Midea Group Co., Ltd.
Semi-Annual Report 2020
August 2020
Section I Important Statements, Contents and DefinitionsThe Board of Directors, the Supervisory Committee, directors, supervisors andsenior management of Midea Group Co., Ltd. (hereinafter referred to as the“Company”) hereby guarantee that the information presented in this report is free ofany misrepresentations, misleading statements or material omissions, and shalltogether be wholly liable for the truthfulness, accuracy and completeness of itscontents.All directors of the Company attended the Board meeting to review this report.The Company plans not to distribute cash dividends or bonus shares or convertcapital reserves into share capital for the first half of 2020.Mr. Fang Hongbo, Chairman of the Board and CEO of the Company and Ms. ZhongZheng, Director of Finance of the Company, have represented and warranted that thefinancial statements in this report are true, accurate and complete.The financial statements in this report are unaudited by a CPAs firm.The future plans and some forward-looking statements mentioned in this report shallnot be considered as virtual promises of the Company to investors. Therefore,investors are kindly reminded to pay attention to possible investment risks.This report has been prepared in both Chinese and English. Should there be anydiscrepancies or misunderstandings between the two versions, the Chinese versionshall prevail.
Midea Group Co., Ltd. Semi-Annual Report 2020
Contents
SECTION I IMPORTANT STATEMENTS, CONTENTS AND DEFINITIONS ...... 2
SECTION II COMPANY PROFILE AND KEY FINANCIAL RESULTS ...... 5
SECTION III BUSINESS PROFILE ...... 9
SECTION IV PERFORMANCE DISCUSSION AND ANALYSIS ...... 18
SECTION V SIGNIFICANT EVENTS ...... 63SECTION VI CHANGES IN SHARES AND INFORMATION ABOUT SHAREHOLDERS ...... 113SECTION VII PREFERENCE SHARES ...... 122
SECTION VIII CONVERTIBLE CORPORATE BONDS ...... 123SECTION IX INFORMATION ABOUT DIRECTORS, SUPERVISORS AND SENIORMANAGEMENT ...... 124
SECTION X CORPORATE BONDS ...... 125
SECTION XI FINANCIAL REPORT ...... 126
SECTION XII DOCUMENTS AVAILABLE FOR REFERENCE ...... 218
Definitions
| Term | Definition |
| The “Company”, “Midea”, “Midea Group” or the “Group” | Midea Group Co., Ltd. |
| Midea Holding | Midea Holding Co., Ltd. |
| TLSC | Toshiba Lifestyle Products & Services Corporation |
| KUKA | KUKA Aktiengesellschaft |
| Reporting Period | 1 January 2020 to 30 June 2020 |
Section II Company Profile and Key Financial Results
1. Corporate Information
| Stock abbreviation | Midea Group | Stock code | 000333 |
| Stock exchange where the shares of the Company are listed | Shenzhen Stock Exchange | ||
| Name of the Company in Chinese | 美的集团股份有限公司 | ||
| Abbr. of the Company name in Chinese | 美的集团 | ||
| Name of the Company in English (if any) | Midea Group Co., Ltd. | ||
| Abbr. of the Company name in English (if any) | Midea Group | ||
| Legal representative | Fang Hongbo | ||
| Company Secretary | Representative for Securities Affairs | |
| Name | Jiang Peng | You Mingyang |
| Address | Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District, Foshan City, Guangdong Province, China | Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District, Foshan City, Guangdong Province, China |
| Tel. | 0757-22607708 | 0757-23274957 |
| Fax | 0757-26605456 | 0757-26605456 |
| IR@midea.com | ||
No such changes in the Reporting Period. The said information can be found in the 2019 Annual Report.
3.2 Information Disclosure and Place Where the Semi-Annual Report Is KeptChanges to the media for information disclosure and the place where materials carrying disclosedinformation such as this Report were kept in the Reporting Period:
□ Applicable √ N/A
The newspapers designated by the Company for information disclosure, the website designated by theCSRC for disclosing this Report and the place where materials carrying disclosed information such asthis Report were kept did not change in the Reporting Period. The said information can be found in the2019 Annual Report.
4. Key Accounting Data and Financial Indicators
Whether the Company performed a retroactive adjustment to or restatement of accounting data
□Yes √No
| H1 2020 | H1 2019 | Change (%) | |
| Operating revenue (RMB'000) | 139,067,022 | 153,770,300 | -9.56% |
| Net profit attributable to shareholders of the Company (RMB'000) | 13,928,295 | 15,187,069 | -8.29% |
| Net profit attributable to shareholders of the Company before non-recurring gains and losses (RMB'000) | 13,457,044 | 14,555,674 | -7.55% |
| Net cash flows from operating activities (RMB'000) | 18,405,491 | 21,787,890 | -15.52% |
| Basic earnings per share (RMB/share) | 2.01 | 2.32 | -13.36% |
| Diluted earnings per share (RMB/share) | 2.01 | 2.30 | -12.61% |
| Weighted average ROE (%) | 13.03% | 16.97% | -3.94% |
| 30 June 2020 | 31 December 2019 | Change (%) | |
| Total assets (RMB'000) | 334,662,664 | 301,955,419 | 10.83% |
| Net assets attributable to shareholders of the Company (RMB'000) | 104,979,110 | 101,669,163 | 3.26% |
| Total share capital of the Company on the last trading session before disclosure (share) | 7,023,022,068 |
| Fully diluted earnings per share based on the latest share capital above (RMB/share) | 1.98 |
| Item | H1 2020 | Note |
| Profit or loss from disposal of non-current assets | -11,070 | |
| Except for effectively hedging business related to normal business operations of the Company, profit or loss arising from the change in the fair value of financial assets held for trading, derivative financial assets, financial liabilities held for trading, derivative financial liabilities and other non-current financial assets, as well as investment profit or loss produced from the disposal of the aforesaid financial assets and liabilities | 240,361 | |
| Other | 422,455 | |
| Less: Corporate income tax | 90,684 | |
| Minority interests (after tax) | 89,811 | |
| Total | 471,251 | -- |
Information Disclosure for Companies Offering Their Securities to the Public—Non-Recurring Profits andLosses>, or is enumerated as a non-recurring profit/loss in the said explanatory announcement
□Applicable √N/A
No such cases for the Reporting Period.
Section III Business Profile
1. Business Scope in the Reporting Period
1.1 Summary of business scope
Midea is a global technologies group in HVAC systems, consumer appliances, robotics & industrialautomation systems, and digital business. Midea offers diversified products and services, includingHVAC centered on residential air-conditioning, commercial air-conditioning, heating & ventilationsystems; consumer appliances centered on laundry appliances, refrigerators, kitchen appliances, andvarious small home appliances; robotics and industrial automation systems centered on KUKA andGuangdong Midea Intelligent Robotics Co., Ltd.; and the digital business centered on smart supplychains, Industrial Internet and silicon chips.With “Bring Great Innovations to Life” as its corporate vision, “Integrate with the World, to Inspire YourFuture” as its mission, and “Embrace what’s next - Aspiration、Dedication、Collaboration、Innovation”as its values, Midea integrates global resources and promotes technological innovation to create a betterlife for over 400 million users, major customers and strategic partners in different areas worldwide everyyear with satisfying products and services.Midea, a global operating company, has now established a global platform with around 200 subsidiaries,28 R&D centers, 34 major manufacturing bases, and approximately 150,000 employees. Its businesscovers more than 200 countries and regions. Overseas, Midea has 18 R&D centers and 17manufacturing bases in more than ten countries, with around 30,000 employees. 22 currencies are usedby Midea in settlement. In addition, Midea is the majority shareholder of KUKA, a Germany-basedworld-leading company in robotics and automation, with a stake of approximately 95%.
1.2 Position in home appliance industry
Midea ranks No. 229 on the 18th Forbes Global 2000 list released in May 2020, moving up 24 placescompared to last year. In addition, it ranks No. 307 on the 2020 Fortune Global 500 list, moving up 5
places from the year before and marking its fifth year on the list; and ranks No. 35 on the 2020 FortuneChina 500 list, the highest-ranking among the home appliance industry in the country for six consecutiveyears. Meanwhile, Midea takes the lead among domestic home appliance makers by ranking No. 149 onthe 2020 Brand Finance Global 500 list released by Brand Finance, a British brand assessmentinstitution. Also, Midea ranks No. 33 on the 2019 BrandZ? Top 100 Most Valuable Chinese Brands list,with its brand value up 20%. Midea has been given excellent credit ratings by the three majorinternational credit rating agencies, Standard & Poor’s, Fitch Ratings and Moody’s. The ratings are in aleading position among home appliance manufacturers worldwide as well as among Chinesenon-state-owned enterprises.Midea’s major home appliances all took up a larger share in the domestic market in the first half of 2020.Its residential air-conditioners, in particular, saw a much bigger share in all channels, with the largestonline market share of over 35% and an offline market share of over 30%.The table below shows the offline market shares and rankings of the Company’s primary homeappliance products (by retail sales) in the first half of 2020:
| Product category | Market share | Ranking |
| Residential air conditioners | 33% | 2 |
| Laundry appliances | 26% | 2 |
| Refrigerators | 13% | 2 |
| Rice cookers | 46% | 1 |
| Electric pressure cookers | 46% | 1 |
| Food processors | 36% | 1 |
| Electric radiators | 45% | 1 |
| Water heaters | 15% | 2 |
| Water purifiers | 15% | 2 |
| Microwave ovens | 45% | 2 |
| Range hoods | 10% | 3 |
Midea’s online retail sales during the first half of 2020 exceeded RMB43 billion, up by over 30% YoY andaccounting for 49% of its domestic sales. Midea boasts the largest online market share among homeappliance makers in China and remains the best-selling home appliance manufacturer on majore-commerce channels such as JD, Tmall and Suning for eight consecutive years. During the businesspeak period of “618”, Midea-branded products recorded total online sales of more than RMB12.5 billion,up by over 50% YoY.The table below shows the online market shares and rankings of the Company’s primary homeappliance products (by retail sales) in the first half of 2020:
| Product category | Market share | Ranking |
| Residential air conditioners | 36.5% | 1 |
| Laundry appliances | 33.5% | 2 |
| Refrigerators | 17.5% | 2 |
| Microwave ovens | 50.6% | 1 |
| Pressure cookers | 43.2% | 1 |
| Rice cookers | 30.9% | 1 |
| Electric ovens | 24.3% | 1 |
| Induction cookers | 51.8% | 1 |
| Electric water heaters | 34.4% | 1 |
| Gas water heaters | 22.5% | 1 |
| Electric kettles | 31.2% | 1 |
| Electric fans | 24.3% | 1 |
| Water dispensers | 24.8% | 1 |
| Water purifiers | 12.4% | 1 |
| Garment steamers | 27.3% | 1 |
| Gas stoves | 13.3% | 1 |
| Vacuum cleaners | 9.4% | 2 |
| Product category | Market share | Ranking |
| Dishwashers | 28.6% | 2 |
| Sterilizing cabinets | 17.1% | 2 |
| Range hoods | 17.7% | 3 |
| Food processors | 10.6% | 3 |
| Air-source heat pump water heaters | 14.7% | 3 |
| Air purifiers | 6% | 4 |
| Main assets | Reasons for any significant change |
| Financial assets held for trading | Up 35% YoY, primarily driven by the changes in the fair value of financial assets held for trading |
| Derivative financial assets | Down 44% YoY, primarily driven by the changes in the fair value of derivative financial instruments |
| Accounts receivable | Up 38% YoY, primarily driven by the channel reform and the pandemic situation overseas |
| Inventories | Down 33% YoY, primarily driven by the reclassification of some inventories to contract assets |
| Other current assets | Up 44% YoY, primarily driven by an increase in monetary investments |
| Construction in progress | Up 33% YoY, primarily driven by an increase in construction in progress |
| Other non-current assets | Down 88% YoY, primarily driven by a decrease in structural deposits with a maturity of over one year |
| Short-term borrowings | Up 128% YoY, primarily driven by an increase in such borrowings obtained |
| Derivative financial liabilities | Up 208% YoY, primarily driven by the changes in the fair value of derivative financial instruments |
| Advances from customers | Down 100% YoY, primarily driven by the reclassification to contract liabilities |
| Current portion of non-current liabilities | Up 428% YoY, primarily driven by an increase in the current portion of long-term borrowings |
| Long-term payables | Down 38% YoY, primarily driven by the repayment of long-term payables |
| Other comprehensive income | Down 42% YoY, primarily driven by the changes in the translation of foreign currency financial statements |
2.2 Main assets overseas
□Applicable √N/A
3. Core Competitiveness Analysis
3.1 As one of the leaders among the global household appliance makers and a dominator in themajor appliance sectors, Midea Group provides high-quality, one-stop home solutions throughits wide product range, complete with full specifications.As a white goods and HVAC enterprise with a whole industrial chain and full product line, Midea Grouphas developed a complete industrial chain combining R&D, manufacturing and sales of key componentsand finished products, supported by an industry-leading R&D center and manufacturing technologies ofcore components (such as compressors, electrical controls, magnetrons and controllers), and ultimatelybased on its powerful capabilities in logistics and services. Midea owns top brands 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 brandawareness, price negotiation as a whole, customer needs research and R&D investments. Compatibility,coordination and interaction among household appliances have become increasingly important sincesmart home is gaining popularity. With a full product line, Midea has had a head start in providing acombined and compatible smart home platform with integrated home solutions for customers.
3.2 Global R&D resource integration capabilities, continuing lead in R&D and technicalinnovationThe Group is focused on building a competitive, multi-layered global R&D system centering on userexperience and product functions, which represents world-class R&D input and strength. With close toRMB40 billion invested in R&D over the past five years, the Group has set up a total of 28 researchcenters in 11 countries to gradually build up a “4+2+N” global R&D network and gain the advantage ofscale in this respect. Domestically, Midea Global Innovation Center in Shunde District, Foshan City andMidea Global Innovation Center in Shanghai, which is underway, are the cores of Midea’s R&D arm.Overseas, with Midea America Research Center, Midea Germany Research Center, Midea Japan
Research Center and Midea Milan Design Center as the cores, Midea makes use of the regionaladvantages, integrates global R&D resources and refines its global R&D network. It has over 10,000R&D employees and over 500 senior foreign senior experts. While establishing its own research centersaround the world, the Group has also cooperated with domestic and foreign scientific researchinstitutions, such as MIT, UC Berkeley, UIUC, Stanford, Purdue University, University of Maryland, TheUniversity of Sheffield, Polytechnic University of Milan, Tsinghua University, Shanghai Jiao TongUniversity, Zhejiang University, the Chinese Academy of Sciences, Harbin Institute of Technology, Xi’anJiaotong University, Huazhong University of Science and Technology and South China University ofTechnology, in order to establish joint labs for deepening technological innovation. The Group alsocarries out strategic cooperation with tech giants such as BASF and Honeywell to build a globalinnovation ecosystem. The Group’s long-term focus on building technology, marketing, product, designand 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 continualglobal resource allocation and investments, globally-advanced manufacturing capabilities andadvantage of scaleThe success of a series of global acquisitions and new business expansion moves has further solidifiedMidea’s global operations and leading advantages in robotics and automation. With the world’s leadingproduction capacity and experience, and a wide variety of products as well as its production bases allover the world, the Group has been able to expand rapidly into the emerging overseas markets and isbecoming a stronger competitor in those mature overseas markets. The Group is one of the biggestmanufacturers in the world for many product categories, which gives it competitive edges in efficiencyimproving and cost reducing that its overseas competitors are unable to achieve. Overseas sales of theGroup accounts for more than 40% of the total sales revenue. Its products have been exported to over200 countries and regions, and it owns 17 overseas manufacturing bases and 24 overseas operatingagencies. Midea’s global operations system has been further improved through the reform ofinternational business organizations towards diverse business models. It also increases investments in
overseas business operations, focuses on the needs of local customers and enhances productcompetitiveness in a bid to promote growth in its Own Branding & Manufacturing (OBM) business. Inaddition, with a deep knowledge and understanding on product characteristics and product demands inoverseas market, Midea is promoting worldwide branding and expansion through global collaborationand cooperation. In this way, the global competitiveness of Midea is increasing steadily.
3.4 Broad channel networks and a well-established smart supply chain system ensuring thesteady growth of Midea’s online and off-line salesBy virtue of years of development and investments, Midea Group has formed an all-dimensional marketcoverage. In the mature first and second-tier markets, the Company has developed and maintainedgood partnerships with large home appliance retail chains. While in the broad third and fourth-tiermarkets, the Company uses flagship stores, specialty shops, traditional channels and new channels aseffective supplements. Currently, the Company has already covered the markets at all tiers. Additionally,the Company's dominance in branding, products, offline channels and logistics distribution have alsocreated powerful guarantees for the Company's rapid expansion of its e-commerce business andchannels. Achieving the highest online sales among China’s household appliance manufacturers,Midea’s online retail sales during the first half of 2020 exceeded RMB43 billion, up by over 30% YoY. Itremains the best-selling home appliance manufacturer on major e-commerce channels such as JD,Tmall and Suning for eight consecutive years.Making full use of the digital technology, Annto Logistics Technology Co., Ltd. (Annto), a subsidiary ofMidea, refines its offline logistics network through the big data technology to build a smart and digitaldistribution platform. Annto concentrates its resources on urban distribution and is able to provide fullyvisualized direct distribution services covering every town and village of the country. Relying on nearly140 urban distribution centers nationwide, it covers more than 97% of towns and villages across thecountry. It can finish the delivery to 21,418 (or 51% of) towns and villages within 24 hours and to 38,744(or 87% of) towns and villages within 48 hours in the country. Additionally, Annto works closely withMidea’s post-sale service network to provide one-stop services of delivery and installation, which haseffectively improved user experience.
3.5 A user experience-oriented reform of “Comprehensive Digitalization and ComprehensiveIntellectualization” to make Midea an icon in digitalizationMidea has put forward a user experience-oriented strategic objective of “Comprehensive Digitalizationand Comprehensive Intellectualization”. On one hand, it promotes deep integration of the digitaltechnology and business in the whole value chain, with the view to becoming an icon in digitalization. Onthe other hand, with foresight, it plans for whole new products, services and business models centeringon smart technologies, products and scenes, so as to outcompete Internet companies. With continualinvestment and research in artificial intelligence (AI), silicon chip, sensor, big data, cloud computing andother new technologies, Midea has built the biggest AI team in the household appliance industry, whichis committed to enabling products, machines, production processes and systems to sense, perceive,understand and judge, driven by the combination of big data and AI, in order to reduce obstacles forman-machine interaction to the minimum and create smart appliances without any assistance ininteraction. Focusing on “people and their family”, Midea builds a whole value chain of IoT.Breakthroughs have been made in user data protection, content operation for smart scenes, smartconnection technology, the smart home ecosystem, cloud platforms, the smart voice function, the bigdata-based cloud housekeeper services, etc. By doing so, Midea is able to offer complete smart homesolutions for users, as well as to empower its business partners.Upon years of a digitalized reform characterized by “One Midea, One System, One Standard”, Mideahas successfully materialized operations driven by software and data through its value chain, connectingend to end and covering R&D, Product Ordering, scheduling, flexible manufacturing, procurement,follow-up of product quality, logistics, installation & post-sale services, etc. The Group’s cloud platformhas made come true C2M flexible manufacturing, platform-based and modularized R&D, digitalizedproduction techniques and simulation, intelligent logistics, digital marketing, digital customer service, etc.“M.IoT”, the Midea Industrial Internet Platform, has become China’s first complete Industrial Internetplatform provider covering industrial knowledge, software and hardware. M.IoT focuses on building theSCADA platform, the industrial cloud platform, the industrial big data platform and the industrial SaaSservice to provide the standardized, cloud-based and platform service, including C2M, supplycoordination and solutions. It has developed over 20 platform products so far. In addition to applying
these Industrial Internet platform solutions to its manufacturing bases across the world and variousproducts, the Group has also provided these solutions for over 200 customers in different industries.Therefore, it is safe to say that Midea has built a solid foundation regarding Industrial Internet systems.
3.6 Sound corporate governance mechanism and effective incentive mechanism to provide asolid foundation 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 itsperformance-oriented evaluation and incentive mechanism featuring full decentralization has become atraining and growth platform for the Group's professional managers. The Group's primary seniormanagement team consists of professional managers who have been trained and forged in theoperational practices of Midea Group. They have been working for Midea on average for more than 15years, all with rich professional and industrial experience, deep understanding of the home applianceindustry throughout both China and the world, and accurate understanding of the industry environmentand corporate operations management. The Company's advantages in such systems and mechanismshave laid a solid foundation for the efficient and effective business operations, as well as the promising,stable and sustainable future development of the Company. At present, the Company has launchedseven Stock Option Incentive Schemes, four Restricted Share Incentive Schemes, six Global PartnerStock Ownership Schemes and three Business Partner Stock Ownership Schemes for key managerialand technical personnel, marking the establishment of a governance structure aligning the interests ofsenior management and core business backbones with that of all shareholders, as well as theformulation of an incentive scheme comprising long and short-term incentives and restrains.
Section IV Performance Discussion and Analysis
1. Overview
1.1 Industry Overview
A. Home Appliance IndustryAs China’s consumer market took a heavy hit in the COVID-19 pandemic in the first half of 2020,people’s life styles and spending habits have changed, giving birth to new spending trends and forms.According to the statistics published by the China Household Electric Appliance Research Institute(CHEARI) and the National Household Electrical Appliance Industry Information Center, in the first half of2020, the domestic retail sales of home appliances was RMB336.52 billion, down 18.4% year-on-year;and the exports of home appliances reached RMB187 billion, up 4.2% year-on-year. Currently, the worldis still in a grave and complex situation due to the pandemic, with unprecedented challenges foreconomic development. Nevertheless, in the medium and long run, upgrading of the industrial structure,stable increase of household income, diversified consumption, the national policy support for the greenand smart industries, as well as upgrading of the standards for home appliances will create newopportunities and growth points. According to the 2020 Semi-Annual Report of China’s HouseholdElectrical Appliance Industry published by CHEARI and the National Household Electrical ApplianceIndustry Information Center together, regarding overall development, the home appliance industry isexperiencing deep changes in products, distribution channels and marketing that have never been seenbefore. The second half of the year is expected to see three trends. The first is the clustering of functionsin home appliances. Shifting from one single function to comprehensive and diverse functions, newproduct categories with function clusters will emerge. Secondly, along with increasing online spending,low-level markets such as towns and villages are becoming the main arena for competition. And anincreasing number of consumers in those markets are buying quality home appliances, particularly smartand high-end products. Finally, new marketing models such as live streaming will continue to bloom.According to the data from CCID, the domestic retail sales of air conditioners was RMB92.1 billion in thefirst half of 2020, down 22.5% year-on-year. In terms of product performance, the functions of air
conditioners have been expanded from cooling and heating to humidity, air cleanness and freshness, etc.As of June 2020, the market share of fresh-air air conditioners reached 2.9% (by retail sales), surging541% year-on-year. Meanwhile, the higher energy efficiency standards in 2020 will boost integration andproduct upgrading in the air conditioning industry.According to the data from the National Household Electrical Appliance Industry Information Center, thedomestic retail sales of laundry appliances was RMB29.94 billion in the first half of 2020, down 16.4%year-on-year. Product upgrading remained a prominent trend. By product category, front-loadingwashing machines have become the mainstream with a market share of 57.6% by unit sales. From acapacity perspective, 10KG washing machines have dominated the offline market with a market share of
44.6% by unit sales and a market share of 60% by sales revenue in the first half of the year. In respect offunctions, washer-dryers took up an offline market share of 27.7% by unit sales and 45.9% by salesrevenue in the first half of the year, representing steady growth. Meanwhile, products equipped with theair washing function took up an offline market share of 22.2% by unit sales, up 9.8% year-on-year.According to the data from the National Household Electrical Appliance Industry Information Center, thedomestic retail sales of refrigerators was RMB40.75 billion in the first half of 2020, down 11.4%year-on-year. Nevertheless, product upgrading was prominent. The sales of multi-door refrigeratorscontinued to grow with their offline and online market share up to 57.5% and 28.2% respectively. In themeantime, large-capacity refrigerators saw a larger market share, with 400L+ products accounting for anoffline and online market share of 75% and 54% respectively by retail sales. In respect of functions,refrigerators have shifted from food storage to food management and can provide different refrigerationexperience for different food. Fueled by smart technologies including smart display, Internet connection,image acquisition, information reading, speech recognition, etc, the offline market share of smartrefrigerators has reached 28.3% in the first half of the year. And the market will continue to move towardshigh-end, smart and high-quality refrigerators.According to the data from the National Household Electrical Appliance Industry Information Center, thedomestic retail sales of kitchen appliances was RMB65.15 billion in the first half of 2020, down 15.1%year-on-year. By product category, sales of range hoods and gas stoves were affected to a great extentby the pandemic for they need to be installed by technicians, while sterilizing cabinets was little affected,
with approximately flat retail sales in the first half of the year compared to the same period of last year.Water heaters recorded retail sales of RMB21.84 billion, down 17.9% year-on-year. From a capacityperspective, both electric and gas water heaters are evolving towards a large capacity, with the 16L gaswater heaters taking up an offline market share of 47.5%. Emerging kitchen appliances saw impressivegrowth in retail sales, with the retail sales of dishwashers reaching RMB3.54 billion, up 20.1%year-on-year. Built-in dishwashers became more popular. Dishwashers were upgraded with the focus onno residual water in the chamber, better drying effect, high-temperature and UV sterilization, etc,representing the industry trend of a combo of dish washing, sterilization, drying and storage. Waterpurifiers recorded retail sales of RMB12.01 billion in the first half of the year, down 21.9% year-on-year.By category, water purifiers are evolving towards larger capacity, integrated functions of sterilization,purification and heating, no installation and self-service core changing. Reverse osmosis water purifierstook up an offline and online market share of over 90% and 70% respectively, large-capacity and Level 1water efficiency products both recorded a larger offline market share, and the self-service core changingfunction is expected to become “a must” for water purifiers. Integrated kitchen appliances movedtowards integrated functions, aesthetics, scenes, space, smart functions and cooking. The online marketshare of steamer-ovens reached 17.2%, up 10.7% against the prevailing trend.According to the data from the National Household Electrical Appliance Industry Information Center, thedomestic sales of small domestic appliances was RMB53.21 billion in the first half of 2020, down 6.1%year-on-year, of which the online sales took up a percentage of more than 70%. By products, ricecookers recorded domestic sales of RMB7.32 billion, with the retail sales down 15% year-on-year. IHrice cookers saw a growing presence in the offline market, with a market share of over 50% by retail unitsales. Small-capacity rice cookers exhibited excellent growth potential, with less-than-3L productsachieving an online and offline market share of 30.9% and 17.9% respectively. As an emerging category,low-sugar and brown rice germinating rice cookers are blooming. In the first half of the year, thedomestic sales of food processors reached RMB7.2 billion, with the retail sales up 10.1% year-on-year.Blenders are growing as a percentage of food processors, with an online and offline market share ofover 50% and 97.6% by retail sales. The domestic sales of electric fans stood at RMB6.93 billion, withthe retail sales down 5% year-on-year. Emerging products such as blade-less and circulating fanscontinue to thrive, with those two products recording an offline market share of 16.1% and 13.2%
respectively by retail sales in the first half of 2020, both up over 5% year-on-year. Variable frequencyfans achieved an offline market share of nearly 25% for low energy consumption and steady draft. In thefirst half of the year, vacuum cleaners registered sales of RMB10.83 billion, up 1.7% year-on-year. As ahelpful tool to clean the entire house, handheld vacuum cleaners with multiple heads took up an onlineand offline market share of 40.9% and 67% respectively by retail sales.According to the data from the National Household Electrical Appliance Industry Information Center, theonline retail sales of home appliances in China amounted to RMB152.35 billion in the first half of 2020,up 3.7% year-on-year, accounting for a market share of 45.3%; while the offline retail sales amounted toRMB184.17 billion, down 30.6% year-on-year, accounting for 54.7%. In light of channel retail sales, mostproduct categories including refrigerators, laundry appliances, kitchen appliances and small domesticappliances achieved growth in the online market. The offline market, on the other hand, saw a decline invarious product categories due to the impact of the pandemic, but it still has superiority for high-endproducts and product suites, and remains the mainstream channel for air conditioners, refrigerators,laundry appliances, kitchen and bathroom appliances, etc. In terms of channel evolvement, consideringthe huge potential demand in low-level markets in China, home appliance makers are expected to focuson these markets such as towns and villages in the coming future. Integration of the online and offlinechannels will speed up, and new ways of spending will spring up. After the pandemic, online promotion,online customer acquisition, online services and live streaming have become dominant marketingmeans. Meanwhile, the Internet, AI, big data and the like are pushing the retail sector into a new phasefeaturing “all channels, all scenes and all links”.B. Robotics and Industrial Automation IndustryAccording to MIR, the shipment of industrial robotics was 74,327 units in China in the first half of 2020,representing a slight increase of 1.8% year-on-year. By quarter, Q1 2020 saw a hit from the pandemicand a year-on-year drop of 13.8%, while Q2 2020 saw a recovery of demand and a year-on-year growthof 15.3% as the pandemic became under control. By product category, SCARA robotics recorded ayear-on-year increase of 39%, primarily driven by investments in smart handsets, smart wearabledevices, smart speakers and new infrastructure. Benefiting from steady investments in medical supplies,daily chemical products, food, etc., DELTA robotics maintained a slight growth. Small six-axis robotics
with a payload of less than 20KG recorded a slight year-on-year drop of 0.6% mainly due to a sharpdecline in demand from the industry of automobile components, but saw a strong growth in the 3C andengineering industries. Six-axis robotics with a payload of more than 20KG registered a significantyear-on-year decline of 17.5%, which was mainly attributable to the sluggish automobile investments.Collaborative robotics encountered the first decline (down 12.9% year-on-year) as a result ofunsuccessful marketing caused by pricing, performance efficiency and other factors. Meanwhile,according to GGII, automated guided vehicles (AGVs) achieved domestic unit sales of approximately17,000 in the first half of 2020, representing a slight year-on-year increase, which was mainly attributableto demand from the service sector. GGII expects a faster growth in the unit sales of AGVs in themanufacturing and warehousing sectors in the second half of the year. In terms of policy support, theMinistry of Industry and Information unveiled in May 2020 the Guiding Opinions on the Development ofIndustrial Big Data for the purposes of implementing the national big data development strategy,furthering the digital transformation of industries, unlocking the potential of industrial data resourceelements, and accelerating the development of the industrial big data industry. In March 2020, theCentral Politburo Standing Committee of the Communist Party of China put forward in a meeting tospeed up the construction of new infrastructure including 5G networks and data centers. In April 2020,the National Development and Reform Commission defined clearly the scope of new infrastructure forthe first time, which comprises information, integrated and innovative infrastructure. In May 2020, it wasmentioned in the Report on the Work of the Government 2020 that support should be focused on newinfrastructure, new urbanization initiatives and major projects such as transportation and hydraulicengineering. As China vigorously encourages the construction of new infrastructure, the industrialrobotics industry is considered to have enormous potential.According to the latest statistics of IFR, in terms of industrial robotic density (the average number ofindustrial robotics per 10,000 workers), Singapore ranks No.1 in the world with 831 robotics while SouthKorea drops to second place. The robotic density of China has risen to 140, up 30% compared with thatin 2017 and far beyond the global average of 99, indicating great potential and prospects. Supported bydiverse factors such as flexible demands of the manufacturing sector, declining demographic dividend,emerging markets and the development of innovative technologies, industrial robotics will be applied tomore and more areas.
