possible to estimate the recoverable amount of an individualasset, the recoverable amount of a group of assets to which the asset belongs is determined. Agroup of assets is the smallest group of assets that is able to generate independent cash inflows.

Goodwill that is separately presented in the financial statements is tested at least annually 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 theresult of the test indicates that the recoverable amount of an asset groups or a group of assetgroups, including the allocated goodwill, is lower than its carrying amount, the correspondingimpairment loss is recognised. The impairment loss is first deducted from the carrying amountof goodwill that is allocated to the asset groups or group of asset groups, and then deductedfrom the carrying amounts of other assets within the asset groups or group of asset groups inproportion to 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.

(21) Employee benefits

Employee benefits include short-term employee benefits, post-employment benefits,termination benefits and other long-term employee benefits provided in various forms ofconsideration in exchange for service rendered by employees or compensations for thetermination of employment relationship.

(a) Short-term employee benefits

Short-term employee benefits include employee wages or salaries, bonus, allowances andsubsidies, staff welfare, premiums or contributions on medical insurance, work injury insuranceand maternity insurance, housing funds, union running costs and employee education costs,short-term paid absences. The employee benefit liabilities are recognised in the accountingperiod in which the service is rendered by the employees, with a corresponding charge to theprofit or loss for the current period or the cost of relevant assets. Employee benefits which arenon-monetary benefits are measured at fair value.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(21) Employee benefits (Cont'd)

(b) Post-employment benefits

The Group classifies post-employment benefit plans as either defined contribution plans 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 percentage 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 at the earlier of the following dates: 1)when the Group cannot unilaterally withdraw the offer of termination benefits because of anemployment termination plan or a curtailment proposal; 2) when the Group recognises costs orexpenses related to the restructuring that involves the payment of termination benefits.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(21) Employee benefits (Cont'd)

(c) Termination benefits (Cont’d)

Early retirement benefits

The Group offers early retirement benefits to those employees who accept early 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.

(22) Financial assets sold under agreements to repurchase

Assets sold under agreements to repurchase at a specific future date are not derecognisedfrom the balance sheet. The corresponding proceeds are recognised on the balance sheetunder “Repurchase agreements”. The difference between the sale price and the repurchaseprice is treated as interest expense and is accrued over the life of the agreement using theeffective interest method.

(23) 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.

(24) Dividend distribution

Cash dividend is recognised as a liability for the period in which the dividend is approved by theshareholders’ meeting.

(25) 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 YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(25) Provisions (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 areclassified as current liabilities.

(26) 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 YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(26) Share-based 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 optionsthat are expected to vest based on the non-marketing performance and service conditions. Onthe exercise or desterilisation date, the final number of estimated exercisable or tradable equityinstruments is consistent with the number of exercised or tradable equity instruments.

(27) 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. Onthe day 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 YEAR ENDED 31 DECEMBER 2018

(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) Revenue

The amount of revenue is determined in accordance with the fair value of the considerationreceived or receivable for the sales of goods and services in the ordinary course of 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 (mainlycomprises robots 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;and the related costs can be measured reliably. Upon confirming the acceptance, the buyer hasthe right 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 thecustoms and shipped out of the port; 2) the amount of revenue is confirmed; 3) payments forgoods are collected or obtain related receipts; and 4) the related economic benefits will flow tothe Group and the related costs can be measured reliably.

Revenue from sales of robots and automatic system is recognised when 1) the goods aredelivered to buyers by the Group pursuant to contracts; 2) the amount of revenue is confirmed;3) payments for goods are collected or receipts are acquired; and 4) the related economicbenefits will flow to the Group; and the related costs can be measured reliably.

(b) Rendering of services

Revenue from transportation service, storage service, distribution service and installationservice as provided by the Group is recognised when the services are completed.

Revenue from providing automation system business and intelligent logistics integrationsolution is recognised according to the percentage of completion.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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) Revenue (Cont'd)

(c) Construction contract

Where the outcome of a construction contract can be estimated reliably, revenue and coststhereof are recognised using the “percentage-of-completion” method as at the balance sheetdate. The stage of completion is measured by reference to the contract costs incurred up to theend of the reporting period as a percentage of total estimated costs for each contract.

The outcome of a construction contract can be estimated reliably when all of the followingconditions are concurrently met: (1) the total contract revenue can be measured reliably; (2) itis highly probable that the economic benefits associated with the contract will flow to theenterprise; (3) the contract costs incurred thus far can be clearly identified and measuredreliably; (4) both the stage of completion and the costs necessary to complete the contract canbe 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 nolonger exist which make construction contract unable to be estimated reliably, revenue andcosts are recognised using the percentage-of-completion method.

When it is probable that total contract costs will exceed total contract revenue, the expectedloss is recognised as an expense immediately.

As at the balance sheet date, the actual total contract revenue multiply the percentage ofcompletion less the total contract revenue recognised in previous accounting periods 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 previousaccounting periods should be recognised as the expenses for the current period.

(d) Interest income

Interest income from financial instruments is calculated by effective interest method andrecognised in profit or loss for the current period. Interest income comprises premiums ordiscounts, or the amortisation based on effective rates of other difference between the initialcarrying amount and the due amount of interest-earning assets.

The effective interest method is a method of calculating the amortised cost of a financial assetor liability and the interest income or expense based on effective rates. Actual interest rate isthe rate at which the estimated future cash flows during the period of expected duration of thefinancial instruments or applicable shorter period are discounted to the current carrying amountof the financial instruments. When calculating the effective interest rate, the Group estimatescash flows by considering all contractual terms of the financial instrument (e.g. early repaymentoptions, similar options, etc.), but without considering future credit losses. The calculationincludes all fees and interest paid or received that are an integral part of the effective interestrate, 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 YEAR ENDED 31 DECEMBER 2018

(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) 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 astraight-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 theservice is provided. The Group defers the initial charge income or commitment fee incomearising from the forming or acquisition of financial assets as the adjustment to effective interestrate. If the loans are not lent when the loan commitment period is expired, related charges arerecognised as fee and commission income.

(29) Government grants

Government grants are transfers of monetary or non-monetary assets from the government tothe Group at nil consideration, including refund of taxes and financial subsidies, etc.

A government grant is recognised when the conditions attached to it can be complied with andthe government grant can be received. For a government grant in the form of transfer ofmonetary assets, the grant is measured at the amount received or receivable. For a governmentgrant in the form of transfer of non-monetary assets, it is measured at fair value; if the fair valueis not reliably determinable, the grant is measured at nominal amount.

Government grants related to assets are grants that are acquired by an enterprise and used foracquisition, construction or forming long-term assets in other ways. Government grants relatedto income are government grants other than government grants related to assets.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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) 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 relatedexpenses or losses to be incurred by the Group in the subsequent periods, the grant isrecognised as deferred income, and included in profit or loss over the periods in which therelated costs are recognised; where the grant is a compensation for related expenses or lossesalready incurred by the Group, the grant is recognised immediately in profit or loss for the currentperiod.

The same kind of government grants are presented with the same method, that is, those relatedto ordinary activities are recorded into operating profit while other in non-operating income andexpenses.

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 preferentialrate. Finance discounts directly received offset related loans expenses.

(30) 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 thetax laws. 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 atransaction other than a business combination, which affects neither accounting profit nortaxable profit (or deductible loss). At the balance sheet date, deferred tax assets and deferredtax liabilities are measured at the tax rates that are expected to apply to the period when theasset is realised or the liability is settled.

Deferred tax assets are only recognised for deductible temporary differences, deductible taxlosses and tax credits to the extent that it is probable that taxable profit will be available in thefuture against which the deductible temporary differences, deductible tax losses and tax creditscan be utilised.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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)

(30) 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 timingof reversal of the temporary difference, and it is probable that the temporary difference will notreverse in the foreseeable future. When it is probable that the temporary differences arisingfrom investments in subsidiaries, associates and joint ventures will be reversed in theforeseeable future and that the taxable profit will be available in the future against which thetemporary differences can be utilised, the corresponding deferred tax assets are recognised.

Deferred tax assets and liabilities are offset when:

? the deferred taxes are related to the same tax payer within the Group and the same

taxation authority; and,? that tax payer within the Group has a legally enforceable right to offset current tax

assets against current tax liabilities.

(31) 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(14)),are depreciated in accordance with the depreciation policy stated in Note 2(15)(b) and providedfor impairment loss in accordance with the policy stated in Note 2(20). Rental income fromoperating leases is recognised as revenue on a straight-line basis over the lease period. Initialdirect costs in large amount arising from assets leased out under operating leases arecapitalised when incurred and recognised as profit and loss for the current period over the leaseperiod on a same basis with revenue recognition; initial direct costs in small amount are directlyrecognised as profit and loss for the current period. Contingent rentals are recognised as profitand loss for the current period when incurred.