1.2 Analysis of the Company’s Main Business
Domestic consumption and production are expected to be affected to some degree in the short run bythe COVID-19 outbreak in the first half of 2020. Meanwhile, the COVID-19 has been spreading overseassince late February 2020. And the political and economic environment has become more complicatedboth at home and abroad. In face of the tough challenges, the Company adhered to the core strategicobjectives of “Leading Products, Efficiency Driven and Global Operations”, focused on improvingproducts, firmly implemented the core strategy of “Comprehensive Digitalization and ComprehensiveIntellectualization”, and continued to promote recreation of the corporate culture. Efforts were also madeto promote high-performance operations in the whole value chain, continuously optimize the Company’sproduct mix according to the consumption upgrade trends, and construct sustainable competitivenessfor the future through internal growth. In light of its operating results of the performance of its team,Midea has weathered the storm in the first half of the year. From the quick response to the pandemic, tothe resumption of work/production in the second phase, and to the normal operation in the third phase,Midea responded swiftly and performed quite well. Midea’s “immunity” has been further boosted throughthe pandemic, which manifests the organizational agility and business resilience that Midea has longbeen cultivating. All these efforts have resulted in improving trends in various indicators such as channelinventories and net cash flows from operating activities, better product quality and reputation, as well asstrengthened competitiveness in various product categories and global operation synergies. For H12020, Midea achieved, on a consolidated basis, total revenue of RMB139.7 billion, down 9.47% YoY;and a net profit attributable to shareholders of the Company of RMB13.9 billion, down 8.29% YoY.In the first half of 2020, the Company carried out the following main tasks:
A. Focused on users, continuously refined the whole value chain, as well as upgraded businessscenes, products and servicesIn order to carry on with the “customer-oriented” strategic reform, the Company creates more user valuein business scenes, products and services which are in direct contact with users, builds acustomer-oriented organization and digital experience management system, as well as continuouslypromotes experience refinement in the whole value chain. In terms of business scenes, offline flagship,
home decoration, combo and new retail stores are reshaped based on the new retail technology anduser analysis. This, together with refined shopping paths and improving online consultation one-commerce platforms, help sufficiently satisfy user demand for user scene-based interactions,shopping convenience and individualized shopping guide, thus further improving shopping experience.Meanwhile, the customer groups under the membership system in all distribution channels offer anopportunity for users to share, which can trigger fission expansion of the customer base. In terms ofproduct development, an information experience platform is put in place to understand life styles andpotential demand of customers in different scenes. Through involving customers in the whole R&Dprocess and profound R&D and technological accumulation, the Company is able to solve experiencebottlenecks and pain points in the industry, offer customers better-than-expected product innovation, andboost customer satisfaction and loyalty. In respect of smart products, the Company continues to createsurprises based on customers’ life styles and diverse user scenes. As for service experience, with thehelp of Internet tools, Midea goes beyond the traditional model to build a “service + Internet” platform, inaddition to continuous investments in service certainty, value-added services and active service.Meanwhile, by means of digital service, as well as platform-based and modularized R&D and production,Midea takes the lead to explore the C2M model for its home appliance products, offering single productcustomization and product suite customization for the whole house for consumers with home decorationneeds. These measures to improve service experience are part of Midea’s efforts to deliver betterproduct experience throughout the product life cycle. In terms of innovation in products and industrialdesign, Midea leads the way in user experience and interaction upgrading with ongoing innovations. Inthe first half of 2020, Midea won a total of 79 industrial design awards, including 26 Red Dot DesignAwards, 26 iF Design Awards and 27 IDEA Awards.——Residential Air Conditioners: In the first half of 2020, Midea launched an array of new productsincluding Children's Wall-Mounted Air Conditioner II, Kid Star II, Breezeless II, and DF Fresh AirFloor-Standing Air Conditioner. Children's Wall-Mounted Air Conditioner II has upgraded its smartcold-prevention function to achieve real-time monitoring. It is equipped with a customized breezelessand smart voice functions. Additionally, it is able to quickly distinguish a baby’s crying and sendnotification to a parent’s phone. The design of Kid Star II was inspired by Beijing's CITIC Tower. Itsbreezeless function has been upgraded to diverse options – breezeless, soft, non-direct blow, etc.- to
meet the needs of customers with different physiques. Kid Star II Premium is the first in the industry to beequipped with a central voice system that understands multiple dialects. Midea Breezeless IIFloor-Standing Air Conditioner is equipped with a fresh air function. Its fresh air volume is 90m?/h,enough to purify a living room 24 times a day, allowing those indoors to enjoy healthy air without openingwindows. The fresh air function is able to run independently. With H13 filters, it is able to achieve aone-time filtration efficiency of as high as 99.95%. It takes less than 1kWh to run the fresh air function for48 hours. Having inherited the ultra-distant breeze, breezeless, and even breeze functions, Midea DFFresh Air Floor-Standing Air Conditioner has been equipped with new features such as fresh air, smartvoice, and ion sterilization. The ion sterilization function can eliminate 99% bacteria. Midea U is a newproduct lately launched for the North American market. Developed by using the CDOC approach andequipped with an innovative U-slot design, it allows users to freely open or close windows wheneverrunning Midea U. In May 2020, a total of 20 Midea air conditioner models received the "CVC Hygieneand Health Certificate for Consumer Electric Appliance Product".——Commercial Air Conditioners: As a leading HVAC provider worldwide, Midea Commercial AirConditioners is a leader in R&D strength, product technology and market performance. And the largestdomestic market share remained with Midea Commercial Air Conditioners in 2019 according toChinaIOL.com and the Mechanical and Electrical Information-Central Airconditioning Market magazine.As a customer-oriented, professional provider of integrated solutions for air management, MideaCommercial Air Conditioners has applied the PCI sterilization technology to its existing product portfolioduring the COVID-19 pandemic to create a comfortable and healthy indoor environment for customers.The newly launched Variable Frequency Modular Air-Cooled Heat Pump Unit is able to run with a higherdegree of stability and performance. It is equipped with an all DC variable-frequency enhanced vaporinjection compressor and an all DC variable-frequency motor. With the application of stepless regulation,the modular unit can adjust according to load changes, effectively preventing the unit from over-frequentrunning. The fan can run at any of 32 air volumes according to system pressure and load, minimizingenergy consumption. The heat pump unit has a new "I-type" condenser structure. Its window-type finsare able to greatly improve heat exchange and extend the life of the heat exchanger. Equipped with afully intelligent defrosting function, the unit is able to control the defrosting time accurately and effectivelyavoid heat loss. Through a series of technological innovations, Midea V6R Heat Recovery VRF can heat
a room continuously, operate cooling at -15℃ and discharge water at 80℃. Its refrigerant leakagesensor can help prevent refrigerant leaks. Based on the combination of "floor heating + commercial airconditioner", Midea All-Season Multi-Functional Series Floor-Heating Air Conditioner adopts the all DCvariable frequency air-source heat pump technology and is equipped with a unique "multi-dimensionaltemperature control system". Its precise temperature control can help reduce temperature fluctuationsand improve user experience while floor heating provides the comfort of "warm feet and a cool head”,which is good for health. Users can connect to the Midea Meiju App via the smart Bluetooth gateway tocontrol various smart home appliances by phone, smart gateway or other means, offering a smarterresidential solution. Three innovation achievements of Midea Commercial Air Conditioners were certifiedas “Internationally Advanced” upon authoritative review, including “the Research and Application of KeyTechnology for Smart Energy Saving of Wide-Temperature-Range Heat Recovery VRF”, which helpssolve energy saving bottlenecks for the VRF and heat pump industry. In addition, Midea VRF LCDSegment Display Screen Wander Lead Controller is a winner of the iF Award for its outstandingappearance and interactive design. At the 2020 China Heat Pump Annual Conference & 9thInternational Air-Source Heat Pump Development Forum, Midea Commercial Air Conditioners washonored as the "2020 Leading Brand in China's Heat Pump Industry" for the eighth consecutive year.——Laundry Appliances: With an ultra-large washing capacity of 15kg, COLMO Dual-TubFront-Loading Washing Machine (COLMO being a brand under Midea) features an integrated, highlystable chassis based on the ring-beam structure used in buildings for earthquake resistance. In a truetechnological breakthrough, the upper and lower tubs are able to conduct washing and spinning at thesame time, a first practice in the industry. Therefore, the washing machine can maintain extremely lowvibration and noise, even when running at high intensity and a high speed. With an aircraft-grade pistonpump and a big-data and AI-based sensing technology that takes the geographic location, texture ofwater, climate, volume of the laundry, etc. into account, it can automatically put in the right amount ofdetergent with ±1ml accuracy. In this way, it can reduce detergent residual and keep people healthy.Supported by an innovative core engine, a super think tank from the Silicon Valley, and the big-data andAI-based sensing technology, COLMO Cloud Atlas Series Washer-Dryer is able to customize washingand drying experience for users, ensuring each laundry is accomplished with delicacy and delivering aquality life. Based on the unique "dual-stroke clutch mechanism", Midea Top-Loading Dual-Drive
Quick-Wash Series uses the counterrotating of the pulsator and the inner tub to produce dual forces,simulating the tumbling and rinsing effects of washing by hand with dual water flows. It can deliver morecleanness and effectively prevent clothes from tangling. According to tests, compared with thesingle-drive washing machine, this dual-drive product can deliver 15% more cleanness and 8% less tearand wear. Little Swan H36 Heat Pump Dryer is equipped with a unique steam-drying and non-irontechnology. This technology guides water molecules into clothing fibers' non-crystalline areas, therebymaintaining swelling and enhancing the flexibility and softness of the fiber molecules. By doing so, it cansmooth wrinkles and deliver fluffier, softer and more uniform drying effects. Equipped with a 10KG heatpump and a 125L capacity, the dryer is able to instantly dry a whole family's worth of bedding and clothes,thus saving balcony space. Equipped with a unique UV sterilization technology, it kills 99.9% of mites inthe clothes, as certified by China’s testing authorities. Meanwhile, five products won the Red Dot Award(one of the highest awards for industrial design), including Little Swan Ultra Fine Bubble Water CubeDrum TG100-14366WMUDT, COLMO Cloud Atlas Series Washer-Dryer CLDQ10, Beverly TianchengSeries One-Tub Tech BVL3J110IY, Midea Front-Loading Washing Machine MD100V11D, and ToshibaSamurai T07.——Refrigerators: In June 2020, the "Pesticide-Residue-Free Series" and the "Odor-Free Series", twoof Midea’s core technologies for refrigerators, were both certified as “Internationally Advanced” byindustry experts. The technologically innovative "Pesticide-Residue-Free Series" adopts deep UVC lightin its fruit&vegetables zone, a drawer design for the refrigerating chamber that allows for high photolysisefficiency, as well as the light energy ion technology to degrade pesticide residue in fruits and vegetablesin a highly effective manner, thereby delivering a green and healthy life to all families. Likewise, theinnovative "Odor-Free Series" generates low-temperature plasmas within the refrigerator via aminiaturized high-voltage power supply and the dielectric barrier discharge technology, so as tostimulate odor-decomposing catalysts for an odorless, highly sterile environment in just 19 minutes andkeep the food safe. This technology is leading the industry into “a new era of fast and clean refrigeratingexperience”. Six-Door Slim-Design Toshiba Refrigerator GR-RM485WE, launched by TLSC, adopts apioneering star-rated cuisine and atomized fresh-keeping technology. This model is able to defrost foodwithout compromising its original flavor, slightly freeze food in a short time, and accurately adjustambient temperatures required for the optimal flavoring of meat ingredients. Its fruit&vegetables
compartment is equipped with imported UNIT moisturizing films to keep fruit and vegetables hydratedand fresh. The humanized design of the Itouch door, the middle fruit&vegetables compartment, and theexternal wall made from aircraft-grade insulation materials, all help to reduce the thickness of the safeand freezer walls by 60% and 44% respectively, achieving “large capacity in a compact size".——Kitchen Appliances: Midea 2020 Easy & Pure Neo-Kitchen, a new solution launched, aims tocreate a healthy, relaxing, and tidy cooking and overall kitchen experience for younger-generationconsumers. Yuejia Built-in Kitchen Appliance Suite, winner of the Best Product Award at AWE 2020,features a minimalist design. Based on the fourth generation's nearly-soundless dual air duct design, therange hood of the product suite is capable of a cooking-smoke escape rate as low as 3%. Its filter net isremovable and dishwasher-washable. The embedded smoke sensor technology can reduce noise to aslow as 42dB. The stove is equipped with two latest-technology latent wick burners, uniform temperatureand intelligent cooking algorithms able to reproduce Michelin-grade chef cooking results, and enablesautomatic ingredient matching and cooking with 50+ smart recipes. With a modularized Chinese-stylebasket for bowls and dishes, an industry first, the dishwasher saves users from bending over andreduces wash times by 30%. With another industry first—the standing rinsing arm—the dishwasher'scleaning rate is increased by 60%. Dual-Nuclear-Magnetic-Cleaning Zero Cold Water HTL8 Gas WaterHeater Series applies magnetic cleaning technology to Midea's pressurized circulating water pump andpatented constant temperature chamber. Midea's zero-fluctuation e-control algorithm and four-segmentprecise combustion technology keep shower water temperatures constant. Meanwhile, the externalmagnetic cleaning device actively inhibits scale formation in water heaters and pipes, offering userscomfortable shower experiences with quality water and constant temperature throughout. With a built-inTDS detection device, All-Time Magnetic Cleaning Electric Water Heater 32CQ6 conducts inner tankwater quality inspection in real time, offering users with timely prompts when cleaning and sterilizationare required. The transparent pre-tank filtering device effectively blocks impurities like sand and rustfrom entering the inner tank, thereby ensuring the health and safety of water at the source. COLMO B3Dishwasher is equipped with a VF dual-drive system and disrotatory arms for thorough yet delicatetableware cleaning. COLMO B3 can clean valuable tableware to the third level of disinfection. With theapplication of intelligent storage technology, COLMO B3 can store tableware for up to 168 hours, makingit a true "all-in-one" appliance for tableware washing, disinfection, drying, and storage. Utilizing the ultra
fine bubble technology, COLMO EVO Series Active Water Purifier V7 Pro can effectively oxidize anddecompose organic pollutants and kill almost all bacteria found in drinking water. It is also equipped witha warm washing function. It is NSF-certified and a winner of the Best Product Award at AWE 2020 andthe National Level Leader Honor. COLMO EVO Series Refrigeration Pipeline Machine is equipped withan ultra-real touch screen, a first practice in the industry. It can accurately carry out user-inputinstructions. With just one touch on its screen, users can immediately access iced or heated water, thussatisfying their diversified water needs. Midea Triumph Water Dispenser YR1908S-X responds to userconcerns with enhanced load bearing, allowing users to place items on the top, which constitutes anindustry first. With its "six new standards" and comprehensive technological upgrades in water storage,pipeline materials, high-temperature sterilization, dual-core instant water heating, and intelligentadjustment, the YR1908S-X is leading the way in new water drinking methods. Midea D3/D5 JimuMicrowave Oven pursues the best user experience. It is easy to operate with a large display screen anda single knob. Its food-grade cavity and a dual-power baking system make for truly unforgettable homebaking experiences. Powered by twin turbochargers, Midea Turbo Fresh Steamer features adjustablesuperheated steam. With combined charcoal jet roasting technology and high-temperature steamdegreasing algorithm, it achieves uniform-temperature cooking. Its M-type copper tubing can condenseup to 10 liters of saturated steam per minute for zero steam overflow.——Small Domestic Appliances: Focused on the new consumer trend of holistic health, Midea haslaunched a series of products including "Low-Sugar Rice Cooker", "Low-Fat Electric Pressure Cooker","Smokeless Constant-Temperature Induction Cooker", and "Smart and Variable Frequency Blender".“Low-Sugar Rice Cooker” is a product of five years' R&D and innovative sugar-leaching technology. Thisconsists of the three-step cooking technology of "high power boiling, powerful sugar leaching, andconstant-temperature steaming", by which the rice cooker is able to reduce the reducing sugar andresistant starch content by 50% and 23% respectively, effectively reducing sugar intake and suppressingincreases in blood glucose increase after meals. This is the first low-sugar rice cooker certified by ChinaHousehold Electric Appliances Research Institute (CHEAR). It sets a new trend that “a rice cookerwithout a low-sugar function is not a good rice cooker”. “Low-Fat Electric Pressure Cooker” is equippedwith “mellow but fat-cutting” technology. Through precise pressure-variable boiling control and tidal oildraining, the cooker is able to make "soup that is thicker with a less oily taste” with a fat removal rate as
high as 93%. “Smokeless Constant-Temperature Induction Cooker” is equipped with the industry-leadingtechnology of "protruding temperature measurement and frequency conversion temperature constancy",transforming the cooker from a conventional heating device to a professional cooking device withprecise temperature control. The cooker is able to make a variety of constant-temperature foods withoutproducing cooking smoke or other harmful substances throughout the entire process. The cookersupports different cooking methods, such as shallow frying, frying, boiling, stewing, and deep-frying."Smart and Variable Frequency Blender" can adjust rotation speed to suit a variety of food materials,achieving extremely uniform and delicate cuts. Equipped with a 1500W concave-tray 3D high-powercooking dish, the meals it produces have a delicate taste and pleasant fragrance. Midea also launchedits water-washable series of blenders, for which the blades are removable for easy cleaning, the entirebody is washable in water, and the cover opens with the touch of one button—all technological firsts inthe industry, solving the longstanding pain point of cleaning difficulty for blenders.Based on users’ demands for home environment, Midea Seasons Fan Heater is an innovative combo offan, humidifier and heater for all seasons. It is equipped with the patented heating-and-cooling switchingtechnology. It can cover a large space and rapidly increase the sensible temperature by over 20%through “heating+humidification” and a wide-angle swing. Meanwhile, supported by the Archimedesspiral air channel and a 90mm ultra-large cross-flow rotor, it can reach a speed of 185m/min, which isfive times faster than the ordinary fan heaters. The humid wind enabled by its humidification function canbring much more coolness than an ordinary tower fan. The uniquely designed Midea FGD18YGR AirCirculation Fan realizes indoor circulation for a better indoor environment. Based on Midea's patentedTurbo Flow technology, the FGD18YGR is able to circulate 1828m?/h at the ultra-long distance of 15m,making cross-room air delivery a real possibility and enabling full-house ventilation in just five minutes.Powered by Midea’s unique internal rotation technology and universal ball joint technology, theFGD18YGR features free 360° rotation to accelerate air flow in a room. With a stepless slider, theFGD18YGR can circulate air without direct blowing, and, with a special infinite sliding rod, can alsoachieve 90° cycling without direct blowing. Midea M7 Robot Cleaner is able to remove dust efficiently.The robot features a high-performance LDS 8M detection radius, an environmental scanning frequencyup to 3000Hz, a floating suction design, and a combination of bilateral and V-shaped roller brushes. Witha high-capacity water tank and intelligent mopping technology, the M7 can sweep and mop floors
intelligently. Midea V5 Rechargeable Push-Rod Vacuum Cleaner has a high-efficiency digital motor, ableto produce 100W of suction power. With an electric soft velvet brush, it efficiently removes and absorbsdust. Its handheld component, 1.4KG only, is convenient to operate. And it is capable of running for up to45 minutes, thus meeting the requirements of whole-house cleaning.——Key Components: Midea's orientation is towards rotor compressors, reciprocating compressors,motors, scroll compressors, auto parts, chips, and industrial frequency conversion, and they havemapped a technology layout for the entire industry. With the full integration of such professionaldisciplines as motor electromagnetics, solid mechanics, hydromechanics, noise and vibration,thermodynamics, and electronic control technology, Midea has effectively explored future trends ofproduct technology through analyses of underlying technologies and thereby fundamentally enhancedthe competitiveness of its electro-mechanical products. As exploration of user research models shiftsfrom B2B to B2C, Midea has established a unique user research methodology for core components bycollaborating with user research projects of the Terminal Products Division. As China’s air-conditioningenergy efficiency standards are upgraded for 2020, Midea brings its years of accumulated technicalstrengths to rapidly develop new compressors and motors meeting China’s new standards for energyefficiency and is among the first ones in the industry to achieve mass production and supply. AmongMidea’s new developments is “Smart Core” Variable Frequency Compressor for Residential AirConditioners under the New Energy Efficiency Standard. The compressor is equipped with a newnine-slot, six-pole motor design whose body design features a high-power circular rotor and ahigh-efficiency thin-diameter pump for a great improvement in energy efficiency. By means of thetechnology of active noise reduction via motor harmonic injection, the compressor is able to reducefrequency-sextupled noise by 4~5dB. BLDC Motor for "Wind Spirit" Residential Air Conditioners underthe New Energy Efficiency Standard is based on IPM plus square wave drive technology and core,cutting-edge technology developed by Midea. The motor size is reduced by 20% with improved energyefficiency, providing clients with a more cost-effective fan solution.B. Continued to invest in R&D to increase R&D efficiency, build a global R&D platform and put inplace a R&D system featuring digitalization and responsive innovationMidea kept reforming its product development model according to the strategic objective of “Leading
Products”. A competitive R&D scale with “Three Generations” as the core strategy is being built tosupport the fulfillment of the goal of “Being the Number One or the Only One” in respect of variousproduct categories. Also, the Company continued to invest in R&D, made innovations with respect tomechanism, and developed more leading products through both excellent user experience anddifferentiated technologies, reform of the whole value chain of R&D using digital technology, and deepintegration of big data technology and R&D. Real-time, smart and efficient big data are used to drive andguide the whole process of R&D, which will help drive product innovation and create more value.Meanwhile, a simulation technology that has come into being through group development based onplatforms across the world can help predict uncertainties in the R&D process, thus improving resourceallocation and efficiency. In addition, through reforming the way of work in R&D, building acustomer-oriented data process, and exploring new R&D models using big data, Midea is able to spotconsumer demand faster, reduce costs in product development and increase R&D efficiency.Midea Group never stops its core technology research. In the first half of 2020, a number oftechnological achievements made under the leadership of Midea were all certified as “InternationallyAdvanced” upon authoritative review, including “the Research of Key Technology for Oil and SaltControl”, “Compact Efficient Magnetron”, “the Research and Application of the Pesticide-Residue-FreeTechnology of Deep UV Light + Photocatalyst in the Home Appliance Industry”, “the Research andApplication of Key Technology for Smart Energy Saving of Wide-Temperature-Range Heat RecoveryVRF”, “the Research and Application of the Air-Source Heat Pump Efficient Heating System”, and “theDevelopment and Application of the Temperature-and-Humidity-Control Fast-and-Strong-Heating VRFSystem Technology”. Additionally, Midea has a number of scientific research projects winning the ChinaAssociation for Promotion of Private Sci-Tech Enterprises Sci-Tech Progress Award, the ChinaIndustry-University-Research Institute Collaboration Association Innovation Award, the GuangdongProvince Science and Technology Invention Award, the Guangdong Province Sci-Tech Progress Award,the Shanghai Municipality Sci-Tech Progress Award, and the Chongqing Municipality Sci-Tech ProgressAward, among others. In addition, Little Swan Front-Loading Washer-Dryer TD100-14366WMUDT,Midea Artistic Floor-Standing Air Conditioner KFR-72LW/BP3DN8Y-KW200(1), Midea Yuejia Built-inKitchen Appliance Suite, COLMO Warming Washing Water Purifier CWRC700-A63 and Midea VacuumCleaner Z7 all won a Best Product Award at AWE 2020.
While carrying out the core technology research, Midea has attached great importance to thetransformation of R&D achievements. In the first half of 2020, Midea filed 6,164 patent applicationsworldwide and was granted 1,649 invention patents (the most industrywide). By the end of June 2020,the total number of patent applications of Midea (inclusive of TLSC) exceeded 147,000 and 58,000patents were granted. Midea continues to improve patent quality. A visualized tool for reviewing thequality of patent applications has been developed and fully utilized for better patent quality.Midea Group has been sticking to the philosophy that “standard innovation drives product innovation”and making active steps towards contributing to the standardization of industrial technologies. In the firsthalf of 2020, Midea Group took part in the formulation/revision of a great number of standards, includingthe industry’s first group standard for top-loading washing machines—One Tub Automatic WashingMachine, Household and Similar Electrical Appliances—Test Code for the Determination of AirborneAcoustical Noise—Particular Requirements for Ovens, Grills, Microwave Ovens and Similar Appliances,IEC60705 Household Microwave Ovens - Methods for Measuring Performance, TechnologyRequirements for Intelligent Level of Household Electric Refrigerators, Intelligent High-TemperatureCleaning Room Air Conditioner, and Hygienic and Health Technical Requirements for ConsumerElectrical Products—Part 1: Household and Similar Room Air Conditioners (drafted by the team of Mr.Zhong Nanshan, the famous academician of Chinese Academy of Engineering), among others.C. Deepened the channel transformation, further improved the channel efficiency and rebuilt theretail service abilityMidea continued to promote channel reform and transformation, flatten offline channel hierarchies,propelled the optimized integration and empowerment of distributors, firmly continued to reduceinventories, optimize structure and streamline SKU, and substantially improve channel efficiency. Itstrengthened the synergy of domestic sales of full product categories; Midea has established over 30regional market operation centers nationwide; by carrying out more precise joint promotional activitiesfor diverse categories, it drove the synergy of domestic sales towards improvements and upgrading andreinforced the long-term sustainable development capacity of channels. Midea strove to expand thesales in the engineering channel and enhance its B2B competitiveness. Midea recorded a year-on-yeargrowth of over 20% in B2B sales in the first half of 2020, with an addition of more than 70 trade
customers and over 40 product categories. The trade customer base in the real estate sector keptexpanding, with a preliminary four-level customer receiving system in place. Further, Midea enhancedthe collaboration system, reshaped the development logic for the business with apartment chainoperators, and explored new opportunities by testing new business forms in respect of apartments to befully furnished, live streaming, etc. Also, it reshaped the pricing logic for special channels and explorednew business forms in respect of shopping platforms that allow installment buying, for the purposes ofhigher sales.With the rising of different consumer circles and fragmented communication, online sales as apercentage of Midea’s total sales reached as high as 49% during the pandemic in 2020, and online andoffline markets integrate at a faster speed. In view of different levels and characteristics of differentchannels, as well as changes to customers’ needs and ways of spending, Midea drives the retailtransformation based on user demands, and keeps restructuring the retail operations system. Thismainly involves the following aspects. Firstly, being customer experience-oriented, it provides just theshopping experience wanted by customers through more than 340 Midea Smart Life Experience Centersfor users with house decoration demands in cities and prefectures across the country, over 2,000 Mideaflagship stores in districts and counties, as well as 3,000 Midea combo stores in towns and villages.Secondly, innovative marketing approaches are adopted and furthered based on changes in the marketenvironment, including targeted online introduction of customers, electronic subscription, communitygroup buying, horizontal user base sharing, live streaming, offline sales promotion activities, etc. Thethird is the launch of smart scenes in stores. Midea has launched smart home appliance scenes in over2,000 flagship stores and home decoration stores, more than half of its retail stores and 500 exclusivestores, promoting home appliance packages to distribution channels and users. Fourthly, it promotes theproject of deep collaboration of supply chains together with e-commerce platforms, achieving rationalrestocking, automatic order reviewing, intelligent distribution of inventory and information breakpointeliminating through data support and system connectivity. Additionally, it focuses on information flowimprovement to drive the refinement of goods flows, capital flows and business flows, thus improvingcustomer experience and the overall efficiency of the supply chain. As for the marketing approach of livestreaming, multiple models such as all-star recommendation, boss live streaming and top geekrecommendation are adopted to promote Midea’s e-commerce marketing. By attracting more traffic to
live streaming rooms through more entrances, sales through the live streaming channel quickly rise as apercentage of total sales. Further, live streaming is also moving from offering preferences and benefitsand introducing products to more professional and richer content. As external live streaming platformscan deliver “what you see is what you get” for consumers and formulate a trading closed loop, theseplatforms have become new channels contributing to growth in Midea’s sales.Being customer-oriented, Midea improves customer experience based on consumer needs and servicescenes through promoting digital transformation and business reform across the service system. Firstly,Midea’s service charges are available online and transparent. Customers can get access to all ofMidea’s service charge standards. In the first half of the year, more than 12 million customers paid theirrates in a transparent manner, online payments surpassed the RMB400 million mark, and inquiry callsabout service charges went down over 90%. Secondly, supported by AI platforms comprising smartspeaking robotics and human-robot collaboration, installation calls can be processed faster, especiallyduring the peak seasons. Thirdly, in view of the realities of the pandemic, a remote diagnosis function islaunched to enable users to consult after-sales engineers by remote video and have their problemsquickly identified and solved. Fourthly, interaction between after-sales and pre-sales links in the valuechain is further enhanced in bid to drive sales through service and increase user royalty to Midea’sproducts and brands. To encourage repeat purchases, a “backpacker” model is promoted in after-salesservice, which generated sales of over RMB600 million in the first half of 2020. Finally, Midea continuesto improve its delivery-installation integrated service capability for all of its home appliances. By the firsthalf of 2020, it has completed the delivery-installation integrated service network which covers over2,700 districts and counties across the country, with more than 10,000 new installation technicians, aspart of its efforts to offer users one-stop after-sales service solutions in respect of all householdappliances.Under the background of Midea Group promoting the T+3 business model deep reform, Annto furtherpromoted the logistics reform. Upon completing the implementation of the unified warehousing anddistribution strategy, Annto focuses on two new approaches--intercity shuttles and urbanlong-term-cooperation vehicles to boost delivery efficiency, thus providing a strong support for theimprovement of circulation efficiency of the sales channels. Meanwhile, it comprehensively improves
B2C logistics. Based on user needs, Annto refines and integrates its warehouse network across thecountry, and strengthens the cultivation and expansion of end outlets, which enables it to provideaccurate delivery-installation integrated service for users. In this way, products can be delivered directlyto users without going through the stores in the offline retail link, thus significantly improving userexperience. In terms of business expansion outside Midea Group, Annto closely focused on its corebusiness of integrated warehousing and distribution services. Annto can distribute from one warehouseand multiple warehouses to anywhere in the country. A logistics service platform covering variousindustries, product categories and scenes has been put in place. Meanwhile, client service experiencehas further improved through enhancing direct purchase of transport capacity. In the first half of 2020,the urban distribution and home distribution business scale of Annto saw a year-on-year increase of over130%, with a steadily increasing market share.D. Steadily promoted Midea’s globalized business layout, enhanced localized operationsoverseas and accelerated the cooperative integration of Toshiba ProjectMidea further promoted its global business layout to solidify its global competency. It formulated a globalsupply cooperative mechanism, strengthened localized operations overseas, and promoted productglobalization and regionalization. Its overseas business spans more than 200 countries and regions inNorth America, South America, Europe, Asia, Africa and Oceania. Meanwhile, guided by the market andfocusing on users, Midea builds a global user research network with foresight. Midea GermanyResearch Center is newly established to strengthen research on the needs of European users. Andmore resources have been provided for user research centers in the U.S., Italy, Brazil, India andSingapore. In the first half of 2020, Midea continued to expand and improve overseas channels. Over11,000 new retail outlets were launched overseas to improve distribution channels. Also, it continued torefine the customer mix, dig down on core customers across the globe, and capture customer value inan effort to provide strong support for continual growth in the overseas business. Meanwhile, Mideaaccelerated the development of its e-commerce business and refined its global e-commerce system. Animpressive performance was delivered on major markets. Midea is now aiming to rank in Top 10 in theU.S. online market for all product categories, with the best-selling vacuum cleaners, microwave ovens,refrigerators, etc. on major e-commerce platforms. In addition to breaking multiple sales records on the
local e-commerce platforms of ASEAN, Midea also successfully set foot in a number of new overseasmarkets. For example, it has covered major e-commerce platforms (Amazon, Shopee, Lazada, etc.) inItaly, the U.K. and France. Midea also embraces new marketing models. A series of diverse onlinemarketing activities were launched across the world, including online business promotion conferences,KOL live streaming, new media promotion, etc., as means for boosting online B2B and B2C sales. Andthese new marketing models have become a new normal for Midea and continue to contribute to itsgrowth. Meanwhile, Midea has deepened its global manufacturing network. Based on the existingoverseas manufacturing bases, it further upgrades the manufacturing bases in Southeast Asia and Indiafor better product quality and faster delivery. In the meantime, the pan-European base is in the pipeline,with an aim to cover more areas, refine the “Local Supply” cycle, improve the global manufacturing anddelivery capability, and ensure the overseas operating capability amid the anti-globalization trend. Also,Midea improves its global service system, and continues to promote responsive and active globalservice. New progress has been made on the global platform integrating the call center, service qualitytracking, spare parts deployment and technical training. Singapore Cloud Call Center has officiallystarted operation, and the global information service system—iService3.0 has been successfullylaunched in Thailand, thus substantially improving service efficiency and user experience.In face of a heavy hit to Japan’s consumer market from the COVID-19 pandemic in the first half of 2020,TLSC made full use of the online channel to promote its products and sales while ensuring the safety ofits employees. It has proved that it has the ability to deal with market changes and maintain operatingresilience. Through furthering the synergy and unification of value chains with the relevant businessdivisions of the Group, TLSC ensured its supply during the pandemic. Also, it optimized the productstructure to increase gross profits and strictly controlled expenses and costs, which helped improveprofitability significantly. In the first half of 2020, the retail sales of home appliances in Japan were flatyear-on-year, while TLSC recorded a growth of 7% against the prevailing trend, with its market share forsix major product categories up to nearly 13%, as well as a larger market share in respect of airconditioners, refrigerators, laundry appliances, microwave ovens, etc. In addition, TLSC deepened thereform of its organizational structure and business model. A dedicated team has been set up to work onthe online channel, the pre-sales and after-sales teams have been refined, the divestiture of non-whitegoods businesses and the staff streamlining have been furthered, and a job rotation system has been
implemented to boost organizational vitality. Meanwhile, it works with the Group and its businessdivisions in global market planning and further strengthens their synergistic effects in brand building,R&D and innovation, integration of supply chain and quality improvement.E. Stepped up the comprehensive digitalization and industrial internet programmes to improveoperational efficiency of the whole value chainIn order to stay sustainably competitive, Midea put forward, in early 2020, a second round of crucialtransformation—“Comprehensive Digitalization and Comprehensive Intellectualization”. The key to theimplementation of the said transformation is to evolve from a hardware-based company to a data-driveninnovative technology group, achieve changes in the format of products, drive hardware sales throughsoftware sales and intensify contents and services; and to achieve changes in business methodology,promote reforms in research, production and sales, and foster disruptive changes in existing businessmodels through an Internet mindset and Internet tools. The comprehensive digitalization program hasproduced preliminary results. In the product R&D link, the digital simulation capacity was fully promotedto realize model-based digital analysis and verification and a digital manufacturing process of"product-process-factory-resource". There have also been several independently developed systems -including PRM, GPM, MPLM, LIMS, DPM and MIoT.VC. Meanwhile, the supply chain management linksaw pilot smart procurement. Procurement efficiency and the ability to respond fast were improved byintroducing smart algorithms and data-driven technologies. The Midea Public Cloud platform waslaunched to assist the digital transformation of upstream suppliers, promote transparency and efficiencyof data information in the value chain, and optimize suppliers’ inventory management. With respect tomanufacturing, Midea promoted the self-developed MRP system, smart scheduling and professionalproduction scheduling as well as refinement of the multi-factory collaborative production plan and thevalue flow procurement plan. In terms of quality control, digital quality management was continuouslypropelled to extend to the suppliers and the market end. The quality cloud allows for more standardizedand transparent control of the supply chain process and of finished products. Also, Midea promoted theapplication of mobile inspection and Bluetooth caliper to achieve paperless inspection. Relying on M.IoT,Midea continued to promote digitalization in respect of safety, environment and energy. It hasmaterialized EHS visualized management and smart early warning systems in factories by such smart
means as mobile solutions and Internet access solutions for equipment. In the warehousing anddistribution link, the whole process was barcoded and made paperless via "one code", while theend-to-end information flow was connected via "one-piece flow" to realize scene informatization oflogistics planning, factory entry appointments, complete management, warehousing, direct delivery, etc.JIT incoming materials, JIT production and JIT shipment were all realized via "a shared inventorysystem"; automatic warehousing-in, one-key inventory recording and finished products' offline directdelivery were all realized via radio frequency identification (RFID); iterative upgrading was achieved viaIoT, ultra-wide bandwidth (UWB), 5G, block chain, big data, intelligent hardware, and other technicalapplications to improve efficiency and shorten delivery time.Midea accelerates in respect of 5G+Industrial Internet. Seizing new opportunities brought by 5G andmaking use of the advantages of its businesses, Midea accelerates the deployment of 5G infrastructureand the application of 5G+Industrial Internet to boost the implementation of the Group's "ComprehensiveDigitalization and Comprehensive Intellectualization" strategy. Midea Microwave & Cleaning Appliance5G+Industrial Internet Application Demonstration Park has achieved full 5G coverage and built a basicinformation network integrating the traditional network + 5G to realize efficient communication betweenthe corporate intranet and the extranet. It has been recognized by the Department of Industry andInformation Technology of Guangdong Province as one of the first demonstration industrial parks for“5G+Industrial Internet”. In the first half of 2020, Midea Group launched "5G+Industrial Internet " pilotprograms across 11 parks of 7 business divisions through strategic cooperation with the three majortelecom carriers in China and such manufacturers as Huawei to achieve leadership in this area.Midea continues with international digitalization. With the “International 632 Project” as the core, fulldigitalization support is provided for finance, R&D, the supply chain, marketing, after-sales service andoperation. In the first half of 2020, the overseas marketing system was reshaped to help drive growth inTLSC’s business. The global order processing mechanism was launched to connect overseas marketingand manufacturing in an effective and automatic manner. And a universal platform architecture forinternational microservice has been implemented to increase operational efficiency. In order to cope withthe international situation and market changes in the pandemic, as well as to facilitate the achievementof the Company’s global strategic objectives, a number of core programs have been launched, including
building of the overseas e-commerce platform, empowerment of overseas channels and retail terminals,building of the T+3 system for the overseas business, improvement of the global capital platform, as wellas refinement of OTC, integrated foreign trade, spare parts-related reform and other projects. Thesemoves are aimed to increase operational efficiency of the whole value chain and boost globalcompetitiveness under the new circumstances.Midea further promotes the business application of AI by fully covering the business scenes of intelligentmanufacturing, intelligent offices, intelligent operations and PaaS capability open-up based on AI qualitytesting platforms and AI open platforms. In terms of intelligent manufacturing, facial recognition-basedaccess control and key post recognition, among others, are now available, and the application of AI ispromoted in inspection of PCB, the appearance of laundry appliances, cartons, ink-jet of cartons,components, the anti-creeping system in the footing, etc., which can help improve the yield substantially.Based on a facial recognition platform, PaaS modules are put on clouds, and AI applications areupgraded, including multi-person recognition sensor-free door access control, gate machine accesscontrol, key post recognition, intelligent conference room and facial recognition payment, empoweringbusiness innovation in buildings, logistics and marketing, as well as improving the experience ofemployees and users.Midea fully promotes the application of cloud computing to support its strategy of comprehensivedigitalization. Positioned as a leading cloud platform in the manufacturing sector, Midea Cloud Platform,which is easy to extend, takes into full account the development needs of the sector in the coming threeyears, as well as needs in respect of Midea Cloud Sales, Industrial Internet, the IoT ecosystem,knowledge bases and third-party developers. Midea Cloud Platform has been constructed under thestandard of “light front-end”, “big middle platform” and “back-end resource sharing”, where products aredeveloped on a unified basis. So far, 15 PaaS service products and 8 SaaS products have beenlaunched, providing sharing service for faster delivery. PaaS efficiency increases 20% while the timetaken by SaaS deployment is shortened from 10 minutes to just one minute. The SaaS platform targetscorporate customers. Based on IaaS and PaaS, the SaaS platform provides complete management ofapplications through their entire life cycles and full customer service. It lowers the threshold for small-and medium-sized enterprises to gain cloud access. It also provides a one-touch function to active
business applications. With purchasing cloud as a trial program, Midea has provided SRM cloud,sourcing cloud, risk control cloud and other SaaS services for over 3,000 corporate customers.F. In view of consumption stratification, launched multiple new brands and product suites toempower retail sales, enhanced the retail performanceSince late 2018, Midea Group has launched a number of new brands, including COLMO targetinghigh-end consumers, BUGU targeting online consumers, WAHIN targeting young consumers. Alwaysupholding the brand philosophy of “Technology Serve the Nature of Life and Design Maximize the Valueof Rationalism”, COLMO is committed to providing AI-powered home appliances with premium qualityand the self-learning capability for high-end consumers. In the first half of 2020, in terms of branding,COLMO focused on the delivery of “rational aesthetics” (a primitive, minimalist and elevated way ofliving), another fundamental concept of the brand in addition to “AI-powered home appliances”. In termsof products, COLMO launched the whole new 145N Solution, which focuses on family life (four majorscenes—living room, kitchen, bathroom, wash and care) and creates the whole scene of AI-poweredhigh-end smart life for high-end consumers through intelligent integrated appliances, IoT interconnectionsystems and AI learning brain. A slew of other new products were also launched, including Mantle LavaSeries Refrigerator, TURING Series Residential Central Air Conditioner, S67 Range Hood, B3Dishwasher, V7 Water Purifier, etc. In respect of marketing, COLMO has provided service for over40,000 families across the world since the launch of its products, with certain products enjoying aprominent high-end market share as an icon for high-end home appliances. For instance, COLMOenjoys a market share of 18.8% in respect of wall-mounted residential air conditioners with a unit price ofover RMB7,000; a market share of 20.8% in respect of floor-standing residential air conditioners with aunit price of over RMB20,000; and a market share of 12% in respect of water purifiers with a unit price ofover RMB5,000. As for user experience and channels, COLMO, being customer-oriented, builds diverseterminal experience space, including Product Category Zone, AI Smart Experience Space, and AI SmartExperience Hall. So far, nearly 3,000 stores and outlets have been put in place nationwide, which willprovide more scene-based experience and smart experience.In the first half of 2020, BUGU, the brand targeting online consumers, met the needs of modern users inthe Internet era by integrating internal and external resources. Through research on different users'
personal experience, BUGU established all-scene ecosystem cooperation with external manufacturersto create innovative marketing and business models. Additionally, it gave play to its multi-categorysynergistic advantages and refined its existing product categories while exploring new ones. On theproduct side, BUGU has added personal care products, such as electric toothbrushes, hair dryers andeye massagers, which have had a good market response. BUGU has also expanded into maternity &child sector with full-cycle products - including the industry’s first constant temperature milk modulator,baby food processor, and hair clippers for babies and children. BUGU has also carried out in-depth C2Mcooperation with e-commerce platforms. To give an example, for Tmall, it customized space capsuleelectric lunch boxes, individualized blenders, egg boilers, portable kettles, etc., for people who often eatalone. On the ecosystem side, BUGU, with an “inclusive” and “open” philosophy, has opened up bothchannels and scenes for ecosystem cooperation. It has carried out various cooperation programs withUnilever, China Telecom, ORVIBO, YPOO and Himalaya. With regard to the product ecosystem, screenspeakers, smart home sensor suites, visual doorbells, speech-based remote controllers, etc. areintroduced into the ecosystem. On the user side, BUGU persists in taking the joint creation with users asits core strategy. Through the joint creation platform—the “BUGU Research Institute”, users can takepart in the whole product process from conceptual design to public testing. So far, "BUGU ResearchInstitute" has launched three programs and received about 1,000 pieces of advice from nearly 300 users.Since its initial product launch, BUGU took only one year to attract up to one million end users. On thesales side, BUGU's sales over the first five months of this year exceeded last year's total sales,representing a noticeable year-on-year growth. During the "618" shopping festival in 2020, BUGUCountertop Dishwasher was the bestseller both by sales amount and unit sales among similar productson JD.com and Tmall, with a 1750% year-on-year increase on Tmall on the first day of the shoppingfestival. In addition, BUGU has also developed a customized portable juicer for fitness and sportsenthusiasts. Considered a fashionable item among the new generation of users, it has a monthly salesof 150,000 units.Unveiled in 2019, WAHIN dedicates to offering surprises to young people with “Trendy Designs,Practical Functions and Fun Interactions”. It establishes connections through a diversity of marketingactivities with the young circles characterized by AGC and pop cultures. In 2019, WAHIN expandedcooperation from just one e-commerce platform to all the major e-commerce platforms, and achieved
impressive sales revenue. In the first half of 2020, a number of Midea's business divisions launched theirproduct pipelines for WAHIN, which carried out active marketing on the Z-generation. On the eve of the"618" Shopping Festival in 2020, WAHIN launched its first celebrity live streaming for all productcategories on all the major e-commerce platforms, covering over ten Midea stores on those platforms.The total number of viewers reached 6.1 million, while total interactions exceeded 4.6 million UV,facilitating WAHIN's sales to exceed RMB15 million on that day. In the first half of 2020, WAHIN had aneye-catching sales performance across all its product categories. On March 1, WAHIN Air Conditionersentered the top five bestsellers in the industry for its online sales, and its "618" sales alone exceededRMB57 million. As of June 30, the online and offline sales of WAHIN Air Conditioners combined haveexceeded RMB400 million. WAHIN Refrigerator is aimed at the trendy drinks catering to the younggeneration. Its "Xiaofendan" mini-fridge focusing on the cosmetics scene has emerged at just the rightmoment. The unit sales of this product reached 30,000 units within the month following its launch. Its2020 "618" sales exceeded RMB70 million. It has accumulated more than 500,000 followers and500,000 viewers have been attracted to the relevant stores through live streaming. In February 2020, asits debut on the Tmall Dishwasher Promotion, WAHIN Dishwasher saw its sales rank among the topthree, with its star product—Vie1 Installation-Free Dishwasher ranking third in sales. WAHIN IntegratedStove released its first integrated stove—WAHIN WD26 Little Black Box—as a strategic product byjoining hands with JD.com, providing open kitchen solutions for young consumers. WAHIN also workedwith Tmall to launch its first fancy kitchen appliance suite—"Speed Player", which include a water heater,a range hood and cooking stoves, a dishwasher and a water purifier. This customized kitchen appliancesolution for the younger generation recorded first-day sales of more than RMB5 million. WAHIN WashingMachine has completed a pipeline of four new products, among which Front-Loading Washing MachineHD100X1W won the 2019 Red Dot Award. As of July, the model has RMB20 million in sales, which isexpected to climb to RMB50 million by the end of the year. In terms of branding, WAHIN deploys a 2Dvirtual spokesperson - WAHIN Girl - to carry its brand image. Through continuous cooperation withexternal platforms, WAHIN broadens its boundary while persists in appealing to the young consumers.For instance, WAHIN Air Conditioners joined hands with ZCOOL to launch the WAHIN Girl Image DesignCampaign, making her debut together with Tmall at 2020 BILIBILI WORLD Shanghai. During the "618"shopping festival, WAHIN Refrigerator cooperated with 14 brands across nine industries to carry outscene-based marketing in respect of trendy drinks, creating ASMR videos targeting young consumers, in
addition to the adoption of other new marketing models such as Xiaohongshu promotion.G. Promoted innovation in robotic product development, accelerated integration and expansionof the robotics business for the China marketKUKA, a subsidiary of Midea, is the first robotic manufacturer in the world to introduce sensitivelightweight robots into the production plant, as well as the first manufacturer with a product rangecovering collaborative robots, mobile robots and industrial heavy-duty robots. In the automotive sector,KUKA continues to maintain its advantages and unveiled the world’s first industrial robot with digitalmotion model - the new-generation high-load versatile robot KR QUANTEC-2 in 2019. The robot caneffectively reduce costs for customers and offers substantially enhanced performances, precision andspeed. At AMTS 2019, KUKA demonstrated its one-stop solutions consisting of electric drive assemblyand testing model lines, square shell battery assembly model lines, LBR iiwa cell loading and testing,KUKA Connect big data and virtual image systems. Meanwhile, it’s worth mentioning that KUKA tookpart in a large-scale joint research platform program of Germany—ARENA2036 in 2019 for the first time.It is responsible for developing and testing streamline production techniques of Industry 4.0 to explorestreamline car factories for the future. In the general industrial sector, KUKA launched in 2020 theSecond-Generation New KR QUANTEC Casting Robot, which is equipped with a new digital motionmode and is able to deliver excellent production quality even in a high-temperature environment. In themotion control sector, KUKA launched Robot Control System KR C5 this year. With powerful compatiblehardware, more intelligent software and better technical performance, robots equipped with this systemconsume less power under the same conditions. In the logistics sector, targeting the industrial statuswhere an increasing number of orders are placed online, the new-generation robot-based order sortingsolution ItemPiQ, as a perfect example of the integration of know-hows by KUKA and Swisslog,combines new robotic technology and intelligent visual system and features efficient sortingperformances and machine-learning functions. In the electronics sector, KUKA launched a chip carryingsolution in a clean-room environment in semi-conductor manufacturing, which is the world’s firstone-stop solution for automatic carrying of semi-conductor boxes. In view of the pandemic in 2020,KUKA continued to extend the application of its robots in the medical sector. Based on KUKA’s LBR Med,Life Science Robotics, a Denmark-based company, developed automatic medical equipment ROBERT,
which can help move a patient’s body when he is receiving treatment. This can reduce physical contactbetween the therapist and the patent and stop the COVID-19 virus from spreading through socialdistancing. KUKA’s KR AGILUS Series Robot is used by the Aalborg University Hospital in Denmark forblood testing and classification. It can process 3,000 blood samples per day, which is much moreefficient than the manual method. In the Bulovka Hospital in Prague, KUKA’s LBR iiwa Robot helpsmedical workers carry out throat swab sampling on potential COVID-19 patients.Affected by the COVID-19 pandemic spreading across the globe, economies worldwide have shut downone after another, and some of KUKA's customers have temporarily closed their factories and reducedtheir investment activities, resulting in a significant decline in KUKA's main business. Under the impact ofthe pandemic, demand for industrial robotics is expected to decline in 2020 compared to the prior year.Fortunately, in the mid-to-long term after the pandemic, demand for industrial robotics and automationsolutions will further increase and related investment activities postponed due to the pandemic will alsoresume swiftly. Regarding the first half of 2020 in the automotive sector, KUKA received, at the beginningof the year, orders from a European customer for three automobile engine assembly lines worth millionsof euros per line. In April, KUKA also signed a framework agreement with BMW Group to provide about5,000 robots for BMW's new production lines of automobile across the world. KUKA also won a contractfor Audi's automatic automobile production line to provide 42 industrial robotics for BIW seam sealingand installation. In the sector of new energy vehicles, KUKA obtained a battery assembly line contractworth as much as tens of millions of euros, which would be used for producing battery systems forhigh-end electric vehicles. In May, KUKA provided 50 robotics to the German SAR Group for its electricvehicle automatic production line. In the sector of logistics automation, the European cosmeceuticalschain retailer dm-drogerie markt GmbH built an innovative logistics center costing approximately 100million euros in Germany this July, which would be equipped with a logistics automation system providedby KUKA’s subsidiary Swisslog. In the sector of 3D printing, in response to the pandemic, the Italy-basedCaracol-AM used KUKA’s robotics to help manufacture protective masks by means of 3D printing, with adaily output of over 1,000 pieces. KUKA won the "Global Medical Robotics Company of the Year Award2020" from Frost & Sullivan (a consultancy) and the title of "2019 Supplier of the Year" by GM for the fifthtime.
The integration of KUKA’s robotics business in China has been accelerated. On one hand, under KUKA’snew organizational structure, the KUKA China Division was established in 2019, covering robotics,flexible systems, general industrial automation, intelligent logistics automation and intelligent medicalautomation. On the other hand, the collaborative advantages of Midea and KUKA have started to showin various aspects, including development of business opportunities, technology sharing, customerservice, purchase collaboration and management improvement, laying a foundation for the fast growth ofthe industrial automation business on all fronts. In 2019, the KUKA China Division formulated thebusiness development planning for the next five years and established a 432+X product system for thedomestic market, i.e. 4 product families, 3 digital platforms, 2 production lines for fast iteration and thewhole new business layout. In the first half of 2020, KUKA China saw a decline in orders from theautomobile industry due to the COVID-19 pandemic. Whereas, thanks to the growth in its systemintegration business, the overall order situation was better than expected. With improvements inoperational capability and benefits of resource integration, its profitability further improved. In the firsthalf of 2020, KUKA China resolutely implemented the established strategic plan and madebreakthroughs in many aspects. As for product R&D, it introduced experienced professionals, smoothlyfurthered the cooperation program in Germany, significantly improved local R&D and testing capabilitiesas well as the product matrix. Six software products, four applications, one six-axis robot, and one servodrive were launched in the first half of the year. Meanwhile, it initiated equipment productization in itssystem integration business. As for marketing, a value chain-driven business model has been put inplace, significantly boosting the efficiency of sales and channel management of robot ontology. Duringthe pandemic, 19 live webcasts organized by it were well-received by customers, indicating the gradualintroduction of digital products into the market. Upon the application of KUKA Robot LBS, KMS, Martec,and WeChat 24-hour Online Customer Service further improved business operation efficiency throughdigital control measures in R&D, sales and post-sales. By business, the system integration business'profitability was significantly improved. The key components business of Servotronix was transferred toChina from overseas and the industrial chain collaborative system essentially took shape. Theincreasing efficiency of the whole value chain is demonstrated by shortened product delivery, aguaranteed speed of response to customer demand, constantly improving supply systems and testingmeans, and significantly better material quality. As such, the customer-oriented principle has takenshape.
In the automotive sector, against the backdrop of COVID-19 and the trade war-induced economicdownturn, QUANTEC Series II was launched and found favor among automobile manufacturers in termsof product iteration. KUKA China signed a new framework agreement with SAIC Volkswagen andreceived orders from BMW and Mercedes-Benz factories in China. KUKA China also expanded itscooperation with Chinese auto manufacturers - for example, Geely. KUKA China is now a robot supplierfor Geely's Changxing Production Base. In the new energy vehicle industry, KUKA China obtainedorders respectively amounting to tens of millions euros from Weltmeister and Human Horizons.Capitalizing on the continuous growth in the commercial vehicle market, KUKA China also woncommercial vehicle project orders from FAW FAC, FAW-GM, FAW Jiefang, Changan Kuayue, CheryKaiyi, etc. In the sector of consumer electronics, KUKA China won orders from leading enterprises in thebattery and 3C products industries for nearly 500 KUKA robotics, laying a solid foundation for futuredevelopment. As for the medical logistics sector, at the beginning of the pandemic in China, SwisslogHealthcare under KUKA joined hands with Midea Group to donate 20 automated guided vehicles (AGVs)to makeshift hospitals in Wuhan for fighting COVID-19. The Shanghai Public Health Clinical Center,which also received and treated COVID-19 patients during the pandemic, was equipped with a steel pipepneumatic logistics system from Swisslog Healthcare, greatly enhancing the efficiency of treatment. Inthe first half of 2020, this business showed significant year-on-year growth and developed dozens ofnew customers nationwide. Meanwhile, it simultaneously completed its R&D of related products in Chinaand a strategic layout for hospitals' overall IV systems. In the sector of warehousing and logistics,Swisslog successfully won orders from a famous daily necessities direct selling enterprise in NorthAmerica to provide a complete logistics automation system for its brand-new distribution center inShanghai. The order was worth over RMB100 million. In addition, KUKA China successfully signed acontract with a world-leading semiconductor company in Shanghai to supply the AutoStore system andmake it the most robot-equipped in the Asia-Pacific region. In addition, KUKA has effectively helpedenhance Midea Group’s intelligent manufacturing level. As of June 2020, the robot density of Midea hasexceeded 230 units per 10,000 persons. In the coming three years, this number is expected to reach 300units per 10,000 persons.H. Created a new smart lifestyle—“Customize a Midea Smart Life for You”
In the first half of 2020, with the goal of "Providing the Best Overall User Experience”, M.IoT carried out aseries of changes to smart scenes, the IoT technology, ecosystem cooperation, member operation andmore, focusing on connection technology and intelligent security system upgrades, while acceleratingthe launch of 5G products and platform-based IoT ecosystem scenes and service robots. At the sametime, focusing on the five themes of safety, health, food, convenience and personality, smart scenes andthe IoT technology are fully opened to ecosystem partners. And a business value chain of Midea SmartHome has been put in place in this way, providing users with all-scene services and more qualityecosystem value-added services to create a pan-Midea Meiju App ecosystem that focuses on“Customize a Midea Smart Life for You”. Compared with the situation at the beginning of the year, theactivation rate of Midea’s smart appliances increased 33%; 78% of products displayed in the offlinechannel are smart appliances; and the intellectualization process accelerated, with over 140,000 smartscenes created for users. At present, more than 10 million families are users of Midea Meiju App, andthe number of human-machine smart service interactions has exceeded 150 million. The number ofusers of smart cloud housekeeper services increased 88% in the first half of the year, and the Mideacloud platform received an average of 4.3 billion commands per day and an average of 7.8 billionheartbeats per day. In addition, the Midea Smart Home ecosystem also developed cooperation with 15domestic and foreign mainstream terminal platforms, worked with five global automobile brands toestablish vehicle-to-home connection systems, realizing remote control of smart appliances throughvehicle-mounted systems. Moreover, through the power-saving system of Midea Smart CloudHousekeeper, more than 1,000,000 kWh of energy was saved over the first half of the year.Safeguarding user privacy and data security is the top priority for intellectualization. M.IoT is the first toreceive the IT Product Information Security Certificate (Smart Home Products) from the ChinaCybersecurity Review Technology and Certification Center. It has additionally earned multipleinternational security and privacy certifications - including the ePrivacyApp certificate for Midea MeijuApp, the UL certificate for smart products, the PCI DSS certificate at the financial level for data protection,the TRUSTe certificate for M.IoT, and the ISO 27001 Information Security Management System (ISMS)certificate for information security management. Therefore, Midea has reached an internationallyadvanced level in user data protection.
Through continuously opening up to the ecosystem and promoting innovative cooperation, M.IoT hasgathered over 100 well-known enterprise partners. Its smart ecosystem covers the AI technology, IoTsecurity, smart hardware, content resources, and Internet services. It has signed strategic cooperationagreements with Tencent, Huawei and Baidu to accelerate cross-border integration and innovation andto generate new interactions and services in terms of content services. Meanwhile, Midea join handswith quality chip makers to customize chips for home appliances. Midea HolaCon Chip encryptsalgorithm through an additional security hardware to improve data and information security for smartappliances. In addition, Midea has delivered three cost-effective ecosystem smart modules to theindustry, among which, the single WiFi module and the single Bluetooth module are both industryleaders in terms of performance and in the meantime extremely cost effective, providing a strong supportfor partners to enter Midea's smart ecosystem.I. Deepened the long-term incentive and protected the interests of shareholdersIn 2020, 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. Midea haslaunched seven stock option incentive schemes, four restricted share incentive schemes, six globalpartner stock ownership schemes and three business partner stock ownership schemes, which havehelped, in a more effective manner, to align the long-term interests of senior management and corebusiness backbones with that of all shareholders.Midea Group protects its shareholders’ interests by ensuring a consistent dividend policy. It shares itsgrowth with shareholders by putting forward cash dividend plans with a total amount of as much asRMB46.8 billion since Group listing in 2013. In addition to the consistent dividend payouts, the Companyhas carried out a string of share repurchase plans. Subsequent to a share repurchase of RMB4 billion in2018, to further stabilize the market capitalization and protect the shareholders’ interests, the Companylaunched share repurchase plans in both 2019 and 2020. And the repurchased shares would be used forequity incentive schemes and/or employee stock ownership schemes. During the period from 2019 to 31July 2020, Midea has used nearly RMB4 billion for the share repurchases.
2. Analysis of Main Business
Same with the contents presented in “1. Overview” of this section
√Yes □No
See “1. Overview” of this section.
YoY changes in key financial data:
Unit: RMB’000
| H1 2020 | H1 2019 | YoY Change (%) | Main reasons for change | |
| Operating revenue | 139,067,022 | 153,770,300 | -9.56% | |
| Cost of sales | 103,523,657 | 108,441,289 | -4.53% | |
| Selling and distribution expenses | 12,631,101 | 19,529,822 | -35.32% | Decreased sales revenue |
| General and administrative expenses | 4,102,149 | 4,110,125 | -0.19% | |
| Finance costs | -851,927 | -1,435,645 | 40.66% | Decreased interest income |
| Income tax expenses | 2,329,061 | 2,829,592 | -17.69% | |
| Research and development expenses | 4,410,737 | 4,534,760 | -2.73% | |
| Investment income | 1,088,547 | 12,640 | 8511.92% | Changes in gains/losses on delivered derivative financial instruments |
| Credit impairment losses | 461,998 | 179,047 | 158.03% | Larger increase in accounts receivable in the current period compared to the same period of last year |
| Non-operating expenses | 88,032 | 60,379 | 45.80% | Increased donation expenses |
| Minority interests | 138,715 | 872,854 | -84.11% | Acquisition of minority interests in Little Swan |
| Net cash flows from operating activities | 18,405,491 | 21,787,890 | -15.52% | |
| Net cash flows from investing activities | -24,944,355 | -18,030,748 | -38.34% | Increased cash paid to acquire investments |
| Net cash flows from financing activities | 7,033,151 | -6,828,689 | 202.99% | Increased cash received from commercial papers |
| Net increase in cash and cash equivalents | 570,541 | -3,055,102 | 118.68% | Increased net cash flows from financing activities |
Major changes to the profit structure or sources of the Company in the Reporting Period:
□Applicable √ N/A
No such cases in the Reporting Period.
Breakdown of operating revenue:
Unit: RMB’000
| H1 2020 | H1 2019 | YoY Change (%) | |||
| Amount | As a percentage of total operating revenue (%) | Amount | As a percentage of total operating revenue (%) | ||
| Total | 139,067,022 | 100% | 153,770,300 | 100% | -9.56% |
| By business segment | |||||
| Manufacturing | 126,588,566 | 91.03% | 141,814,013 | 92.22% | -10.74% |
| By product category | |||||
| HVAC | 64,030,471 | 46.04% | 71,439,403 | 46.46% | -10.37% |
| Consumer appliances | 53,034,680 | 38.14% | 58,350,984 | 37.95% | -9.11% |
| Robotics and automation systems | 9,523,415 | 6.85% | 12,023,626 | 7.82% | -20.79% |
| By geographical segment | |||||
| PRC | 77,233,142 | 55.54% | 91,664,118 | 59.61% | -15.74% |
| Outside PRC | 61,833,880 | 44.46% | 62,106,182 | 40.39% | -0.44% |
| Operating revenue | Cost of sales | Gross profit margin | YoY change of operating revenue (%) | YoY change of cost of sales (%) | YoY change of gross profit margin (%) | |
| By business segment | ||||||
| Manufacturing | 126,588,566 | 92,521,071 | 26.91% | -10.74% | -5.55% | -4.02% |
| By product category | ||||||
| HVAC | 64,030,471 | 48,535,087 | 24.20% | -10.37% | 0.03% | -7.88% |
| Consumer appliances | 53,034,680 | 36,271,844 | 31.61% | -9.11% | -9.54% | 0.32% |
| Robotics and automation systems | 9,523,415 | 7,714,140 | 19.00% | -20.79% | -17.39% | -3.34% |
| By geographical segment | ||||||
| PRC | 77,233,142 | 58,088,777 | 24.79% | -15.74% | -7.38% | -6.79% |
| Outside PRC | 61,833,880 | 45,434,880 | 26.52% | -0.44% | -0.63% | 0.14% |
| 30 June 2020 | 31 December 2019 | Change in percentage (%) | Explanation about any material change | |||
| Amount | As a percentage of total assets (%) | Amount | As a percentage of total assets (%) | |||
| Cash at bank and on hand | 53,027,194 | 15.84% | 70,916,841 | 23.49% | -7.65% | |
| Accounts receivable | 25,671,899 | 7.67% | 18,663,819 | 6.18% | 1.49% | |
| Inventories | 21,714,793 | 6.49% | 32,443,399 | 10.74% | -4.25% | |
| Investment properties | 423,821 | 0.13% | 399,335 | 0.13% | 0.00% | |
| Long-term equity investments | 2,998,466 | 0.90% | 2,790,806 | 0.92% | -0.02% | |
| Fixed assets | 22,278,992 | 6.66% | 21,664,682 | 7.17% | -0.51% | |
| Construction in progress | 1,587,400 | 0.47% | 1,194,650 | 0.40% | 0.07% | |
| Short-term borrowings | 12,997,800 | 3.88% | 5,701,838 | 1.89% | 1.99% | |
| Long-term borrowings | 37,136,646 | 11.10% | 41,298,377 | 13.68% | -2.58% |
| Item | Opening balance | Profit or loss from change in fair value during the period | Cumulative fair value change charged to equity | Amount provided for impairment in the period | Purchased in the period | Sold in the period | Other changes | Closing balance |
| Financial assets | ||||||||
| 1. Financial asset held for trading (excluding derivative financial assets) | 1,087,351 | 163,975 | 172,190 | 45,747 | 1,469,263 | |||
| 2. Derivative financial assets | 295,984 | -183,802 | 174,388 | -7,174 | 279,396 | |||
| 3. Receivables financing | 7,565,776 | 1,425,135 | 8,990,911 | |||||
| 4. Investments in other equity instruments | - | 48,020 | 48,020 | |||||
| 5. Other non-current financial assets | 1,750,107 | 74,108 | 332,500 | 16,535 | -1,776 | 2,138,404 | ||
| 6. Other investments | 50,557,518 | 157,304 | 59,960,000 | 56,990,000 | 53,684,822 | |||
| 7. Investments in other bonds | - | 19,242,000 | 41,310 | 19,283,310 | ||||
| Sub-total of financial assets | 61,256,736 | 211,585 | 174,388 | 81,179,845 | 57,006,535 | 78,107 | 85,894,126 | |
| Investment properties | ||||||||
| Productive living assets | ||||||||
| Other | ||||||||
| Sub-total of the above | 61,256,736 | 211,585 | 174,388 | 81,179,845 | 57,006,535 | 78,107 | 85,894,126 | |
| Financial liabilities | 27,132 | 57,952 | 47,801 | -1,581 | 131,304 | |||
Whether there were any material changes on the measurement attributes of major assets of theCompany during the Reporting Period
□ Yes √ No
4.3 Restricted asset rights as of the end of this Reporting Period
As of the end of this Reporting Period, there were no such circumstances where any main assets of 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 the Reporting Period (RMB’000) | Total investment amount of the same period of last year (RMB’000) | YoY Change (%) |
| 85,512,588 | 45,708,198 | 87.08% |
| Type of asset | Initial investment cost | Profit or loss from change in fair value during the period | Cumulative fair value change charged to equity in the period | Purchased in the period | Sold in the period | Investment income in the period | Closing balance | Funding source |
| Stocks | 1,459,399 | 163,975 | 45,747 | 172,190 | - | - | 1,469,263 | Own funds |
| Funds | 914,094 | 71,348 | -5,786 | 330,000 | -1,374 | - | 1,337,473 | Own funds |
| Derivative financial instruments | 279,396 | -183,802 | 167,214 | - | - | 39,993 | 279,396 | Own funds |
| Others | 81,831,382 | 160,064 | 4,010 | 80,677,655 | -57,005,161 | 679,418 | 82,807,994 | Own funds |
| Total | 84,484,271 | 211,585 | 211,185 | 81,179,845 | -57,006,535 | 719,411 | 85,894,126 |
| Type of securities | Code of securities | Abbreviation of securities | Initial investment cost | Measurement method | Opening carrying amount | Profit or loss from change in fair value during the period | Cumulative fair value change charged to equity | Purchased in the period | Sold in the period | Profit or loss in the period | Closing carrying amount | Accounting title | Funding source |
| Overseas listed stock | 1810 | XIAOMI-W | 1,272,584 | Fair value method | 936,358 | 185,290 | 41,427 | - | - | - | 1,163,075 | Financial asset held for trading | Own funds |
| Overseas listed stock | DNK | Danke | 172,190 | Fair value method | - | -55,362 | 4,320 | 172,190 | - | - | 121,148 | Financial asset held for trading | Own funds |
| Domestically listed stock | 688018 | Espressif Systems | 14,625 | Fair value method | 150,993 | 34,047 | - | - | - | - | 185,040 | Financial asset held for trading | Own funds |
| Total | 1,459,399 | -- | 1,087,351 | 163,975 | 45,747 | 172,190 | - | - | 1,469,263 | - | -- | ||
Unit: RMB’000
| Operating party | Relationship with the Company | Related transaction | Type of derivative | Initial investment amount | Starting date | Ending date | Opening investment amount | Purchased in Reporting Period | Sold in Reporting Period | Amount provided for impairment (if any) | Closing investment amount | Closing investment amount as a percentage of the Company’s closing net assets | Actual gain/loss in Reporting Period |
| Futures company | No | No | Futures contracts | 1,377 | 01/01/2020 | 31/12/2020 | 1,377 | - | - | - | 156,835 | 0.1494% | 136,645 |
| Bank | No | No | FX derivatives | 267,475 | 01/01/2020 | 31/12/2020 | 267,475 | - | - | - | -8,743 | -0.0083% | -115,767 |
| Total | 268,852 | -- | -- | 268,852 | - | - | - | 148,092 | 0.1411% | 20,878 | |||
| Source of derivatives investment funds | All from the Company’s own funds | ||||||||||||
| Litigation involved (if applicable) | N/A | ||||||||||||
| Disclosure date of the announcement about the board’s consent for the derivative investment (if any) | 30/04/2020 | ||||||||||||
| Disclosure date of the announcement about the general meeting’s consent for the derivative investment (if any) | - | ||||||||||||
| Risk analysis of | For the sake of eliminating the cost risk of the Company's bulk purchases of raw materials as a | ||||||||||||
positions held inderivatives during theReporting Period andexplanation of controlmeasures (Including butnot limited to marketrisk, liquidity risk, creditrisk, operational risk,legal risk, etc.)
| expiry dates. | |
| Changes in market prices or fair value of derivative products during the Reporting Period, specific methods used and relevant assumption and parameter settings shall be disclosed for analysis of fair value of derivatives | 1. Gain from futures contracts during the Reporting Period was RMB136.645 million. 2. Loss from FX derivatives during the Reporting Period was RMB-115.767 million. 3. Public quotations in futures market or forward forex quotations announced by the Bank of China are used in the analysis of derivatives fair value. |
| Explanation of significant changes in accounting policies and specific financial accounting principles in respect of the Company's derivatives for the Reporting Period as compared to the previous Reporting Period | No change |
| Special opinions expressed by independent directors concerning the Company's derivatives investment and risk control | The Company's independent directors are of the view that the futures hedging business is an effective instrument for the Company to eliminate price volatility and implement risk prevention measures through enhanced internal control, thereby improving the operation and management of the Company; the Company's foreign exchange risk management capability can be further improved through the forex funds business, so as to maintain and increase the value of foreign exchange assets and the abovementioned investment in derivatives can help the Company to fully bring out its competitive advantages. Therefore, it is practicable for the Company to carry out derivatives investment business, and the risks are controllable. |
7. Analysis of Major Subsidiaries
√Applicable □N/A
Main subsidiaries and joint stock companies with an over 10% influence on the Company’s net profit
| Company name | Company type | Business scope | Registered capital | Total assets (in RMB million) | Net assets (in RMB million) | Operating revenue (in RMB million) | Operating profit (in RMB million) | Net profit (in RMB million) |
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | Subsidiary | Manufacturing of home appliances | USD72 million | 13,986.99 | 5,660.16 | 6,794.51 | 1,163.84 | 1,008.06 |
| GD Midea Air-Conditioning Equipment Co.,Ltd. | Subsidiary | Manufacturing of air conditioners | RMB854 million | 40,820.62 | 4,672.53 | 25,656.50 | 70.76 | 107.64 |
| Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd. | Subsidiary | Manufacturing of home appliances | USD42 million | 13,680.11 | 6,931.94 | 4,266.90 | 731.65 | 624.29 |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | Subsidiary | Manufacturing of water heaters | RMB60 million | 10,122.81 | 935.24 | 5,462.86 | 821.53 | 701.53 |
8. Structured Bodies Controlled by the Company
□Applicable √N/A
9. Forecast of Business Performance from January to September in 2020Warning about an estimated major change in the aggregate net profit from the beginning of the year tothe end of the next reporting period compared with the same period in the previous year and explanationfor the change:
□ Applicable √ N/A
10. Risks Facing by the Company and Countermeasures
A. Risk associated with the COVID-19 outbreakDomestic consumption and production are expected to be affected to some degree in the short run bythe COVID-19 outbreak in early 2020. Therefore, the offline retail stores of the Company are expected tosee lower footfall in the short run. Meanwhile, the COVID-19 has been spreading overseas since lateFebruary 2020. Should the epidemic last for a long time, the Company could face a challenge in 2020.B. Risk of macro economy fluctuationThe market demand for the Company’s consumer appliances and HVAC equipment, among otherproducts, can be easily affected by the economic situation and macro control. If the global economyencounters a heavy hit, or the domestic economy or consumer demand slows down in growth, 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.C. Risks in the fluctuation of production factorsThe raw materials required by Midea Group to manufacture its consumer appliances and corecomponents primarily include different grades of copper, steel, aluminum, and plastics. At present, thehousehold appliance manufacturing sector belongs to a labor intensive industry. If the price of rawmaterials fluctuate largely, or there is a large fluctuation in the cost of production factors (labor, water,
electricity, and land) caused by a change to the macroeconomic environment and policy change, or thecost reduction resulted from lean production and improved efficiency, as well as the sale prices of endproducts cannot offset the total effects of cost fluctuations, the Company’s business will be influenced tosome degree.D. Risk in global asset allocation and overseas market expansionInternationalization and global operations is a long-term strategic goal of the Company. The Companyhas built joint-venture manufacturing bases in many countries around the world. Progress has beenmade day by day regarding the Company’s overseas operations and new business expansion. However,its efforts in global resource integration may not be able to produce expected synergies; and in overseasmarket expansion, there are still unpredictable risks such as local political and economic situations,significant changes in law and regulation systems, and sharp increases in production costs.E. Risk in product export and foreign exchange losses caused by exchange rate fluctuationAs Midea carries on with its overseas expansion plan, its export revenue has accounted for more than40% of the total revenues. Any sharp exchange rate fluctuation might not only bring negative effects onthe export of the Company, but could also lead to exchange losses and increase its finance costs.F. Market risks brought by trade frictions and tariff barriersDue to the rise of anti-globalization and trade protectionism, China will see more uncertainties in exportin 2020. The trade barriers and frictions of some major markets will affect the export business in theshort run, as well as marketing planning and investment in the medium and long run. Political andcompliance risks are rising in international trade. These can mainly be seen on compulsory safetycertificates, international standards and requirements, and product quality and management systemscertification, energy-saving requirements, the call for increasingly strict environmental protectionrequirements, as well as with rigorous requirements for recycling household appliances waste. Tradefrictions caused by anti-dumping measures implemented by some countries and regions aggravate theburden in costs and expenses for household appliance enterprises, and have brought about newchallenges to market planning 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 healthydevelopment.
Section V Significant Events
1. Annual and Extraordinary General Meetings of Shareholders Convened during theReporting Period
1.1 General meetings of shareholders convened during the Reporting Period
| Meeting | Type | Investor participation ratio | Convened date | Disclosure date | Index to disclosed information |
| First Extraordinary General Meeting of Shareholders of 2020 | Extraordinary | 54.4367% | 13 March 2020 | 14 March 2020 | Announcement No. 2020-023 on Resolutions of First Extraordinary General Meeting of Shareholders of 2020, disclosed on www.cninfo.com.cn |
| 2019 Annual General Meeting of Shareholders | Annual | 57.2182% | 22 May 2020 | 23 May 2020 | Announcement No. 2020-050 on Resolutions of 2019 Annual General Meeting of Shareholders, disclosed on www.cninfo.com.cn |
| Second Extraordinary General Meeting of Shareholders of 2020 | Extraordinary | 57.9386% | 22 June 2020 | 23 June 2020 | Announcement No. 2020-076 on Resolutions of Second Extraordinary General Meeting of Shareholders of 2020, disclosed on www.cninfo.com.cn |
3. Undertakings of the Company’s Actual Controller, Shareholders, Related Partiesand Acquirer, as well as the Company and Other Commitment Makers Fulfilled in theReporting Period or Overdue at the Period-end
□Applicable √N/A
No such cases in the Reporting Period.
4. Engagement and Disengagement of CPA Firm
Have the H1 2020 financial statements been audited by a CPA firm?
□ Yes √ No
The H1 2020 financial statements are unaudited by a CPA firm.
5. Explanation of the Board of Directors and the Supervisory Committee Regardingthe "Non-standard Audit Opinion" for the Reporting Period
□Applicable √N/A
6. Explanation of the Board of Directors Regarding the "Non-standard Audit Opinion"for Last Year
□Applicable √N/A
7. Bankruptcy and Reorganization
□Applicable √N/A
No such cases in the Reporting Period.
8. Litigation
Material litigation and arbitration:
□ Applicable √ N/A
No such cases in the Reporting Period.Other legal matters:
□ Applicable √ N/A
9. Doubts from Media
□ Applicable √ N/A
The Company had no issues about which media generally raised doubts in the Reporting Period.
10. Punishments and Rectifications
□Applicable √N/A
No such cases in the Reporting Period.
11. Credit Conditions of the Company as well as Its Controlling Shareholder andActual Controller
□Applicable √N/A
12. Implementation of any Equity Incentive Scheme, Employee Stock OwnershipScheme or Other Incentive Measures for Employees
√Applicable □N/A
A. Overview of the Second Stock Option Incentive Schemea. The Company convened the 21st Meeting of the 3rd Board of Directors on 5 June 2020, at which theProposal for the Retirement of Unexercised Stock Options under the Second Stock Option IncentiveScheme upon Expiry was reviewed and approved. As the Second Stock Option Incentive Schemeexpired on 26 May 2020, the Company agreed to retire the 22,000, 34,000, 37,000 and 47,900 stockoptions that had been previously granted to Xia Manya, Yu Xiaoping, Fu Shengbin and Zeng Minrespectively but were unexercised upon expiry.During the Reporting Period, 9,744,890 shares were exercised under the Second Stock Option IncentiveScheme.B. Overview of the Third Stock Option Incentive Schemea. The Company convened the 21st Meeting of the 3rd Board of Directors on 5 June 2020, at which theProposal for the Adjustment to the Exercise Price for the Third Stock Option Incentive Scheme was
reviewed and approved. As the 2019 Annual Profit Distribution had been carried out, the exercise pricefor the Third Stock Option Incentive Scheme was revised from RMB17.85 to RMB16.26 per share.b. The Company convened the 23rd Meeting of the 3rd Board of Directors on 24 July 2020, at which theProposal for the Retirement of Unexercised Stock Options under the Third Stock Option IncentiveScheme upon Expiry was reviewed and approved. As the second exercise period of the Third StockOption Incentive Scheme expired on 27 June 2020 and the relevant unexercised stock options were notallowed for exercise from that date, the Company agreed to retire the 75,000, 70,000, 75,000, 60,000and 30,000 stock options that had been previously granted to Fu Shengbin, Ren Junfu, Yuan Dong,Yang Hui and Liao Zhiwen respectively but were unexercised upon expiry.During the Reporting Period, 16,791,299 shares were exercised under the Third Stock Option IncentiveScheme.C. Overview of the Fourth Stock Option Incentive Schemea. The Company convened the 21st Meeting of the 3rd Board of Directors on 5 June 2020, at which theProposal for the Adjustments to the Exercise Price, Incentive Receivers and Their Exercisable StockOptions for the Fourth Stock Option Incentive Scheme was reviewed and approved. As the 2019 AnnualProfit Distribution had been carried out, the exercise price for the Fourth Stock Option Incentive Schemewas revised from RMB30.22 to RMB28.63 per share. Meanwhile, it was agreed to adjust the incentivereceivers and their exercisable stock options for the Fourth Stock Option Incentive Scheme due to thedeparture, positional changes, low individual or business division performance appraisals or otherfactors of some incentive receivers. Upon the adjustments, the number of locked-up stock optionsgranted to them was reduced from 26,740,000 to 23,867,600.b. The Proposal for Matters Related to the Stock Option Exercise for the Third Exercise Period of theFourth Stock Option Incentive Scheme was also reviewed and approved. Because the exerciseconditions have grown mature for the third exercise period, a total of 1,070 incentive receivers who havebeen verified for the Fourth Stock Option Incentive Scheme have been allowed to exercise 23,867,600stock options in the third exercise period (ended 11 May 2021).
c. The Proposal for the Retirement of Unexercised Stock Options under the Fourth Stock OptionIncentive Scheme upon Expiry was also reviewed and approved. As the Fourth Stock Option IncentiveScheme expired on 11 May 2020, the Board of Directors of the Company agreed to retire the 19,500 and30,000 stock options that had been previously granted to Huang Yongsong and Yu Shengmingrespectively but were unexercised upon expiry.During the Reporting Period, 15,429,063 shares were exercised under the Fourth Stock Option IncentiveScheme.D. Overview of the Fifth Stock Option Incentive Schemea. The Company convened the 21st Meeting of the 3rd Board of Directors on 5 June 2020, at which theProposal for the Adjustment to the Exercise Price for the Fifth Stock Option Incentive Scheme and theProposal for the Adjustments to the Incentive Receivers and Their Exercisable Stock Options for theFirst Phase of the Grant under the Fifth Stock Option Incentive Scheme were reviewed and approved.As the 2019 Annual Profit Distribution had been carried out, the exercise price for the first phase of thegrant under the Fifth Stock Option Incentive Scheme was revised from RMB55.04 to RMB53.45 pershare, and the exercise price for the reserved stock options from RMB45.87 to RMB44.28 per share.Meanwhile, it was agreed to adjust the incentive receivers and their exercisable stock options for theFifth Stock Option Incentive Scheme due to the departure, positional changes, low individual or businessdivision performance appraisals or other factors of some incentive receivers. Upon the adjustments, thenumber of locked-up stock options granted to them was reduced from 54,420,000 to 42,101,750.b. The Proposal for Matters Related to the Stock Option Exercise for the First Exercise Period of the FirstPhase of the Grant under the Fifth Stock Option Incentive Scheme was also reviewed and approved.Because the exercise conditions have grown mature for the first exercise period, a total of 1,044incentive receivers who have been verified for the Fifth Stock Option Incentive Scheme have beenallowed to exercise 10,241,750 stock options in the first exercise period (ended 6 May 2021).E. Overview of the Sixth Stock Option Incentive Schemea. The Company convened the 21st Meeting of the 3rd Board of Directors on 5 June 2020, at which the
Proposal for the Adjustment to the Exercise Price for the Sixth Stock Option Incentive Scheme wasreviewed and approved. As the 2019 Annual Profit Distribution had been carried out, the exercise pricefor the Sixth Stock Option Incentive Scheme was revised from RMB52.87 to RMB51.28 per share.F. Overview of the Seventh Stock Option Incentive Schemea. On 28 April 2020, the Seventh Stock Option Incentive Scheme (Draft) of Midea Group Co., Ltd(hereinafter referred to as the “Seventh Stock Option Incentive Scheme (Draft)”) and its abstract werereviewed and approved at the 20th Meeting of the 3rd Board of Directors, and the incentive receiver listfor the Seventh Stock Option Incentive Scheme (Draft) was examined at the 14th Meeting of the 3rdSupervisory Committee.b. On 22 May 2020, the Company convened the 2019 Annual General Meeting of Shareholders, atwhich the Proposal on the Seventh Stock Option Incentive Scheme (Draft) and Its Abstract, the Proposalon the Implementation and Appraisal Measures for the Seventh Stock Option Incentive Scheme, theProposal for Asking the Meeting of Shareholders to Authorize the Board to Handle Mattes Related to theSeventh Stock Option Incentive Scheme and other relevant proposals were reviewed and approved.For this Incentive Scheme, the Company intended to grant 65,260,000 stock options to 1,425 incentivereceivers with the exercise price being RMB52.02 per share.c. In light of the authorization given at the 2019 Annual General Meeting of Shareholders, the Companyconvened the 23rd Meeting of the 3rd Board of Directors on 5 June 2020, at which the Proposal for theAdjustments to the Exercise Price, Incentive Receiver List and Number of Stock Options to Be Grantedfor the Seventh Stock Option Incentive Scheme, the Proposal for the Determination of the Grant Date forthe Seventh Stock Option Incentive Scheme and the Proposal for the Grant-Related Matters for theSeventh Stock Option Incentive Scheme were reviewed and approved. As such, the Company agreed togrant stock options to incentive receivers on 5 June 2020 with the exercise price revised from RMB54.17per share to RMB52.87 per share. Due to 2 incentive receivers’ departure from the Company, they wereno longer eligible for the Seventh Stock Option Incentive Scheme and the stock options granted to themwere cancelled. Therefore, the Board adjusted the number of incentive receivers from 1,425 to 1,423,
and the number of stock options from 65,260,000 to 65,180,000.The Company originally intended to grant 65,260,000 stock options to 1,425 incentive receivers.However, due to 5 incentive receivers’ departure from the Company or being without a securitiesaccount, they were no longer eligible for the Seventh Stock Option Incentive Scheme. Therefore, theBoard adjusted the number of incentive receivers from 1,425 to 1,420, and the number of stock optionsfrom 65,260,000 to 65,020,000. On 8 July 2020, the Company completed the registration of the grant ofstock options under the Seventh Stock Option Incentive Scheme.d. In accordance with the Accounting Standard No. 11 for Business Enterprises—Share-BasedPayments and the Accounting Standard No. 22 for Business Enterprises—Recognition andMeasurement of Financial Instruments, the Company chose the Black-Scholes model to measure thefair value of stock options. Upon the measurement on 5 June 2020 of the fair value of the 65,180,000stock options granted by the Company using the said model, the theoretical value of these stock optionswas RMB1,001,164,400, which would be amortized within the 36 months after the date of grant. Thesaid amortization of cost was expected to have an impact on the Company’s net profit of the currentperiod to some degree, but it would not affect the Company’s operating results to a great extent.G. Overview of the 2017 Restricted Share Incentive Schemea. The Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2017, 2018and 2019 Restricted Share Incentive Schemes was approved at the 17th Meeting of the 3rd Board ofDirectors on 10 January 2020. As such, it was agreed to repurchase and retire 679,000 restricted sharesthat had been granted to 16 personnel but were still in lockup, for the reasons of their departure from theCompany, violation of company rules, low individual performance appraisals, position change or otherfactors.Also, the Proposal on the Satisfaction of the Conditions for the Second Unlocking Period for theReserved Restricted Shares of the 2017 Restricted Share Incentive Scheme was approved at theaforesaid meeting. A total of 42 personnel were eligible for this unlocking, with 1,340,750 restrictedshares (0.02% of the Company’s total existing share capital) unlocked and allowed for public trading on
19 February 2020, of which senior management Xiao Mingguang unlocked 50,000 shares.b. The Company submitted the application to China Securities Depository and Clearing Co., Ltd.(Shenzhen branch) (hereinafter referred to as “CSDC Shenzhen”) for the retirement of the 679,000restricted shares under the 2017 Restricted Share Incentive Scheme that had been granted but were stillin lockup. On 10 March 2020, as confirmed by CSDC Shenzhen, the retirement of the said restrictedshares had been completed.c. The Company convened the 21st Meeting of the 3rd Board of Directors on 5 June 2020, at which theProposal for the Adjustment to the Repurchase Price for the 2017 Restricted Share Incentive Schemewas reviewed and approved. As the 2019 Annual Profit Distribution had been carried out, the repurchaseprice for the first phase of the grant was revised from RMB13.36 to RMB11.77 per share, and therepurchase price for the reserved restricted shares from RMB25.49 to RMB23.90 per share.Also, the Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2017Restricted Share Incentive Scheme was approved at the said meeting. As such, it was agreed torepurchase and retire 187,500 restricted shares that had been granted to 3 personnel but were still inlockup, for the reasons of their business unit’s 2019 performance appraisal result being “just so-so”, lowindividual performance appraisals for 2019, violation of company rules or other factors.Also, the Proposal on the Satisfaction of the Conditions for the Third Unlocking Period for the First Phaseof the Grant under the 2017 Restricted Share Incentive Scheme was approved at the aforesaid meeting.A total of 99 personnel were eligible for this unlocking, with 5,532,500 restricted shares (0.0790% of theCompany’s total existing share capital) unlocked and allowed for public trading on 22 June 2020, ofwhich senior management Hu Ziqiang, Zhang Xiaoyi and Zhong Zheng unlocked 100,000, 70,000 and60,000 shares respectively.d. The Company submitted the application to CSDC Shenzhen for the retirement of the 187,500restricted shares under the 2017 Restricted Share Incentive Scheme that had been granted but were stillin lockup. On 31 July 2020, as confirmed by CSDC Shenzhen, the retirement of the said restrictedshares had been completed.