(b) Finance leases

The leased asset is recognised at the lower of the fair value of the leased asset and the presentvalue of the minimum lease payments. The difference between the recorded amount of theleased asset and the minimum lease payments is accounted for as unrecognised finance chargeand is amortised using the effective interest method over the period of the lease. A long-termpayable is recorded at the amount equal to the minimum lease payments less the unrecognisedfinance charge.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2 Summary of significant accounting policies and accounting estimates (Cont’d)

(32) 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 forimmediate sale in its present condition subject only to terms that are usual and customary forsales of such non-current asset or disposal group; (2) the Group has entered a legallyenforceable sales agreement with other party and obtained relevant approval, and the salestransaction is expected to be completed within one year.

Non-current assets (except for financial assets, investment properties measured at fair valueand deferred tax assets) that meet the recognition criteria for held for sale are recognised at theamount equal to the lower of the fair value less costs to sell and the carrying amount, and theexcess of the original carrying amount over the fair value less costs to sell is recognised asasset impairment loss.

Such non-current assets and assets and liabilities included in disposal groups classified as heldfor sale are classified as current assets and current liabilities respectively, and are separatelypresented in 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 followingconditions: (1) it represents a separate major line of business or geographical area of operations;(2) it is part of a single co-ordinated plan to dispose of a separate major line of business orgeographical area of operations; and (3) it is a subsidiary acquired exclusively with a view toresale.

The net profit from discontinued operations in the income statement includes operating profit orloss and disposal gains or losses of discontinued operations.

(33) Segment information

The Group identifies operating segments based on the internal organisation structure,management requirements and internal reporting system, and discloses segment informationof reportable segments which is determined on the basis of operating segments.

An operating segment is a component of the Group that satisfies all of the following conditions:

(1) the component is able to earn revenue and incur expenses from its ordinary activities; (2)whose operating results are regularly reviewed by the Group’s management to make decisionsabout resources to be allocated to the segment and to assess its performance, and (3) for whichthe information on financial position, operating results and cash flows is available to the Group.Two or more operating segments that have similar economic characteristics and satisfy certainconditions can be aggregated into one single operating segment.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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) 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 thatare believed 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 accountingyear are outlined below:

(i) Provision for impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment. The recoverableamount of the asset groups and the combination of asset groups that contain the apportionedgoodwill is determined by the higher value between the use value and the net value that iscalculated by the fair value less the disposal costs. Accounting estimate is required for thecalculation of the recoverable amount. The impairment testing is performed by assessing therecoverable amount of the groups of assets containing the relevant goodwill, based on thepresent value of cash flows forecasts. Key assumptions adopted in the impairment testing ofgoodwill included expected revenue growth rates, EBITDA margins, perpetual annual growthrates, discount rates, etc. which involved critical accounting estimates and judgement.

(ii) Income tax

The Group is subject to income taxes in numerous jurisdictions. There are many transactionsand events for which the ultimate tax determination is uncertain during the ordinary course ofbusiness. Significant judgement is required from the Group in determining the provision forincome taxes in each of these jurisdictions. Where the final tax outcome of these matters isdifferent from the amounts that were initially recorded, such differences will impact the incometax and deferred tax provisions in the period in which such determination is made.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2Summary of significant accounting policies and accounting estimates (Cont’d)
(35)Significant changes in accounting policies
In 2018, the Ministry of Finance issued the Circular on the Amendment to the Formats of Corporate Financial Statements for the Year of 2018 (Cai Kuai [2018] No. 15) and its interpretation. The financial statements are prepared in accordance with the above circular with restating comparative figures of 2017, and impacts are as follows:
(a)Impacts on consolidated balance sheet and income statement are as follows:
The nature and the reasons of the changes in accounting policiesThe line items affected31 December 20171 January 2017
Before adjustmentThe amounts affectedAfter adjustmentBefore adjustmentThe amounts affectedAfter adjustment
The Group grouped notes receivable and accounts receivable as notes and accounts receivable.Accounts receivable17,528,717(17,528,717)-13,454,511(13,454,511)-
Notes receivable10,854,226(10,854,226)-7,427,488(7,427,488)-
Notes and accounts receivable-28,382,94328,382,943-20,881,99920,881,999
The Group recorded interests receivable in other receivables.Other current assets46,847,271(152,430)46,694,84143,529,597(46,390)43,483,207
Other receivables2,657,568152,4302,809,9981,140,13346,3901,186,523
The Group grouped notes payable and accounts payable in notes and accounts payable.Accounts payable35,144,777(35,144,777)-25,356,960(25,356,960)-
Notes payable25,207,785(25,207,785)-18,484,939(18,484,939)-
Notes and accounts payable-60,352,56260,352,562-43,841,89943,841,899
The Group grouped interests payable, dividends payable and other payables as other payables.Interests payable94,801(94,801)-21,343(21,343)-
Dividends payable95,317(95,317)-105,641(105,641)-
Other payables3,170,405190,1183,360,5231,571,422126,9841,698,406
The Group grouped long-term payables and payables for specific projects as long-term payables.Payables for specific projects2,500(2,500)-2,405(2,405)-
Long-term payables248,0362,500250,536366,8812,405369,286

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2Summary of significant accounting policies and accounting estimates (Cont’d)
(35)Significant changes in accounting policies (Cont’d)
(a)Impacts on consolidated balance sheet and income statement are as follows (Cont’d):
The nature and the reasons of the changes in accounting policiesThe line items affectedThe amounts affected
2017
The Group presented research and development expenses separately from general and administrative expenses.Research and development expensesIncrease by 7,270,134
General and administrative expensesDecrease by 7,270,134

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

2Summary of significant accounting policies and accounting estimates (Cont’d)
(35)Significant changes in accounting policies (Cont’d)
(b)Impacts on company balance sheet and income statement are as follows:
The nature and the reasons of the changes in accounting policiesThe line items affected31 December 20171 January 2017
Before adjustmentThe amounts affectedAfter adjustmentBefore adjustmentThe amounts affectedAfter adjustment
The Company grouped interests receivable, dividends receivable and other receivables as other receivables.Other current assets27,311,464(85,059)27,226,40524,165,141(34,318)24,130,823
Dividends receivable897,040(897,040)-285,916(285,916)-
Other receivables8,403,564982,0999,385,66312,644,592320,23412,964,826
The Company recorded interests payable in other payables.Interests payable146,513(146,513)-76,776(76,776)-
Other payables57,867,535146,51358,014,04854,461,57876,77654,538,354
Except for the above items, amounts of other items as at 31 December 2017 and 1 January 2017 were not affected.

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

3 Taxation(1) Main tax category and rate

CategoryTax baseTax rate
Corporate income tax (a)Levied based on taxable income5%, 15%, 16.5%, 17%, 20%-31.4%, 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 VAT input of the current period)5%, 6%, 10%, 11%, 16%, 17% or 19%
City maintenance and construction taxThe amount of VAT paid5% or 7%
Educational surchargeThe amount of VAT paid3% or 5%
Local educational surchargeThe amount of VAT paid2%
Property taxPrice-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) Notes to the corporate income tax rate of the principal tax payers with different tax rates

(a-1) The following subsidiaries of the Company are subject to a corporate income tax rate of 15% in

2018 as they qualified as high-tech enterprises and obtained the High-tech Enterprise Certificate:

Name of tax payer

Name of tax payerNo. of the High-tech Enterprise CertificateDates of issuanceTerm of validity
Jiangsu Midea Cleaning Appliance Company LimitedGR20173200167517 November 20173 years
GD Midea Environment Appliances Mfg. Co.,Ltd.GR20164400228630 November 20163 years
Meizhi Guangdian Technology Co., Ltd.GR20173600018723 August 20173 years
Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd.GR20184400025028 November 20183 years
Guangdong Witol Vacuum Electronic Manufacture Co.,LtdGR2017440004899 November 20173 years
Foshan Shunde Midea Washing Appliance Manufacturing Co., Ltd.GR2017440028379 November 20173 years
Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd.GR20184401037328 November 20183 years
Guangdong Midea Precision Molding Technology Co., Ltd.GR20164400033130 November 20163 years
Foshan Shunde Midea Electric Science and Techonology Co., Ltd.GR20164400035830 November 20163 years
GD Midea Heating & Ventilating Equipment Co., Ltd.GR20184400821928 November 20183 years
Hefei Midea Heating & Ventilation Equipment Co., Ltd.GR20163400020721 October 20163 years
Anhui Meizhi Precision Manufacturing Co., Ltd.GR20183400089024 July 20183 years
Guangzhou Midea Hualing Refrigerator Co., Ltd.GR20164400292530 November 20163 years
Guangdong Welling Motor Manufacturing Co., Ltd.GR2017440020629 November 20173 years
Foshan Welling Washer Motor Manufacturing Co., Ltd.GR2017440010259 November 20173 years
Huaian Weiling Motor Manufacturing Co., Ltd.GR20163200427830 November 20163 years
Annto Logistics Technology Co., Ltd.GR20183400130624 July 20183 years
Wuxi Little Swan Company LimitedGR20183200139424 October 20183 years
Wuxi Filin Electronics Co., Ltd.GR20183200105324 October 20183 years
Wuxi Little Swan General Appliance Co., Ltd.GR20183200110024 October 20183 years