H. Overview of the 2018 Restricted Share Incentive Schemea. The Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2017, 2018and 2019 Restricted Share Incentive Schemes was approved at the 17th Meeting of the 3rd Board ofDirectors on 10 January 2020. As such, it was agreed to repurchase and retire 1,586,500 restrictedshares that had been granted to 33 personnel but were still in lockup, for the reasons of their departurefrom the Company, violation of company rules, low individual performance appraisals, position change orother factors.b. The Company submitted the application to CSDC Shenzhen for the retirement of the 1,586,500restricted shares under the 2018 Restricted Share Incentive Scheme that had been granted but were stillin lockup. On 10 March 2020, as confirmed by CSDC Shenzhen, the retirement of the said restrictedshares had been completed.c. The Company convened the 21st Meeting of the 3rd Board of Directors on 5 June 2020, at which theProposal for the Adjustment to the Repurchase Price for the 2018 Restricted Share Incentive Schemewas reviewed and approved. As the 2019 Annual Profit Distribution had been carried out, the repurchaseprice for the first phase of the grant was revised from RMB26.27 to RMB24.68 per share, and therepurchase price for the reserved restricted shares from RMB22.29 to RMB20.70 per share.Also, the Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2018Restricted Share Incentive Scheme was approved at the said meeting. As such, it was agreed torepurchase and retire 1,021,000 restricted shares that had been granted to 18 personnel but were still inlockup, for the reasons of their departure from the Company, position change, low individualperformance appraisals for 2019, violation of company rules or other factors.Also, the Proposal on the Satisfaction of the Conditions for the First Unlocking Period for the First Phaseof the Grant under the 2018 Restricted Share Incentive Scheme was approved at the aforesaid meeting.A total of 231 personnel were eligible for this unlocking, with 3,704,125 restricted shares (0.0529% of theCompany’s total existing share capital) unlocked and allowed for public trading on 1 July 2020, of whichsenior management Hu Ziqiang, Xiao Mingguang, Zhang Xiaoyi and Zhong Zheng unlocked 25,000,
25,000, 25,000 and 20,000 shares respectively.d. The Company submitted the application to CSDC Shenzhen for the retirement of the 1,021,000restricted shares under the 2018 Restricted Share Incentive Scheme that had been granted but were stillin lockup. On 31 July 2020, as confirmed by CSDC Shenzhen, the retirement of the said restrictedshares had been completed.I. Overview of the 2019 Restricted Share Incentive Schemea. The Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2017, 2018and 2019 Restricted Share Incentive Schemes was approved at the 17th Meeting of the 3rd Board ofDirectors on 10 January 2020. As such, it was agreed to repurchase and retire 1,241,000 restrictedshares that had been granted to 21 personnel but were still in lockup, for the reasons of their departurefrom the Company, position change or other factors.b. The Company submitted the application to CSDC Shenzhen for the retirement of the 1,241,000restricted shares under the 2019 Restricted Share Incentive Scheme that had been granted but were stillin lockup. On 10 March 2020, as confirmed by CSDC Shenzhen, the retirement of the said restrictedshares had been completed.c. The Company convened the 21st Meeting of the 3rd Board of Directors on 5 June 2020, at which theProposal for the Adjustment to the Repurchase Price for the 2019 Restricted Share Incentive Schemewas reviewed and approved. As the 2019 Annual Profit Distribution had been carried out, the repurchaseprice was revised from RMB25.79 to RMB24.20 per share.Also, the Proposal on the Repurchase and Retirement of Certain Incentive Shares under the 2019Restricted Share Incentive Scheme was approved at the said meeting. As such, it was agreed torepurchase and retire 1,010,000 restricted shares that had been granted to 15 personnel but were still inlockup, for the reasons of their departure from the Company, position change, violation of company rulesor other factors.d. The Company submitted the application to CSDC Shenzhen for the retirement of the 1,010,000
restricted shares under the 2019 Restricted Share Incentive Scheme that had been granted but were stillin lockup. On 31 July 2020, as confirmed by CSDC Shenzhen, the retirement of the said restrictedshares had been completed.J. Overview of the 2020 Restricted Share Incentive Schemea. On 28 April 2020, the 2020 Restricted Share Incentive Scheme (Draft) of Midea Group Co., Ltd(hereinafter referred to as the “2020 Restricted Share Incentive Scheme (Draft)”) and its abstract werereviewed and approved at the 20th Meeting of the 3rd Board of Directors, and the incentive receiver listfor the 2020 Restricted Share Incentive Scheme (Draft) was examined at the 14th Meeting of the 3rdSupervisory Committee.b. On 22 May 2020, the Company convened the 2019 Annual General Meeting of Shareholders, atwhich the Proposal on the 2020 Restricted Share Incentive Scheme (Draft) and Its Abstract, theProposal on the Implementation and Appraisal Measures for the 2020 Restricted Share IncentiveScheme, the Proposal for Asking the Meeting of Shareholders to Authorize the Board to Handle MattesRelated to the 2020 Restricted Share Incentive Scheme and other relevant proposals were reviewedand approved. For this scheme, the Company intended to grant 34,180,000 restricted shares (0.49% ofthe Company’s total existing issued share capital) to 520 incentive receivers with the price beingRMB26.01/share.c. In light of the authorization given at the 2019 Annual General Meeting of Shareholders, the Companyconvened the 21st Meeting of the 3rd Board of Directors on 5 June 2020, at which the Proposal for theAdjustment to the Grant Price of the 2020 Restricted Share Incentive Scheme, the Proposal for theDetermination of the Grant Date for the 2020 Restricted Share Incentive Scheme and the Proposal forthe Grant-Related Matters for the 2020 Restricted Share Incentive Scheme were reviewed and approved.As such, the Company agreed to grant 34,180,000 restricted shares to 520 incentive receivers on 5June 2020 under the said scheme with the price revised from RMB26.01 per share to RMB24.42 pershare.d. The Company had intended to grant 34,180,000 restricted shares to 520 incentive receivers. However,
after the date of grant, 14 incentive receivers left the Company or gave up subscription, and the 935,000restricted shares that had been granted to them were cancelled. As such, the Company actually granted33,245,000 restricted shares to 506 incentive receivers, including 120,000 shares to senior managementWang Jinliang. Zhonghui Certified Public Accountants LLP issued on 6 July 2020 the Capital VerificationReport ZHKY [2020] No. 5044, verifying the payments as of 30 June 2020 by the 506 incentive receiversfor share subscription under the 2020 Restricted Share Incentive Scheme. As verified, as of 30 June2020, the Company had received RMB811,842,900.00 from the 506 incentive receivers for restrictedshare subscription. After the grant, the total share capital of the Company remained the same, and therestricted shares rose by 33,245,000.00 due to the equity incentive and the unrestricted public sharesdecreased by 33,245,000.00.e. As per the CSRC’s Measures for the Administration of Equity Incentives of Listed Companies, and asconfirmed by the Shenzhen Stock Exchange and CSDC Shenzhen, the shares under the Company’s2020 Restricted Share Incentive Scheme had been registered and were allowed for public trading on 14July 2020.f. A total of 33,245,000 shares were granted under the 2020 Restricted Share Incentive Scheme, with adifference of approximately RMB918,226,900 between the amount received for the restricted sharesgranted and the share repurchase cost of approximately RMB1,730,069,800. As required by theAccounting Standard for Business Enterprises No. 37—Presentation of Financial Instruments, where afinancial instrument or a part thereof is an equity instrument, the issuer shall treat it as a change in equitywhen issuing (including refinancing), repurchasing, selling or cancelling the instrument. Meanwhile, inaccordance with the regulations concerning stock option incentives for employees through sharerepurchase in the Guidelines on the Application of the Accounting Standard for Business Enterprises No.11—Share-Based Payment, upon the receipt of employees’ payments for purchasing the enterprise’sshares in exercise, the enterprise shall write off the cost of treasury stock that is handed over toemployees and the cumulative capital surplus (other capital surplus) during the vesting period, and thedifference shall be treated as an adjustment to capital surplus (share premium). Therefore, theimplementation of the 2020 Restricted Share Incentive Scheme will not have a material impact on theoperating results of the Company.
K. Overview of the Second Global Partner Stock Ownership Schemea. Under the Second Global Partner Stock Ownership Scheme, a total of 1,684,540 shares had beenvested in the Company’s incumbent senior management (Fang Hongbo, Yin Bitong, Gu Yanmin, WangJianguo and Wang Jinliang), and a total of 1,179,170 shares had been vested in other incentivereceivers, totaling 2,863,710 shares. The remaining unvested 1,010,880 shares and the correspondingdividends (if any) had been taken back by the administrative committee of this scheme for nocompensation, and would be sold at a proper timing before this scheme expired. The earnings on thesale would belong to the Company.b. The Proposal on the Extended Duration of the Second Global Partner Stock Ownership Scheme wasapproved at the 18th Meeting of the 3rd Board of Directors on 22 February 2020. As proposed by theadministrative committee of this scheme, the Board agreed to extend the duration of this scheme fromfour years to five years, i.e. to 24 March 2021.As of the end of the Reporting Period, a total of 864,924 shares were held under the Second GlobalPartner Stock Ownership Scheme, representing 0.0123% of the Company’s total share capital.L. Overview of the Third Global Partner Stock Ownership Schemea. The Company disclosed the Reminder of the Completion of Vesting under the Third Global PartnerStock Ownership Scheme & the Expiry of the Lockup Period on 2 June 2020. As such, the final 30%installment of shares under the Third Global Partner Stock Ownership Scheme had been vested,marking the completion of this scheme. A total of 1,552,618 shares had been vested in the Company’sincumbent senior management (Fang Hongbo, Yin Bitong, Gu Yanmin, Wang Jianguo, Wang Jinliangand Xiao Mingguang), and a total of 718,800 shares had been vested in other incentive receivers,totaling 2,271,418 shares. The remaining unvested 575,027 shares and the corresponding dividends (ifany) had been taken back by the administrative committee of this scheme for no compensation, andwould be sold at a proper timing before this scheme expired. The earnings on the sale would belong tothe Company.As of the end of the Reporting Period, a total of 2,846,445 shares were held under the Third Global
Partner Stock Ownership Scheme, representing 0.0405% of the Company’s total share capital.M. Overview of the Fourth Global Partner Stock Ownership Schemea. Under the Fourth Global Partner Stock Ownership Scheme, the total shares to be granted were2,714,700 shares (1,564,200 shares for senior management Fang Hongbo, Yin Bitong, Gu Yanmin,Wang Jianguo and Wang Jinliang, and the other 1,150,500 shares for other core managementpersonnel). Due to certain incentive receivers’ position change or departure from the Company in theduration of the Fourth Global Partner Stock Ownership Scheme, there are remained 603,840 sharesunallocated under this scheme. As per the Fourth Global Partner Stock Ownership Scheme (Draft),these unallocated shares and the corresponding dividends (if any) had been taken back by theadministrative committee of this scheme for no compensation, and would be sold at a proper timingbefore this scheme expired. The earnings on the sale would belong to the Company.As of the end of the Reporting Period, a total of 3,318,540 shares were held under the Fourth GlobalPartner Stock Ownership Scheme, representing 0.0473% of the Company’s total share capital.N. Overview of the First Business Partner Stock Ownership Schemea. Under the First Business Partner Stock Ownership Scheme, the total shares to be granted were1,151,687 shares (182,566 shares for senior management Zhang Xiaoyi, Xiao Mingguang, Hu Ziqiang,Liu Min and Jiang Peng, and the other 969,121 shares for other core management personnel). Due tocertain incentive receivers’ position change or departure from the Company in the duration of the FirstBusiness Partner Stock Ownership Scheme, there are remained 627,613 shares unallocated under thisscheme. As per the First Business Partner Stock Ownership Scheme (Draft), these unallocated sharesand the corresponding dividends (if any) had been taken back by the administrative committee of thisscheme for no compensation and belonged to the Company. In this case, the Company still had to returnthe performance bonuses corresponding to these unallocated shares under this scheme to the relevantsenior management.As of the end of the Reporting Period, a total of 1,779,300 shares were held under the First BusinessPartner Stock Ownership Scheme, representing 0.0253% of the Company’s total share capital.
O. Overview of the Fifth Global Partner Stock Ownership Schemea. The Company’s performance requirement for the Fifth Global Partner Stock Ownership Scheme is aweighted average ROE not lower than 20% for 2019. According to the 2019 Annual Auditor’s Report forMidea Group Co., Ltd. issued by PricewaterhouseCoopers China (LLP), this ROE requirement has beenmet at 26.43%.b. The Company disclosed the Announcement on the Share Allocation and Vesting under a PartnerStock Ownership Scheme on 27 July 2020. A total of 3,732,075 of the Company’s shares wererepurchased for this scheme. As per the Fifth Global Partner Stock Ownership Scheme (Draft), theadministrative committee of this scheme confirmed the number of shares to be granted to each partner,with the total shares to be granted being 2,988,966 shares (2,001,374 shares for senior managementFang Hongbo, Yin Bitong, Gu Yanmin, Wang Jianguo and Zhang Xiaoyi, and the other 987,592 sharesfor other core management personnel). Due to certain incentive receivers’ position change or departurefrom the Company in the duration of the Fifth Global Partner Stock Ownership Scheme, there areremained 743,109 shares unallocated under this scheme. As per the Fifth Global Partner StockOwnership Scheme (Draft), these unallocated shares and the corresponding dividends (if any) had beentaken back by the administrative committee of this scheme for no compensation, and would be sold at aproper timing before this scheme expired. The earnings on the sale would belong to the Company.As of the end of the Reporting Period, a total of 3,732,075 shares were held under the Fifth GlobalPartner Stock Ownership Scheme, representing 0.0531% of the Company’s total share capital.P. Overview of the Second Business Partner Stock Ownership Schemea. The Company’s performance requirement for the Second Business Partner Stock Ownership Schemeis a weighted average ROE not lower than 20% for 2019. According to the 2019 Annual Auditor’s Reportfor Midea Group Co., Ltd. issued by PricewaterhouseCoopers China (LLP), this ROE requirement hasbeen met at 26.43%.b. A total of 1,867,845 of the Company’s shares were repurchased for the Second Business PartnerStock Ownership Scheme. As per the Second Business Partner Stock Ownership Scheme (Draft), the
administrative committee of this scheme confirmed the number of shares to be granted to each partner,with the total shares to be granted being 1,377,859 shares (220,124 shares for senior managementWang Jinliang, Xiao Mingguang, Liu Min, Jiang Peng and Zhong Zheng, and the other 1,157,735 sharesfor other core management personnel). Due to certain incentive receivers’ position change or departurefrom the Company in the duration of the Second Business Partner Stock Ownership Scheme, there areremained 489,986 shares unallocated under this scheme. As per the Second Business Partner StockOwnership Scheme (Draft), these unallocated shares and the corresponding dividends (if any) had beentaken back by the administrative committee of this scheme for no compensation and belonged to theCompany. In this case, the Company still had to return the performance bonuses corresponding to theseunallocated shares under this scheme to the relevant senior management.As of the end of the Reporting Period, a total of 1,867,845 shares were held under the Second BusinessPartner Stock Ownership Scheme, representing 0.0266% of the Company’s total share capital.Q. Overview of the Sixth Global Partner Stock Ownership Schemea. The Sixth Global Partner Stock Ownership Scheme was approved at the 20th Meeting of the 3rdBoard of Directors on 28 April 2020 and the 2019 Annual General Meeting of Shareholders on 22 May2020. The shares for this scheme would be obtained from the Company’s securities account forrepurchase in a non-transaction transfer and put into the securities account of “Midea Group Co.,Ltd.—the Seventh Employee Stock Ownership Scheme” for management.b. The Sixth Global Partner Stock Ownership Scheme was funded by the Company’s special fund ofRMB184.10 million for this scheme. With an average repurchase price of RMB52.04/share as the pricefor transferring the shares in the repurchase securities account to the securities account of the SixthGlobal Partner Stock Ownership Scheme, the shares to be transferred would be 3,537,663.c. According to the Confirmation of Securities Transfer received by the Company from CSDC Shenzhenon 13 July 2020, 3,537,663 shares (0.0504% of the Company’s total existing share capital) had beentransferred from the Company’s securities account for repurchase to the securities account of “MideaGroup Co., Ltd.—the Seventh Employee Stock Ownership Scheme” in a non-transaction transfer on 10
July 2020. As required by the Sixth Global Partner Stock Ownership Scheme (Draft), the sharestransferred to the securities account of the Sixth Global Partner Stock Ownership Scheme would belocked up from 14 July 2020 to 13 July 2021.R. Overview of the Third Business Partner Stock Ownership Schemea. The Third Business Partner Stock Ownership Scheme was approved at the 20th Meeting of the 3rdBoard of Directors on 28 April 2020 and the 2019 Annual General Meeting of Shareholders on 22 May2020. The shares for this scheme would be obtained from the Company’s securities account forrepurchase in a non-transaction transfer and put into the securities account of “Midea Group Co.,Ltd.—the Eighth Employee Stock Ownership Scheme” for management.b. The Third Business Partner Stock Ownership Scheme was funded by the Company’s special fund andthe performance bonuses for senior management of RMB97.50 million. With an average repurchaseprice of RMB52.04/share as the price for transferring the shares in the repurchase securities account tothe securities account of the Third Business Partner Stock Ownership Scheme, the shares to betransferred would be 1,873,559.c. According to the Confirmation of Securities Transfer received by the Company from CSDC Shenzhenon 16 July 2020, 1,873,559 shares (0.0267% of the Company’s total existing share capital) had beentransferred from the Company’s securities account for repurchase to the securities account of “MideaGroup Co., Ltd.—the Eighth Employee Stock Ownership Scheme” in a non-transaction transfer on 15July 2020. As required by the Third Business Partner Stock Ownership Scheme (Draft), the sharestransferred to the securities account of the Third Business Partner Stock Ownership Scheme would belocked up from 17 July 2020 to 16 July 2021.
13. Significant Related Transactions
13.1 Related transactions arising from routine operation
√Applicable □N/A
| Related transac | Relation | Type of the | Contents of the | Pricing | Transacti | Transaction amount | Proportion | Approved transaction | Over appro | Mode of settlem | Obtainable | Disclosure | Index to the |
| tion party | transaction | transaction | principle | on price | (RMB’000) | in the total amounts of transaction of the same kind (%) | line (RMB’000) | ved line | ent | market price for the transaction of the same kind | date | disclosed information | |
| Infore Environment Technology Group Co., Ltd. | Controlled by family member of Company’s actual controller | Procurement | Procurement of goods | Market price | - | 506,106 | 0.59% | 1,500,000 | No | Payment after delivery | - | 2020-4-30 | www.cninfo.com.cn |
| Orinko Advanced Plastics Co., Ltd. | Controlled by family member of Company’s actual controller | Procurement | Procurement of goods | Market price | - | 518,566 | 0.61% | 1,700,000 | No | Payment after delivery | - | 2020-4-30 | www.cninfo.com.cn |
| Midea Real Estate Holding Limited | Controlled by Company’s actual controller | Sale | Sale of goods | Market price | 74,206 | 0.05% | 471,000 | No | Payment after delivery | - | 2020-4-30 | www.cninfo.com.cn | |
| Total | -- | -- | 1,098,878 | -- | 3,671,000 | -- | -- | -- | |||||
| Details of any sales return of a large amount | Zero | ||||||||||||
| Give the actual situation in the Reporting Period (if any) where a forecast had been made for the | The line for routine related transactions between the Company and the related parties and their subsidiaries did not exceed the total amount of routine related transactions estimated by the Company by type. | ||||||||||||
| total amounts of routine related-party transactions by type to occur in the current period | |
| Reason for any significant difference between the transaction price and the market reference price (if applicable) | N/A |
| Title of announcement | Disclosure date | Disclosure website |
| Announcement on Related Transactions with Rural Commercial Bank in 2020 | 30/04/2020 | www.cninfo.com.cn |
| Guarantees provided by the Company and its subsidiaries for external parties (excluding those for subsidiaries) | ||||||||
| Guaranteed party | Disclosure date of | Line of guarante | Actual occurrence | Actual guarante | Type of guarantee | Term of | Due or not | Guarantee |
| the guarantee line announcement | e | date (date of agreement signing) | e amount | guarantee | for a related party or not | ||||||
| No such cases | |||||||||||
| Total external guarantee line approved during the Reporting Period (A1) | 0 | Total actual external guarantee amount during the Reporting Period (A2) | 0 | ||||||||
| Total approved external guarantee line at the end of the Reporting Period (A3) | 0 | Total actual external guarantee balance at the end of the Reporting Period (A4) | 0 | ||||||||
| Guarantees provided by the Company for its subsidiaries | |||||||||||
| Guaranteed party | Disclosure date of the guarantee line announcement | Line of guarantee | Actual occurrence date (date of agreement signing) | Actual guarantee amount | Type of guarantee | Term of guarantee | Due or not | Guarantee for a related party or not | |||
| Midea Group Finance Co., Ltd. | 2020-4-30 | 9,900,000 | - | Joint liability | One year | No | No | ||||
| GD Midea Air-Conditioning Equipment Co.,Ltd. | 2020-4-30 | 14,882,200 | 2020-1-16 | 2,629,620 | Joint liability | One year | No | No | |||
| Guangzhou Hualing Refrigerating Equipment Co.,ltd. | 2020-4-30 | 1,163,000 | 550 | Joint liability | One year | No | No | ||||
| Foshan Midea Carrier Air-Conditioning Equipment Co., Ltd. | 2020-4-30 | 361,200 | - | Joint liability | One year | No | No | ||||
| Guangdong Midea Precision Molding Technology Co., Ltd. | 2020-4-30 | 62,700 | - | Joint liability | One year | No | No | ||||
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | 2020-4-30 | 5,190,000 | 2020-1-9 | 1,493,010 | Joint liability | One year | No | No | |||
| Guangdong Witol Vacuum Electronic Manufacture Co.,Ltd | 2020-4-30 | 100,000 | 2020-1-22 | 10,330 | Joint liability | One year | No | No | |||
| GD Midea Heating & Ventilating Equipment Co., Ltd. | 2020-4-30 | 2,000,000 | 2020-1-10 | 60,500 | Joint liability | One year | No | No | |||
| Guangdong Midea-SIIX Electronics Co., Ltd. | 2020-4-30 | 150,000 | - | Joint liability | One year | No | No | ||||
| Guangdong Midea Commercial Air-Conditioning Equipment Co., Ltd. | 2020-4-30 | 200,000 | - | Joint liability | One year | No | No | ||||
| Guangdong Midea Consumer Electric Manufacturing Co., Ltd. | 2020-4-30 | 290,000 | 2020-1-19 | 310 | Joint liability | One year | No | No |
| Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd. | 2020-4-30 | 1,210,000 | 2020-1-13 | 70 | Joint liability | One year | No | No |
| GD Midea Environment Appliances Mfg. Co.,Ltd. | 2020-4-30 | 420,000 | - | Joint liability | One year | No | No | |
| Guangdong Midea Cuchen Company Ltd. | 2020-4-30 | 5,000 | - | Joint liability | One year | No | No | |
| GD Midea Caffitaly Coffee Machine Manufacturing Co., Ltd. | 2020-4-30 | 15,000 | - | Joint liability | One year | No | No | |
| Main Power Inno Tech (Shenzhen) Manufacturing Co., Ltd. | 2020-4-30 | 45,000 | - | Joint liability | One year | No | No | |
| Foshan Shunde Midea Washing Appliances Manufacturing Co., Ltd. | 2020-4-30 | 2,200,000 | 2020-1-6 | 166,230 | Joint liability | One year | No | No |
| Guangdong Midea Kitchen & Bath Appliances Manufacturing Co., Ltd. | 2020-4-30 | 436,000 | - | Joint liability | One year | No | No | |
| Foshan Shunde Midea Water Dispenser Manufacturing Company Limited | 2020-4-30 | 710,000 | 2020-2-13 | 9,010 | Joint liability | One year | No | No |
| Foshan Midea Chungho Water Purification Equipment. Co., Ltd. | 2020-4-30 | 142,000 | - | Joint liability | One year | No | No | |
| Guangdong Meizhi Compressor Limited | 2020-4-30 | 230,000 | 2020-1-17 | 2,950 | Joint liability | One year | No | No |
| Guangdong Meizhi Precision-Manufacturing Co., Ltd | 2020-4-30 | 90,000 | - | Joint liability | One year | No | No | |
| Guangdong Welling Motor Manufacturing Co., Ltd. | 2020-4-30 | 230,000 | 2020-2-5 | 5,340 | Joint liability | One year | No | No |
| Foshan Welling Washer Motor Manufacturing Co., Ltd. | 2020-4-30 | 350,000 | 2020-1-2 | 2,090 | Joint liability | One year | No | No |
| Guangdong Midea Environmental Technologies Co., Ltd. | 2020-4-30 | 50,000 | - | Joint liability | One year | No | No | |
| Guangdong Welling Auto Parts Co., Ltd. | 2020-4-30 | 20,000 | - | Joint liability | One year | No | No | |
| Ningbo Midea United Materials Supply Co. Ltd. | 2020-4-30 | 1,070,000 | 2020-1-10 | 154,350 | Joint liability | One year | No | No |
| Guangzhou Kaizhao Commercial and Trading Co.,Ltd | 2020-4-30 | 75,500 | - | Joint liability | One year | No | No | |
| Guangdong Midea Intelligent Robotics | 2020-4-30 | 50,000 | - | Joint liability | One | No | No |
| Co., Ltd. | year | |||||||
| Servotronix Motion Technology Development (Shenzhen) Ltd. | 2020-4-30 | 10,000 | - | Joint liability | One year | No | No | |
| Midea Group E-Commerce Co., Ltd. | 2020-4-30 | 130,000 | - | Joint liability | One year | No | No | |
| Annto Logistics Technology Co., Ltd. | 2020-4-30 | 1,430,000 | 2020-2-25 | 616,930 | Joint liability | One year | No | No |
| Guangdong Midea Smart Link Technologies Co., Ltd. | 2020-4-30 | 41,200 | 2020-3-23 | 3,610 | Joint liability | One year | No | No |
| GD Midea Group Wuhu Air-Conditioning Equipment Co.,Ltd. | 2020-4-30 | 1,100,000 | - | Joint liability | One year | No | No | |
| Wuhu Maty Air-Conditioning Equipment Co., Ltd | 2020-4-30 | 800,000 | - | Joint liability | One year | No | No | |
| Wuhu Midea Kitchen Appliances Manufacturing Co., Ltd. | 2020-4-30 | 4,020,000 | - | Joint liability | One year | No | No | |
| Hefei Hualing Co., Ltd. | 2020-4-30 | 1,700,000 | 2020-2-3 | 3,710 | Joint liability | One year | No | No |
| Hubei Midea Refrigerator Co., Ltd. | 2020-4-30 | 230,000 | 2020-4-10 | - | Joint liability | One year | No | No |
| Hefei Midea Refrigerator Co., Ltd. | 2020-4-30 | 903,000 | - | Joint liability | One year | No | No | |
| Guangzhou Midea Hualing Refrigerator Co., Ltd. | 2020-4-30 | 1,345,000 | 2020-3-19 | 1,030 | Joint liability | One year | No | No |
| Hefei Midea Heating & Ventilating Equipment Co., Ltd. | 2020-4-30 | 548,000 | 2020-3-13 | 30 | Joint liability | One year | No | No |
| Hefei Midea-SIIX Electronics Co.,Ltd. | 2020-4-30 | 230,000 | - | Joint liability | One year | No | No | |
| Hefei M&B Air Conditioning Equipment Co., Ltd. | 2020-4-30 | 40,800 | 2020-4-14 | 10 | Joint liability | One year | No | No |
| Wuhu Midea Life Appliances Mfg Co., Ltd. | 2020-4-30 | 2,000,000 | 2020-6-22 | 902,850 | Joint liability | One year | No | No |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | 2020-4-30 | 1,930,000 | 2020-2-13 | 11,030 | Joint liability | One year | No | No |
| Anhui Meizhi Compressor Co., Ltd. | 2020-4-30 | 110,000 | 2020-3-12 | 660 | Joint liability | One year | No | No |
| Anhui Meizhi Precision Manufacturing Co., Ltd. | 2020-4-30 | 60,000 | 2020-2-12 | 340 | Joint liability | One year | No | No |
| Welling (Wuhu) Motor Manufacturing Co., Ltd. | 2020-4-30 | 10,000 | 2020-5-18 | 1,310 | Joint liability | One year | No | No |
| Wuhu Welling Motor Sales Co., Ltd. | 2020-4-30 | 800,000 | - | Joint liability | One year | No | No | |
| Anhui Welling Auto Parts Co. , Ltd. | 2020-4-30 | 50,000 | 2020-1-10 | 2,820 | Joint liability | One year | No | No |
| Wuxi Little Swan General Appliance Co., Ltd. | 2020-4-30 | 100,000 | 2020-2-25 | - | Joint liability | One year | No | No |
| Wuxi Little Swan Electric Co., Ltd. | 2020-4-30 | 2,000,000 | 2020-1-31 | 8,550 | Joint liability | One year | No | No |
| Hefei Midea Laundry Appliance Co., Ltd. | 2020-4-30 | 1,180,000 | 2020-1-21 | 5,760 | Joint liability | One year | No | No |
| Jiangsu Midea Cleaning Appliances Co., Ltd | 2020-4-30 | 90,000 | - | Joint liability | One year | No | No | |
| Midea Group Wuhan Refrigeration Equipment Co.,Ltd. | 2020-4-30 | 63,800 | - | Joint liability | One year | No | No | |
| Handan Midea Air-Conditioning Equipment Co.,Ltd. | 2020-4-30 | 110,000 | - | Joint liability | One year | No | No | |
| Chongqing Midea General Refrigeration Equipment Co., Ltd. | 2020-4-30 | 180,000 | 2020-3-10 | 3,780 | Joint liability | One year | No | No |
| Midea Intelligent Lighting & Controls Technology Co., Ltd. | 2020-4-30 | 261,000 | 2020-3-11 | - | Joint liability | One year | No | No |
| Changzhou Welling Motor Manufacturing Co., Ltd. | 2020-4-30 | 5,000 | - | Joint liability | One year | No | No | |
| Huaian Welling Motor Manufacturing Co., Ltd. | 2020-4-30 | 10,000 | 2020-4-24 | 60 | Joint liability | One year | No | No |
| Zhejiang Meizhi Compressor Co., Ltd. | 2020-4-30 | 3,000,000 | 2020-3-13 | 2,006,340 | Joint liability | One year | No | No |
| Ningbo Annto Logistics Co., Ltd. | 2020-4-30 | 10,000 | - | Joint liability | One year | No | No | |
| Reis Robotics (Kunshan) Co., Ltd. | 2020-4-30 | 120,750 | - | Joint liability | One year | No | No | |
| KUKA Systems (China) CO., Ltd. | 2020-4-30 | 245,000 | 2020-1-16 | 78,400 | Joint liability | One year | No | No |
| KUKA Robotics Manufacturing China Co.,Ltd | 2020-4-30 | 115,000 | - | Joint liability | One year | No | No | |
| KUKA Robotics (Shanghai) Co.,Ltd. | 2020-4-30 | 115,000 | - | Joint liability | One year | No | No | |
| Shanghai Swisslog Healthcare Co., Ltd. | 2020-4-30 | 8,000 | - | Joint liability | One year | No | No |
| Swisslog (Shanghai) Co., Ltd. | 2020-4-30 | 110,000 | 2020-1-13 | 41,750 | Joint liability | One year | No | No |
| Shanghai Swisslog Logistics Automation Co. Ltd. | 2020-4-30 | 60,000 | - | Joint liability | One year | No | No | |
| Midea International Corporation Company Limited | 2020-4-30 | 11,830,000 | 2020-1-17 | 7,803,910 | Joint liability | One year | No | No |
| Midea International Trading Company Limited | 2020-4-30 | 2,222,430 | 2020-1-2 | - | Joint liability | One year | No | No |
| Welling International Hong Kong Ltd | 2020-4-30 | 182,000 | - | Joint liability | One year | No | No | |
| Midea Electric Trading (Singapore) Co.,Pte. Ltd. | 2020-4-30 | 4,996,000 | 2020-1-3 | 361,400 | Joint liability | One year | No | No |
| Toshiba Lifestyle Products & Services Corporation and its subsidiaries | 2020-4-30 | 2,667,450 | 2020-1-3 | 582,950 | Joint liability | One year | No | No |
| Orient Household Appliances Ltd.(Orient) | 2020-4-30 | 120,000 | 2020-1-31 | - | Joint liability | One year | No | No |
| Midea Consumer Electric Vietnam | 2020-4-30 | 112,000 | - | Joint liability | One year | No | No | |
| Concepcion Midea Inc. | 2020-4-30 | 112,000 | 2020-3-24 | - | Joint liability | One year | No | No |
| Midea Italia S.R.L. | 2020-4-30 | 140,000 | - | Joint liability | One year | No | No | |
| Midea Scott & English Electronics Sdn. Bhd. | 2020-4-30 | 206,500 | 2020-1-30 | - | Joint liability | One year | No | No |
| Midea Mexico, S. De R.L. De C.V. | 2020-4-30 | 180,000 | 2020-3-13 | - | Joint liability | One year | No | No |
| Midea Electric Trading (Thailand) Co.,Ltd. | 2020-4-30 | 105,000 | - | Joint liability | One year | No | No | |
| Midea America Corp | 2020-4-30 | 669,000 | 2020-2-10 | - | Joint liability | One year | No | No |
| Pt. Midea Planet Indonesia | 2020-4-30 | 56,000 | 2020-1-15 | - | Joint liability | One year | No | No |
| Midea Electrics Egypt | 2020-4-30 | 175,000 | - | Joint liability | One year | No | No | |
| Midea Europe Gmbh | 2020-4-30 | 70,000 | - | Joint liability | One year | No | No | |
| Midea America (Canada) Corp | 2020-4-30 | 70,000 | - | Joint liability | One year | No | No |
| Servotronix Motion Control Ltd. | 2020-4-30 | 940 | - | Joint liability | One year | No | No | ||||
| Midea Austria Gmbh | 2020-4-30 | 5,700 | - | Joint liability | One year | No | No | ||||
| Clivet Spa | 2020-4-30 | 79,300 | - | Joint liability | One year | No | No | ||||
| Midea Electric Netherland (I) | 2020-4-30 | 31,446,110 | 2020-1-1 | 28,856,400 | Joint liability | One year | No | No | |||
| Total guarantee line for subsidiaries approved during the Reporting Period (B1) | 122,364,580 | Total actual guarantee amount for subsidiaries during the Reporting Period (B2) | 68,421,730 | ||||||||
| Total approved guarantee line for subsidiaries at the end of the Reporting Period (B3) | 122,364,580 | Total actual guarantee balance for subsidiaries at the end of the Reporting Period (B4) | 45,827,970 | ||||||||
| Guarantees between subsidiaries | |||||||||||
| Guaranteed party | Disclosure date of the guarantee line announcement | Line of guarantee | Actual occurrence date (date of agreement signing) | Actual guarantee amount | Type of guarantee | Term of guarantee | Due or not | Guarantee for a related party or not | |||
| No such cases | |||||||||||
| Total guarantee amount (total of the above-mentioned three kinds of guarantees) | |||||||||||
| Total guarantee line approved during the Reporting Period (A1+B1+C1) | 122,364,580 | Total actual guarantee amount during the Reporting Period (A2+B2+C2) | 68,421,730 | ||||||||
| Total approved guarantee line at the end of the Reporting Period (A3+B3+C3) | 122,364,580 | Total actual guarantee balance at the end of the Reporting Period (A4+B4+C4) | 45,827,970 | ||||||||
| Proportion of the total actual guarantee amount (A4+B4+C4) in net assets of the Company | 43.65% | ||||||||||
| 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) | 36,268,090 | ||||||||||
| 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) | 36,268,090 |
| 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 |
16. Social Responsibility
16.1 Major environmental issues
Whether the Company or any of its subsidiaries is declared a heavily polluting business by the environmental protection authorities
√ Yes □ No
| Name of the Company or subsidiary | Major pollutants | Discharge method | Number of discharge outlets | Distribution of discharge outlets | Concentration of the discharge (unit: mg/m?） | Pollutant discharge standards | Total discharge (ton) | Approved total discharge (ton) | Excess discharge |
| Foshan Shunde Midea Washing Appliances Manufacturing Co., Ltd. (the Washing and Sterilizing Applianc | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | The southern side of 2# plant in the Washing and Sterilizing Appliances Park | 47 | The discharge limits of water pollutants in Guangdong （DB44/26-2001） | 0. 0821 | 0.228 | No |
| SS | 29 | 0.0144 | / | No | |||||
| BOD5 | 16 | 0.0512 | / | No | |||||
| Petroleum | 2.77 | 0.0018 | / | No | |||||
| Benzene | High altitude discharge after being treated by waste gas treatment station | 1 | The southern side of 2# plant in the Washing and Sterilizing Appliances Park | 1.0×10-2 | Emission standard of volatile organic compounds for furniture manufacturing（DB44/814-2010） | 0.01 | / | No | |
| Toluene and xylene | 2.13 | 0.0927 | / | No | |||||
| VOCS | 16.1 | 0.362 | / | No |
| es Park) | |||||||||
| Foshan Shunde Midea Washing Appliances Manufacturing Co., Ltd. (the Range Hood and Stove Park) | COD | Discharge to the municipal sewage system after being treated by wastewater treatment system | 1 | The northeastern side of 2# plant in the Third Industrial Zone | 56 | The discharge standard of water pollutants for electroplating in Guangdong (DB441597-2015) | 0.1696 | 2.41 | No |
| SS | 25 | 0.07 | / | No | |||||
| Petroleum | 0.16 | 0.0005 | / | No | |||||
| Ammonia nitrogen | 1.72 | 0.0089 | 0.45 | No | |||||
| Benzene | High altitude discharge after being treated by waste gas treatment station | 4 | The northern and eastern sides of 2# plant in the Third Industrial Zone | 1.0×10-2 | Emission standard of air pollutants for industrial kiln and furnace (GB-9078-1996) / The emission limit of gas pollutants in Guangdong（DB-44/27-2007) | 0.01 | / | No | |
| Toluene and xylene | 1.35 | 0.0338 | / | No | |||||
| VOCS | 25.9 | 0.6838 | / | No | |||||
| Soot | 14.5 | 0.0345 | / | No | |||||
| Sulfur dioxide | Less than the limit of 3 | 0.01 | 0.114 | No | |||||
| Nitrogen oxide | 41 | 0.34 | 0.726 | No | |||||
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | Western gate of the Wuhu plant | 197 | Integrated wastewater discharge standard（GB8978-1996） | 53.2 | / | No |
| Ammonia nitrogen | 1.34 | 0.4 | / | No | |||||
| BOD5 | 47.4 | 12.8 | / | No | |||||
| Petroleum | 0.24 | 0.1 | / | No | |||||
| Soot | 15m high altitude discharge | 45 | Plants | <20 | Emission standard of air pollutants for boiler（GB13271-2014） | 0.641 | / | No | |
| Sulfur dioxide | <50 | 0.0936 | / | No | |||||
| Nitrogen oxide | <150 | 0.102 | / | No | |||||
| Soot | High altitude discharge after being treated by waste gas treatment station | <50 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 2.692 | / | No | |||
| Xylene | <10 | 0.022 | / | No | |||||
| VOCs | <20 | 0.0687 | / | No | |||||
| Hefei Midea Heating & Ventilating Equipment Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | The eastern side of 1# plant | 40 | Implementation of the takeover standards of the Western Hefei Group wastewater treatment plant and integrated wastewater discharge standard (GB8978-1996) third-level | 3.0468 | / | No |
| Ammonia nitrogen | 0.083 | 0.0581 | / | No | |||||
| NMHC | RTO equipment | 1 | 1 set at the northeastern side of 3# plant | 4.21 | Integrated emission standards for atmospheric pollutants GB16297-1996 second-level | 0.062 | / | No | |
| Condensation + degreasing + filtering + activated carbon + catalytic combustion equipment | 1 | 1 set at the southwestern side of 4# plant | 1.85 | 0.027 | |||||
| Water spraying + activated carbon equipment | 3 | 2 sets at 1# plant and 1 set at 2# plant | 6.5 | 0.095 | |||||
| UV + activated carbon equipment | 1 | 1 set at 2# plant | 3.1 | 0.045 | |||||
| Particles | Filter cartridge dust collector | 3 | 2 at 2# plant and 1 at 4# plant | 30 | 0.225 | / | No | ||
| Hefei Midea | COD | Discharge after being treated by wastewater treatment station | 1 | The eastern side of wastewater treatment station | 60 | Implementation of the takeover standards of the Western Hefei Group | 10.093 | 58.150 | No |
| Laundry Appliance Co., Ltd. (monitored by the municipal government) | Ammonia nitrogen | The eastern side of wastewater treatment station | 8.48 | wastewater treatment plant and integrated wastewater discharge standard (GB8978-1996) third-level | 0.22925 | / | No | ||
| Particles | 15m high altitude discharge after being treated by cyclone + filter cartridge dust collector | 2 | 1 outlet at 2# plant, 1 outlet at 6# plant | ＜20 | Integrated emission standards for atmospheric pollutants GB16297-1996 second-level | 1.584 | / | No | |
| Particles | 15m high altitude discharge after being treated by water spraying + dedusting + UV photolysis + activated carbon | 1 | 1 outlet at 3# plant | ＜20 | 0.634 | / | No | ||
| NMHC | 1.28 | 0.0405 | / | No | |||||
| NMHC | 15m high altitude discharge after being treated by waste gas treatment station | 3 | 3 outlets at 2# plant | 1.42 | 0.630 | / | No | ||
| NMHC | 15m high altitude discharge after being treated by waste gas treatment station | 6 | 6 outlets at 6# plant | 1.00 | 1.6632 | / | No | ||
| NMHC | 15m high altitude discharge after being treated by low-temperature plasma | 2 | 1 outlet at 1# plant, 1 outlet at 5# plant | 2.875 | 0.08 | / | No | ||
| NMHC | 15m high altitude discharge after being treated by photocatalyst and activated carbon | 1 | 1 outlet at 3# plant | 7.33 | 0.4064 | / | No | ||
| GD Midea Air-Conditioning Equipment Co.,Ltd. | COD | Discharge after being treated by wastewater treatment station | 1 | The southeastern side of 4# plant | 41 | The discharge standard of water pollutants for electroplating (DB441597-2015) chart 2 PRD standard | 4.7232 | 9.59 | No |
| Ammonia nitrogen | 0.866 | 0.1 | 1.510 | No | |||||
| SS | 18 | 2.0736 | / | No | |||||
| Petroleum | 0.06 | 0.007 | / | No | |||||
| COD | Discharge after being treated by | 1 | The eastern side of 2# | 102 | The discharge limits of | 1.469 | 9.59 | No | |
| SS | wastewater treatment station | plant | 44 | water pollutants（DB44/26-2001） | 0.63 | / | No | ||
| LAS | 0.05 | 0.007 | / | No | |||||
| Petroleum | 1.52 | 0.22 | / | No | |||||
| VOCs (dusting) | 15m high altitude discharge after being treated by spray tower + activated carbon | 3 | 4# plant | 27.3 | Emission standard of volatile organic compounds for furniture manufacturing (DB44/814-2010) the second time period | 2.358 | 5.93 | No | |
| VOCs (screen printing) | 15m high altitude discharge after being treated by green facilities | 4 | 1#, 5#, 9#, 11# plants | 2.79 | Emission standard of volatile organic compounds for printing industry（DB44/815-2010) | 0.08 | No | ||
| NMHC (evaporator & condenser) | 15m high altitude discharge after being treated by green facilities | 6 | 2#, 5# plants | 15 | Emission limits of air pollutants（DB44/27-2001）the second time period | 3.888 | / | No | |
| NMHC (electronic) | 15m high altitude discharge after being treated by catalytic combustion | 2 | 10# plant | 23.6 | 3.398 | / | No | ||
| Wuhu Maty Air-Conditioning Equipment Co., Ltd | COD | Discharge after being treated by wastewater treatment station | 1 | The northern side of the park | 30 | Integrated wastewater discharge standard（GB8978-1996）chart 4 third-level | 5.4 | / | No |
| SS | 14 | 2.7 | / | No | |||||
| BOD | 5.9 | 0.8 | / | No | |||||
| Ammonia nitrogen | 21 | 3.6 | / | No | |||||
| Petroleum | 0.12 | 0.02 | / | No | |||||
| Particles | 15m high altitude discharge after being | 5 | 2# plant | <20 | Integrated emission | 0.76 | / | No | |
| treated by green facilities | standards for atmospheric pollutants（GB16297-1996） | ||||||||
| VOCs | 8 | 2#, 3# plants | 11.8 | Emission Control Standard for Industrial Enterprises Volatile Organic Compounds (DB13-2322-2016) | 5.75 | / | No | ||
| NOX | 3 | 3# plant | 19 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 0.64 | / | No | ||
| SO2 | 3 | 3# plant | 5 | 0.21 | / | No | |||
| Guangdong Meizhi Precision-Manufacturing Co., Ltd | COD | Discharge after being treated by wastewater treatment station | 1 | Near the wastewater treatment station in the north side of the plant | 27 | The discharge limits of water pollutants in Guangdong DB-44/26-2001 the second time period first-level | 7.62 | 19.88 | No |
| Ammonia nitrogen | 2.12 | 0.615 | 2.21 | No | |||||
| Guangdong Meizhi Compressor Limited | COD | Discharge after being treated by wastewater treatment station | 1 | Near the wastewater treatment station in the north side of the plant | 42 | The discharge standard of water pollutants for electroplating DB-441597-2015, before 1 September 2012 | 0.584 | 1.152 | No |
| Ammonia nitrogen | 0.282 | 0.113 | 0.23 | No | |||||
| Foshan Shunde | CODcr | Discharge after being treated by wastewater treatment system and | 2 | Waste water treatment stations 1 and 2 of 3# plant | 121 | The discharge standard of water pollutants for | 10.684 | 21.304 | No |
| Petroleum | 0.61 | 0.040 | / | No | |||||
| Midea Electrical Heating Appliances Manufacturing Co., Ltd. | Ammonia nitrogen | reaching the standard | 6.56 | electroplating（DB44/1597-2015） | 0.615 | 4.26 | No | ||
| Toluene and xylene | High altitude discharge after being treated by waste gas treatment station | 7 | Waste gas sprayers 1 and 2 at 3# plant, outlets 1, 2 and 3 for waste gas from wave-soldering, painting and drying at 6# plant, outlets 1 and 2 for waste gas from reflow soldering at 6# plant | 2.194 | Table 1 of the Discharge Standard of Volatile Organic Chemical Compounds in the Furniture Making Industry (DB44/814-2010): Discharge Limits for VOCs through Exhaust Funnel/for Time Period II | 1.071 | / | No | |
| VOCs | High altitude discharge after being treated by waste gas treatment station | 21.025 | 12.479 | / | No | ||||
| NMHC | High altitude discharge after being treated by waste gas treatment station | 2 | Outlet of injection molding waste gas in the south side of 1# plant, outlet of injection molding waste gas in the south side of 9# plant | 4.19 | |||||
| 0.374 | / | No | ||||||
| Particles | Pulsed jet cloth filtering | 4 | Outlets 1 and 2 of sanding waste gas at 3# plant, outlets 1 and 2 of polishing waste gas at 3# plant | 9.3 | Table 2 of the Emission Limits of Air Pollutants (DB44/27-2001): Emission Limits of Industrial Waste Gas (Time Period 2), Level 2 | 0.105 | 0.2223 | No |
| Sulfur dioxide | High altitude discharge after being treated by waste gas treatment station | 2 | Oxidation wire roof of 3# plant | 3 | 0.072 | 1.17 | No | |
| Nitrogen oxide | Drying furnace of 3# plant | 29 | 0.527 | 12.9827 | No | |||
| Cooking fume | Discharge after being treated by waste gas treatment station | 2 | South and east section canteens | 0.56 | Emission Standard of Cooking Fume (Trial)（GB 18483-2001） | 0.040 | / | No |
| Guangdong Midea Consumer Electric Manufacturing Co., Ltd. | CODcr | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | Wastewater treatment station | 41 | The discharge standard of water pollutants for electroplating（DB44/1597-2015） | 2.030 | 4.8 | No |
| Petroleum | 0.31 | 0.009 | / | No | |||||
| ss | 4 | 0.470 | / | No | |||||
| Ammonia nitrogen | 0.02 | 0.116 | 0.96 | No | |||||
| Benzene | High altitude discharge after being treated by waste gas treatment station | 1 | Spraying waste gas outlet at 1# plant | 0.01 | Table 1 of the Discharge Standard of Volatile Organic Chemical Compounds in the Furniture Making Industry (DB44/814-2010): Discharge Limits for VOCs through Exhaust Funnel/for Time Period II | 0.001 | / | No | |
| Toluene | High altitude discharge after being treated by waste gas treatment station | 0.285 | 0.025 | / | No | ||||
| Xylene | High altitude discharge after being treated by waste gas treatment station | 3.2 | 0.234 | / | No | ||||
| Toluene and xylene | High altitude discharge after being treated by waste gas treatment station | 3.48 | 0.258 | / | No | ||||
| VOCs | High altitude discharge after being treated by waste gas treatment station | 26.4 | 2.834 | / | No | ||||
| NMHC | High altitude discharge after being treated by waste gas treatment station | 2 | Injection molding waste gas outlet in the southern side of 2# plant, injection molding waste gas outlet in the northern side of 2# plant | 2.06 | |||||
| 0.041 | / | No | ||||||
| Particles | Pulsed jet cloth filtering | 2 | Sanding waste gas outlet at 1# plant, polishing waste gas outlet at 1# plant | 15.8 | Table 2 of the Emission Limits of Air Pollutants (DB44/27-2001): Emission Limits of Industrial Waste Gas (Time Period 2), Level | 0.667 | / | No |
| Sulfur dioxide | High altitude discharge after being treated by waste gas treatment station | 1 | Drying furnace at 1# plant | Not detected | / | 1.1067 | No |
| Nitrogen oxide | High altitude discharge after being treated by waste gas treatment station | 17 | 2 | 0.061 | 0.1232 | No | |||
| Cooking fume | Discharge after being treated by waste gas treatment facility | 1 | Canteen of 1# plant | 1.27 | Emission Standard of Cooking Fume (Trial)（GB 18483-2001） | 0.089 | / | No | |
| Anhui Meizhi Compressor Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | The western side of the comprehensive wastewater treatment station | 65 | Implementation of the takeover standards of the Western Hefei Group wastewater treatment plant and integrated wastewater discharge standard (GB8978-1996) third-level | 10.8 | 30.708 | No |
| Ammonia nitrogen | 0.63 | 0.126 | 1.770 | No | |||||
| Particles | Collected by gas trap hood+15m high exhaust cylinder | 12 | No. 1 workshop welding soot discharge outlet for waste gas | <20 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 3.26 | 12.820 | No | |
| No. 3 workshop discharge outlet for the welding waste gas | <20 | ||||||||
| No.2 workshop 1#Chugai furnace and 2#Chugai furnace discharge outlet for waste gas | <20 | Emission standard of air pollutants for industrial kiln and furnace（GB9078-1996） | |||||||
| No.2 workshop 4#Chugai furnace and Samchully furnace discharge outlet for waste gas | <20 | ||||||||
| No. 4 workshop 3# Chugai | <20 | Integrated emission | |||||||
| furnace discharge outlet for waste gas and die-casting molten aluminum I/J/F discharge outlet for waste gas combined with a discharge outlet | standards for atmospheric pollutants（GB16297-1996） | |
| No.4 workshop BAB boiler discharge outlet for waste gas | <20 | Emission standard of air pollutants for industrial kiln and furnace（GB9078-1996） |
| No.2 workshop die-casting modern aluminum A/B/C/D/E discharge outlet for waste gas | <20 | |
| No. 4 workshop centrifugal pouring G/H and rotor furnace combined with a discharge outlet | <20 | |
| Furnace 1#-3# discharge outlet for waste gas | <20 | Emission standard of air pollutants for boiler（GB13271-2014） |
| Sulfur dioxide | Collected by gas trap hood+15m high exhaust cylinder | 3 | Furnace 1#-3# discharge outlet for waste gas | 3 | 0.11 | 4.120 | No | |
| Nitrogen oxide | 27 | 0.96 | 9.000 | No | ||||
| VOCs | Direct-fired waste gas incinerator+15m high exhaust cylinder | 3 | No.1 workshop of discharge outlet for drying waste gas | 27 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 1.1 | 5.740 | No |
| No.3 workshop 1# discharge outlet for drying waste gas | 13.5 | No |
| No.3 workshop 2# discharge outlet for drying waste gas | 25.5 | No | |||||||
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | COD | Discharge to the municipal sewage system after being treated by wastewater treatment system | 1 | The eastern side of wastewater treatment station in Malong base | 51 | The discharge limits of water pollutants in Guangdong (DB-44/26-201) | 5.07 | 22.770 | No |
| Ammonia nitrogen | 2.7 | 0.31 | 4.554 | No | |||||
| Particles | 20m high altitude discharge | 116 | 26 outlets at A1 plant, 50 outlets at A2 plant, 21 outlets at B2 plant, 9 outlets at C2 plant, 2 outlets at C3 plant, 1 outlet at wastewater treatment station and 7 outlets at canteen | 16.1 | Emission standard of air pollutants for industrial kiln and furnace（GB-9078-1996）/ The emission limit of gas pollutants in Guangdong（DB-44/27-2007) | 11.81 | / | No | |
| Sulfur dioxide | 32 | 0.00 | 1.055 | No | |||||
| Nitrogen oxide | 7 | 0.05 | 10.314 | No | |||||
| Benzene | High altitude discharge after being treated by waste gas treatment station | 0.773 | 0.01 | / | No | ||||
| Toluene and Xylene | 13.8 | 3.61 | / | No | |||||
| VOCs | 47 | 0.00 | / | No | |||||
| NMHC | 18.4 | 2.22 | / | No | |||||
| Styrene | 9.34 | 1.08 | / | No | |||||
| Cooking fume | 0.78 | 0.04 | / | No | |||||
| Foshan Welling Washer Motor | Benzene | Activated carbon + UV photolysis + catalytic combustion | 3 | Waste gas outlet near 2# plant | 0 | Emission standard of volatile organic compounds for furniture manufacturing (DB44/814-2010) the second time period | 0 | / | No |
| Manufacturing Co., Ltd. | Toluene and xylene | Activated carbon + UV photolysis + catalytic combustion | 3 | Waste gas outlet near 2# plant | 5.2 | Emission standard of volatile organic compounds for furniture manufacturing (DB44/814-2010) the second time period | 0.42 | / | No |
| VOCs | Activated carbon + UV photolysis + catalytic combustion | 3 | Waste gas outlet near 2# plant | 18.3 | Emission standard of volatile organic compounds for furniture manufacturing (DB44/814-2010) the second time period | 2.34 | 17.83 | No | |
| Welling (Wuhu) Motor Manufacturing Co., Ltd. | Particles | Collected by gas trap hood + dust collector +15m high exhaust cylinder | 2 | Exhaust funnels 1 and 2 for mold injection | <20 | Integrated emission standards for atmospheric pollutants（GB16297-1996） | 14.4 | 72 | No |
| VOCs | Collected by gas trap hood +15m high exhaust cylinder | 7 | Waste gas outlets 1-7 of the die casting workshop | <20 | Emission standard of air pollutants for industrial kiln and furnace（GB9078-1996） | 50.4 | 200 | No | |
| VOCs | Activated carbon + UV photolysis | 2 | Exhaust funnels 1 and 2 for dip coating | <20 | Hebei Province Standard DB13/2322-2016 The Concentration Limits at Emission Reference Point for Coating Operations | 14.4 | 36 | No | |
| COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | General wastewater outlet | 25 | Integrated wastewater discharge standard（GB8978-1996）chart 4 third-level | 30 | / | No | |
| Ammonia nitrogen | 8 | 3 | / | No | |||||
| BOD | 5 | 6 | / | No | |||||
| SS | 1 | 5 | / | No | |||||
| Petroleum | 0.06 | 0.3 | / | No | |||||
| Anhui Meizhi Precision Manufacturing Co., Ltd. | COD | Discharge after being treated by wastewater treatment system and reaching the standard | 1 | The south side of Building 6 for night shift at the north side of the plant area | 40 | Integrated wastewater discharge standard（gb8978-1996）, chart 4, level 3 | 16.2 | 42.441 | No |
| Ammonia nitrogen | 2.34 | 0.9477 | 0.725 | Yes | |||||
| BOD | 15.4 | 6.237 | 11.239 | No | |||||
| SS | 20 | 8.1 | 13.142 | No | |||||
| Petroleum | 1.39 | 0.563 | 0.64 | No | |||||
| Particles | Collected by gas trap hood +21m high exhaust cylinder | 9 | 1-8# welding waste gas outlets | 7.3 | Integrated emission standards for atmospheric pollutants GB16297-1996, chart 2, level 2 | 0.9387 | 4.239 | No | |
| 9#-10# welding waste gas outlets | 7.1 | ||||||||
| 2# outlet of stator + rotor heat-treating furnace | 0.672 | Emission standard of air pollutants for industrial kiln and furnace GB9078-1996, chart 2, level 2 | 2.3628 | No | |||||
| 3# outlet of 2# stator heat-treating furnace | 0.9 | ||||||||
| 1# outlet of stator + rotor heat-treating furnace | 0.7992 | ||||||||
| Outlet at the head of 3# stator furnace | 0.3384 | ||||||||
| Outlets at the head of 2# stator furnace and 4# rotor furnace | 0.7848 | ||||||||
| Outlets at the tail of 3# and 4# stator furnaces and comprehensive outlet for 4 aluminum melting furnaces | 0.7704 | ||||||||
| Waste gas outlet of aluminum melting furnace | 0.4608 | ||||||||
| Sulfur dioxide | Collected by gas trap hood +21m high exhaust cylinder | 2 | 1# outlet of heat-treating furnace | 3.0 | Emission standard of air pollutants for industrial kiln and furnace GB9078-1996, chart 2, level 2 | 0.34 | 7.34 | No | |
| 2# outlet of heat-treating furnace | 10.0 | ||||||||
| Nitrogen oxide | Collected by gas trap hood +21m high exhaust cylinder | 3 | 2# outlet of stator + rotor heat-treating furnace | 2.6616 | 3.3708 | 8.97 | No | ||
| 3# outlet of 2# stator heat-treating furnace | 1.5456 | ||||||||
| 1# outlet of stator + rotor heat-treating furnace | 2.5344 | ||||||||
| VOCs | Direct-fired waste gas incinerator+21m high exhaust cylinder | 3 | 1# outlet for waste gas from drying | 0.5256 | Chart 1 of Hebei Province Standard—Emission Control Standard for Industrial Enterprises Volatile Organic Compounds (DB13/2322-2016) | 1.1019 | 6.301 | No | |
| 9-10# outlets for waste gas from drying | 25.3 | ||||||||
| GD Midea Environment Appliances Mfg. Co.,Ltd. | VOCs | Gas trap hood + dry filtering + UV + activated carbon + 15m high altitude discharge | 2 | During the screen printing process | 1.37 | Emission standard of volatile organic compounds for printing industry（DB44/815-2010) | 0.064 | 0.07 | No |
| Dry filtering + UV + activated carbon + catalytic combustion + 15m high altitude discharge | 2 | Outlet for waste gas from dip coating, drying and hardening | 12 | Emission standards for odor pollutants (GB14554-93) | 2.24 | 3.42 | No | ||
| Gas trap hood + dry filtering + UV + activated carbon + 15m high altitude discharge | 1 | During the manual welding process | 0.03 | Emission Limits of Air Pollutants (DB44/27-2001): Time Period 2, Level 2 and Emission standards for odor pollutants (GB14554-93) | 0.00002 | 0.009 | No | |
| Gas trap hood + dry filtering + UV + activated carbon + 15m high altitude discharge | 3 | During the wave soldering process (paste printing and wave reflow) | 1.35 | Emission Limits of Air Pollutants (DB44/27-2001): Time Period 2, Level 2 and Emission standards for odor pollutants (GB14554-93) | 0.042 | 0.086 | No | |
| NMHC | Gas trap hood + dry filtering + UV + activated carbon + 15m high altitude discharge | 6 | Exhaust funnel for waste gas from the baking and injection molding processes | 2.5 | Emission Standards of Industrial Pollutants in the Synthetic Resin Industry (GB 31572-2015) | 0.428 | 1.432 | No |
| Particles | Gas trap hood + water spraying + dry filtering + UV + activated carbon + 15m high altitude discharge | 1 | Outlet for waste gas from dusting, electrophoresis and hardening | 15 | Emission Limits of Air Pollutants (DB44/27-2001): Time Period 2, Level 2 and Emission standards for odor pollutants (GB14554-93) | 0.702 | 1.05 | No |
| Cooking fume | Water wash hood + electrostatic range hood + 15m high altitude discharge | 7 | Cooking fume outlet at canteen | 0.3 | Emission Standard of Cooking Fume（GB 18483-2001） | 0.076 | 0.4 | No |
The construction of pollution prevention facilities and their operationDuring the Reporting Period, all subsidiaries have strictly abided by the laws and regulations related to environment protection, and no majorenvironmental pollution incidents occurred. All subsidiaries have set up reliable waste water and gas treatment systems. Through regular monitoring,supervision and inspection mechanisms, as well as third-party testing, it is ensured that the discharge of waste water, waste gas and solid waste duringthe production and operation process meets the national and local laws and regulations. There is no excessive discharge by any subsidiary, which is incompliance with the relevant requirements of the environment administrations. The specific treatments for waste water, waste gas and solid wastes areas follows:
A. Waste water treatments: The waste water from subsidiaries is classified as household waste water and industrial waste water. Household wastewater is discharged to the municipal waste water treatment network and waste water treatment plants after being pre-treated in septic tanks, etc. Andindustrial waste water is discharged to the municipal waste water treatment network and waste water treatment plants after being pre-treated in thesubsidiaries’ waste water treatment stations. Meanwhile, the rain sewage diversion system is promoted in old factories and the existing productionprocesses are improved to reduce waste water.B. Waste gas treatments: The waste gas from the subsidiaries is mainly the industrial waste gas and dust produced in the production process.Corresponding waste gas treatment systems have been set up for different types of waste gas. For example, waste gas from screen printing line istreated with spraying, defogging, UV photolysis and activated carbon adsorption devices, and organic waste gas from oil spray lines for metal workingand plastic injection is treated with molecular sieve wheel adsorption and RCO catalytic combustion devices. Waste gas is discharged at a high altitudeafter emission concentration of benzene, toluene, xylene and VOCs in it is up to the Emission Limits of Air Pollutants, a local standard. Dust producing
equipment 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 forIndustrial Enterprises noise at Boundary(GB12348-2008): ≤65dB（A）at daytime and ≤55dB（A）at nighttime.D. Solid waste treatments: The solid waste from subsidiaries is classified into general solid waste, hazardous solid waste, and household solid waste.Hazardous solid waste, according to laws and regulations, is required to be treated by qualified treatment institutions; general solid waste, after beingclassified at the subsidiaries, is collected and treated by resource recycling plants; and household solid waste is treated by the local sanitationadministration, which is in compliance with the relevant regulations.The environmental effect evaluation of construction projects and other administrative permits in relation to environmental protectionAll subsidiaries strictly observe the laws and regulations governing environmental protection, and all construction projects are in compliance with theenvironmental effect requirements and other rules, with no misdeeds during the Reporting Period. Once a construction project is finished, a third-party
testing institution is hired to examine indexes including waste water, waste gas and noise, and the compilation and approval of the environmental effectevaluation report is finished in time.Contingency plans for environmental accidentsAll subsidiaries have finished the compilation and approval of their contingency plans for environmental accidents. Emergency mechanisms forenvironmental pollution accidents have been established and improved, and the subsidiaries’ ability to deal with environmental pollution accidents hasbeen enhanced, so as to maintain social stability, protect the lives, health and properties of the public, protect the environment, and promote acomprehensive, coordinated and sustainable development of the society.According to the accident levels, subsidiaries have formulated rules covering working principles, contingency plans, risk prevention measures,commanding departments, responsibilities and labor division, and have filed these contingency plans with the government.Environment self-monitoring plansAll the subsidiaries have formulated their own environment self-monitoring plans according to China’s relevant laws and regulations, , which include: 1)Waste gas pollution source monitoring: Sampling points are set at various discharge ports of waste gas for monitoring on a quarterly basis; 2) Wastewater pollution source monitoring: Samples are fetched at intake and outlet ports of waste water treatment stations to monitor changes of pollutionsource of waste water and up-to-standard emission of waste water after being treated at the waste water treatment stations. Monitoring items includeCODcr, SS and petroleum, etc. The data is uploaded to the governmental monitoring authority online and the government authority conducts real-timemonitoring; 3) Noise monitoring: Noise monitoring points are set at noise sensitive points and on the border of factories. Noise is monitored once inspring and summer respectively and at daytime and at nighttime respectively each time; 4) Solid waste pollution source monitoring: Hazardous waste
produced from the subsidiaries is handed over to the units with qualifications for treatment, monitoring systems are established, and relatedmanagement forms and accounts are set up. Meanwhile, 11 factories have been equipped with an online waste water monitoring system, and such asystem is underway for other operations.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 ofpollution prevention facilities, environmental effect evaluations of construction projects and other administrative permits in relation to environmentalprotection, contingency plans for environmental accidents, and environment self-monitoring results is all made public through the official WeChataccount on a regular basis.Other environment-related informationNone
16.2 Measures taken for targeted poverty alleviation
16.2.1 Summary of the work done for targeted poverty alleviation during the Reporting PeriodIn the first half of 2020, Midea Group donated RMB10 million and RMB5 million respectively to Leizhouand Xuwen in Zhanjiang City to support the local industry, education, infrastructure, living environment,etc. By doing so, it has provided strong support to help lift registered impoverished households frompoverty and win the battle against poverty nationwide.During the COVID-19 pandemic, Midea Group was amongst the first companies to respond andparticipate in frequent support missions. It has donated medical supplies and home appliances worthapproximately RMB116 million in total to Hubei Province, Guangdong Province, Shanghai, etc., makinga contribution in the fight against the pandemic.
| Indicator | Measurement unit | Quantity/Progress |
| I General information | —— | —— |
| Of which: 1. Monetary inputs | RMB’000 | 15,000 |
| 2. Supplies converted to cash | RMB’000 | |
| 3. Number of registered impoverished individuals that the Company has helped lift from poverty | Person | 22,566 |
| II Inputs by item | —— | —— |
| 1. Poverty alleviation through industrial development | —— | —— |
| Of which: 1.1Type of poverty alleviation projects through industrial development | —— | Helping develop tourism |
| 1.2 Number of poverty alleviation projects through industrial development | Number of project | 18 |
| 1.3 Input amount to poverty alleviation projects through industrial development | RMB’000 | 3,995 |
| 1.4 Number of registered impoverished individuals that the Company has helped lift from poverty | Person | 6,344 |
| 2. Poverty alleviation through labor migration | —— | —— |
| 3. Poverty alleviation through relocation | —— | —— |
| 4. Poverty alleviation through education | —— | —— |
| Of which: 4.1 Input amount for impoverished students | RMB’000 |
| 4.2 Number of students that the Company has helped | Person | |
| 4.3 Input amount for improving educational resources in impoverished areas | RMB’000 | 1,924.4 |
| 5. Poverty alleviation through improving health conditions | —— | —— |
| 6. Poverty alleviation through improving environment | —— | —— |
| Of which: 6.1 Type of project | —— | Improving environment |
| 6.2 Input amount | RMB’000 | 160 |
| 7. Assurance of minimum living standard | —— | —— |
| 8. Social assistance in poverty alleviation | —— | —— |
| Of which 8.1 Input amount for poverty alleviation in East and West China | RMB’000 | 400 |
| 8.2 Input amount for fixed-point poverty alleviation | RMB’000 | |
| 8.3 Input amount to poverty alleviation public welfare foundations | RMB’000 | |
| 9. Other projects | —— | —— |
| Of which 9.1 Number of projects | Number of project | 43 |
| 9.2 Input amount | RMB’000 | 8,520.6 |
| 9.3 Number of registered impoverished individuals that the Company has helped lift from poverty | Person | 17,560 |
| III Awards received (content, level) | —— | —— |
18. Significant Events of Subsidiaries
√Applicable □N/A
Midea Group acquired, through its subsidiary GD Midea Heating & Ventilating Equipment Co., Ltd.(hereinafter referred to as “Midea Heating & Ventilating”), a controlling interest in Hiconics Eco-energyTechnology Co., Ltd. (hereinafter referred to as “Hiconics”, a company listed on the ChiNext Board ofthe Shenzhen Stock Exchange by the stock code of 300048) by an agreement (hereinafter referred to asthe “Acquisition”).A. Parties of the AcquisitionOn 25 March 2020, Midea Heating & Ventilating (the acquirer) entered into the Share TransferAgreement with Shanghai Shangfeng Group Co., Ltd. (hereinafter referred to as “Shangfeng Group”,the controlling shareholder of Hiconics, one of the two acquirees) and Liu Jincheng (the actual controllerof Hiconics, the other acquiree).B. Number of the Target Shares of the AcquisitionA total of 208,685,418 shares (approximately 18.73% of Hiconics’s total share capital) were acquired inthe Acquisition, including 197,543,645 shares from Shangfeng Group and 11,141,773 shares from LiuJincheng.C. Total Payment for the AcquisitionThe total payment for the Acquisition was RMB742,582,087, including a payment of RMB702,935,421 toShangfeng Group and a payment of RMB39,646,666 to Liu Jincheng.D. Entrustment Arrangements in Respect of Voting Rights in the AcquisitionOn 25 March 2020, Midea Heating & Ventilating entered into the Voting Rights Entrustment Agreementwith Shangfeng Group and Ye Jinwu, which agreed to entrust the voting rights in respect of theirholdings of 55,747,255 shares in Hiconics (approximately 5% of Hiconics’s total share capital) to MideaHeating & Ventilating on an irrevocable basis for a term of 18 months commencing from the settlement
date of the Acquisition.E. Upon the Acquisition, the Company would hold, through Midea Heating & Ventilating, 208,685,418shares in Hiconics. Taking the voting rights in respect of the 55,747,255 shares in Hiconics entrusted byShangfeng Group and Ye Jinwu, the Company would have control over the voting rights in respect of atotal of 264,432,673 shares in Hiconics (approximately 23.73% of Hiconics’s total share capital).Therefore, the Company would control Hiconics in an indirect manner when the Acquisition is completed.F. On 30 April 2020, China Securities Depository and Clearing Co., Ltd. (Shenzhen branch) issued theConfirmation of Transfer of Securities Ownership, representing the completion of the transfer of all the208,685,418 non-restricted public shares in Hiconics in the Acquisition.
Section VI Changes in Shares and Information about
Shareholders
1. Changes in Shares
1.1 Changes in shares
Unit: share
| Before | Increase/decrease in Reporting Period (+/-) | After | |||||
| Shares | Percentage (%) | New issue | Others | Subtotal | Shares | Percentage (%) | |
| 1. Restricted shares | 165,402,513 | 2.37 | -13,581,382 | -13,581,382 | 151,821,131 | 2.17 | |
| 1.1 Shares held by the state | |||||||
| 1.2 Shares held by state-owned corporations | |||||||
| 1.3 Shares held by other domestic investors | 163,369,513 | 2.34 | -13,290,882 | -13,290,882 | 150,078,631 | 2.14 | |
| Among which: Shares held by domestic corporations | 2,363,601 | 0.03 | 2,363,601 | 0.03 | |||
| Shares held by domestic individuals | 161,005,912 | 2.31 | -13,290,882 | -13,290,882 | 147,715,030 | 2.11 | |
| 1.4 Shares held by foreign investors | 2,033,000 | 0.03 | -290,500 | -290,500 | 1,742,500 | 0.02 | |
| Among which: Shares held by foreign corporations | |||||||
| Shares held by foreign individuals | 2,033,000 | 0.03 | -290,500 | -290,500 | 1,742,500 | 0.02 | |
| 2. Non-restricted shares | 6,806,497,061 | 97.63 | 41,352,856 | 10,074,882 | 51,427,738 | 6,857,924,799 | 97.83 |
| 2.1 RMB common | 6,806,497,061 | 97.63 | 41,352,856 | 10,074,882 | 51,427,738 | 6,857,924,799 | 97.83 |
| shares | |||||||
| 2.2 Domestically listed foreign shares | |||||||
| 2.3 Overseas listed foreign shares | |||||||
| 2.4 Other | |||||||
| 3. Total shares | 6,971,899,574 | 100.00 | 41,352,856 | -3,506,500 | 37,846,356 | 7,009,745,930 | 100.00 |
e. In H1 2020, the incentive receivers of stock options chose to exercise 41,352,856 shares, which havebeen registered into the Company’s share capital.f. In H1 2020, locked-up shares held by senior management increased by 502,493 shares.Approval of share changes
□ Applicable √ N/A
Transfer of share ownership
□ Applicable √ N/A
Progress of any share repurchase
√ Applicable □ N/A
a. The Proposal on the Plan for the Repurchase of Some Public Shares (hereinafter referred to as the“2019 Repurchase Plan”) was approved at the 7th Meeting of the 3rd Board of Directors on 22 February2019. As such, the Company was agreed to repurchase, with its own funds, no less than 60,000,000shares and no more than 120,000,000 shares by way of centralized bidding at a price not exceedingRMB55/share within 12 months starting from the approval of the repurchase plan by the Board ofDirectors. All the repurchased shares would be used for the Company’s equity incentive schemes and/oremployee stock ownership schemes. As disclosed in the Announcement on the Expiry of theRepurchase Period & the Completion of the Implementation of the Repurchase Plan dated 22 February2020, during the repurchase period, the Company cumulatively repurchased 62,181,122 shares by wayof centralized bidding. With the highest trading price being RMB55.00/share and the lowest beingRMB45.62/share, the total payment amounted to RMB3,200,329,932.45 (exclusive of trading fees). The2019 Repurchase Plan has expired and the number of shares repurchased has reached the lower limitof the repurchase plan. Therefore, the implementation of the repurchase plan has been completed. Sofar, all the shares repurchased under the 2019 Repurchase Plan have been used for the Company’sequity incentive schemes and/or employee stock ownership schemes.b. The Proposal on the Plan for the Repurchase of Some Public Shares (hereinafter referred to as the“2020 Repurchase Plan”) was approved at the 18th Meeting of the 3rd Board of Directors on 21February 2020. As such, the Company was agreed to repurchase, with its own funds, no less than
40,000,000 shares and no more than 80,000,000 shares by way of centralized bidding at a price notexceeding RMB65/share within 12 months starting from the approval of the repurchase plan by theBoard of Directors. All the repurchased shares would be used for the Company’s equity incentiveschemes and/or employee stock ownership schemes. As disclosed in the Announcement on the ShareRepurchase Progress dated 5 August 2020, as of 31 July 2020, the Company had repurchased14,265,055 shares (0.2031% of the Company’s total share capital as of 27 August 2020) by way ofcentralized bidding. With the highest trading price being RMB54.18/share and the lowest beingRMB46.30/share, the total payment amounted to RMB701,292,302.13 (exclusive of trading fees). As ofthe date of this Report, there are a total of 3,630,035 shares in the Company’s securities account forrepurchase, of which 10,635,020 shares have been transferred.Progress of any repurchased share reduction through centralized price bidding
□ Applicable √ N/A
Effects of changes in shares on basic EPS, diluted EPS, net assets per share attributable to commonshareholders of the Company and other financial indexes over the last year and the last ReportingPeriod
□Applicable √N/A
Other contents that the Company considers necessary or is required by the securities regulatoryauthorities to disclose
□Applicable √N/A
1.2 Changes in restricted shares
√ Applicable □ N/A
Unit: share
| Name of shareholder | Opening restricted shares | Unlocked in current period | Increased in current period | Closing restricted shares | Reason for change | Date of unlocking |
| Incentive receivers of 2017 Restricted Share Incentive Scheme (first phase) ① | 6,140,000 | 5,532,500 | 0 | 187,500 | Lockup according to the Scheme | 22 June 2020 |
| Incentive receivers of | 2,924,750 | 1,340,750 | 0 | 1,325,000 | Lockup according to | 19 February 2020 |
| reserved restricted shares under 2017 Restricted Share Incentive Scheme ② | the Scheme | |||||
| Incentive receivers of 2018 Restricted Share Incentive Scheme (first phase) ③ | 17,094,000 | 3,704,125 | 0 | 12,003,375 | Lockup according to the Scheme | 1 July 2020 |
| Incentive receivers of reserved restricted shares under 2018 Restricted Share Incentive Scheme ④ | 2,420,000 | 0 | 0 | 2,220,000 | Lockup according to the Scheme | 10 May 2021 |
| Incentive receivers of 2019 Restricted Share Incentive Scheme ⑤ | 28,560,000 | 0 | 0 | 27,319,000 | Lockup according to the Scheme | 10 July 2021 |
| Zhang Xiaoyi | 273,875 | 0 | 151,056 | 424,931 | Lockup for senior management position | - |
| Jiang Peng | 458,475 | 114,525 | 0 | 343,950 | Lockup for senior management position | - |
| Xiao Mingguang | 66,250 | 0 | 153,750 | 220,000 | Lockup for senior management position | - |
| Zhong Zheng | 11,152 | 0 | 87,212 | 98,364 | Lockup for senior management position | - |
| Hu Ziqiang | 0 | 0 | 225,000 | 225,000 | Lockup for senior management position | - |
| Total | 57,948,502 | 10,691,900 | 617,018 | 44,367,120 | -- | -- |
shares by 259,000 shares.