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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

2018 as they qualified as high-tech enterprises and obtained the High-tech Enterprise Certificate(Cont'd):

Name of tax payer

Name of tax payerNo. of the High-tech Enterprise CertificateDates of issuanceTerm of validity
GD Midea Air-Conditioning Equipment Co.,Ltd.GR2017440003379 November 20173 years
Handan Midea Air-Conditioning Equipment Co.,Ltd.GR20171300095727 October 20173 years
Midea Group Wuhan Refrigeration Equipment Co., Ltd.GR20174200207530 November 20173 years
Guangzhou Hualing Refrigerating Equipment Co.,ltd.GR20174401061011 December 20173 years
Wuhu Maty Air-Conditioning Equipment Co., LtdGR2017340012467 November 20173 years
Chongqing Midea General Refrigeration Equipment Co., Ltd.GR20175110011328 December 20173 years
Guangdong Meizhi Compressor LimitedGR2017440008959 November 20173 years
Hubei Midea Refrigerator Co., Ltd.GR20174200125528 November 20173 years
Guangdong Midea Consumer Electric Manufacturing Co., Ltd.GR20174400614111 December 20173 years
Anhui Meizhi Compressor Co., Ltd.GR2016340009945 December 20163 years
Foshan Shunde Midea Water Dispenser Manufacturing Co., Ltd.GR20174400847111 December 20173 years
Midea Welling Motor Technology (Shanghai) Co., Ltd.GR20173100173123 November 20173 years
Welling (Wuhu) Motor Manufacturing Co., Ltd.GR20183400114424 July 20183 years
Hefei Midea Laundry Appliance Co., Ltd.GR20183400088224 July 20183 years
Hefei Hualing Co., Ltd.GR20183400055224 July 20183 years
Foshan Midea Chungho Water Purification Equipment. Co., Ltd.GR20184400708928 November 20183 years
Toshiba HA Manufacturing (Nanhai) Co., Ltd.GR20184400710728 November 20183 years
Guangdong Meizhi Precision-Manufacturing Co., LtdGR20184400618128 November 20183 years
Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd.GR20183400081824 July 20183 years

(a-2) The application for corporate income tax preferential treatment by Chongqing Midea Refrigeration

Equipment Co., Ltd., the Company's subsidiary, was approved by the State Administration ofTaxation of Chongqing Economical and Technological Development Zone on 3 June 2014. Thesubsidiary is subject to corporate income tax at the rate of 15% in 2018.(a-3) The Company's subsidiaries in Mainland China other than those mentioned in (a-1) and (a-2) are

subject to corporate income tax at the rate of 25%.

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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 Appliance (Singapore) Co., 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 Electric Appliance (Singapore)Co., Ltd. and Little Swan International (Singapore) Co., Ltd., the Company's subsidiaries, aresubject to corporate income tax at the rate of 17%.(a-5) The Company's subsidiaries in Hong Kong are subject to Hong Kong profits tax at the rate of

16.5%. Such subsidiaries include Midea International 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 Development Ltd.,Midea Investment Holding (BVI) Limited, Midea Electric Investment (BVI) Limited, Welling Holding(BVI) Ltd., Midea Holding (Cayman Islands) Ltd. and Midea Investment Development CompanyLimited.(a-7) Springer Carrier Ltda., the Company's subsidiary in Brazil, is subject to Brazil corporate income

tax at the rate of 34.25%.(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 23.5%.

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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 Circular on Adjustment of Tax Rate of Value Added Tax (Cai Shui [2018] No.

32)and related regulations jointly issued by the Ministry of Finance and the State Administrationof Taxation, the applicable tax rate of revenue arising from sales of goods and rendering ofrepairing and replacement services of the Company’s certain subsidiaries is 16% from 1 May2018, while it was 17% before then.(b-2) Pursuant to the Circular on Adjustment of Tax Rate of Value Added Tax (Cai Shui [2018] No.

32)and relevant regulations jointly issued by the Ministry of Finance and the State Administrationof Taxation, the applicable tax rate of revenue arising from rendering of real estate leasing andtransportation services of the Company’s certain subsidiaries is 10% from 1 May 2018, while itwas 11% 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 YEAR ENDED 31 DECEMBER 2018

(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

31 December 201831 December 2017
Cash on hand3,8034,589
Cash at bank (a)15,857,41321,954,206
Other cash balances (b)123,197267,259
Statutory reserve deposits with the Central Bank (c)1,126,1721,835,051
Surplus reserve with the Central Bank204,073305,963
Deposits with banks and other financial institutions (d)10,573,62223,907,132
27,888,28048,274,200
Including: Total amounts deposited with foreign banks (including Hong Kong, Macau, Singapore, Japan, Italy, Brazil and Germany, etc.)6,316,80710,685,588

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(2) Notes and accounts receivable

31 December 201831 December 2017
Notes receivable (a)12,556,29410,854,226
Accounts receivable (b)19,390,17417,528,717
31,946,46828,382,943
31 December 201831 December 2017
Bank acceptance notes12,556,29410,854,226
DerecognisedRecognised
Bank acceptance notes22,747,532117,604
31 December 201831 December 2017
Accounts receivable20,372,28318,410,114
Less: Provision for bad debts(982,109)(881,397)
19,390,17417,528,717
31 December 201831 December 2017
Within 1 year19,990,26317,932,715
1 to 2 years187,071266,896
2 to 3 years88,294103,978
3 to 5 years84,06964,300
Over 5 years22,58642,225
20,372,28318,410,114

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(2) Notes and accounts receivable (Cont'd)

(b) Accounts receivable

Accounts receivable are analysed by categories as follows:

31 December 201831 December 2017
Carrying amountProvision for bad debtsCarrying amountProvision for bad debts
Amount% of total balanceAmountRatioAmount% of total balanceAmountRatio
With amounts that are individually significant and that the related provision for bad debts is provided on the individual basis53,5830.26%18,44534.42%32,4480.18%6,96021.45%
Provision for bad debts on the grouping basis19,958,64797.97%919,3564.61%18,079,72198.20%867,7974.80%
With amounts that are not individually significant but that the related provision for bad debts is provided on the individual basis360,0531.77%44,30812.31%297,9451.62%6,6402.23%
20,372,283100.00%982,1094.82%18,410,114100.00%881,3974.79%
31 December 201831 December 2017
Carrying amountProvision for bad debtsCarrying amountProvision for bad debts
AmountAmountRatioAmountAmountRatio
Within1 year19,635,342730,4613.72%17,693,549673,8533.81%
1 to 2 years138,90245,97533.10%191,49459,25030.94%
2 to 3 years81,13751,37063.31%101,99461,31360.11%
3 to 5 years82,11670,40085.73%57,88938,58666.66%
Over 5 years21,15021,150100.00%34,79534,795100.00%
19,958,647919,3564.61%18,079,721867,7974.80%
AmountProvision for bad debts% of total balance
Total amount of the five largest accounts receivable1,585,16379,2588%

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(3) Other receivables

31 December 201831 December 2017
Other receivables2,838,1702,706,912
Interests receivable175,928152,430
3,014,0982,859,342
Less: Provision for bad debts(42,730)(49,344)
2,971,3682,809,998
31 December 201831 December 2017
Within 1 year2,629,5582,596,908
1 to 2 years118,04964,118
2 to 3 years60,25935,284
3 to 5 years20,9006,907
Over 5 years9,4043,695
2,838,1702,706,912
31 December 201831 December 2017
Carrying amountProvision for bad debtsCarrying amountProvision for bad debts
Amount% of total balanceAmountRatioAmount% of total balanceAmountRatio
With amounts that are individually significant and that the related provision for bad debts is provided on the individual basis169,3155.97%--64,7602.39%--
Provision for bad debts on the age grouping basis2,668,85594.03%42,7301.60%2,642,15297.61%49,3441.87%
2,838,170100.00%42,7301.51%2,706,912100.00%49,3441.82%

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(3) Other receivables (Cont’d)

As at 31 December 2018, other receivables with amounts that were individually significant but thatthe related provision for bad debts was provided on the individual basis were analysed as follows:

Carrying amountProvision for bad debtsRatioReasons
China Securities Depository and Clearing Corporation Limited Shenzhen Branch169,315--Receivables related to share options without bad debt risks
AmountProvision for bad debts% of total balance
Total amount of the five largest other receivables540,5547,18519%

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(4) Advances to suppliers

31 December 201831 December 2017
Prepayments for raw materials and others2,215,8881,672,248
31 December 201831 December 2017
Amount% of total balanceAmount% of total balance
Within 1 year2,112,34395.33%1,620,20796.89%
1 to 2 years78,7643.55%36,6892.19%
2 to 3 years11,8700.54%5,6620.34%
Over 3 years12,9110.58%9,6900.58%
2,215,888100.00%1,672,248100.00%
Amount% of total balance
Total amount of the five largest advances to suppliers696,81931%

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(5) Loans and advances to customers

(a) Financial enterprises' loans and advances analysed by individual and corporation are as follows:

31 December 201831 December 2017
Loans and advances to individuals894,392567,998
Loans and advances to corporations10,588,00611,778,609
Including: Loans4,702,3082,599,038
Discounted bills5,885,6989,179,571
11,482,39812,346,607
Less: Provision for loan losses(154,006)(167,654)
11,328,39212,178,953
31 December 201831 December 2017
Unsecured loans814,657389,057
Guaranteed loans614,688256,112
Loans secured by monetary assets10,053,05311,701,438
11,482,39812,346,607
Less: Provision for loan losses(154,006)(167,654)
11,328,39212,178,953
31 December 201831 December 2017
Carrying amountProvision for declines in the value of inventoriesCarrying amountCarrying amountProvision for declines in the value of inventoriesCarrying amount
Finished goods18,600,407(320,022)18,280,38517,625,714(160,843)17,464,871
Raw materials5,181,916(60,822)5,121,0945,680,125(46,139)5,633,986
Work in progress2,040,228-2,040,2282,040,630-2,040,630
Consigned processing materials239,741-239,741221,842-221,842
Low value consumables38,763-38,76359,370-59,370
Projects completed but unsettled3,924,807-3,924,8074,023,467-4,023,467
30,025,862(380,844)29,645,01829,651,148(206,982)29,444,166

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(6) Inventories (Cont'd)

(b) Provision for decline in the value of inventories is analysed as follows:

31 December 2017Increase in the current yearDecrease in the current yearDifferences on translation of foreign currency31 December 2018
ProvisionReversal or written-offfinancial statements
Finished goods160,843587,243(418,695)(9,369)320,022
Raw materials46,13944,972(30,720)43160,822
206,982632,215(449,415)(8,938)380,844
Specific basis for determining net realisable valueReason for the write-off of provision for decline in the value of inventories in the current year
Finished goodsStated at the lower of cost and net realisable valueSales
Raw materialsStated at the lower of cost and net realisable valueRequisition for production
31 December 201831 December 2017
Available-for-sale financial assets - wealth management products (a)1,521,00722,094,715
Structural deposits and swap deposits70,402,50919,252,086
VAT input to be deducted2,803,3152,988,800
Prepaid expenses647,648639,409
Others1,099,3481,719,831
76,473,82746,694,841

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(8) Available-for-sale financial assets

31 December 201831 December 2017
Measured at fair value
- Available-for-sale equity instruments (a)1,187,146120,965
Measured at cost
- Available-for-sale equity instruments (b)722,0191,712,340
1,909,1651,833,305
Less: Provision for impairment of available-for-sale financial assets(2,287)(2,254)
1,906,8781,831,051
31 December 201831 December 2017
Investment in associates (a)2,713,3162,633,698
Less: Provision for impairment of long-term equity investments--
2,713,3162,633,698

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(10) Fixed assets

BuildingsLandMachinery and equipmentMotor vehiclesElectronic equipment and othersTotal
Cost
31 December 201716,760,1571,090,52717,892,971779,2793,635,38340,158,317
Increase in the current year
Purchase192,59433,5181,425,82827,442833,1552,512,537
Transfers from construction in progress152,490-161,321-81,840395,651
Increase by business combinations65,286107,99923,2591,2973,925201,766
Others289,241-7,857--297,098
Decrease in the current year
Disposal and retirement(92,870)(227)(627,648)(62,513)(421,790)(1,205,048)
Differences on translation of foreign currency financial statements29,49357,43451,5261,93619,206159,595
31 December 201817,396,3911,289,25118,935,114747,4414,151,71942,519,916
Accumulated depreciation
31 December 20175,734,279-8,932,987434,5152,429,55017,531,331
Increase in the current year
Provision845,679-1,746,52798,235671,6343,362,075
Others32,804-275--33,079
Decrease in the current year
Disposal and retirement(52,600)-(451,614)(55,991)(337,223)(897,428)
Differences on translation of foreign currency financial statements1,747-7,58731310,71920,366
31 December 20186,561,909-10,235,762477,0722,774,68020,049,423
Provision for impairment loss
31 December 20173,925-21,84621827326,262
Increase in the current year
Provision2,9745,6812,688-19611,539
Decrease in the current year
Disposal and retirement(304)-(4,802)(19)(28)(5,153)
Differences on translation of foreign currency financial statements7916837574633
31 December 20186,6745,84920,10720644533,281
Carrying amount
31 December 201810,827,8081,283,4028,679,245270,1631,376,59422,437,212
31 December 201711,021,9531,090,5278,938,138344,5461,205,56022,600,724

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(11) Construction in progress

(a) Movement of significant projects of construction in progress

31 December 2017Increase in the current yearTransfer to fixed assets31 December 2018Accumulative amount of capitalised borrowing costsIncluding: Borrowing costs capitalised in the current yearCapitalisation rate of borrowing costs for the current yearSource of funds
Transfer to Intangible assetsOther decreasesDifference on translation of foreign currency financial statements
Carrying amountCarrying amount
Kuka Toledo Production Operations281,355865,853---5,6121,152,820---Self-financing
Other projects598,221858,882(395,651)(108,013)(35,312)6,674924,801---Self-financing
879,5761,724,735(395,651)(108,013)(35,312)12,2862,077,621---

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(12) Intangible assets

Land use rightsPatents and non-patent technologiesTrademark rightsTrademark use rightsOthersTotal
Cost
31 December 20173,862,4492,039,9584,948,9672,433,5425,653,31218,938,228
Increase in the current year
Purchase824,46439,44212,531-467,9851,344,422
Increase by business combinations16,97824,300--445,361486,639
Transfers from construction in progress----108,013108,013
Decrease in the current year
Disposal(117,037)(50,167)--(2,013,692)(2,180,896)
Others(603)----(603)
Differences on translation of foreign currency financial statements6068,31643,905168,33860,786281,951
31 December 20184,586,8572,061,8495,005,4032,601,8804,721,76518,977,754
Accumulated amortisation
31 December 2017752,029418,26040,19999,9602,448,6933,759,141
Increase in the current year
Provision95,276105,55934,01159,453740,6461,034,945
Decrease in the current year
Disposal(28,529)(38,676)--(1,984,309)(2,051,514)
Others(219)----(219)
Differences on translation of foreign currency financial statements4733,2699668,67523,20536,588
31 December 2018819,030488,41275,176168,0881,228,2352,778,941
Provision for impairment loss
31 December 2017-10,738--1,31312,051
Increase in the current year
Provision------
Decrease in the current year
Disposal-(126)--(143)(269)
Differences on translation of foreign currency financial statements-339--17356
31 December 2018-10,951--1,18712,138
Carrying amount
31 December 20183,767,8271,562,4864,930,2272,433,7923,492,34316,186,675
31 December 20173,110,4201,610,9604,908,7682,333,5823,203,30615,167,036

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(13) 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:

31 December 201831 December 2017
Goodwill-
Wuxi Little Swan Company Limited1,361,3061,361,306
TLSC2,881,7602,695,355
KUKA Group22,330,62322,202,569
Others2,526,7012,644,555
29,100,39028,903,785
Less: Provision for impairment--
29,100,39028,903,785

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(14) Long-term prepaid expenses

Long-term prepaid expenses mainly include expenses prepaid for software, consulting andproject reconstruction.

(15) Deferred tax assets and deferred tax liabilities

(a) Deferred tax assets before offsetting

31 December 201831 December 2017
Deductible temporary differences and deductible lossesDeferred tax assetsDeductible temporary differences and deductible lossesDeferred tax assets
Deductible losses1,844,308558,8961,482,569442,219
Provision for asset impairments1,332,124272,2271,121,334249,163
Employee benefits payable1,371,756330,9231,294,431291,511
Other current liabilities16,549,4273,572,03915,398,4073,279,340
Others5,201,7461,087,2803,544,103894,981
26,299,3615,821,36522,840,8445,157,214
Including:
Expected to be recovered within one year (inclusive)4,755,7204,442,885
Expected to be recovered after one year1,065,645714,329
5,821,3655,157,214
31 December 201831 December 2017
Taxable temporary differencesDeferred tax liabilitiesTaxable temporary differencesDeferred tax liabilities
Changes in fair value49,93911,131482,09246,086
Business combination involving enterprise not under common control12,533,1883,663,69112,152,0773,595,258
Others8,308,9002,147,3044,723,1281,465,359
20,892,0275,822,12617,357,2975,106,703
Including:
Expected to be recovered within one year (inclusive)1,194,8711,001,770
Expected to be recovered after one year4,627,2554,104,933
5,822,1265,106,703

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(15) Deferred tax assets and deferred tax liabilities (Cont’d)

(c) The net balances of deferred tax assets and liabilities after offsetting are as follows:

31 December 201831 December 2017
Balance after offsettingBalance after offsetting
Deferred tax assets4,421,3134,023,334
Deferred tax liabilities4,422,0743,972,823
31 December 2017Increase in the current yearDecrease in the current yearDifference on translation of foreign currency financial statements31 December 2018
ReversalWrite-off
Provision for bad debts1,098,395348,454(172,160)(123,274)27,4301,178,845
Including: Provision for bad debts of accounts receivable881,397334,946(137,346)(123,274)26,386982,109
Provision for impairment of loans167,654-(13,648)--154,006
Provision for bad debts of other receivables49,34413,508(21,166)-1,04442,730
Provision for decline in the value of inventories206,982632,215(372,184)(77,231)(8,938)380,844
Provision for impairment of available-for-sale financial assets2,254---332,287
Provision for impairment of fixed assets26,26211,539-(5,153)63333,281
Provision for impairment of intangible assets12,051--(269)35612,138
Provision for impairment of investment properties12,576----12,576
1,358,520992,208(544,344)(205,927)19,5141,619,971
31 December 201831 December 2017
Cash at bank and on hand
Including: Cash at bank (Note4 (1))5,686,6293,540,237
Other cash balances (Note 4(1))123,197267,259
Legal reserves with the Central Bank (Note 4(1))1,126,1721,835,051
Deposits with banks and other financial institutions (Note 4(1))3,000,00020,800,000
9,935,99826,442,547

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(18) Notes and accounts payable

31 December 201831 December 2017
Notes payable (a)23,325,11525,207,785
Accounts payable (b)36,901,62635,144,777
60,226,74160,352,562
(a)Notes payable
31 December 201831 December 2017
Bank acceptance notes23,325,11525,207,785
31 December 201831 December 2017
Materials cost payable32,605,43731,009,375
Others4,296,1894,135,402
36,901,62635,144,777

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(19) Advances from customers

31 December 201831 December 2017
Advances on sales14,521,80915,738,208
Settled but not completed2,259,8571,670,855
16,781,66617,409,063
31 December 201831 December 2017
Short-term employee benefits payable (a)5,624,9185,063,266
Others163,086184,234
5,788,0045,247,500
31 December 2017Increase in current yearDecrease in current year31 December 2018
Wages and salaries, bonus, allowances and subsidies4,622,44721,291,809(20,857,237)5,057,019
Staff welfare264,2741,495,358(1,352,227)407,405
Social security contributions107,0131,597,142(1,602,863)101,292
Including: Medical insurance103,8011,531,135(1,536,284)98,652
Work injury insurance2,27837,017(37,362)1,933
Maternity insurance93428,990(29,217)707
Housing funds22,129373,888(365,386)30,631
Labour union funds and employee education funds18,821119,534(119,045)19,310
Other short-term employee benefits28,582113,448(132,769)9,261
5,063,26624,991,179(24,429,527)5,624,918

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(21) Taxes payable

31 December 201831 December 2017
Corporate income tax payable2,530,0182,277,595
Unpaid VAT853,187664,196
Others492,093602,363
3,875,2983,544,154
31 December 201831 December 2017
Other payables3,140,0823,170,405
Interest payable94,85294,801
Dividends payable111,19595,317
3,346,1293,360,523
31 December 201831 December 2017
Current portion of debentures payable (a)4,797,644-
Current portion of long-term borrowings (Note 4(25))2,166,041-
Current portion of long-term payables159,027136,605
7,122,712136,605

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(24) Other current liabilities

31 December 201831 December 2017
Accrued sales rebate19,583,36617,240,015
Accrued installation and maintenance expenses5,634,3234,171,520
Accrued sales promotion expenses1,780,2461,288,509
Accrued transportation expenses688,536596,877
Others3,633,2382,961,069
31,319,70926,257,990
31 December 201831 December 2017
Mortgage borrowings (a)29,049,58028,922,008
Guaranteed borrowings (b)2,126,6182,114,423
Unsecured3,081,2821,949,894
34,257,48032,986,325
Less: Current portion of mortgage borrowings (Note 4(23))(39,236)-
Current portion of guaranteed borrowings (Note 4(23))(2,126,618)
Current portion of unsecured (Note 4(23))(187)-
32,091,43932,986,325

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)(26) Long-term employee benefits payable

31 December 201831 December 2017
Supplementary retirement benefits (a)2,329,6522,330,599
Others150,666135,255
2,480,3182,465,854

(a) Supplementary retirement benefits

Supplementary retirement benefits obligation of the Group recognised in the balance sheetdate is calculated using the projected unit credit method, and reviewed by externalindependent actuary institution.(i) The Group’s supplementary retirement benefits liabilities

31 December 201831 December 2017
Defined benefit obligation4,034,9983,963,809
Less: Fair value of planned assets(1,705,346)(1,633,210)
Liabilities of defined benefit obligation2,329,6522,330,599

(ii) The actuarial assumptions used to determine the present value of defined benefit obligation

31 December 2018Discount rate

Discount rate0.04%-9.60%
Inflation rate1.13%
Expected return on assets0.85%-9.60%
Salary growth rate0.5%-6.0%
Benefit growth rate0.0%-5.83%

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(27) Other non-current liabilities

Other non-current liabilities are mainly payable for equity acquisition.

(28) Share capital

31 December 2017Movements in current year31 December 2018
Share-based payment incentive plan (a)DesterilisationRepurchases and write-offsSub-total
RMB-denominated ordinary shares -
RMB-denominated ordinary shares subject to trading restriction212,02325,955(89,102)(1,701)(64,848)147,175
RMB-denominated ordinary shares not subject to trading restriction6,349,03077,72489,102-166,8266,515,856
6,561,053103,679-(1,701)101,9786,663,031
31 December 2016Movements in current year31 December2017
Share-based payment incentive plan (a)DesterilisationSub-total
RMB-denominated ordinary shares -
RMB-denominated ordinary shares subject to trading restriction279,04523,130(90,152)(67,022)212,023
RMB-denominated ordinary shares not subject to trading restriction6,179,72279,15690,152169,3086,349,030
6,458,767102,286-102,2866,561,053

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(29) Treasury stock

31 December 2017Increase in current yearDecrease in current year31 December 2018
Restricted stocks locked366,842717,841(166,512)918,171
Repurchased shares that have not yet written off-4,000,256-4,000,256
366,8424,718,097(166,512)4,918,427

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(30) Capital surplus

31 December 2017Increase in current yearDecrease in current year31 December 2018
Share premium (a)11,908,4752,596,878(27,109)14,478,244
Share-based payment incentive plan (b)943,243825,330(468,918)1,299,655
Others (c)3,059,78621,902(408,280)2,673,408
15,911,5043,444,110(904,307)18,451,307
31 December 2016Increase in current yearDecrease in current year31 December 2017
Share premium9,961,4501,947,025-11,908,475
Share-based payment incentive plan617,238735,326(409,321)943,243
Others3,017,88141,905-3,059,786
13,596,5692,724,256(409,321)15,911,504

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(31) Other comprehensive income

Other comprehensive income in the balance sheetOther comprehensive income in the income statement for the year ended 31 December 2018
31 December 2017Attributable to the Company after tax31 December 2018Amount arising before income taxLess: Reclassification of previous other comprehensive income to profit or lossLess: Income tax expensesAttributable to the Company after taxAttributable to minority shareholders after tax
Other comprehensive income items which will not be reclassified to profit or loss
Changes arising from remeasurement of net liability or net asset of defined benefit plan51,091(1,023)50,068(8,397)-5,194(1,023)(2,180)
Other comprehensive income items which will be reclassified to profit or loss
Share of the other comprehensive income of the investee accounted for using equity method which will be reclassified to profit and loss(111,070)51,924(59,146)51,701--51,924(223)
Gains or losses arising from changes in fair value of available-for-sale financial assets151,781(489,228)(337,447)(343,741)(175,256)9,287(489,228)(20,482)
Effective portion of gains or losses on hedging instruments in a cash flow hedge323,147(424,417)(101,270)(107,675)(358,980)31,750(424,417)(10,488)
Difference on translation of foreign currency financial statement(659,641)(224,717)(884,358)(319,708)--(224,717)(94,991)
(244,692)(1,087,461)(1,332,153)(727,820)(534,236)46,231(1,087,461)(128,364)
Other comprehensive income in the balance sheetOther comprehensive income in the income statement for the year ended 31 December 2017
31 December 2016Attributable to the Company after tax31 December 2017Amount arising before income taxLess: Reclassification of previous other comprehensive income to profit or lossLess: Income tax expensesAttributable to the Company after taxAttributable to minority shareholders after tax
Other comprehensive income items which will not be reclassified to profit or loss
Changes arising from remeasurement of net liability or net asset of defined benefit plan82,223(31,132)51,091(15,317)-(15,584)(31,132)231
Other comprehensive income items which will be reclassified to profit or loss
Share of the other comprehensive income of the investee accounted for using equity method which will be reclassified to profit and loss(75,053)(36,017)(111,070)(36,017)--(36,017)-
Gains or losses arising from changes in fair value of available-for-sale financial assets392,378(240,597)151,781147,634(408,968)6,197(240,597)(14,540)
Effective portion of gains or losses on hedging instruments in a cash flow hedge4,594318,553323,147358,980(5,086)(24,870)318,55310,471
Difference on translation of foreign currency financial statement(391,017)(268,624)(659,641)(317,597)--(268,624)(48,973)
13,125(257,817)(244,692)137,683(414,054)(34,257)(257,817)(52,811)

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(32) Surplus reserve

31 December 2017Increase in current year31 December 2018
Statutory surplus reserve3,882,2321,196,8645,079,096
31 December 2016Increase in current year31 December 2017
Statutory surplus reserve2,804,4691,077,7633,882,232
20182017
Undistributed profits at beginning of year47,627,23538,105,391
Add: Net profit attributable to shareholders of the Company for current year20,230,77917,283,689
Less: Ordinary share dividends payable (a)(7,898,785)(6,465,677)
Appropriation to general reserve (b)-(218,345)
Others(50)(60)
Appropriation to statutory surplus reserve (Note 4(32))(1,196,864)(1,077,763)
Undistributed profit at end of year58,762,31547,627,235

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(33) Undistributed profits (Cont’d)

(b) General reserve

In 2018, according to the Administrative Measures for the Provision of Reserves of FinancialEnterprises issued by the Ministry of Finance (MOF), no provision for general reserve wasrequired (2017: RMB 218,345,000) at 1.5% of the balance of financial enterprise risk assetsnet of recognised loan impairment provision.