③ 1,386,500 restricted shares for the first phase of the 2018 Restricted Share Incentive Scheme thathad been granted but were still in lockup were retired on 10 March 2020, reducing the closing restrictedshares by 1,386,500 shares.
④ 200,000 reserved restricted shares under the 2018 Restricted Share Incentive Scheme that hadbeen granted but were still in lockup were retired on 10 March 2020, reducing the closing restrictedshares by 200,000 shares.
⑤ 1,241,000 restricted shares for the 2019 Restricted Share Incentive Scheme that had been grantedbut were still in lockup were retired on 10 March 2020, reducing the closing restricted shares by1,241,000 shares.
2. Issuance and Listing of Securities
□Applicable √N/A
3. Total number of shareholders and their shareholdings
Unit: share
| Total number of common shareholders at the end of the Reporting Period | 184,209 | Total number of preference shareholders with resumed voting rights at the period-end (if any) | 0 | ||||||
| 5% or greater common shareholders or top 10 common shareholders | |||||||||
| Name of shareholder | Nature of shareholder | Shareholding percentage (%) | Total common shares held at the period-end | Increase/decrease during the Reporting Period | Number of restricted common shares held | Number of non-restricted common shares held | Pledged or frozen shares | ||
| Status | Shares | ||||||||
| Midea Holding Co., Ltd. | Domestic non-state-owned corporation | 31.56% | 2,212,046,613 | 0 | 0 | 2,212,046,613 | Pledged | 215,000,000 | |
| Hong Kong Securities | Foreign corporati | 17.30% | 1,212,996,966 | 35,688,522 | 0 | 1,212,996,966 | |||
| Clearing Company Limited | on | ||||||||||
| China Securities Finance Co., Ltd. | State-owned corporation | 2.83% | 198,145,134 | 0 | 0 | 198,145,134 | |||||
| Fang Hongbo | Domestic individual | 1.95% | 136,990,492 | 0 | 102,742,869 | 34,247,623 | |||||
| Canada Pension Plan Investment Board－ own funds (stock exchange) | Foreign corporation | 1.72% | 120,379,067 | 0 | 0 | 120,379,067 | |||||
| Central Huijin Asset Management Ltd. | State-owned corporation | 1.29% | 90,169,354 | 0 | 0 | 90,169,354 | |||||
| Huang Jian | Domestic individual | 1.26% | 88,032,200 | 0 | 0 | 88,032,200 | |||||
| UBS AG | Foreign corporation | 0.92% | 64,377,363 | 27,013,367 | 0 | 64,377,363 | |||||
| Yuan Liqun | Domestic individual | 0.75% | 52,638,405 | -235,165 | 0 | 52,638,405 | Pledged | 6,840,000 | |||
| Li Jianwei | Foreign individual | 0.74% | 51,700,000 | 0 | 0 | 51,700,000 | |||||
| Strategic investors or general corporations becoming top-ten common shareholders due to placing of new shares (if any) (see Note 3) | N/A | ||||||||||
| Related-parties or acting-in-concert parties among the shareholders above | N/A | ||||||||||
| Top 10 non-restricted common shareholders | |||||||||||
| Name of shareholder | Number of non-restricted common shares held at the period-end | Type of shares | |||||||||
| Type | Shares | ||||||||||
Midea Group Co., Ltd. Semi-Annual Report 2020
| Midea Holding Co., Ltd. | 2,212,046,613 | RMB common stock | 2,212,046,613 |
| Hong Kong Securities Clearing Company Limited | 1,212,996,966 | RMB common stock | 1,212,996,966 |
| China Securities Finance Co., Ltd. | 198,145,134 | RMB common stock | 198,145,134 |
| Canada Pension Plan Investment Board－ own funds (stock exchange) | 120,379,067 | RMB common stock | 120,379,067 |
| Central Huijin Asset Management Ltd. | 90,169,354 | RMB common stock | 90,169,354 |
| Huang Jian | 88,032,200 | RMB common stock | 88,032,200 |
| UBS AG | 64,377,363 | RMB common stock | 64,377,363 |
| Yuan Liqun | 52,638,405 | RMB common stock | 52,638,405 |
| Li Jianwei | 51,700,000 | RMB common stock | 51,700,000 |
| He Xiangjian | 45,008,871 | RMB common stock | 45,008,871 |
| Related-parties or acting-in-concert parties among the top ten non-restricted common shareholders and between the top ten non-restricted common shareholders and the top ten common shareholders | He Xiangjian is the controlling shareholder of Midea Holding Co., Ltd., which makes them parties acting in concert. | ||
| Explanation on the top 10 common shareholders participating in securities margin trading | The Company’s shareholder Yuan Liqun holds 40,703,000 shares in the Company through her common securities account and 11,935,405 shares in the Company through her account of collateral securities for margin trading, representing a total holding of 52,638,405 shares in the Company. | ||
Did any of the top 10 common shareholders or the top 10 non-restricted common shareholders of theCompany conduct any promissory repurchase during the Reporting Period
□Yes √No
No such cases in the Reporting Period.
4.Change of Controlling Shareholder or Actual Controller in the Reporting PeriodChange of the controlling shareholder during the Reporting Period
□Applicable √ N/A
No such cases in the Reporting Period.
Change of the actual controller during the Reporting Period
□ Applicable √ N/A
No such cases in the Reporting Period.
Midea Group Co., Ltd. Semi-Annual Report 2020
Section VII Preference Shares
□Applicable √ N/A
No such cases in the Reporting Period.
Section VIII Convertible Corporate Bonds
□ Applicable √ N/A
No such cases in the Reporting Period.
Section IX Information about Directors, Supervisors and Senior
Management
1. Changes in Shareholdings of Directors, Supervisors and Senior Management
√ Applicable □ N/A
| Name | Office title | Incumbent/ Former | Shares held at the year-begin (share) | Shares increased at the Reporting Period (share) | Shares decreased at the Reporting Period (share) | Shares held at the period-end (share) | Granted restricted shares at the year-begin (share) | Restricted shares granted in the Reporting Period (share) | Granted restricted shares at the period-end (share) |
| Hu Ziqiang | Vice President | Incumbent | 400,000 | 0 | 0 | 400,000 | 200,000 | 0 | 75,000 |
| Xiao Mingguang | Vice President | Incumbent | 355,000 | 105,000 | 0 | 460,000 | 200,000 | 0 | 125,000 |
| Zhang Xiaoyi | Vice President | Incumbent | 586,575 | 80,000 | 0 | 666,575 | 170,000 | 0 | 75,000 |
| Zhong Zheng | Director of Finance | Incumbent | 201,152 | 10,000 | 0 | 211,152 | 140,000 | 0 | 60,000 |
| Total | -- | -- | 1,542,727 | 195,000 | 0 | 1,737,727 | 710,000 | 0 | 335,000 |
| Name | Office title | Type of change | Date | Reason |
| Li Guolin | Vice President | Appointed | 2020-7-3 | Senior management appointment |
Section X Corporate Bonds
Does the Company have any corporate bonds publicly issued on the stock exchange, which were unduebefore the date of this Report’s approval or were due but could not be redeemed in full?
□ Yes √ No
Midea Group Co., Ltd. Semi-Annual Report 2020
Section XI Financial Report
1.Auditor’s Report
Have the H1 2020 financial statements been audited by a CPA firm?
□Yes √ No
The H1 2020 financial statements are unaudited by a CPA firm.
2.Financial Statements
(All amounts in RMB'000 Yuan unless otherwise stated)
MIDEA GROUP CO., LTD.CONSOLIDATED AND COMPANY BALANCE SHEETSAS AT 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| ASSETS | Note | 30 June 2020 | 31 December 2019 | 30 June 2020 | 31 December 2019 |
| Consolidated | Consolidated | Company | Company | ||
| Current assets | |||||
| Cash at bank and on hand | 4(1) | 53,027,194 | 70,916,841 | 36,101,129 | 52,291,056 |
| Financial assets held for trading | 4(2) | 1,469,263 | 1,087,351 | - | - |
| Derivative financial assets | 110,454 | 197,412 | - | - | |
| Notes receivable | 4(3) | 5,666,938 | 4,768,520 | - | - |
| Accounts receivable | 4(4) | 25,671,899 | 18,663,819 | - | - |
| Receivables financing | 4(6) | 8,990,911 | 7,565,776 | - | - |
| Advances to suppliers | 4(7) | 2,389,531 | 2,246,177 | 92,718 | 36,877 |
| Contract assets | 4(8) | 3,672,104 | - | ||
| Loans and advances | 4(9) | 12,184,151 | 10,869,396 | - | - |
| Other receivables | 4(5), 17(1) | 2,615,116 | 2,712,974 | 18,414,320 | 18,369,865 |
| Inventories | 4(10) | 21,714,793 | 32,443,399 | - | - |
| Current portion of non-current assets | 5,869 | - | - | - | |
| Other current assets | 4(11) | 93,318,509 | 65,011,027 | 72,909,355 | 42,665,884 |
| Total current assets | 230,836,732 | 216,482,692 | 127,517,522 | 113,363,682 | |
| Non-current assets | |||||
| Other debt investments | 4(12) | 19,283,310 | - | 19,091,158 | - |
| Long-term receivables | 4(13) | 1,115,195 | 1,208,079 | - | - |
| Loans and advances | 4(9) | 1,245,342 | 790,101 | - | - |
| Long-term equity investments | 4(14), 17(2) | 2,998,466 | 2,790,806 | 53,140,701 | 52,605,859 |
| Other investments in equity instruments | 48,020 | - | - | - | |
| Other non-current financial assets | 4(15) | 2,138,404 | 1,750,107 | 487,445 | 487,564 |
| Investment properties | 423,821 | 399,335 | 497,481 | 518,828 | |
| Fixed assets | 4(16) | 22,278,992 | 21,664,682 | 789,598 | 878,239 |
| Construction in progress | 4(17) | 1,587,400 | 1,194,650 | 209,975 | 155,681 |
| Intangible assets | 4(18) | 15,596,901 | 15,484,179 | 692,874 | 700,836 |
| Development costs | 33,239 | - | - | - | |
| Goodwill | 4(19) | 28,932,790 | 28,207,065 | - | - |
| Long-term prepaid expenses | 4(20) | 1,272,302 | 1,267,127 | 108,344 | 123,548 |
| Deferred tax assets | 4(21) | 6,300,811 | 5,768,993 | 208,783 | 189,888 |
| Other non-current assets | 570,939 | 4,947,603 | 3,195 | 4,359,507 | |
| Total non-current assets | 103,825,932 | 85,472,727 | 75,229,554 | 60,019,950 | |
| TOTAL ASSETS | 334,662,664 | 301,955,419 | 202,747,076 | 173,383,632 |
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.CONSOLIDATED AND COMPANY BALANCE SHEETS (CONT’D)AS AT 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
| LIABILITIES AND SHAREHOLDERS' EQUITY | Note | 30 June 2020 | 31 December 2019 | 30 June 2020 | 31 December 2019 |
| Consolidated | Consolidated | Company | Company | ||
| Current liabilities | |||||
| Short-term borrowings | 4(24) | 12,997,800 | 5,701,838 | 4,999,314 | 4,550,064 |
| Customer deposits and deposits from banks and other financial institutions | 62,935 | 62,477 | - | - | |
| Derivative financial liabilities | 83,471 | 27,100 | - | - | |
| Notes payable | 4(25) | 27,041,933 | 23,891,600 | - | - |
| Accounts payable | 4(26) | 49,491,783 | 42,535,777 | - | - |
| Advances from customers | 4(27) | - | 16,231,854 | - | - |
| Contract liabilities | 4(28) | 15,325,554 | - | ||
| Employee benefits payable | 4(29) | 4,841,898 | 6,436,109 | 558,375 | 566,861 |
| Taxes payable | 4(30) | 4,899,708 | 5,096,267 | 572,791 | 1,059,246 |
| Other payables | 4(31) | 4,241,494 | 3,800,568 | 125,722,155 | 103,624,998 |
| Current portion of non-current liabilities | 4(32) | 7,709,140 | 1,460,117 | 4,000,000 | - |
| Other current liabilities | 4(33) | 49,404,154 | 39,074,777 | 10,023,728 | 19,539 |
| Total current liabilities | 176,099,870 | 144,318,484 | 145,876,363 | 109,820,708 | |
| Non-current liabilities | |||||
| Long-term borrowings | 4(34) | 37,136,646 | 41,298,377 | - | 4,000,000 |
| Long-term payables | 20,801 | 33,646 | - | - | |
| Provisions | 314,938 | 353,269 | - | - | |
| Deferred income | 785,578 | 617,155 | - | - | |
| Long-term employee benefits payable | 4(35) | 2,378,036 | 2,418,563 | - | - |
| Deferred tax liabilities | 4(21) | 4,726,727 | 4,556,002 | 59,032 | 59,032 |
| Other non-current liabilities | 4(36) | 837,967 | 863,826 | - | - |
| Total non-current liabilities | 46,200,693 | 50,140,838 | 59,032 | 4,059,032 | |
| Total liabilities | 222,300,563 | 194,459,322 | 145,935,395 | 113,879,740 | |
| Shareholders' equity | |||||
| Share capital | 4(37) | 7,009,746 | 6,971,900 | 7,009,746 | 6,971,900 |
| Capital surplus | 4(39) | 20,850,927 | 19,640,313 | 27,806,264 | 26,592,959 |
| Less: Treasury stock | 4(38) | (4,208,160) | (3,759,732) | (4,208,160) | (3,759,732) |
| Other comprehensive income | 4(40) | (1,007,528) | (711,554) | (5,675) | 1,735 |
| General risk reserve | 366,947 | 366,947 | - | - | |
| Surplus reserve | 4(41) | 6,447,658 | 6,447,658 | 6,447,658 | 6,447,658 |
| Undistributed profits | 4(42) | 75,519,520 | 72,713,631 | 19,761,848 | 23,249,372 |
| Total equity attributable to shareholders of the Company | 104,979,110 | 101,669,163 | 56,811,681 | 59,503,892 | |
| Minority interests | 7,382,991 | 5,826,934 | - | - | |
| Total shareholders' equity | 112,362,101 | 107,496,097 | 56,811,681 | 59,503,892 | |
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 334,662,664 | 301,955,419 | 202,747,076 | 173,383,632 |
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.CONSOLIDATED AND COMPANY INCOME STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
Item
| Item | Note | For the six months ended 30 June 2020 | For the six months ended 30 June 2019 | For the six months ended 30 June 2020 | For the six months ended 30 June 2019 |
| Consolidated | Consolidated | Company | Company | ||
| Total revenue | 139,719,278 | 154,332,643 | 899,031 | 876,450 | |
| Including: Operating revenue | 4(43), 17(3) | 139,067,022 | 153,770,300 | 899,031 | 876,450 |
| Interest income | 4(44) | 652,099 | 561,697 | - | - |
| Fee and commission income | 157 | 646 | - | - | |
| Total operating cost | (124,653,986) | (136,218,155) | 385,840 | 708,863 | |
| Including: Cost of sales | 4(43) | (103,523,657) | (108,441,289) | (21,392) | (24,059) |
| Interest expenses | 4(44) | (78,092) | (105,543) | - | - |
| Fee and commission expenses | (5,332) | (3,671) | - | - | |
| Taxes and surcharges | 4(45) | (754,845) | (928,590) | (21,822) | (11,003) |
| Selling and distribution expenses | 4(46) | (12,631,101) | (19,529,822) | - | - |
| General and administrative expenses | 4(47) | (4,102,149) | (4,110,125) | (244,510) | (212,140) |
| Research and development expenses | 4(48) | (4,410,737) | (4,534,760) | - | - |
| Financial income | 4(49) | 851,927 | 1,435,645 | 673,564 | 956,065 |
| Including: Interest expenses | (637,348) | (401,129) | (879,011) | (643,784) | |
| Interest income | 1,674,669 | 2,088,716 | 1,555,529 | 1,594,250 | |
| Add: Other income | 4(55) | 580,359 | 661,949 | 123,400 | 143,303 |
| Investment income | 4(53), 17(4) | 1,088,547 | 12,640 | 6,211,279 | 6,747,397 |
| Including: Investment income from associates and joint ventures | 261,136 | 232,596 | 134,639 | 144,453 | |
| Including: Profit or loss arising from derecognition of financial assets measured at amortised costs | - | (709) | - | - | |
| Gains on changes in fair value | 4(52) | 247,700 | 347,862 |
199,470
| - | |||||
| Asset impairment losses | 4(50) | (133,419) | (144,656) | - | - |
| Credit impairment losses | 4(51) | (461,998) | (179,047) | (6,808) | (1,055) |
| Gains on disposal of assets | 4(54) | (11,070) | (13,705) | 140 | - |
| Operating profit | 16,375,411 | 18,799,531 | 7,812,352 | 8,474,958 | |
| Add: Non-operating income | 108,692 | 150,363 | 9,490 | 30,188 | |
| Less: Non-operating expenses | (88,032) | (60,379) | (71,527) | (289) | |
| Total profit | 16,396,071 | 18,889,515 | 7,750,315 | 8,504,857 | |
| Less: Income tax expenses | 4(56) | (2,329,061) | (2,829,592) | (115,433) | (170,074) |
| Net profit | 14,067,010 | 16,059,923 | 7,634,882 | 8,334,783 | |
| (1) Classified by continuity of operations | |||||
| Net profit from continuing operations | 14,067,010 | 16,059,923 | 7,634,882 | 8,334,783 | |
| Net profit from discontinued operations | - | - | - | - | |
| (2) Classified by ownership of the equity | |||||
| Attributable to shareholders of the Company | 13,928,295 | 15,187,069 | 7,634,882 | 8,334,783 | |
| Minority interests | 138,715 | 872,854 | - | - | |
| Other comprehensive income, net of tax | (510,722) | 172,153 | (7,410) | 6,755 | |
| Other comprehensive income attributable to shareholders of the Company, net of tax | (295,974) | 134,968 | (7,410) | 6,755 | |
| (1) Other comprehensive income items which will not be reclassified subsequently to profit or loss | (55,359) | (78,752) | - | - | |
| 1) Changes arising from remeasurement of defined benefit plan | (55,359) | (78,752) | - | - | |
| (2) Other comprehensive income items which will be reclassified subsequently to profit or loss | (240,615) | 213,720 | (7,410) | 6,755 | |
| 1) Other comprehensive income that will be transferred subsequently to profit or loss under the equity method | (8,721) | (251) | (7,410) | 6,755 | |
| 2) Cash flow hedging reserve | 79,279 | 34,124 | - | - | |
| 3) Exchange differences on translation of foreign currency financial statements | (311,173) | 179,847 | - | - | |
| Other comprehensive income attributable to minority shareholders, net of tax | (214,748) | 37,185 | - | - | |
| Total comprehensive income | 13,556,288 | 16,232,076 | 7,627,472 | 8,341,538 | |
| Attributable to shareholders of the Company | 13,632,321 | 15,322,037 | 7,627,472 | 8,341,538 | |
| Minority interests | (76,033) | 910,039 | - | - | |
| Earnings per share | |||||
| (1) Basic earnings per share | 4(57) | 2.01 | 2.32 | Not applicable | Not applicable |
| (2) Diluted earnings per share | 4(57) | 2.01 | 2.30 | Not applicable | Not applicable |
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.CONSOLIDATED AND COMPANY CASH FLOW STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
Item
| Item | Note | For the six months ended 30 June 2020 | For the six months ended 30 June 2019 | For the six months ended 30 June 2020 | For the six months ended 30 June 2019 |
| Consolidated | Consolidated | Company | Company | ||
| 1.Cash flows from operating activities | |||||
| Cash received from sales of goods or rendering of services | 117,528,304 | 126,154,956 | - | - | |
| Net increase in customer deposits and deposits from banks and other financial institutions | 458 | 20,415 | - | - | |
| Net decrease in deposits with the Central Bank, banks and other financial institutions | 57,283 | 398,114 | - | - | |
| Cash received from interest, fee and commission | 675,825 | 582,748 | - | - | |
| Refund of taxes and surcharges | 3,212,805 | 4,048,551 | - | - | |
| Cash received relating to other operating activities | 4(58)(a) | 2,306,941 | 2,381,473 | 22,962,990 | 20,283,213 |
| Sub-total of cash inflows | 123,781,616 | 133,586,257 | 22,962,990 | 20,283,213 | |
| Cash paid for goods and services | (67,151,645) | (68,459,015) | - | - | |
| Net increase in loans and advances | (1,827,796) | (3,399,771) | - | - | |
| Net decrease in borrowings from the Central Bank | - | (80,199) | - | - | |
| Cash paid for interest, fee and commission | (84,445) | (114,519) | - | - | |
| Cash paid to and on behalf of employees | (14,977,605) | (13,696,292) | (14,713) | (22,076) | |
| Payments of taxes and surcharges | (6,423,500) | (8,210,106) | (286,463) | (75,289) | |
| Cash paid relating to other operating activities | 4(58)(b) | (14,911,134) | (17,838,465) | (1,259,268) | (549,409) |
| Sub-total of cash outflows | (105,376,125) | (111,798,367) | (1,560,444) | (646,774) | |
| Net cash flows from operating activities | 4(58)(c) | 18,405,491 | 21,787,890 | 21,402,546 | 19,636,439 |
| 2.Cash flows from investing activities | |||||
| Cash received from disposal of investments | 57,675,750 | 26,879,915 | 42,310,300 | 15,451,529 | |
| Cash received from returns on investments | 2,872,302 | 695,269 | 7,820,383 | 5,866,529 | |
| Net cash received from disposal of fixed assets, intangible assets and other long-term assets | 12,502 | 102,266 | 255 | - | |
| Net cash received from disposal of subsidiaries and other business units | 7,679 | - | - | - | |
| Sub-total of cash inflows | 60,568,233 | 27,677,450 | 50,130,938 | 21,318,058 | |
| Cash paid to acquire fixed assets, intangible assets and other long-term assets | (2,060,864) | (1,931,628) | (96,957) | (74,831) | |
| Cash paid to acquire investments | (82,911,329) | (43,598,143) | (65,660,000) | (39,801,205) | |
| Net cash paid to acquire subsidiaries and other business units | (540,395) | (178,427) | - | - | |
| Sub-total of cash outflows | (85,512,588) | (45,708,198) | (65,756,957) | (39,876,036) | |
| Net cash flows from investing activities | (24,944,355) | (18,030,748) | (15,626,019) | (18,557,978) | |
| 3.Cash flows from financing activities | |||||
| Cash received from capital contributions | 1,509,026 | 1,798,533 | 1,509,026 | 1,682,906 | |
| Including: Cash received from capital contributions by minority shareholders of subsidiaries | - | 115,627 | - | - | |
| Cash received from borrowings | 9,934,879 | 11,562,940 | 799,314 | 6,127,000 | |
| Cash received from issuance of short-term financing bonds | 9,998,771 | - | 9,998,771 | - | |
| Cash received relating to other financing activities | 5,500 | - | - | - | |
| Sub-total of cash inflows | 21,448,176 | 13,361,473 | 12,307,111 | 7,809,906 | |
| Cash repayments of borrowings | (1,539,392) | (7,720,691) | (350,064) | (2,173,000) | |
| Cash payments for interest expenses and distribution of dividends or profits | (11,853,774) | (10,274,437) | (11,932,163) | (9,135,083) | |
| Including: Cash payments for dividends or profit to minority shareholders of subsidiaries | (162,955) | (1,314,282) | - | - | |
| Cash payments relating to other financing activities | (1,021,859) | (2,195,034) | (936,777) | (1,992,751) | |
| Sub-total of cash outflows | (14,415,025) | (20,190,162) | (13,219,004) | (13,300,834) | |
| Net cash flows from financing activities | 7,033,151 | (6,828,689) | (911,893) | (5,490,928) | |
| 4.Effect of foreign exchange rate changes on cash and cash equivalents | 76,254 | 16,445 | - | - | |
| 5.Net increase in cash and cash equivalents | 570,541 | (3,055,102) | 4,864,634 | (4,412,467) | |
| Add: Cash and cash equivalents at beginning of period | 30,441,760 | 17,952,282 | 12,408,650 | 10,181,934 | |
| 6.Cash and cash equivalents at end of period | 31,012,301 | 14,897,180 | 17,273,284 | 5,769,467 |
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
Item
| Item | Amount in current period | ||||||||
| Equity attributable to shareholders of the Company | Minority interests | Total shareholders' equity | |||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Surplus reserve | General risk reserve | Undistributed profits | |||
| Balance at end of prior year | 6,971,900 | 19,640,313 | (3,759,732) | (711,554) | 6,447,658 | 366,947 | 72,713,631 | 5,826,934 | 107,496,097 |
| Add: Changes in accounting policies | - | - | - | - | - | - | - | - | - |
| Balance at beginning of current year | 6,971,900 | 19,640,313 | (3,759,732) | (711,554) | 6,447,658 | 366,947 | 72,713,631 | 5,826,934 | 107,496,097 |
| Movements for current year | 37,846 | 1,210,614 | (448,428) | (295,974) | - | - | 2,805,889 | 1,556,057 | 4,866,004 |
| (1) Total comprehensive income | - | - | - | (295,974) | - | - | 13,928,295 | (76,033) | 13,556,288 |
| (2) Capital contribution and withdrawal by shareholders | 37,846 | 1,178,116 | (448,428) | - | - | - | - | 1,627,383 | 2,394,917 |
| 1). Capital contribution by shareholders | 41,353 | 1,155,872 | - | - | - | - | - | - | 1,197,225 |
| 2). Business combinations | - | - | - | - | - | - | - | 1,604,162 | 1,604,162 |
| 3). Share-based payment included in shareholders' equity | - | 107,597 | - | - | - | - | - | 40,640 | 148,237 |
| 4). Others | (3,507) | (85,353) | (448,428) | - | - | - | - | (17,419) | (554,707) |
| (3) Profit distribution | - | - | - | - | - | - | (11,122,406) | (23,828) | (11,146,234) |
| 1). Appropriation to surplus reserve | - | - | - | - | - | - | - | - | - |
| 2). Appropriations to general risk reserve | - | - | - | - | - | - | - | - | - |
| 3). Profit distribution to shareholders | - | - | - | - | - | - | (11,122,406) | (23,828) | (11,146,234) |
| 4). Others | - | - | - | - | - | - | - | - | - |
| (4) Transfer within shareholders' equity | - | - | - | - | - | - | - | - | - |
| 1). Transfer from capital surplus to share capital | - | - | - | - | - | - | - | - | - |
| 2). Transfer from surplus reserve to share capital | - | - | - | - | - | - | - | - | - |
| 3). Surplus reserve used to offset accumulated losses | - | - | - | - | - | - | - | - | - |
| 4). Others | - | - | - | - | - | - | - | - | - |
| (5) Specific reserve | - | - | - | - | - | - | - | - | - |
| 1). Appropriation in current period | - | - | - | - | - | - | - | - | - |
| 2). Utilisation in current period | - | - | - | - | - | - | - | - | - |
| (6) Others | - | 32,498 | - | - | - | - | - | 28,535 | 61,033 |
| Balance at end of current period | 7,009,746 | 20,850,927 | (4,208,160) | (1,007,528) | 6,447,658 | 366,947 | 75,519,520 | 7,382,991 | 112,362,101 |
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT’D)FOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
Item
| Item | Amount in prior year | ||||||||
| Equity attributable to shareholders of the Company | Minority interests | Total shareholders' equity | |||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Surplus reserve | General risk reserve | Undistributed profits | |||
| Balance at end of prior year | 6,663,031 | 18,451,307 | (4,918,427) | (1,332,153) | 5,079,096 | 366,947 | 58,762,315 | 9,382,401 | 92,454,517 |
| Add: Changes in accounting policies | - | - | - | 337,447 | - | - | (337,447) | - | - |
| Balance at beginning of current year | 6,663,031 | 18,451,307 | (4,918,427) | (994,706) | 5,079,096 | 366,947 | 58,424,868 | 9,382,401 | 92,454,517 |
| Movements for current year | 308,869 | 1,189,006 | 1,158,695 | 283,152 | 1,368,562 | - | 14,288,763 | (3,555,467) | 15,041,580 |
| (1) Total comprehensive income | - | - | - | 283,152 | - | - | 24,211,222 | 1,130,810 | 25,625,184 |
| (2) Capital contribution and withdrawal by shareholders | 308,869 | 1,349,542 | 1,158,695 | - | - | - | - | (3,028,377) | (211,271) |
| 1). Capital contribution by shareholders | 87,150 | 2,426,916 | (57,088) | - | - | - | - | 120,427 | 2,577,405 |
| 2). Business combinations | - | - | - | - | - | - | - | - | - |
| 3). Share-based payment included in shareholders' equity | - | 144,287 | - | - | - | - | - | 82,268 | 226,555 |
| 4). Others | 221,719 | (1,221,661) | 1,215,783 | - | - | - | - | (3,231,072) | (3,015,231) |
| (3) Profit distribution | - | - | - | - | 1,368,562 | - | (9,922,459) | (1,670,654) | (10,224,551) |
| 1). Appropriation to surplus reserve | - | - | - | - | 1,368,562 | - | (1,368,562) | - | - |
| 2). Appropriations to general risk reserve | - | - | - | - | - | - | - | - | - |
| 3). Profit distribution to shareholders | - | - | - | - | - | - | (8,553,897) | (1,670,654) | (10,224,551) |
| 4). Others | - | - | - | - | - | - | - | - | - |
| (4) Transfer within shareholders' equity | - | - | - | - | - | - | - | - | - |
| 1). Transfer from capital surplus to share capital | - | - | - | - | - | - | - | - | - |
| 2). Transfer from surplus reserve to share capital | - | - | - | - | - | - | - | - | - |
| 3). Surplus reserve used to offset accumulated losses | - | - | - | - | - | - | - | - | - |
| 4). Others | - | - | - | - | - | - | - | - | - |
| (5) Specific reserve | - | - | - | - | - | - | - | - | - |
| 1). Appropriation in current period | - | - | - | - | - | - | - | - | - |
| 2). Utilisation in current period | - | - | - | - | - | - | - | - | - |
| (6) Others | - | (160,536) | - | - | - | - | - | 12,754 | (147,782) |
| Balance at end of current period | 6,971,900 | 19,640,313 | (3,759,732) | (711,554) | 6,447,658 | 366,947 | 72,713,631 | 5,826,934 | 107,496,097 |
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
Item
| Item | Amount in current period | |||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Specific reserve | Surplus reserve | Undistributed profits | Total shareholders' equity | |
| Balance at end of prior year | 6,971,900 | 26,592,959 | (3,759,732) | 1,735 | - | 6,447,658 | 23,249,372 | 59,503,892 |
| Add: Changes in accounting policies | - | - | - | - | - | - | - | - |
| Balance at beginning of current year | 6,971,900 | 26,592,959 | (3,759,732) | 1,735 | - | 6,447,658 | 23,249,372 | 59,503,892 |
| Movements for current year | 37,846 | 1,213,305 | (448,428) | (7,410) | - | - | (3,487,524) | (2,692,211) |
| (1) Total comprehensive income | - | - | - | (7,410) | - | - | 7,634,882 | 7,627,472 |
| (2) Capital contribution and withdrawal by shareholders | 37,846 | 1,213,305 | (448,428) | - | - | - | - | 802,723 |
| 1). Capital contribution by shareholders | 41,353 | 1,155,872 | - | - | - | - | - | 1,197,225 |
| 2). Capital contribution by holders of other equity instruments | - | - | - | - | - | - | - | - |
| 3). Share-based payment included in shareholders' equity | - | 142,786 | - | - | - | - | - | 142,786 |
| 4). Others | (3,507) | (85,353) | (448,428) | - | - | - | - | (537,288) |
| (3) Profit distribution | - | - | - | - | - | - | (11,122,406) | (11,122,406) |
| 1). Appropriation to surplus reserve | - | - | - | - | - | - | - | - |
| 2). Profit distribution to shareholders | - | - | - | - | - | - | (11,122,406) | (11,122,406) |
| 3). Others | - | - | - | - | - | - | - | - |
| (4) Transfer within shareholders' equity | - | - | - | - | - | - | - | - |
| 1). Transfer from capital surplus to share capital | - | - | - | - | - | - | - | - |
| 2). Transfer from surplus reserve to share capital | - | - | - | - | - | - | - | - |
| 3). Surplus reserve used to offset accumulated losses | - | - | - | - | - | - | - | - |
| 4). Others | - | - | - | - | - | - | - | - |
| (5) Specific reserve | - | - | - | - | - | - | - | - |
| 1). Appropriation in current year | - | - | - | - | - | - | - | - |
| 2). Utilisation in current year | - | - | - | - | - | - | - | - |
| (6) Others | - | - | - | - | - | - | - | - |
| Balance at end of current year | 7,009,746 | 27,806,264 | (4,208,160) | (5,675) | - | 6,447,658 | 19,761,848 | 56,811,681 |
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (CONT’D)FOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
Item
| Item | Amount in prior year | |||||||
| Share capital | Capital surplus | Less: Treasury stock | Other comprehensive income | Specific reserve | Surplus reserve | Undistributed profits | Total shareholders' equity | |
| Balance at end of prior year | 6,663,031 | 10,615,389 | (4,918,427) | 6,020 | - | 5,079,096 | 19,486,212 | 36,931,321 |
| Add: Changes in accounting policies | - | - | - | - | - | - | - | - |
| Balance at beginning of current year | 6,663,031 | 10,615,389 | (4,918,427) | 6,020 | - | 5,079,096 | 19,486,212 | 36,931,321 |
| Movements for current year | 308,869 | 15,977,570 | 1,158,695 | (4,285) | - | 1,368,562 | 3,763,160 | 22,572,571 |
| (1) Total comprehensive income | - | - | - | (4,285) | - | - | 13,685,619 | 13,681,334 |
| (2) Capital contribution and withdrawal by shareholders | 308,869 | 16,026,222 | 1,158,695 | - | - | - | - | 17,493,786 |
| 1). Capital contribution by shareholders | 87,150 | 2,426,916 | (57,088) | - | - | - | - | 2,456,978 |
| 2). Capital contribution by holders of other equity instruments | - | - | - | - | - | - | - | - |
| 3). Share-based payment included in shareholders' equity | - | 226,556 | - | - | - | - | - | 226,556 |
| 4). Others | 221,719 | 13,372,750 | 1,215,783 | - | - | - | - | 14,810,252 |
| (3) Profit distribution | - | - | - | - | - | 1,368,562 | (9,922,459) | (8,553,897) |
| 1). Appropriation to surplus reserve | - | - | - | - | - | 1,368,562 | (1,368,562) | - |
| 2). Profit distribution to shareholders | - | - | - | - | - | - | (8,553,897) | (8,553,897) |
| 3). Others | - | - | - | - | - | - | - | - |
| (4) Transfer within shareholders' equity | - | - | - | - | - | - | - | - |
| 1). Transfer from capital surplus to share capital | - | - | - | - | - | - | - | - |
| 2). Transfer from surplus reserve to share capital | - | - | - | - | - | - | - | - |
| 3). Surplus reserve used to offset accumulated losses | - | - | - | - | - | - | - | - |
| 4). Others | - | - | - | - | - | - | - | - |
| (5) Specific reserve | - | - | - | - | - | - | - | - |
| 1). Appropriation in current year | - | - | - | - | - | - | - | - |
| 2). Utilisation in current year | - | - | - | - | - | - | - | - |
| (6) Others | - | (48,652) | - | - | - | - | - | (48,652) |
| Balance at end of current year | 6,971,900 | 26,592,959 | (3,759,732) | 1,735 | - | 6,447,658 | 23,249,372 | 59,503,892 |
| Legal representative: Fang Hongbo | Principal in charge of accounting: Zhong Zheng | Head of accounting department: Chen Lihong |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
1.General information
The principal business activities of MIDEA GROUP CO., LTD. (hereinafter referred to as “theCompany”) and its subsidiaries (hereinafter collectively referred to as “the Group”) include heating &ventilation, as well as air-conditioner (hereinafter referred to as “HVAC”) centred on residential air-conditioner, central air-conditioner, heating and ventilation systems; consumer appliances centred onkitchen appliances, refrigerators, washing machines and various small appliances; robotics andautomation system centred on KUKA Aktiengesellschaft (hereinafter referred to as “KUKA”) and itssubsidiaries (hereinafter referred to as “KUKA Group”), and other robots business of Midea Group.Other services include service platform with Annto Logistics Technology Co., Ltd. providing the smartsupply chain integrated solutions, sale, wholesale and processing of raw materials of householdelectrical appliances; and financial business involved in customer deposits, interbank lending andborrowings, consumption credits, buyer’s credits and finance leases.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, with itsheadquarters located in Foshan, Guangdong. On 30 August 2012, the Company was transformed intoa limited liability company. On 29 July 2013, the Company was approved to merge and acquireGuangdong Midea Electric Co., Ltd., which was listed on Shenzhen Stock Exchange. On 18September 2013, the Company’s shares listed on Shenzhen Stock Exchange.As at 30 June 2020, the Company's share capital is RMB 7,009,745,930, and the total number ofshares in issue is 7,009,745,930, of which 151,821,131 are restricted tradable A shares and6,857,924,799 are unrestricted tradable A shares.The detailed information of major subsidiaries included in the consolidation scope in current year is setout in Notes 5 and 6. Entities newly included in the consolidation scope in current year include MediaGroup (Shanghai) Co., Ltd., Chongqing Midea Commercial Factoring Co., Ltd., Tianjin Annto NetworkTechnology Co., Ltd., Western-style Electric Products Company, Hiconics Eco-Energy TechnologyCo., Ltd. and its subsidiaries (hereinafter “Hiconics”). Please refer to Note 5(1) and Note 5(2)(a) fordetails. The detailed information of subsidiaries no longer included in the consolidation scope incurrent year is set out in Note 5(2)(b).These financial statements were authorised for issue by the Company’s Board of Directors on 28August 2020.2 Summary of significant accounting policies and accounting estimates
The Group determines specific accounting policies and accounting estimates based on the features ofproduction and operation, mainly including the measurement of expected credit loss (ECL) onaccounts receivable (Note 2(9(a))), valuation method of inventory (Note 2(11)), depreciation of fixedassets and amortisation of intangible assets (Note 2(14), (17)), impairment of long-term assets (Note2(19)) and recognition of revenue (Note 2(26)).Critical judgements applied by the Group in determining significant accounting policies are set out inNote 2(31).