(34) Transactions with minority shareholders

The Group acquired the interest from minority shareholders of Welling Holding andChongqing Midea General with cash consideration of RMB 1,806,430,000. The differencebetween the cash consideration paid at the acquisition date and the carrying amount of theminority interests was recorded as capital reserve.

Welling Holding and Chongqing Midea General
Cash consideration1,806,430
Less: Carrying amount of minority interests at the acquisition date(1,440,998)
365,432
20182017
Revenue from main operations240,980,548223,489,906
Other operating income18,684,27217,222,395
259,664,820240,712,301
20182017
Cost of sales from main operations171,493,579164,794,821
Cost of sales from other operations16,670,97815,665,731
188,164,557180,460,552

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(35) Revenue and cost of sales (Cont’d)

(a) Revenue and cost of sales from main operations

20182017
RevenueCost of salesRevenueCost of sales
Heating & ventilation, as well as air-conditioner109,394,64975,886,32695,352,44967,664,335
Consumer appliances102,992,80372,959,46698,748,01871,722,720
Robots and automatic system25,677,92419,809,99727,037,06223,123,363
Others2,915,1722,837,7902,352,3772,284,403
240,980,548171,493,579223,489,906164,794,821
20182017
RevenueCost of salesRevenueCost
Revenue from sales of material16,573,66616,130,03215,446,55915,065,383
Others2,110,606540,9461,775,836600,348
18,684,27216,670,97817,222,39515,665,731
20182017
Interest income from loans and advances844,382788,262
Including: Interest income from loans and advances to corporations and individuals403,407301,819
Interest income from note discounting440,975486,443
Interest income from deposits with banks, other financial institutions and Central Bank1,310,010418,320
Interest income2,154,3921,206,582
Interest expenses(189,490)(250,925)
1,964,902955,657

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(37) Taxes and surcharges

20182017
City maintenance and construction tax695,858588,019
Educational surcharge505,347427,182
Others416,361401,227
1,617,5661,416,428
20182017
Selling and distribution expenses31,085,87926,738,673
20182017
General and administrative expenses9,571,6397,510,102

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(40) Research and development expenses

20182017
Research and development expenses8,377,2017,270,134
20182017
Interest costs703,991967,208
Less: Interest income(2,155,862)(1,143,837)
Exchange gains or losses(485,298)863,185
Others114,129129,393
(1,823,040)815,949
20182017
Losses on bad debts (Note 4(2))189,942182,592
Losses on decline in the value of inventories (Note 4(6))260,03141,811
Impairment loss on fixed assets (Note 4(10))11,5398,937
Impairment loss on intangible assets (Note 4(12))-5,866
Impairment loss on available-for-sale financial assets (Note 4(8))-2,114
(Reversal)/Loss of impairment of loans (Note 4(5))(13,648)27,792
447,864269,112
20182017
Financial instruments at fair value through profit or loss -
derivative financial instruments(810,450)(25,045)

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(44) Investment income

20182017
Investment income from wealth management products504,556977,648
Investment (loss)/income from disposal of
financial assets at fair value through profit or loss(31,958)102,530
Income from long-term equity investments under equity method349,321310,016
Others85,407440,027
907,3261,830,221
20182017
Gains on disposal of non-current assets82,4251,472,191
Losses on disposal of non-current assets(117,359)(144,940)
(34,934)1,327,251
20182017Asset related/ Income related
Special subsidy1,316,9041,283,160Income related
Special subsidy-27,963Assets related
1,316,9041,311,123

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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

20182017
Current income tax calculated based on tax law and related regulations4,096,3315,077,050
Deferred income tax26,308(1,833,466)
4,122,6393,243,584
20182017
Total profit25,773,05821,854,774
Income tax calculated at tax rate of 25%6,443,2655,463,694
Effect of different tax rates applicable to subsidiaries(1,792,394)(1,448,532)
Effect of income tax annual filing for prior periods(91,527)(119,749)
Income not subject to tax(189,499)(208,481)
Costs, expenses and losses not deductible for tax purposes385,662200,729
Utilisation of previous temporary differences not realised as deferred tax assets(2,255)(31,620)
Others(630,613)(612,457)
Income tax expenses4,122,6393,243,584
Unit20182017
Consolidated net profit attributable to ordinary shareholders of the CompanyRMB'00020,230,77917,283,689
Less: Dividends payable to restricted sharesRMB'000(23,538)-
20,207,24117,283,689
Weighted average number of outstanding ordinary sharesThousands shares6,561,2976,492,259
Basic earnings per shareRMB Yuan/share3.082.66
Including:
- Basic earnings per share from continuing operations:3.082.66
- Basic earnings per share for discontinued operations:--

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

4 Notes to the consolidated financial statements (Cont’d)

(48) Calculation of basic and diluted earnings per share (Cont'd)

(b) Diluted earnings per share are calculated by dividing consolidated net profit attributable to

ordinary shareholders of the Company by the diluted weighted average number ofoutstanding ordinary shares:

Unit20182017
Consolidated net profit attributable to ordinary shareholders of the CompanyRMB'00020,230,77917,283,689
Weighted average number of outstanding ordinary sharesThousands shares6,561,2976,492,259
Weighted average number of ordinary shares increased from share-based paymentThousands shares69,39573,658
Weighted average number of diluted outstanding ordinary sharesThousands shares6,630,6926,565,917
Diluted earnings per shareRMB Yuan/share3.052.63
20182017
Other income1,327,4551,224,953
Other operating income2,284,3171,666,452
Non-operating income418,984497,376
Financial expenses - interest income323,352252,002
Others1,204,1131,130,253
5,558,2214,771,036
20182017
Selling and distribution expenses (excluding employee benefits and taxes and surcharges)22,942,70421,351,785
General and administrative expenses and research and development expenses (excluding employee benefits and taxes and surcharges)8,971,9227,204,414
Others486,046583,721
32,400,67229,139,920

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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)

(c) Supplementary information to the cash flow statement

Reconciliation of net profit to cash flow from operating activities is as follows:

20182017
Net profit21,650,41918,611,190
Add: Provisions for asset impairment447,864269,112
Depreciation and amortisation4,817,4566,695,877
Net gains on disposal of non-current assets(34,934)(1,327,251)
Losses on changes in fair value810,45025,045
Financial (income)/losses(1,265,831)32,845
Investment income(907,326)(1,830,221)
Share options expenses942,753841,566
Increase in deferred tax assets(360,724)(635,894)
Decrease/(Increase) in deferred tax liabilities478,982(1,055,005)
Increase in inventories(77,387)(7,730,304)
Increase in operating receivables(17,867,374)(10,314,517)
Increase in operating payables19,226,73220,860,180
Net cash flows from operating activities27,861,08024,442,623
Net increase/(decrease) in cash and cash equivalents:
Cash and cash equivalents at end of year17,952,28221,831,653
Less: Cash and cash equivalents at beginning of year(21,831,653)(12,513,730)
Net decrease in cash and cash equivalents(3,879,371)9,317,923

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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

31 December 201831 December 2017
Cash on hand3,8034,589
Cash at bank that can be readily drawn on demand10,170,78418,413,969
Deposits with the Central Bank that can be readily drawn on demand204,073305,963
Deposits with banks and other financial institutions that can be readily drawn on demand7,573,6223,107,132
Cash and cash equivalents at end of year17,952,28221,831,653

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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 currencies

31 December 2018
Foreign currency balanceExchange rateRMB balance
Cash at bank and on hand
USD1,395,1906.86329,575,470
JPY2,338,4330.0619144,749
HKD260,1110.8762227,909
EURO120,3077.8473944,084
BRL209,2971.7714370,748
VND123,516,6670.000337,055
Other currenciesNot applicableNot applicable1,010,028
Sub-total12,310,043
Notes and accounts receivable
USD932,6956.86326,401,272
JPY24,107,9160.06191,492,280
HKD16,2360.876214,226
EURO336,7107.84732,642,265
BRL524,0321.7714928,271
VND1,148,340,0000.0003344,502
Other currenciesNot applicableNot applicable1,477,430
Sub-total13,300,246
Other receivables
USD124,8886.8632857,132
JPY2,067,9320.0619128,005
HKD18,6480.876216,339
EURO74,4087.8473583,899
BRL15,8271.771428,036
Other currenciesNot applicableNot applicable156,264
Sub-total1,769,675
Total27,379,964

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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 dominated in foreign currency (Cont’d)

31 December 2018
Foreign currency balanceExchange rateRMB balance
Short-term borrowings
USD22,1696.8632152,148
EURO27,7447.8473217,714
BRL92,0001.7714162,969
Other currenciesNot applicableNot applicable219,956
Sub-total752,787
Notes and accounts payable
USD300,7616.86322,064,186
JPY24,045,7510.06191,488,432
HKD57,0620.876249,998
EURO213,1167.84731,672,382
BRL106,5041.7714188,662
Other currenciesNot applicableNot applicable664,097
Sub-total6,127,757
Other payables
USD21,7656.8632149,379
JPY5,035,7190.0619311,711
HKD153,8110.8762134,769
EURO21,0647.8473165,293
Other currenciesNot applicableNot applicable70,231
Sub-total831,383
Current portion of non-current liabilities
USD699,0396.86324,797,644
EURO276,0247.84732,166,041
Other currenciesNot applicableNot applicable159,027
Sub-total7,122,712
Long-term borrowings
USD162,9186.86321,118,139
EURO3,946,4647.847330,969,089
BRL8461.77141,499
Other currenciesNot applicableNot applicable2,712
Sub-total32,091,439
Total46,926,078

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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 dominated in foreign currency (Cont’d)

31 December 2017
Foreign currency balanceExchange rateRMB balance
Cash at bank and on hand
USD1,601,3246.534210,463,372
JPY2,292,0900.0579132,712
HKD167,1380.8359139,711
EURO181,6097.80231,416,970
BRL173,1131.9755341,985
VND329,843,3330.000398,953
Other currenciesNot applicableNot applicable789,665
Sub-total13,383,368
Notes and accounts receivable
USD969,7556.53426,336,575
JPY26,231,6230.05791,518,811
HKD52,5430.835943,921
EURO283,7157.80232,213,627
BRL480,8081.9755949,836
VND1,441,706,6670.0003432,512
Other currenciesNot applicableNot applicable1,452,927
Sub-total12,948,209
Other receivables
USD48,7776.5342318,717
JPY2,234,1110.0579129,355
HKD7230.8359604
EURO50,8047.8023396,390
BRL44,1341.975587,187
Other currenciesNot applicableNot applicable208,022
Sub-total1,140,275
Total27,471,852

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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 dominated in foreign currency (Cont’d)

31 December 2017
Foreign currency balanceExchange rateRMB balance
Short-term borrowings
USD258,3286.53421,687,965
HKD59,5540.835949,781
EURO30,2337.8023235,885
BRL135,2061.9755267,100
Other currenciesNot applicableNot applicable343,371
Sub-total2,584,102
Notes and accounts payable
USD350,7356.53422,291,771
JPY18,175,1120.05791,052,339
HKD53,4680.835944,694
EURO259,3377.80232,023,424
BRL208,0881.9755411,078
Other currenciesNot applicableNot applicable1,013,751
Sub-total6,837,057
Other payables
USD54,8106.5342358,138
JPY8,281,7440.0579479,513
HKD96,6250.835980,769
EURO33,7017.8023262,945
Other currenciesNot applicableNot applicable51,418
Sub-total1,232,783
Long-term borrowings
EURO4,227,2677.802332,982,403
BRL9331.97551,843
Other currenciesNot applicableNot applicable2,079
Sub-total32,986,325
Debentures payable
USD696,8046.53424,553,054
Total48,193,321

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

5Changes of consolidation scope
(1)Business combinations involving enterprises not under common control
(a)Business combinations involving enterprises not under common control in current year
(2)Changes in consolidation scope due to other reasons
(a)Increase of consolidation scope
(b)Decrease of consolidation scope
Name of companyDisposal method of the equityDisposal time-point of the equity
Wuhan Midea Material Supplies Co., Ltd.DeregistrationMarch 2018
Changzhou Annto Logistics Company LimitedDeregistrationAugust 2018
Weifang Meian Logistics Company LimitedDeregistrationDecember 2018
Clivet Aircon LimitedDeregistrationDecember 2018

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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

SubsidiariesMajor business locationPlace of registrationNature of businessShareholding (%)Acquisition method
DirectIndirect
GD Midea Air-Conditioning Equipment Co.,Ltd..Foshan, PRCFoshan, PRCManufacture and sales of air conditioner73%7%Business combinations involving enterprises not under common control
GD Midea Group Wuhu Air-Conditioning Equipment Co.,Ltd.Wuhu, PRCWuhu, PRCManufacture and sales of air conditioner73%7%Business combinations involving enterprises not under common control
Midea Group Wuhan Refrigeration Equipment Co.,Ltd..Wuhan, PRCWuhan, PRCManufacture of air conditioner73%7%Establishment
Wuhu Maty Air-Conditioning Equipment Co., LtdWuhu, PRCWuhu, PRCManufacture of air conditioner88%12%Establishment
GD Midea Heating & Ventilating Equipment Co., Ltd.Foshan, PRCFoshan, PRCManufacture of air conditioner90%10%Establishment
Zhejiang Meizhi Compressor Co., Ltd.Ningbo, PRCNingbo, PRCManufacture of air conditioner100%-Establishment
Hefei Midea Refrigerator Co., Ltd.Hefei, PRCHefei, PRCManufacture of refrigerator75%25%Business combinations involving enterprises not under common control
Ningbo Midea United Material Supply Co., Ltd.Ningbo, PRCNingbo, PRCManufacture of air conditioner100%-Business combinations involving enterprises under common control
Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd.Foshan, PRCFoshan, PRCManufacture of small household appliances-100%Establishment
Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd.Foshan, PRCFoshan, PRCManufacture of small household appliances-100%Establishment
Wuxi Little Swan Company LimitedWuxi, PRCWuxi, PRCManufacture of washing machine38%15%Business combinations involving enterprises not under common control
Midea Electric Trading (Singapore) Co.,Pte. Ltd.SingaporeSingaporeExport trade-100%Establishment

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

6 Interests in other entities (Cont'd)(1) Interest in subsidiaries (Cont'd)(a) Composition of significant subsidiaries (Cont'd)

SubsidiariesMajor business locationPlace of registrationNature of businessShareholding (%)Acquisition method
DirectIndirect
Midea Group Finance Co., Ltd.Foshan, PRCFoshan, PRCFinancial industry95%5%Establishment
Midea Microfinance Co., Ltd.Wuhu, PRCWuhu, PRCPetty loan5%95%Business combinations involving enterprises not under common control
Mecca International (BVI) LimitedBritish Virgin IslandsBritish Virgin IslandsInvestment holding-100%Establishment
Midea International Corporation Company LimitedHong KongHong KongInvestment holding100%-Establishment
Midea Investment Development Company LimitedBritish Virgin IslandsBritish Virgin IslandsInvestment holding-100%Establishment
Wuhu Midea Life Appliances Mfg Co., Ltd.Wuhu, PRCWuhu, PRCManufacture of small household appliances100%-Establishment
Midea Electric Netherlands (I) B.V.NetherlandsNetherlandsInvestment holding-100%Establishment
Toshiba Consumer Marketing CorporationJapanJapanManufacture of home appliances-100%Business combinations involving enterprises not under common control
TLSCJapanJapanManufacture of home appliances-100%Business combinations involving enterprises not under common control
KUKAGermanyGermanyManufacture and sales of robots-94.55%Business combinations involving enterprises not under common control

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

6 Interests in other entities (Cont'd)
(1) Interest in subsidiaries (Cont'd)
(b)Subsidiaries that have significant minority interests
SubsidiariesShareholding of minority shareholdersTotal profit or loss attributable to minority shareholders for the year ended 31 December 2018Dividends paid to minority shareholders for the year 2018Minority interests as at 31 December 2018
Wuxi Little Swan Company Limited47.33%880,771299,3353,824,250
31 December 201831 December 2017
Current assetsNon-current assetsTotal assetsCurrent liabilitiesNon-current liabilitiesTotal liabilitiesCurrent assetsNon-current assetsTotal assetsCurrent liabilitiesNon-current liabilitiesTotal liabilities
Wuxi Little Swan Company Limited21,693,3511,868,54823,561,89913,762,11951,21813,813,33719,564,9741,773,44721,338,42113,103,35916,76413,120,123
20182017
RevenueNet profitTotal comprehensive incomeCash flows from operating activitiesRevenueNet profitTotal comprehensive incomeCash flows from operating activities
Wuxi Little Swan Company Limited23,636,9292,130,9952,081,8142,624,89321,384,6991,708,4201,669,0742,015,754

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB'000 Yuan unless otherwise stated)[English translation for reference only]

6 Interests in other entities (Cont'd)

(3) Interest in associates

The Group’s associates have no significant influence on the Group and are summarised asfollows:

20182017
Aggregated carrying amount of investments2,713,3162,633,698
Aggregate of the following items in proportion
Net profit (i)349,321310,016
Other comprehensive income (i)51,924(36,017)
Total comprehensive income401,245273,999
(i) The net profit and other comprehensive income have taken into account the impacts of both the fair value of the identifiable assets and liabilities upon the acquisition of investment in joint ventures and associates and the unification of accounting policies adopted by the joint ventures and the associates to those adopted by the Company.