(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 relevant regulationsissued by the Ministry of Finance on 15 February 2006 and in subsequent periods (hereinaftercollectively referred to as the “Accounting Standards for Business Enterprises” or “CAS”) and thedisclosure requirements in the Preparation Convention of Information Disclosure by CompaniesOffering Securities to the Public No. 15 – General Rules on Financial Reporting issued by the ChinaSecurities Regulatory Commission (“CSRC”).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(1)Basis of preparation (Cont’d)The financial statements are prepared on a going concern basis.(2)Statement of compliance with the Accounting Standards for Business EnterprisesThe financial statements of the Company for the six months ended 30 June 2020 are in compliancewith the Accounting Standards for Business Enterprises, and truly and completely present theconsolidated and company’s financial position as at 30 June 2020 and their financial performance,cash flows and other information for the six months then ended.(3)Accounting periodThe Company’s accounting year starts on 1 January and ends on 31 December.(4)Functional currencyThe functional currency of the Company is Renminbi (“RMB”). The subsidiaries determine theirfunctional currency based on the primary economic environment in which the business is operated,mainly including EUR, JPY, USD and HKD. The financial statements are presented in RMB.(5)Business combinations(a)Business combinations involving enterprises under common controlThe consideration paid and net assets obtained by the absorbing party in a business combination aremeasured at the carrying amount. If the absorbing party was bought by the ultimate controller from athird party in prior years, the value of its assets and liabilities (including goodwill generated due to thecombination) are based on the carrying amount in the ultimate controller’s consolidated financialstatements. The difference between the carrying amount of the net assets obtained from thecombination and the carrying amount of the consideration paid for the combination is treated as anadjustment to capital surplus (share premium). If the capital surplus (share premium) is not sufficientto absorb the difference, the remaining balance is adjusted against retained earnings. Costs directlyattributable to the combination are included in profit or loss in the period in which they are incurred.Transaction costs associated with the issue of equity or debt securities for the business combinationare included in the initially recognised amounts of the equity or debt securities.(b)Business combinations involving enterprises not under common controlThe cost of combination and identifiable net assets obtained by the acquirer in a businesscombination are measured at fair value at the acquisition date. Where the cost of the combinationexceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the differenceis recognised as goodwill; where the cost of combination is lower than the acquirer’s interest in the fairvalue of the acquiree’s identifiable net assets, the difference is recognised in profit or loss for thecurrent period. Costs directly attributable to the combination are included in profit or loss in the periodin which they are incurred. Transaction costs associated with the issue of equity or debt securities forthe business combination are included in the initially recognised amounts of the equity or debtsecurities.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(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 thedifference between its fair value and carrying amount is included in investment income for the currentperiod in consolidated financial statements. Where the previously-held equity in the acquiree involvesother comprehensive income under equity method and shareholders’ equity changes other than thosearising from the net profit or loss, other comprehensive income and profit distribution, the related othercomprehensive income and other shareholders' equity changes are transferred into income for thecurrent period to which the acquisition dates belong, excluding those arising from changes in theinvestee's remeasurements of net liability or net asset related to the defined benefit plan. The excessof the sum of fair value of the previously-held equity and fair value of the consideration paid at theacquisition dates over share of fair value of identifiable net assets acquired from the subsidiary isrecognised as goodwill.(6)Preparation of consolidated financial statementsThe consolidated financial statements comprise the financial statements of the Company and all of itssubsidiaries.Subsidiaries are consolidated from the date on which the Group obtains control and are de-consolidated from the date that such control ceases. For a subsidiary that is acquired in a businesscombination involving enterprises under common control, it is included in the consolidated financialstatements from the date when it, together with the Company, comes under common control of theultimate controlling party. The portion of the net profits realised before the combination date ispresented separately in the consolidated income statement.In preparing the consolidated financial statements, where the accounting policies and the accountingperiods of the Company and subsidiaries are inconsistent, the financial statements of the subsidiariesare adjusted in accordance with the accounting policies and the accounting period of the Company. orsubsidiaries acquired from business combinations involving enterprises not under common control,the individual financial statements of the subsidiaries are adjusted based on the fair value of theidentifiable 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 a subsidiaries’net profits and losses and comprehensive income for the period not attributable to Company arerecognised as minority interests and presented separately in the consolidated financial statementsunder equity, net profits and total comprehensive income respectively. Unrealised profits and lossesresulting from the sale of assets by the Company to its subsidiaries are fully eliminated against netprofit attributable to owners of the parent. Unrealised profits and losses resulting from the sale ofassets by a subsidiary to the Company are eliminated and allocated between net profit attributable toowners of the parent and minority interests in accordance with the allocation proportion of the parentin the subsidiary. Unrealised profits and losses resulting from the sale of assets by one subsidiary toanother are eliminated and allocated between net profit attributable to owners of the parent andminority interests in accordance with the allocation proportion of the parent in the subsidiary. If theaccounting treatment of a transaction which considers the Group as an accounting entity is differentfrom that considers the Company or its subsidiaries as an accounting entity, it is adjusted from theperspective of the Group.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(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 equivalentsCash and cash equivalents comprise cash on hand, deposits that can be readily drawn on demand,and short-term and highly liquid investments that are readily convertible to known amounts of cashand which are subject to an insignificant risk of changes in value.(8)Foreign currency translation(a)Foreign currency transactionForeign currency transactions are translated into RMB using the exchange rates prevailing at thedates of the transactions.At the balance sheet date, monetary items denominated in foreign currencies are translated into thefunctional currency using the spot exchange rates on the balance sheet date. Exchange differencesarising from these translations are recognised in profit or loss for the current period, except for thoseattributable to foreign currency borrowings that have been taken out specifically for the acquisition orconstruction of qualifying assets, which are capitalised as part of the cost of those assets. Non-monetary items denominated in foreign currencies that are measured at historical costs are translatedat the balance sheet date using the spot exchange rates at the date of the transactions. The effect ofexchange rate changes on cash is presented separately in the cash flow statement.(b)Translation of foreign currency financial statementsThe asset and liability items in the balance sheets for overseas operations are translated at the spotexchange rates on the balance sheet date. Among the shareholders’ equity items, the items otherthan “undistributed profits” are translated at the spot exchange rates of the transaction dates. Theincome and expense items in the income statements of overseas operations are translated at the spotexchange rates of the transaction dates. The differences arising from the above translation arepresented in other comprehensive income. The cash flows of overseas operations are translated atthe spot exchange rates on the dates of the cash flows. The effect of exchange rate changes on cashis presented separately in the cash flow statement.(9)Financial instrumentsA financial instrument is any contract that gives rise to a financial asset of one entity and a financialliability or equity instrument of another entity. A financial asset or a financial liability is recognisedwhen the Group becomes a party to the contractual provisions of the instrument.(a)Financial assets(i) Classification and measurement
Based on the business model for managing the financial assets and the contractual cash flowcharacteristics of the financial assets, financial assets are classified as: (1) financial assets atamortised cost; (2) financial assets at fair value through other comprehensive income; (3) financialassets at fair value through profit or loss.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(9) Financial instruments (Cont’d)
(a) Financial assets (Cont’d)(i) Classification and measurement (Cont’d)
The financial assets are measured at fair value at initial recognition. Related transaction costs that areattributable to the acquisition of the financial assets are included in the initially recognised amounts,except for the financial assets at fair value through profit or loss, the related transaction costs of whichare recognised directly in profit or loss for the current period. Accounts receivable or notes receivablearising from sales of products or rendering of services (excluding or without regard to significantfinancing components) are initially recognised at the consideration that is entitled to be charged by theGroup as expected.(i-1) Debt investments
The debt instruments held by the Group refer to the instruments that meet the definition of financialliabilities from the perspective of the issuer, and are measured in the following three ways:
Measured at amortised cost:
The objective of the Group’s business model is to hold the financial assets to collect the contractualcash flows, and the contractual cash flow characteristics are consistent with a basic lendingarrangement, which gives rise on specified dates to the contractual cash flows that are solelypayments of principal and interest on the principal amount outstanding. The interest income of suchfinancial assets is recognised using the effective interest method. Such financial assets mainlycomprise cash at bank and on hand, loans and advances, notes receivable, accounts receivable,other receivables, structural deposits, debt investments and long-term receivables, etc. Debtinvestments and long-term receivables that are due within one year (inclusive) as from the balancesheet date are included in the current portion of non-current assets; debt investments with maturitiesof no more than one year (inclusive) at the time of acquisition are included in other current assets.Measured at fair value through other comprehensive income:
The objective of the Group’s business model is to hold the financial assets to both collect thecontractual cash flows and sell such financial assets, and the contractual cash flow characteristics areconsistent with a basic lending arrangement. Such financial assets are measured at fair value throughother comprehensive income, except for the impairment gains or losses, foreign exchange gains andlosses, and interest income calculated using the effective interest method which are recognised inprofit or loss for the current period. Such financial assets are mainly included in receivables financing,other debt investments; other debt investments that are due within one year (inclusive) as from thebalance sheet date are included in the current portion of non-current assets; other debt investmentswith maturities no more than one year (inclusive) at the time of acquisition are included in othercurrent assets.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(9) Financial instruments (Cont’d)
(a) Financial assets (Cont’d)(i) Classification and measurement (Cont’d)(i-1) Debt investments (Cont’d)
Measured at fair value through profit or loss:
Debt instruments held by the Group that are not divided into those at amortised cost, or thosemeasured at fair value through other comprehensive income, are measured at fair value through profitor loss and included in financial assets held for trading. At initial recognition, Group designates aportion of financial assets as at fair value through profit or loss to eliminate or significantly reduce anaccounting mismatch. Financial assets that are due over one year as from the balance sheet date andare expected to be held over one year are included in other non-current financial assets.(i-2) Equity investments
Investments in equity instruments, over which the Group has no control, joint control or significantinfluence, are measured at fair value through profit or loss under financial assets held for trading;investments in equity instruments expected to be held over one year as from the balance sheet dateare included in other non-current financial assets.In addition, a portion of investments in equity instruments not held for trading are designated asfinancial assets at fair value through other comprehensive income under other investments in equityinstruments. The relevant dividend income of such financial assets is recognised in profit or loss forthe current period.(i -3) Derivative financial instruments
The derivative financial instruments held or issued by the Group are mainly used in controlling riskexposures. Derivative financial instruments are initially recognised at fair value on the day whenderivatives transaction contract was signed, and subsequently measured at fair value. The derivativefinancial instruments are recorded as assets when they have a positive fair value and as liabilitieswhen they have a negative fair value.The recognition of changes in fair value of derivative financial instruments depends on whether suchderivative financial instruments are designated as hedging instruments and meet requirements forhedging instruments, and depends on the nature of hedged items in this case. For derivative financialinstruments that are not designated as hedging instruments and fail to meet requirements on hedginginstruments, including those held for the purpose of providing hedging against specific risks in interestrate and foreign exchange but not conforming with requirements of hedge accounting, the changes infair value are recorded in gains or losses arising from changes in fair value in the consolidated incomestatement.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(9) Financial instruments (Cont’d)
(a) Financial assets (Cont’d)(i)Classification and measurement (Cont’d)(i -3) Derivative financial instruments (Cont’d)
Cash flow hedgeThe effective portion of gains or losses on hedging instruments is recognised in other comprehensiveincome as cash flow hedging reserve, while the ineffective portion is recognised in profit or loss for thecurrent period. Where the hedge is a forecast transaction which subsequently results in therecognition of a non-financial asset or liability, the amount originally recognised in othercomprehensive income is transferred and included in the initially recognised amount of the asset orliability. For cash flow hedge beyond the foregoing scope, the amount originally recognised in othercomprehensive income is transferred and included in profit or loss for the current period during thesame time in which the profit or loss is influenced by the hedged expected cash flow. However, if all orpart of net loss recognised directly in other comprehensive income will not be recovered in futureaccounting periods, the amount not expected to be recovered should be transferred to profit or loss forthe current period. When the Group revokes the designation of a hedge, a hedging instrument expiresor is sold, terminated or exercised, or the hedge no longer meets the criteria for hedge accounting, theGroup will discontinue the hedge accounting treatments prospectively. Where the Group discontinuesthe hedge accounting treatment for cash flow hedging, for hedged future cash flows that will stillhappen, the accumulated gains or losses that have been recognised in other comprehensive incomeare retained and subject to accounting treatment under the subsequent treatment method of aforesaidcash flow hedging reserve; for hedged future cash flows that the forecast transaction will neverhappen, the accumulated gains or losses that have been recognised in other comprehensive incomeare transferred immediately and included in profit or loss for the current period.(ii)ImpairmentLoss provision for financial assets at amortised cost, investments in debt instruments at fair valuethrough other comprehensive income, contract assets, as well as financial guarantee contracts isrecognised on the basis of ECL.Giving consideration to reasonable and supportable information on past events, current conditions andforecasts of future economic conditions, and weighted by the risk of default, the Group recognises theECL as the probability-weighted amount of the present value of the difference between the cash flowsreceivable from the contract and the cash flows expected to collect.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(9) Financial instruments (Cont’d)
(a) Financial assets (Cont’d)(ii)Impairment (Cont’d)For the financial instruments with lower credit risk on the balance sheet date, the Group assumesthere is no significant increase in credit risk since initial recognition and recognises the 12-month ECLprovision.For the financial instruments in Stage 1, Stage 2 and with lower credit risk, the Group calculates theinterest income by applying the effective interest rate to the gross carrying amount (before deductionof the impairment provision). For the financial instrument in Stage 3, the interest income is calculatedby applying the effective interest rate to the amortised cost (after deduction of the impairmentprovision from the gross carrying amount).For notes receivable, accounts receivable, receivables financing and contract assets arising fromsales of goods or rendering of services in the ordinary course of business, the Group recognises thelifetime ECL provision regardless of whether there exists a significant financing component. As thecontract assets are related to work in progress not invoiced, their risk characteristics are essentiallythe same as those of the accounts receivable of similar contracts. Therefore, the Group considers thatthe ECL rate of accounts receivable approximates that of the contract assets.In case the ECL of an individually assessed financial asset cannot be evaluated with reasonable cost,the Group divides the receivables and contract assets into certain groupings based on credit riskcharacteristics, then pursuant to which, calculates the ECL. Basis and provision method fordetermining groupings are as follows:
| Notes receivable - bank acceptance notes | Bank credit risk grouping |
| Notes receivable - trade acceptance notes | Domestic/overseas business grouping |
| Accounts receivable | Domestic/overseas business grouping |
| Other receivables | Security deposit/guarantee payables grouping |
| Long-term receivables | Finance lease payable grouping |
| Loans and advances | Loans business grouping |
The Group, on the basis of the exposure at default and the lifetime ECL rate, calculates the ECL ofnotes receivable and receivables financing that are classified into groupings with consideration tohistorical credit losses experience, current conditions and forecasts of future economic conditions.With consideration to historical credit loss experience, current conditions and forecasts of futureeconomic conditions, the Group prepares the cross-reference between the number of overdue days ofaccounts receivable and the lifetime ECL rate, and calculates the ECL of accounts receivable that areclassified into groupings.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(9) Financial instruments (Cont’d)
(a)Financial assets (Cont’d)(ii)Impairment (Cont’d)The Group, on the basis of the exposure at default and the 12-month or lifetime ECL rate, calculatesthe ECL of other receivables, loans and advances, and long-term receivables that are classified intogroupings with consideration to historical credit losses experience, the current conditions andforecasts of future economic conditions.The Group recognises the loss provision made or reversed into profit or loss for the current period. Fordebt instruments held at fair value through other comprehensive income, the Group adjusts othercomprehensive income while the impairment loss or gain is recognised in profit or loss for the currentperiod.(iii)Derecognition of financial assetsA financial asset is derecognised when: (i) the contractual rights to the cash flows from the financialasset expire, (ii) the financial asset has been transferred and the Group transfers substantially all therisks and rewards of ownership of the financial asset to the transferee, or (iii) the financial asset hasbeen transferred and the Group has not retained control of the financial asset, although the Groupneither transfers nor retains substantially all the risks and rewards of ownership of the financial asset.When a financial asset is derecognised, the difference between the carrying amount and the sum ofthe consideration received and the cumulative changes in fair value that are previously recogniseddirectly in other comprehensive income is recognised in profit or loss for the current period, except forthose as investments in other equity instruments, the difference aforementioned is recognised inretained earnings instead.(b)Financial liabilitiesFinancial liabilities are classified as financial liabilities at amortised cost and financial liabilities at fairvalue through profit or loss at initial recognition.Financial liabilities of the Group mainly comprise financial liabilities at amortised cost, including notespayable, accounts payable, other payables, borrowings, short-term financing bonds payable underother current liabilities, customer deposits and deposits from banks and other financial institutions,borrowings from the Central Bank, long-term payables, etc. Such financial liabilities are initiallyrecognised at fair value, net of transaction costs incurred, and subsequently measured using theeffective interest method. Financial liabilities that are due within one year (inclusive) are classified ascurrent liabilities; those with maturities over one year but are due within one year (inclusive) as fromthe balance sheet date are classified as current portion of non-current liabilities. Others are classifiedas non-current liabilities.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(9)Financial instruments (Cont’d)(b)Financial liabilities (Cont’d)A financial liability is derecognised or partly derecognised when the underlying present obligation isdischarged or partly discharged. The difference between the carrying amount of the derecognised partof the financial liability and the consideration paid is recognised in profit or loss for the current period.(c)Determination of fair value of financial instrumentsThe fair value of a financial instrument that is traded in an active market is determined at the quotedprice in the active market. The fair value of a financial instrument that is not traded in an active marketis determined by using a valuation technique. In valuation, the Group adopts valuation techniquesapplicable in the current situation and supported by adequate available data and other information,selects inputs with the same characteristics as those of assets or liabilities considered in relevanttransactions of assets or liabilities by market participants, and gives priority to the use of relevantobservable inputs. When relevant observable inputs are not available or feasible, unobservable inputsare adopted.(10)Accounts receivableReceivables comprise accounts receivable, other receivables, notes receivable, long-term receivables,loans and advances, etc. Accounts receivable arising from sale of goods or rendering of services areinitially recognised at fair value of the contractual payments from the buyers or service recipients, andsubsequently measured at amortised cost less provision for impairment using the effective interestmethod. Provision for impairment of receivables is set out in Note 2(9)(a).(11)Inventories(a)Classification of inventoriesInventories, including raw materials, consigned processing materials, low value consumables, work inprogress, contract performance costs and finished goods, etc., are measured at the lower of cost andnet realisable value.(b)Costing of inventoriesOther than completed but unsettled products, cost is determined using the first-in, first-out methodwhen issued. The cost of finished goods and work in progress comprises raw materials, direct labourand systematically allocated production overhead based on the normal production capacity.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(11) Inventories (Cont’d)
(c)Basis for determining net realisable values of inventories and method for making provision fordecline in the value of inventoriesInventories are initially measured at cost. The cost of inventories comprises purchase cost, processingcost and other expenditures to bring the inventories to current site and condition.On the balance sheet date, inventories are measured at the lower of cost and net realisable value.Net realisable value is determined based on the estimated selling price in the ordinary course ofbusiness, less the estimated costs to completion and estimated costs necessary to make the sale andrelated taxes.Provision for decline in the value of inventories is determined at the excess amount of the cost ascalculated based on the classification of inventories over their net realisable value, and are recognisedin profit or loss for the current period.(d)Inventory systemThe Group adopts the perpetual inventory system.(e)Amortisation methods of low value consumables and packaging materialsLow value consumables are expensed in full when issued and recognised in cost of related assets orin profit or loss for the current period.
(12) Long-term equity investments
Long-term equity investments comprise the Company’s long-term equity investments in itssubsidiaries, and the Group’s long-term equity investments in its associates and joint venture.Subsidiaries are the investees over which the Company is able to exercise control. A joint venture is ajoint arrangement which is structured through a separate vehicle over which the Group has jointcontrol together with other parties and only has rights to the net assets of the arrangement based onlegal forms, contractual terms and other facts and circumstances. Associates are the investees thatthe Group has significant influence on their financial and operating policies.Investments in subsidiaries are presented in the Company’s financial statements using the costmethod, and are adjusted to the equity method when preparing the consolidated financial statements.Investments in a joint venture and associates are accounted for using the equity method.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(12)Long-term equity investments (Cont’d)(a)Determination of investment costFor long-term equity investments acquired through a business combination: for long-term equityinvestments acquired through a business combination involving enterprises under common control,the investment cost shall be the absorbing party’s share of the carrying amount of equity of the partybeing absorbed in the consolidated financial statements of the ultimate controller at the combinationdate; for long-term equity investment acquired through a business combination involving enterprisesnot under common control, the investment cost shall be the combination cost.For business combinations achieved by stages involving enterprises not under common control, theinitial investment cost accounted for using the cost method is the sum of carrying amount ofpreviously-held equity investment and additional investment cost. For previously-held equityaccounted for using the equity method, the accounting treatment of related other comprehensiveincome from disposal of the equity is carried out on a same basis with the investee's direct disposal ofrelated assets or liabilities. Shareholders' equity, which is recognised due to changes in investee’sshareholders’ equity other than those arising from the net profit or loss, other comprehensive incomeand profit distribution, is accordingly transferred into profit or loss in the period in which the investmentis disposed.For investment in previously-held equity accounted for using the recognition and measurementstandards of financial instruments, the initial investment cost accounted for using the cost method isthe sum of carrying amount of previously-held equity investment and additional investment cost. Thedifference between the fair value and carrying amount for investment in previously-held equity and theaccumulated changes in fair value previously included in other comprehensive income are transferredto profit or loss for the current period accounted for using the cost method.For long-term equity investments acquired not through a business combination: for long-term equityinvestment acquired by payment in cash, the initial investment cost shall be the purchase priceactually paid; for long-term equity investments acquired by issuing equity securities, the initialinvestment cost shall be the fair value of the equity securities issued.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(12) Long-term equity investments (Cont’d)
(b)Subsequent measurement and recognition of related profit and lossFor long-term equity investments accounted for using the cost method, they are measured at the initialinvestment costs, and cash dividends or profit distribution declared by the investees are recognised asinvestment income in profit or loss.For long-term equity investments accounted for using the equity method, where the initial investmentcost of a long-term equity investment exceeds the Group’s share of the fair value of the investee’sidentifiable net assets at the acquisition date, the long-term equity investment is measured at the initialinvestment cost; where the initial investment cost is less than the Group’s share of the fair value of theinvestee’s identifiable net assets at the acquisition date, the difference is included in profit or loss andthe cost of the long-term equity investment is adjusted upwards accordingly.For long-term equity investments accounted for using the equity method, the Group recognises theinvestment gains or losses for current period according to its share of net profit or loss of the investee.The Group discontinues recognising its share of the net losses of an investee after the carryingamounts of the long-term equity investment together with any long-term interests that in substanceform part 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 provisions under theaccounting standards on contingencies are satisfied, the Group continues recognising the investmentlosses and the provisions. The changes of the Group’s share of the investee’s owner's equity otherthan those arising from the net profit or loss, other comprehensive income and profit distribution, arerecognised in the Group’s capital surplus and the carrying amounts of the long-term equity investmentare adjusted accordingly. The carrying amount of the investment is reduced by the Group’s share ofthe profit distribution or cash dividends declared by an investee. The unrealised profits or lossesarising from the transactions between the Group and its investees are eliminated in proportion to theGroup’s equity interest in the investees, based on which the investment gains or losses arerecognised. Any losses resulting from transactions between the Group and its investees attributable toasset impairment losses are not eliminated.(c)Basis for determining existence of control, joint control, significant influence over investeesControl is the power to govern an investee and obtain variable returns from participating the investee'sactivities, 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 other participantssharing of control rights.Significant influence is the power to participate in the financial and operating policy decisions of theinvestee, but is not control or joint control over those policies.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(12)Long-term equity investments (Cont’d)(d)Impairment of long-term equity investmentsThe carrying amounts of long-term equity investments in subsidiaries, joint venture and associates arereduced to the recoverable amounts when the recoverable amounts are below their carrying amounts(Note 2(19)).(13)Investment propertiesInvestment properties, including land use rights that have already been leased out, buildings that areheld for the purpose of leasing and buildings that are being constructed or developed for future use forleasing, are measured initially at cost. Subsequent expenditures incurred in relation to an investmentproperty are included in the cost of the investment property when it is probable that the associatedeconomic benefits will flow to the Group and their costs can be reliably measured; otherwise, theexpenditures are recognised in profit or loss in the period in which they are incurred.The Group adopts the cost model for subsequent measurement of investment properties. Buildingsand land use rights are depreciated or amortised to their estimated net residual values over theirestimated useful lives. The estimated useful lives, the estimated net residual values that areexpressed as a percentage of cost and the annual depreciation (amortisation) rates of investmentproperties are as follows:
| Estimated useful lives | Estimated net residual values | Annual depreciation (amortisation) rates | |
| Buildings | 20 to 40 years | 5% | 2.38% to 4.75% |
| Land use rights | 40 to 50 years | - | 2% to 2.5% |
When an investment property is transferred to owner-occupied properties, it is reclassified as fixedasset or intangible asset at the date of the transfer. When an owner-occupied property is transferredout for earning rentals or for capital appreciation, the fixed asset or intangible asset is reclassified asinvestment properties at its carrying amount at the date of the transfer. At the time of transfer, theproperty is recognised based on the carrying amount before transfer.The investment properties' estimated useful lives, the estimated net residual values and thedepreciation (amortisation) methods applied are reviewed and adjusted as appropriate at each year-end.An investment property is derecognised on disposal or when the investment property is permanentlywithdrawn from use and no future economic benefits are expected from its disposal. The net amountof proceeds from sale, transfer, retirement or damage of an investment property after its carryingamount and related taxes and expenses is recognised in profit or loss for the current period.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(14)Fixed assets(a)Recognition and initial measurement of fixed assetsFixed assets comprise buildings, overseas land, machinery and equipment, motor vehicles, electronicequipment and others.Fixed assets are recognised when it is probable that the related economic benefits will flow to theGroup and the costs can be reliably measured. The initial cost of purchased fixed assets includepurchase price, related taxes and expenditures that are attributable to the assets incurred before theassets are ready for their intended use. The initial cost of self-constructed fixed assets is determinedbased on Note 2(15).Subsequent expenditures incurred for a fixed asset are included in the cost of the fixed asset when itis probable that the associated economic benefits will flow to the Group and the related cost can bereliably measured. The carrying amount of the replaced part is derecognised. All the other subsequentexpenditures are recognised in profit or loss in the period in which they are incurred.(b)Depreciation methods for fixed assetsFixed assets are depreciated using the straight-line method to allocate the cost of the assets to theirestimated net residual values over their estimated useful lives. For the fixed assets that have beenprovided for impairment loss, the related depreciation charge is prospectively determined based uponthe adjusted carrying amounts over their remaining useful lives.The estimated useful lives, the estimated net residual values expressed as a percentage of cost andthe annual depreciation rates of the Group's fixed assets are as follows:
| Categories | Estimated useful lives | Estimated net residual values | Annual depreciation rates |
| Buildings | 15 to 50 years | 0% - 10% | 6.7% - 1.8% |
| Machinery and equipment | 2 to 25 years | 0% - 10% | 50% - 3.8% |
| Motor vehicles | 2 to 20 years | 0% - 10% | 50% - 4.5% |
| Electronic equipment and others | 2 to 20 years | 0% - 10% | 50% - 4.5% |
| Overseas land | Permanent | Not applicable | Not applicable |
The estimated useful lives and the estimated net residual values of the Group's fixed assets and thedepreciation methods applied to the assets are reviewed, and adjusted as appropriate at each year-end.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(14)Fixed assets (Cont’d)(c)Basis for identification of fixed assets held under finance leases and related measurementA lease that transfers substantially all the risks and rewards incidental to ownership of an asset is afinance lease. The leased asset is recognised at the lower of the fair value of the leased asset and thepresent value of the minimum lease payments. The difference between the recorded amount of theleased asset and the minimum lease payments is accounted for as unrecognised finance charge.Fixed assets held under a finance lease is depreciated on a basis consistent with the depreciationpolicy adopted for fixed assets that are self-owned. When a leased asset can be reasonablydetermined that its ownership will be transferred at the end of the lease term, it is depreciated over theperiod of expected use; otherwise, the leased asset is depreciated over the shorter period of the leaseterm and the period of expected use.(d)The carrying amount of a fixed asset is reduced to the recoverable amount when the recoverableamount is below the carrying amount (Note 2(19)).(e)Disposal of fixed assetsA fixed asset is derecognised on disposal or when no future economic benefits are expected from itsuse or disposal. The amount of proceeds from disposal on sales, transfer, retirement or damage of afixed asset net of its carrying amount and related taxes and expenses is recognised in profit or loss forthe current period.(15)Construction in progressConstruction in progress is measured at actual cost. Actual cost comprises construction costs,installation costs, borrowing costs that are eligible for capitalisation and other costs necessary to bringthe fixed assets ready for their intended use. Construction in progress is transferred to fixed assetswhen the assets are ready for their intended use, and depreciation begins from the following month.The carrying amount of construction in progress is reduced to the recoverable amount when therecoverable amount is below the carrying amount (Note 2(19)).(16)Borrowing costsThe borrowing costs that are directly attributable to the acquisition and construction of a fixed assetthat needs a substantially long period of time for its intended use commence to be capitalised andrecorded as part of the cost of the asset when expenditures for the asset and borrowing costs havebeen incurred, and the activities relating to the acquisition and construction that are necessary toprepare the asset for its intended use have commenced. The capitalisation of borrowing costs ceaseswhen the asset under acquisition or construction becomes ready for its intended use and theborrowing costs incurred thereafter are recognised in profit or loss for the current period. Capitalisationof borrowing costs is suspended during periods in which the acquisition or construction of an asset isinterrupted abnormally and the interruption lasts for more than 3 months, until the acquisition orconstruction is resumed.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(16)Borrowing costs (Cont’d)For the specific borrowings obtained for the acquisition or construction of a fixed asset qualifying forcapitalisation, the amount of borrowing costs eligible for capitalisation is determined by deducting anyinterest income earned from depositing the unused specific borrowings in the banks or any investmentincome arising on the temporary investment of those borrowings during the capitalisation period.For the general borrowings obtained for the acquisition or construction of a fixed asset qualifying forcapitalisation, the amount of borrowing costs eligible for capitalisation is determined by applying theweighted average effective interest rate of general borrowings, to the weighted average of the excessamount of cumulative expenditures on the asset over the amount of specific borrowings. The effectiveinterest rate is the rate at which the estimated future cash flows during the period of expected durationof the borrowings or applicable shorter period are discounted to the initial amount of the borrowings.(17)Intangible assetsIntangible 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 rightsLand use rights are amortised on the straight-line basis over their approved use period of 40 to 50years. If the acquisition costs of the land use rights and the buildings located thereon cannot bereasonably allocated between the land use rights and the buildings, all of the acquisition costs arerecognised as fixed assets.(b)Patents and non-patent technologiesPatents are amortised on a straight-line basis over the statutory period of validity, the period asstipulated by contracts or the beneficial period.(c)Trademark rightsThe trademark rights is measured at cost when acquired and is amortised over the estimated usefullife of 30 years. The cost of trademark rights obtained in the business combinations involvingenterprises not under common control is measured at fair value. As some of the trademarks areexpected to attract net cash inflows injected into the Group, the management considers that thesetrademarks have indefinite useful lives and are presented based upon the carrying amounts afterdeducting the provision for impairment (Note 4(18)).(d)Trademark use rightsThe trademark use rights is measured at cost when acquired. The cost of trademark use rightsobtained in the business combinations involving enterprises not under common control is measured atfair value, and is amortised over the estimated useful life of 40 years.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(17)Intangible assets (Cont’d)(e)Periodical review of useful life and amortisation methodFor an intangible asset with a finite useful life, review of its useful life and amortisation method isperformed at each year-end, with adjustment made as appropriate.(f)Research and development (“R&D”)The expenditure on an internal research and development project is classified into expenditure on theresearch phase and expenditure on the development phase based on its nature and whether there ismaterial uncertainty that the research and development activities can form an intangible asset at theend of the project.Expenditure on the planned investigation, evaluation and selection for the research of productionprocesses or products is categorised as expenditure on the research phase, and it is recognised inprofit or loss when it is incurred. Expenditure on design and test for the final application of thedevelopment of production processes or products before mass production is categorised asexpenditure on the development phase, which is capitalised only if all of the following conditions aresatisfied:
?The development of production processes or products has been fully justified bytechnical team;?The budget on the development of production processes or products has beenapproved by the management;?There is market research analysis that demonstrates the product produced by theproduction process or product has the ability of marketing;?There are sufficient technical and financial resources to support the development ofproduction processes or products and subsequent mass production; and?Expenditure attributable to the development of production processes or products canbe reliably measured.Other development expenditures that do not meet the conditions above are recognised in profit or lossin the period in which they are incurred. Development costs previously recognised as expenses arenot recognised as an asset in a subsequent period. Capitalised expenditure on the developmentphase is presented as development costs in the balance sheet and transferred to intangible assets atthe date that the asset is ready for its intended use.(g)Impairment of intangible assetsThe carrying amounts of intangible assets are reduced to the recoverable amounts when therecoverable amounts are below their carrying amounts (Note 2(19)).(18)Long-term prepaid expensesLong-term prepaid expenses include the expenditure for improvements to fixed assets held underoperating leases, and other expenditures that have been incurred but should be recognised asexpenses over more than one year in the current and subsequent periods. Long-term prepaidexpenses are amortised on the straight-line basis over the expected beneficial period and arepresented at actual expenditure net of accumulated amortisation.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(19)Impairment of long-term assetsFixed assets, construction in progress, intangible assets with finite useful lives, investment propertiesmeasured using the cost model and long-term equity investments in subsidiaries, a joint venture andassociates are tested for impairment if there is any indication that the assets may be impaired at thebalance sheet date. Intangible assets not ready for their intended use, intangible assets with infiniteuseful lives and land with permanent ownership are tested at least annually for impairment,irrespective of whether there is any indication that it may be impaired. If the result of the impairmenttest indicates that the recoverable amount of an asset is less than its carrying amount, a provision forimpairment and an impairment loss are recognised for the amount by which the asset’s carryingamount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair valueless costs to sell and the present value of the future cash flows expected to be derived from the asset.Provision for asset impairment is determined and recognised on the individual asset basis. If it is notpossible to estimate the recoverable amount of an individual asset, the recoverable amount of a groupof assets to which the asset belongs is determined. A group of assets is the smallest group of assetsthat 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 conducting thetest, the carrying value of goodwill is allocated to the related asset groups or groups of asset groupswhich are expected to benefit from the synergies of the business combination. If the result of the testindicates that the recoverable amount of an asset groups or a group of asset groups, including theallocated goodwill, is lower than its carrying amount, the corresponding impairment loss is recognised.The impairment loss is first deducted from the carrying amount of goodwill that is allocated to theasset groups or group of asset groups, and then deducted from the carrying amounts of other assetswithin the asset groups or group of asset groups in proportion to the carrying amounts of assets otherthan goodwill.Once the above asset impairment loss is recognised, it will not be reversed for the value recovered inthe subsequent periods.(20)Employee benefitsEmployee benefits include short-term employee benefits, post-employment benefits, terminationbenefits and other long-term employee benefits provided in various forms of consideration inexchange for service rendered by employees or compensations for the termination of employmentrelationship.(a)Short-term employee benefitsShort-term employee benefits include employee wages or salaries, bonus, allowances and subsidies,staff welfare, premiums or contributions on medical insurance, work injury insurance and maternityinsurance, housing funds, union running costs and employee education costs, short-term paidabsences. The employee benefit liabilities are recognised in the accounting period in which theservice is rendered by the employees, with a corresponding charge to the profit or loss for the currentperiod or the cost of relevant assets. Employee benefits which are non-monetary benefits aremeasured at fair value.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(20) Employee benefits (Cont’d)