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

8 Segment reporting

(a) Information on the profit or loss, assets and liabilities of reported segment

Segment information as at and for the year ended 31 December 2018 is as follows:

Heating & ventilation, as well as air-conditioner segmentConsumer appliances segmentRobots and automatic system segmentOther segmentsand unallocatedEliminationTotal
Revenue from external customers123,750,494106,076,74325,767,1376,225,261-261,819,635
Inter-segment revenue1,517,400637,02170,4216,496,010(8,720,852)-
Operating expenses(113,945,146)(95,343,482)(26,280,261)(10,969,939)8,904,458(237,634,370)
Segment profit11,322,74811,370,282(442,703)1,751,332183,60624,185,265
Other profit or loss1,587,793
Total profit25,773,058
Total assets107,186,255104,567,40932,248,14194,734,450(75,035,107)263,701,148
Total liabilities71,901,26871,644,03926,081,58686,771,167(85,151,429)171,246,631
Long-term equity investments in associates130,66882,038111,2122,389,398-2,713,316
Investment income from associates72,022(13,897)(18,003)309,199-349,321
Increase in non-current assets (excluding available-for-sale financial assets, long-term equity investments, goodwill and deferred tax assets)2,172,0331,734,0862,226,302899,271-7,031,692
Asset impairment losses126,987166,013203,390122,744(171,270)447,864
Depreciation and amortisation1,554,3301,719,6931,019,462523,971-4,817,456

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

8 Segment reporting (Cont'd)

(a) Information on the profit or loss, assets and liabilities of reported segment (Cont’d)

Segment information as at and for the year ended 31 December 2017 is as follows:

Heating & ventilation, as well as air-conditioner segmentConsumer appliances segmentRobots and automatic system segmentOther segments and unallocatedEliminationTotal
Revenue from external customers107,940,343102,986,13127,150,0593,842,363-241,918,896
Inter-segment revenue1,869,629416,77031,2545,340,194(7,657,847)-
Operating expenses(101,012,749)(94,204,422)(28,891,893)(8,204,099)7,578,571(224,734,592)
Segment profit8,797,2239,198,479(1,710,580)978,458(79,276)17,184,304
Other profit or loss4,670,470
Total profit21,854,774
Total assets94,875,87193,312,43027,285,06382,745,760(50,112,266)248,106,858
Total liabilities63,251,58267,792,17317,308,94189,409,279(72,580,288)165,181,687
Long-term equity investments in associates289,32473,785125,2132,145,376-2,633,698
Investment income from associates59,4981,730(17,649)266,437-310,016
Increase in non-current assets (excluding available-for-sale financial assets, long-term equity investments, goodwill and deferred tax assets)1,376,8381,852,29313,551,833224,150-17,005,114
Asset impairment losses106,2672,69033,29333,94092,922269,112
Depreciation and amortisation1,580,0201,859,9722,832,389423,496-6,695,877

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

8 Segment reporting (Cont'd)

(b) Geographical area information

The Group’s revenue from external customers domestically and in foreign countries orgeographical areas, and the total non-current assets other than available-for-sale financialassets, long-term equity investments, goodwill and deferred tax assets located domesticallyand in foreign countries or geographical areas (including Germany, Hong Kong, Macau,Singapore, Japan, Italy and Brazil, etc.) are as follows:

Revenue from external customers20182017
Domestic151,412,126137,962,864
In other countries/geographical areas110,407,509103,956,032
261,819,635241,918,896
Total non-current assets31 December 201831 December 2017
Domestic22,966,69922,684,099
In other countries/geographical areas19,903,11418,181,111
42,869,81340,865,210
Name of the parent companyRelationshipPlace of registrationNature of business
Midea Holding Co., Ltd.Controlling shareholderShunde District, FoshanCommercial
31 December 2018 and
31 December 2017
Midea Holding Co., Ltd.330,000

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

9 Related parties and significant related party transactions (Cont’d)(1) Information of the parent company (Cont'd)(c) The percentages of shareholding and voting rights in the Company held by the parent

company

31 December 201831 December 2017
Shareholding (%)Voting rightsShareholding (%)Voting rights
DirectIndirect(%)DirectIndirect(%)
Midea Holding Co., Ltd.33.20%-33.20%33.71%-33.71%

(2) Information of the Company's subsidiaries

Please refer to Note 6(1) for the information of the Company’s main subsidiaries.(3) Information of other related parties

Name of other related partiesRelationship
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
Orinko New Material Co., LtdUnder 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

(4) Information of related party transactions

The following related party transactions are conducted in accordance with normal

commercial terms or relevant agreements.(a) Purchase of goods:

Related partiesContent of related party transactionsPricing policies of related party transactions20182017
Guangdong Wellkey Electrician Material Co., Ltd.Purchase of goodsAgreed price813,655864,886
Foshan Micro Midea Filter MFG Co., Ltd.Purchase of goodsAgreed price227,593198,499
Anhui Wellkey Electrician Material Co., Ltd.Purchase of goodsAgreed price316,102290,512
Orinko New Material Co., LtdPurchase of goodsAgreed price332,991463,245
1,690,3411,817,142

MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

9 Related parties and significant related party transactions (Cont’d)(4) Information of related party transactions (Cont'd)(b) Remuneration of key management

31 December 201831 December 2017
Remuneration of key management41,59041,330

(5) Receivables from and payables to related parties

Receivables from related parties:

ItemsRelated parties31 December 201831 December 2017
Cash at bank and on handFoshan Shunde Rural Commercial Bank Co., Ltd.88,084459,297

Payables to related parties:

ItemsRelated parties31 December 201831 December 2017
Notes and accounts payableGuangdong Wellkey Electrician Material Co., Ltd.169,592195,860
Anhui Wellkey Electrician Material Co., Ltd.60,88573,897
Foshan Micro Midea Filter MFG Co., Ltd.59,01127,554
Orinko New Material Co., Ltd25,32116,152
314,809313,463

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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 share option incentive plan (the “Fifth Share Option Incentive Plan”)

approved at the shareholders' meeting for the year ended 31 December 2017 held duringthe year 2018, the Company granted 54,420,000 share options with exercise price of RMB56.34 to 1328 employees. Under the circumstance that the Company meets expectedperformance, 1/4 of the total share options granted will become effective after 2 years, 3years, 4 years and 5 years respectively since 7 May 2018.

Determination method for fair value of share options at the grant date

Exercise price of options:RMB 56.34
Effective period of options:6 years
Current price of underlying shares:RMB 52.4
Estimated fluctuation rate of share price:37.34%
Estimated dividend rate:2.95%
Risk-free interest rate within effective period of options:2.89%
20182017
(share options in thousands)(share options in thousands)
Share options issued at beginning of year253,541250,797
Share options granted during the year54,42098,274
Share options exercised during the year(77,724)(79,156)
Share options lapsed during the year(401)(16,374)
Share options issued at end of year229,836253,541

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(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)

(c) Impact of share option transactions on financial position and financial performance

The total share option expenses recognised for the year ended 31 December 2018 wereRMB 586,934,000 (2017: RMB 677,565,000). As at 31 December 2018, the balance relatingto the option incentive plan and accrued from capital surplus was RMB 845,670,000 (31December 2017: RMB 800,424,000).

(2) Restricted share plan

(a) Pursuant to the restricted share incentive plan for 2018 approved at the shareholders’

meeting held during the year 2018 (the "Restricted Share Incentive Plan for 2018"), theCompany granted 20,570,000 restricted shares with an exercise price of RMB 27.57 to 319employees. Under the circumstance that the Company meets expected performance, onefourth of the total share options granted will become effective after 2 years, 3 years, 4 yearsand 5 years, respectively, since 7 May 2018.

(b) Movements in restricted shares during the year

20182017
(shares in thousands)(shares in thousands)
Restricted shares issued at beginning of year28,605-
Restricted shares granted during the year20,57028,605
Restricted shares exercised during the year(7,198)-
Restricted shares lapsed during the year(1,792)-
Restricted shares issued at end of year40,18528,605

MIDEA GROUP CO., LTD.

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER 2018

(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]

10 Share-based payment (Cont'd)

(3) Employee stock ownership plan

Pursuant to the fourth stock ownership plan of the Midea Global Partner Plan (the “FourthGlobal Partner Plan”) approved at the shareholders' meeting for the year ended 31December 2