(b)Post-employment benefitsThe Group classifies post-employment benefit plans as either defined contribution plans or definedbenefit plans. Defined contribution plans are post-employment benefit plans under which the Grouppays fixed contributions into a separate fund and will have no obligation to pay further contributions;and defined benefit plans are post-employment benefit plans other than defined contribution plans.During the reporting period, the Group's defined contribution plans mainly include basic pensions andunemployment insurance, while the defined benefit plans are supplementary retirement benefits inaddition to the mandatory social insurances provided by TLSC and KUKA (the Group’s subsidiaries).Basic pensionsThe 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 premiums on thebasic pensions are calculated according to prescribed bases and percentage by the relevant localauthorities. When employees retire, the relevant local authorities are obliged to pay the basic pensionsto them. The amounts based on the above calculations are recognised as liabilities in the accountingperiod in which the service has been rendered by the employees, with a corresponding charge to theprofit or loss for the current period or the cost of relevant assets.Supplementary retirement benefitsThe liability recognised in the balance sheet in respect of defined benefit pension plans is the presentvalue of the defined benefit obligation at the end of the reporting period less the fair value of planassets. The defined benefit obligation is calculated annually by independent actuaries using theprojected unit credit method at the interest rate of treasury bonds with similar obligation term andcurrency. The charges related to the supplemental retirement benefits (including current service costs,past-service costs and gains or losses on settlement) and net interest costs are recognised in thestatement of profit or loss or included in the cost of an asset, and the changes of remeasurement innet liabilities or net assets arising from the benefit plan are charged or credited to equity in othercomprehensive income.(c)Termination benefitsThe Group provides compensation for terminating the employment relationship with employees beforethe end of the employment contracts or as an offer to encourage employees to accept voluntaryredundancy before the end of the employment contracts. The Group recognises a liability arising fromcompensation for termination of the employment relationship with employees, with a correspondingcharge to profit or loss at the earlier of the following dates: 1) when the Group cannot unilaterallywithdraw the offer of termination benefits because of an employment termination plan or a curtailmentproposal; 2) when the Group recognises costs or expenses related to the restructuring that involvesthe payment of termination benefits.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(20)Employee benefits (Cont’d)(c) Termination benefits (Cont’d)
Early retirement benefitsThe Group offers early retirement benefits to those employees who accept early retirementarrangements. The early retirement benefits refer to the salaries and social security contributions to bepaid to and for the employees who accept voluntary retirement before the normal retirement dateprescribed by the State, as approved by the management. The Group pays early retirement benefitsto those early retired employees from the early retirement date until the normal retirement date. TheGroup accounts for the early retirement benefits in accordance with the treatment for terminationbenefits, in which the salaries and social security contributions to be paid to and for the early retiredemployees from the off-duty date to the normal retirement date are recognised as liabilities with acorresponding charge to the profit or loss for the current period. The differences arising from thechanges in the respective actuarial assumptions of the early retirement benefits and the adjustmentsof benefit standards are recognised in profit or loss in the period in which they occur.The termination benefits expected to be settled within one year since the balance sheet date areclassified as current liabilities.(21)General risk reserveGeneral risk reserve is the reserve appropriated from undistributed profits to cover part of unidentifiedpotential losses, on the basis of the estimated potential risk value of risk assets assessed by thestandardised approach, which is deducted from recognised provision for impairment losses on loans.Risk assets include loans and advances, available-for-sale financial assets, long-term equityinvestments, deposits with banks and other financial institutions and other receivables of subsidiaryengaged in financial business.(22)Dividend distributionCash dividend is recognised as a liability for the period in which the dividend is approved by theshareholders’ meeting.(23)ProvisionsProvisions for product warranties, onerous contracts, etc. are recognised when the Group has apresent obligation, it is probable that an outflow of economic benefits will be required to settle theobligation, and the amount of the obligation can be measured reliably.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(23)Provisions (Cont’d)A provision is initially measured at the best estimate of the expenditure required to settle the relatedpresent obligation. Factors surrounding a contingency, such as the risks, uncertainties and the timevalue of money, are taken into account as a whole in reaching the best estimate of a provision. Wherethe effect of the time value of money is material, the best estimate is determined by discounting therelated future cash outflows. The increase in the discounted amount of the provision arising frompassage of time is recognised as interest expense.The carrying amount of provisions is reviewed at each balance sheet date and adjusted to reflect thecurrent best estimate.The provisions expected to be settled within one year since the balance sheet date are classified ascurrent liabilities.(24)Share-based payments(a)Type of share-based paymentShare-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 on theequity instruments. Equity instruments include equity instruments of the Company, its parent companyor other accounting entities of the Group. Share-based payments are divided into equity-settled andcash-settled payments. The Group’s share-based payments are equity-settled payments.Equity-settled share-based paymentThe Group’s equity-settled share-based payment contains share option incentive plan, restrictedshare plan and employee stock ownership plan. These plans are measured at the fair value of theequity instruments at grant date and the equity instruments are tradable or exercisable when servicesin vesting period are completed or specified performance conditions are met. In the vesting period, theservices obtained in current period are included in relevant cost and expenses at the fair value of theequity instruments at grant date based on the best estimate of the number of tradable or exercisableequity instruments, and capital surplus is increased accordingly. If the subsequent informationindicates the number of tradable or exercisable 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 ofactual vested equity instruments.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(24)Share-based payments (Cont’d)(b)Determination of the fair value of equity instrumentsThe 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 of clauseof the Group’s relevant plans.(c)Basis for determining best estimate of tradable or exercisable equity instrumentsAt the end of each reporting period, the group revises its estimates of the number of options that areexpected to vest based on the non-marketing performance and service conditions. On the exercise ordesterilisation date, the final number of estimated exercisable or tradable equity instruments isconsistent with the number of exercised or tradable equity instruments.(25)Treasury stockThe Group’s treasury stock mainly comes from the repurchase of equity instruments and the issuanceof 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 the Group forrepurchasing equity instruments are presented as treasury stock; the related transaction costs areincluded in shareholders’ equity.On the deregistration day of shares, relevant share capital and treasury stock are reversed with thedifference included in capital surplus (share premium) based on actual deregistration results.On the grant day of restricted shares, the Group recognise bank deposits when receiving subscriptionfrom the employees and measures the repurchase obligation as liability. On the day of release ofrestricted shares, relevant treasury stocks, liabilities and capital surplus recognised in the vestingperiod are reversed based on the actual vesting results.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(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)RevenueRevenue is the gross inflow of economic benefit arising in the course of the Group’s ordinary activitieswhen those inflows result in increases in equity, other than increases relating to contributions fromshareholders.Revenue for the Group’s performance of contract obligations in a contract is recognised when acustomer is in control of the underlying goods. Obtaining the control of the underlying goods meansbeing able to direct the use of the goods and obtain almost all economic benefits from them.When any of the following conditions is satisfied, the obligations are performed within a certain periodof time; otherwise, at a certain point of time.(1)Customers obtain and consume economic benefits coming from the Group’s performance ofcontract while the Group performs the contract;(2)Customers can control goods under construction during the Group’s performance of contract;(3)Goods produced during the Group’s performance of contract are irreplaceable. During the wholecontract period, the Group is entitled to collect payments for those which have been accumulatedup to now.For a contract obligation performed within a certain period of time, the Group should recognise therevenue based on the progress of the performance within that period of time.Where the progress of the performance fails to be reasonably determined, revenue should berecognised at the amount of cost incurred if it is predicted that the cost can be compensated till theprogress of the obligation fulfilment can be reasonably determined.For a contract obligation performed at a point of time, the Group should recognise the revenue when acustomer is in control of the underlying goods.(a) Sales of goods
Revenue is recognised when customer obtains the legal ownership of the goods or substantiallypossesses the goods, and the Group has the current right to collect the payment for the goods.The Group are principally engaged in the manufacturing and sales of home appliances (mainlycomprises HVAC and consumer appliances) and robotics and automation system (mainly comprisesrobotics and automation system).Revenue from domestic sales of home appliances is recognised when 1) the goods are delivered tobuyers by the Group pursuant to contracts; 2) the amount of revenue is confirmed; 3) payments forgoods are collected or receipts are acquired; and 4) the related economic benefits will flow to theGroup.Revenue from overseas sales of home appliances is recognised when 1) the goods have beendeclared to the customs and shipped out of the port; 2) the amount of revenue is confirmed; 3)payments for goods are collected or obtain related receipts; and 4) the related economic benefits willflow to the Group.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(26)Revenue (Cont’d)(a)Sales of goods (Cont’d)Revenue from sales of robotics and automation system is recognised when 1) the goods are deliveredto buyers by the Group pursuant to contracts; 2) the amount of revenue is confirmed; 3) payments forgoods are collected or receipts are acquired; and 4) the related economic benefits will flow to theGroup.Warranties are provided in accordance with applicable laws and regulations. The Group does notprovide any additional services or product quality commitments, so warranties do not incur a separateperformance obligation.(b)Rendering of services and constructionThe Group provides transportation service, storage service, distribution service, installation serviceand automation system business and intelligent logistics integration solution. Revenue from providingthe above services is recognised within a certain period of time based on the stage of completion.Among them, the stage of completion of service is determined by the costs already incurred as apercentage of the total cost estimated. On the balance sheet date, the Group re-estimates the stage ofcompletion to reflect the actual status of contract performance.When the Group recognises revenue based on the stage of completion, the amount with unconditionalcollection right obtained by the Group is recognised as accounts receivable, and the rest is recognisedas contract assets. Meanwhile, loss provision for accounts receivable and contract assets arerecognised on the basis of ECLs (Note 2(9)). If the contract price received or receivable exceeds theamount for the completed service, the excess portion will be recognised as contract liabilities. Contractassets and contract liabilities under the same contract are presented on a net basis.Contract costs include contract performance costs and contract acquisition costs. Costs incurred forrendering of services and construction are recognised as contract performance costs, which is carriedforward to the cost of sales of main operations based on the stage of completion when recognisingrevenue. Incremental costs incurred by the Group for the acquisition of contract are recognised as thecontract acquisition costs. For contract acquisition costs with the amortisation period within one year,the costs are included in the current profit or loss when incurred. For contract acquisition costs withthe amortisation period beyond one year, the costs are included in the current profit or loss on thesame basis as recognition of revenue from rendering of services and construction under relevantcontract. If the carrying amount of the contract costs is higher than the remaining considerationexpected to be obtained by rendering of the service net of the estimated cost to be incurred, theGroup makes provision for impairment on the excess portion and recognises it as asset impairmentlosses. As at the balance sheet date, based on whether the amortisation period of the contractperformance costs is more than one year when initially recognised, the amount of the Group's contractperformance costs net of related provision for asset impairment is presented as inventories or othernon-current assets. For contract acquisition costs with amortisation period beyond one year at theinitial recognition, the amount net of related provision for asset impairment is presented as other non-current assets.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(26)Revenue (Cont’d)(c)Interest incomeInterest income from financial instruments is calculated by effective interest method and recognised inprofit or loss for the current period. Interest income comprises premiums or discounts, or theamortisation based on effective rates of other difference between the initial carrying amount and thedue amount of interest-earning assets.The effective interest method is a method of calculating the amortised cost of a financial asset orliability and the interest income or expense based on effective rates. Actual interest rate is the rate atwhich the estimated future cash flows during the period of expected duration of the financialinstruments or applicable shorter period are discounted to the current carrying amount of the financialinstruments. When calculating the effective interest rate, the Group estimates cash flows byconsidering all contractual terms of the financial instrument (e.g. early repayment options, similaroptions, etc.), but without considering future credit losses. The calculation includes all fees andinterest paid or received that are an integral part of the effective interest rate, transaction costs, and allother 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.(d)Dividend incomeDividend income is recognised when the right to receive dividend payment is established.(e)Rental incomeRental income from investment prosperities is recognised in the income statement on a straight-linebasis over the lease period.(f)Fee and commission incomeFee and commission income is recognised in profit or loss for the current period when the service isprovided. The Group defers the initial charge income or commitment fee income arising from theforming or acquisition of financial assets as the adjustment to effective interest rate. If the loans arenot lent when the loan commitment period is expired, related charges are recognised as fee andcommission income.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(27)Government grantsGovernment grants are transfers of monetary or non-monetary assets from the government to theGroup at nil consideration, including refund of taxes and financial subsidies, etc.A government grant is recognised when the conditions attached to it can be complied with and thegovernment grant can be received. For a government grant in the form of transfer of monetary assets,the grant is measured at the amount received or receivable. For a government grant in the form oftransfer of non-monetary assets, it is measured at fair value; if the fair value is not reliablydeterminable, the grant is measured at nominal amount.Government grants related to assets are grants that are acquired by an enterprise and used foracquisition, construction or forming long-term assets in other ways. Government grants related toincome are government grants other than government grants related to assets.Government grants related to assets are recorded as deferred income reasonably and systematicallyamortised to profit or loss over the useful life of the related asset.For government grants related to income, where the grant is a compensation for related expenses orlosses to be incurred by the Group in the subsequent periods, the grant is recognised as deferredincome, and included in profit or loss over the periods in which the related costs are recognised;where the grant is a compensation for related expenses or losses already incurred by the Group, thegrant is recognised immediately in profit or loss for the current period.The same kind of government grants are presented with the same method.Those related to ordinary activities are recorded into operating profit while other in non-operatingincome and expenses.Loans to the Group at political preferential rate are recorded at the actual amount received, and therelated loan expenses are calculated based on the principal and the political preferential rate. Financediscounts directly received offset related loans expenses.(28)Deferred tax assets and deferred tax liabilitiesDeferred tax assets and deferred tax liabilities are calculated and recognised based on the differencesarising between the tax bases of assets and liabilities and their carrying amounts (temporarydifferences). Deferred income tax asset is recognised for the tax losses that can be carried forward tosubsequent years for deduction of the taxable profit in accordance with the tax laws. No deferred taxliability is recognised for a temporary difference arising from the initial recognition of goodwill. Nodeferred tax asset or deferred tax liability is recognised for the temporary differences resulting from theinitial recognition of assets or liabilities due to a transaction other than a business combination, whichaffects neither accounting profit nor taxable profit (or deductible loss). At the balance sheet date,deferred tax assets and deferred tax liabilities are measured at the tax rates that are expected to applyto the period when the asset is realised or the liability is settled.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(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)Deferred tax assets and deferred tax liabilities (Cont’d)Deferred tax assets are only recognised for deductible temporary differences, deductible tax lossesand tax credits to the extent that it is probable that taxable profit will be available in the future againstwhich the deductible temporary differences, deductible tax losses and tax credits can be utilised.Deferred tax liabilities are recognised for temporary differences arising from investments insubsidiaries, associates and joint ventures, except where the Group is able to control the timing ofreversal of the temporary difference, and it is probable that the temporary difference will not reverse inthe foreseeable future. When it is probable that the temporary differences arising from investments insubsidiaries, associates and joint ventures will be reversed in the foreseeable future and that thetaxable profit will be available in the future against which the temporary differences can be utilised, thecorresponding deferred tax assets are recognised.Deferred tax assets and liabilities are offset when:
?the deferred tax assets and liabilities are related to the same tax payer within the Group and thesame taxation authority; and,?that tax payer within the Group has a legally enforceable right to offset current tax assets againstcurrent tax liabilities.(29)Leases(a)Operating leasesRental expenses for assets held under operating leases are recognised as the cost of relevant assetsor expenses on a straight-line basis over the lease period. Contingent rentals are recognised as profitand loss for the current period when incurred.Fixed assets leased out under operating leases, other than investment prosperities (Note 2(13), aredepreciated in accordance with the depreciation policy stated in Note 2(14)(b) and provided forimpairment loss in accordance with the policy stated in Note 2(19). Rental income from operatingleases is recognised as revenue on a straight-line basis over the lease period. Initial direct costs inlarge amount arising from assets leased out under operating leases are capitalised when incurred andrecognised as profit and loss for the current period over the lease period on a same basis withrevenue recognition; initial direct costs in small amount are directly recognised as profit and loss forthe current period. Contingent rentals are recognised as profit and loss for the current period whenincurred.(b)Finance leasesThe leased asset is recognised at the lower of the fair value of the leased asset and the present valueof the minimum lease payments. The difference between the recorded amount of the leased asset andthe minimum lease payments is accounted for as unrecognised finance charge and is amortised usingthe effective interest method over the period of the lease. A long-term payable is recorded at theamount equal to the minimum lease payments less the unrecognised finance charge.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(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)Segment informationThe Group identifies operating segments based on the internal organisation structure, managementrequirements and internal reporting system, and discloses segment information of reportablesegments which is determined on the basis of operating segments.An operating segment is a component of the Group that satisfies all of the following conditions: (1) thecomponent is able to earn revenue and incur expenses from its ordinary activities; (2) whoseoperating results are regularly reviewed by the Group’s management to make decisions aboutresources to be allocated to the segment and to assess its performance, and (3) for which theinformation on financial position, operating results and cash flows is available to the Group. Two ormore operating segments that have similar economic characteristics and satisfy certain conditions canbe aggregated into one single operating segment.(31)Critical accounting estimates and judgementsThe Group continually evaluates the critical accounting estimates and key judgements applied basedon historical experience and other factors, including expectations of future events that are believed tobe reasonable.Critical accounting estimates and key assumptionsThe critical accounting estimates and key assumptions that have a significant risk of causing amaterial adjustment to the carrying amounts of assets and liabilities within the next accounting yearare outlined below:
(i)Provision for impairment of goodwillThe Group tests annually whether goodwill has suffered any impairment. The recoverable amount ofthe asset groups and the combination of asset groups that contain the apportioned goodwill isdetermined by the higher value between the use value and the net value that is calculated by the fairvalue less the disposal costs. Accounting estimate is required for the calculation of the recoverableamount. The impairment testing is performed by assessing the recoverable amount of the groups ofassets containing the relevant goodwill, based on the present value of cash flows forecasts. Keyassumptions adopted in the impairment testing of goodwill included expected revenue growth rates,EBITDA margins, perpetual annual growth rates, discount rates, etc. which involved critical accountingestimates and judgement.(ii)Income taxThe Group is subject to income taxes in numerous jurisdictions. There are many transactions andevents for which the ultimate tax determination is uncertain during the ordinary course of business.Significant judgement is required from the Group in determining the provision for income taxes in eachof these jurisdictions. Where the final tax outcome of these matters is different from the amounts thatwere initially recorded, such differences will impact the income tax and deferred tax provisions in theperiod in which such determination is made.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)(32)Significant changes in accounting policiesThe Ministry of Finance issued the Circular on Revising and Issuing the “Accounting Standard forBusiness Enterprises No. 14 - Revenue” (Cai Kuai [2017] No. 22) (“the new revenue standard”) on 5July 2017, and required domestic listed enterprises to implement the new revenue standard from 1January 2020.According to the new revenue standard, the Group and the Company recognised the cumulative effectof initial adoption of the standard as adjustment to other related items in the financial statements of2020. The comparatives for 2019 are not restated.(i)Impacts of the initial implementation of the new revenue standard on 1 January 2020 are summarisedas below:
The Group
| Item | Carrying amount as at 31 December 2019 under the original revenue standard | Reclassification | Carrying amount as at 1 January 2020 under the new revenue standard |
| Contract assets | 4,009,176 | 4,009,176 | |
| Inventories | 32,443,399 | (4,009,176) | 28,434,223 |
| Advances from customers | 16,231,854 | (16,231,854) | - |
| Contract liabilities | 18,436,559 | 18,436,559 | |
| Other current liabilities | 39,074,777 | (2,204,705) | 36,870,072 |
Note: Due to the implementation of the new revenue standard, the Group reclassifies relevantcompleted but unsettled inventories arising from provision of construction projects but not satisfyingthe unconditional collection rights to contract assets, and reclassifies advances from customersrelated to the provision of construction projects to contract liabilities; reclassifies advances fromcustomers arising from sales of goods and provision of installation services to contract liabilities.The Company
| Item | Carrying amount as at 31 December 2019 under the original revenue standard | Reclassification | Carrying amount as at 1 January 2020 under the new revenue standard |
| Contract assets | - | - | |
| Inventories | - | - | - |
| Advances from customers | - | - | - |
| Contract liabilities | - | - | |
| Other current liabilities | 19,539 | - | 19,539 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
2 Summary of significant accounting policies and accounting estimates (Cont’d)
(32) Significant changes in accounting policies (Cont’d)
(ii)Adjustments to related items in the financial statements at the beginning of the year for the initialimplementation of the new revenue standard from 2020 are as follows:
The Group
| Line items | 31 December 2019 | 1 January 2020 | Adjustments |
| Assets: | |||
| Contract assets | 4,009,176 | 4,009,176 | |
| Inventories | 32,443,399 | 28,434,223 | (4,009,176) |
| Liabilities: | |||
| Advances from customers | 16,231,854 | - | (16,231,854) |
| Contract liabilities | 18,436,559 | 18,436,559 | |
| Other current liabilities | 39,074,777 | 36,870,072 | (2,204,705) |
No other related items in the financial statements of the Group were affected by the initial adoption ofthis standard.The Company
| Line items | 31 December 2019 | 1 January 2020 | Adjustments |
| Assets: | |||
| Contract assets | - | - | |
| Inventories | - | - | - |
| Liabilities: | |||
| Advances from customers | - | - | - |
| Contract liabilities | - | - | |
| Other current liabilities | 19,539 | 19,539 | - |
No other related items in the financial statements of the Company were affected by the initial adoptionof this standard.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
3 Taxation(1)Main tax category and rate
| Category | Tax base | Tax rate |
| Enterprise income tax | Levied based on taxable income | Note (a) |
| Value-added tax (“VAT”) | Taxable value-added amount (Tax payable is calculated using the taxable sales amount multiplied by the applicable tax rate less deductible VAT input of the current period) | Note (b) |
| City maintenance and construction tax | The amount of VAT paid | 5% or 7% |
| Educational surcharge | The amount of VAT paid | 3% or 5% |
| Local educational surcharge | The amount of VAT paid | 2% |
| Property tax | Price-based property is subject to a 1.2% tax rate after a 30% cut in the original price of property; rental-based property is subject to a 12% tax rate for the rental income. | 1.2% or 12% |
(a)Notes to the enterprise income tax rate of the principal tax payers with different tax rates(a-1) The following subsidiaries of the Company are subject to an enterprise income tax rate of 15% in 2020
as they qualified as high-tech enterprises and obtained the High-tech Enterprise Certificate:
| Name of taxpayer | No. of the High-tech Enterprise Certificate | Dates of issuance | Term of validity |
| Jiangsu Midea Cleaning Appliances Co., Ltd. | GR201732001675 | 17 November 2017 | 3 years |
| GD Midea Environment Appliances Mfg. Co., Ltd. | GR201944000430 | 2 December 2019 | 3 years |
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | GR201844000250 | 28 November 2018 | 3 years |
| Guangdong Witol Vacuum Electronic Manufacture Co., Ltd. | GR201744000489 | 9 November 2017 | 3 years |
| Foshan Shunde Midea Washing Appliances Manufacturing Co., Ltd. | GR201744002837 | 9 November 2017 | 3 years |
| Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd. | GR201844010373 | 28 November 2018 | 3 years |
| Guangdong Midea Precision Molding Technology Co., Ltd. | GR201944004780 | 2 December 2019 | 3 years |
| Foshan Shunde Midea Electric Science and Technology Co., Ltd. | GR201944000317 | 2 December 2019 | 3 years |
| GD Midea Heating & Ventilating Equipment Co., Ltd. | GR201844008219 | 28 November 2018 | 3 years |
| Hefei Midea Heating & Ventilating Equipment Co., Ltd. | GR201934001163 | 9 September 2019 | 3 years |
| Anhui Meizhi Precision Manufacturing Co., Ltd. | GR201834000890 | 24 July 2018 | 3 years |
| Guangzhou Midea Hualing Refrigerator Co., Ltd. | GR201944009238 | 2 December 2019 | 3 years |
| Guangdong Welling Motor Manufacturing Co., Ltd. | GR201744002062 | 9 November 2017 | 3 years |
| Foshan Welling Washer Motor Manufacturing Co., Ltd. | GR201744001025 | 9 November 2017 | 3 years |
| Huaian Welling Motor Manufacturing Co., Ltd. | GR201932010033 | 6 December 2019 | 3 years |
| Annto Logistics Technology Co., Ltd. | GR201834001306 | 24 July 2018 | 3 years |
| Wuxi Little Swan Company Limited | GR201832001394 | 24 October 2018 | 3 years |
| Wuxi Filin Electronics Co., Ltd. | GR201832001053 | 24 October 2018 | 3 years |
| Wuxi Little Swan General Appliance Co., Ltd. | GR201832001100 | 24 October 2018 | 3 years |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
3 Taxation (Cont’d)
(1)Main tax category and rate (Cont’d)(a)Notes to the enterprise income tax rate of the principal tax payers with different tax rates (Cont’d)(a-1) The following subsidiaries of the Company are subject to an enterprise income tax rate of 15% in 2020
as they qualified as high-tech enterprises and obtained the High-tech Enterprise Certificate (Cont’d):
| Name of taxpayer | No. of the High-tech Enterprise Certificate | Dates of issuance | Term of validity |
| GD Midea Air-Conditioning Equipment Co., Ltd. | GR201744000337 | 9 November 2017 | 3 years |
| Handan Midea Air-Conditioning Equipment Co., Ltd. | GR201713000957 | 27 October 2017 | 3 years |
| Midea Group Wuhan Refrigeration Equipment Co., Ltd. | GR201742002075 | 30 November 2017 | 3 years |
| Guangzhou Hualing Refrigerating Equipment Co., Ltd. | GR201744010610 | 11 December 2017 | 3 years |
| Wuhu Maty Air-Conditioning Equipment Co., Ltd. | GR201734001246 | 7 November 2017 | 3 years |
| Chongqing Midea General Refrigeration Equipment Co., Ltd. | GR201751100113 | 28 December 2017 | 3 years |
| Guangdong Meizhi Compressor Limited | GR201744000895 | 9 November 2017 | 3 years |
| Hubei Midea Refrigerator Co., Ltd. | GR201742001255 | 28 November 2017 | 3 years |
| Guangdong Midea Consumer Electric Manufacturing Co., Ltd. | GR201744006141 | 11 December 2017 | 3 years |
| Anhui Meizhi Compressor Co., Ltd. | GR201934000046 | 9 September 2019 | 3 years |
| Foshan Shunde Midea Water Dispenser Manufacturing Co., Ltd. | GR201744008471 | 11 December 2017 | 3 years |
| Midea Welling Motor Technology (Shanghai) Co., Ltd. | GR201731001731 | 23 November 2017 | 3 years |
| Welling (Wuhu) Motor Manufacturing Co., Ltd. | GR201834001144 | 24 July 2018 | 3 years |
| Hefei Midea Laundry Appliance Co., Ltd. | GR201834000882 | 24 July 2018 | 3 years |
| Hefei Hualing Co., Ltd. | GR201834000552 | 24 July 2018 | 3 years |
| Foshan Midea Chungho Water Purification Equipment. Co., Ltd. | GR201844007089 | 28 November 2018 | 3 years |
| Toshiba HA Manufacturing (Nanhai) Co., Ltd. | GR201844007107 | 28 November 2018 | 3 years |
| Guangdong Meizhi Precision-Manufacturing Co., Ltd. | GR201844006181 | 28 November 2018 | 3 years |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | GR201834000818 | 24 July 2018 | 3 years |
| Guangdong Midea Intelligent Technologies Co., Ltd. | GR201844003941 | 28 November 2018 | 3 years |
| Hiconics Eco-energy Technology Co., Ltd. | GR201811002361 | 10 September 2018 | 3 years |
| Beijing Hiconics Eco-energy Frequency Conversion Technology Co., Ltd. | GR201711003351 | 25 October 2017 | 3 years |
| Hiconics Drive Technology (Wuhan) Co., Ltd. | GR201842000036 | 15 November 2018 | 3 years |
| Wuhan Hiconics Electric Drive Technology Co., Ltd. | GR201742000247 | 28 November 2017 | 3 years |
| Wuhan Hiconics Power Technology Co., Ltd. | GR201942001459 | 15 November 2019 | 3 years |
| Changsha Sunye Electric Co., Ltd. | GR201843000432 | 17 October 2018 | 3 years |
| Beijing Huatairunda Energy Saving Co., Ltd. | GF201811003128 | 10 September 2018 | 3 years |
| Dorna Technology Co., Ltd. | GR201733002996 | 13 November 2017 | 3 years |
| Wuhan Happyev Technology Co., Ltd. | GR201742000995 | 28 November 2017 | 3 years |
(a-2) The application for enterprise income tax preferential treatment by Chongqing Midea Air-Conditioning
Equipment Co., Ltd., the Company’s subsidiary, was approved by the State Administration of Taxationof Chongqing Economical and Technological Development Zone. The subsidiary is subject to enterpriseincome tax at the rate of 15% in 2020.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
3 Taxation (Cont’d)(1)Main tax category and rate (Cont’d)(a)Notes to the enterprise income tax rate of the principal tax payers with different tax rates (Cont’d)(a-3) On 28 November 2017, Luanping Huitong Photovoltaic Power Co., Ltd., a subsidiary of the Company,
obtained the Record Form for Enterprise Income Tax Preference issued by the Luanping County Officeof the State Administration of Taxation. According to Item 2 of Article 27 in the Enterprise Income TaxLaw of the People’s Republic of China, Order of the President of the People’s Republic of China (No.
63), Phase II Project of the Company was subject to the preferential policy of enterprise income taxexemption from 2017 to 2019, and is subject to the preferential policy of enterprise income tax reductionof 50% from 2020 to 2022.(a-4) The Company’s subsidiaries in Mainland China other than those mentioned in (a-1) and (a-2) are
subject to enterprise income tax at the rate of 25%.(a-5) In August 2008, Midea Electric Trading (Singapore) Co., Pte. Ltd., the Company's subsidiary, was
awarded with the Certificate of Honour for Development and Expansion (No. 587) by the Singapore
Economic Development Board, which approves that qualified income exceeding a certain amount is
subject to enterprise income tax at the rate of 5% from 1 August 2008 to 31 July 2018, and subject to
enterprise income tax at the rate of 5.5% from 1 August 2018 to 31 July 2023. Midea Singapore Trading
Co Pte Limited. and Little Swan International (Singapore) Co., Pte. LTD., the Company’s subsidiaries,
are subject to enterprise income tax at the rate of 17%.(a-6) The Company's subsidiaries in Hong Kong are subject to Hong Kong profits tax at the rate of 16.5%.
Such subsidiaries include Midea International Trading Company Limited, Midea International
Corporation Company Limited, Midea Home Appliances Investments (Hong Kong) Co., Limited, Century
Carrier Residential Air-conditioning Equipment Co., Limited, Midea Refrigeration (Hong Kong) Limited,
Welling Holding Limited, Welling International Hong Kong Ltd, and Midea Investment (Asia) Company
Limited.(a-7) The Company's subsidiaries in BVI and Cayman Islands are exempted from enterprise income tax.
Such subsidiaries include Mecca International (BVI) Limited, Titoni Investments Development Ltd.,
Midea Investment Holding (BVI) Limited, Midea Electric Investment (BVI) Limited, Welling Holding (BVI)
Ltd, Midea Holding (Cayman Islands) Limited and Midea Investment Development Company Limited.(a-8) Springer Carrier Ltd., the Company's subsidiary in Brazil, is subject to Brazil enterprise income tax at the
rate of 34%.(a-9) TLSC, the Company's subsidiary in Japan, and its subsidiaries (“TLSC Group”), are subject to Japan
enterprise income tax at the rate of 33.80%.(a-10) Clivet S.P.A and Clivet Espa?a S.A.U. (“Clivet”), the Company's subsidiaries in Italy, are subject to Italy
enterprise income tax at the rate between 20% and 31.4%.(a-11) KUKA Group, the Company’s subsidiary in Germany, is subject to Germany enterprise income tax at the
rate of 32%.(a-12) Servotronix Motion Control Ltd. (hereinafter referred to as “SMC”), the Company's subsidiary in Israel, is
subject to Israel enterprise income tax at the rate of 23%.(a-13) Misr Refrigeration and Air Conditioning Manufacturing Company, S.A.E., the Company's subsidiary in
Egypt, is subject to Egyptian enterprise income tax at the rate of 22.5%.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(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 Announcement on Relevant Policies for Deepening the Value-Added Tax Reform
(Announcement [2019] No. 39) issued by the Ministry of Finance, the State Taxation Administration andthe General Administration of Customs, the applicable tax rate of revenue arising from sales of goodsand rendering of repairing and replacement services of the Company’s certain subsidiaries is 13% from1 April 2019, while it was 16% before then.(b-2) Pursuant to the Announcement on Relevant Policies for Deepening the Value-Added Tax Reform
(Announcement [2019] No. 39) issued by the Ministry of Finance, the State Taxation Administration andthe General Administration of Customs, the applicable tax rate of revenue arising from rendering of realestate leasing and transportation services of the Company’s certain subsidiaries is 9% from 1 April 2019,while it was 10% before then.(b-3) Financial services, consulting services and storage services provided by the Company and certain
subsidiaries are subject to VAT at the rate of 6%.(b-4) Rental revenue of the Company and certain subsidiaries is subject to easy levy of VAT at the rate of 5%.(b-5) Pursuant to the Announcement on Relevant Policies for Deepening the Value-Added Tax Reform
(Announcement [2019] No. 39) issued by the Ministry of Finance, the State Taxation Administration and
the General Administration of Customs, certain subsidiaries of the Company engaged in the production
service sector, are eligible for a 10% additional VAT deduction based on deductible input VAT in the
current period from 1 April 2019 to 31 December 2021.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements
(1) Cash at bank and on hand
| Item | Ending balance | Opening balance |
| Cash on hand | 2,490 | 3,128 |
| Cash at bank (a) | 31,882,669 | 49,012,677 |
| Other cash balances (b) | 257,426 | 153,022 |
| Statutory reserve deposits with the Central Bank (c) | 375,866 | 433,149 |
| Surplus reserve with the Central Bank | 470,326 | 355,471 |
| Deposits with banks and other financial institutions (d) | 19,763,306 | 20,562,160 |
| Accrued interest | 275,111 | 397,234 |
| Total | 53,027,194 | 70,916,841 |
| Including: Total amounts deposited with banks overseas (including Hong Kong, Singapore, Japan, Italy, Brazil, Germany, etc.) | 5,527,091 | 5,270,085 |
(a)As at 30 June 2020, cash at bank included fixed deposits with the term of over three months, amountingto RMB 21,106,490,000 (31 December 2019: RMB 39,491,676,000).(b)Other cash balances mainly include letters of guarantee, deposits for notes and letters of credit.(c)Statutory reserve with the Central Bank represents the statutory reserve deposited in People’s Bank ofChina by the financial enterprise in accordance with relevant regulations, which are calculated at 6%and 5% for eligible RMB deposits and foreign currency deposits, respectively, and are not available foruse in the Group’s daily operations.(d)As at 30 June 2020, deposits with banks and other financial institutions included no fixed deposits withthe term of over three months (31 December 2019: Nil).
(2) Financial assets held for trading
| Item | Ending balance | Opening balance |
| Financial assets held for trading | 1,469,263 | 1,087,351 |
(a)As at 30 June 2020, financial assets held for trading are equity investments in listed companies,measured at fair value through profit or loss.
(3) Notes receivable
| Item | Ending balance | Opening balance |
| Bank acceptance notes | 5,465,726 | 4,768,520 |
| Trade acceptance notes | 201,212 | - |
| Less: Provision for bad debts | - | - |
| Total | 5,666,938 | 4,768,520 |
(a)Provision for bad debtsFor notes receivable of the Group arising from sales of goods or rendering of services in the ordinarycourse of business, the Group recognises the lifetime ECL provision regardless of whether there exists asignificant financing component. As at 30 June 2020, bad debts risk was relatively low.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(4) Accounts receivable
| Item | Ending balance | Opening balance |
| Accounts receivable | 26,894,034 | 19,631,644 |
| Less: Provision for bad debts | (1,222,135) | (967,825) |
| Total | 25,671,899 | 18,663,819 |
(a)The ageing of accounts receivable is analysed as follows:
| Ageing | Ending balance | Opening balance |
| Within 1 year | 26,595,258 | 19,168,694 |
| 1 to 2 years | 144,754 | 301,554 |
| 2 to 3 years | 83,527 | 101,643 |
| 3 to 5 years | 53,599 | 42,106 |
| Over 5 years | 16,896 | 17,647 |
| Sub-total | 26,894,034 | 19,631,644 |
(b)Under the new financial instruments standards, the Group measures the loss provision for accountsreceivable according to the lifetime ECL.As at 30 June 2020, accounts receivable for which the related provision for bad debts was provided onthe individual basis were analysed as follows:
| Category | Ending balance | |||
| Book balance | Lifetime ECL rate | Provision for bad debts | Reason | |
| Domestic customers | 6,415 | 100.00% | (6,415) | The debtor encountered financial difficulties |
As at 30 June 2020, accounts receivable for which the related provision for bad debts was provided onthe grouping basis were analysed as follows:
| Grouping | Ending balance | ||
| Book balance | Provision for bad debts | ||
| Amount | Lifetime ECL rate | Amount | |
| Domestic business grouping | 11,481,753 | 5.33% | (611,873) |
| Overseas business grouping | 15,405,866 | 3.92% | (603,847) |
| Total | 26,887,619 | (1,215,720) | |
(c)The provision for bad debts reversed during the six months ended 30 June 2020 amounted to RMB146,892,000.During the six months ended 30 June 2020, the accounts receivable written off by the Group werearising from transactions with third parties and there were no written-off accounts receivable that areindividually significant.(d)As at 30 June 2020, the five largest accounts receivable aggregated by debtors were summarised andanalysed as follows:
| Item | Amount | Provision for bad debts | % of total balance |
| Total amount of the five largest accounts receivable | 2,429,204 | (54,326) | 9.03% |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(5) Other receivable
| Item | Ending balance | Opening balance |
| Other receivables | 2,709,664 | 2,766,098 |
| Less: Provision for bad debts | (94,548) | (53,124) |
| Total | 2,615,116 | 2,712,974 |
(a)Other receivables mainly include deposits, receivables related to share options, current accounts, pettycash to staff, and interest.The ageing of other receivables is analysed as follows:
| Ageing | Ending balance | Opening balance |
| Within 1 year | 2,450,965 | 2,643,584 |
| 1 to 2 years | 188,028 | 69,490 |
| 2 to 3 years | 23,942 | 16,555 |
| 3 to 5 years | 39,514 | 25,773 |
| Over 5 years | 7,215 | 10,696 |
| Sub-total | 2,709,664 | 2,766,098 |
(b)Provision for bad debts and changes in book balance statements
| Item | Stage 1 | Stage 3 | Sub-total | ||||
| 12-month ECL (Grouping) | 12-month ECL (Individual) | Lifetime ECL (Credit impaired) | |||||
| Book balance | Provision for bad debts | Book balance | Provision for bad debts | Book balance | Provision for bad debts | Provision for bad debts | |
| 1 January 2020 | 2,701,638 | 49,767 | 61,103 | - | 3,357 | 3,357 | 53,124 |
| Transfer to stage 3 | (1,201) | (59) | - | - | 1,201 | 59 | - |
| Net (decrease)/ increase in current year | (408,256) | 1,862 | 189,719 | - | 162,103 | 38,448 | 40,310 |
| Including: Written-off in current period | - | - | - | - | (1,688) | (1,688) | (1,688) |
| Derecognition | - | - | - | - | - | - | - |
| Differences on translation of foreign currency financial statements | 1,095 | - | 19 | 1,114 | |||
| 30 June 2020 | 2,292,181 | 52,665 | 250,822 | - | 166,661 | 41,883 | 94,548 |
(c)As at 30 June 2020, the Group’s other receivables at stage 1 and stage 3 were analysed as follows:
(i)As at 30 June 2020, other receivables for which the related provision for bad debts was provided on theindividual basis were analysed as follows:
| Stage 1 | Book balance | ECL rate in the following 12 months | Provision for bad debts | Reason |
| 250,822 | 0% | - | Relatively low bad debt risks |
| Stage 3 | Book balance | ECL rate in the following 12 months | Provision for bad debts | Reason |
| 166,661 | 25.13% | (41,883) | The debtor encountered financial difficulties |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(5) Other receivables (Cont’d)
(c)As at 30 June 2020, the Group’s other receivables at stage 1, stage 2 and stage 3 were analysed asfollows (Cont’d):
(ii)As at 30 June 2020, other receivables for which the related provision for bad debts was provided on thegrouping basis were all at Stage 1 and were analysed as follows:
| Stage 1 | Ending balance | ||
| Book balance | Provision for bad debts | ||
| Amount | Amount | Provision ratio | |
| Security deposit/guarantee payables grouping | 2,292,181 | (52,665) | 2.30% |
(iii)The provision for bad debts reversed during the six months ended 30 June 2020 amounted to RMB8,362,000.For the six months ended 30 June 2020, no other receivables with significant amounts were written off.(d)As at 30 June 2020, the five largest other receivables aggregated by debtors were summarised andanalysed as follows:
| Item | Amount | Provision for bad debts | % of total balance |
| Total amount of the five largest other receivables | 448,657 | (6,717) | 16.56% |
(e)As at 30 June 2020, the Group did not recognise significant government grants at amounts receivable.
(6) Receivables financing
| Item | Ending balance | Opening balance |
| Receivables financing | 8,990,911 | 7,565,776 |
The Group’s receivables financing were mainly accounts receivable and bank acceptance notestransferred, discounted and endorsed for the purpose of daily treasury management and were qualifiedfor derecognition.No provision for bank acceptance notes was individually provided. As at 30 June 2020, the Groupmeasured bad debts based on the lifetime ECL and expected that there was no significant credit riskassociated with its bank acceptance notes and did not expect that there will be any significant lossesfrom non-performance by these banks.As at 30 June 2020, the Group's transferred notes receivable and accounts receivable endorsed ordiscounted but not matured were as follows:
| Item | Derecognised | Recognised |
| Receivables financing | 15,681,851 | - |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(7) Advances to suppliers
| Item | Ending balance | Opening balance |
| Prepayments for raw materials and others | 2,389,531 | 2,246,177 |
(a)The ageing of advances to suppliers is analysed as follows:
| Ageing | Ending balance | Opening balance | ||
| Amount | % of total balance | Amount | % of total balance | |
| Within 1 year | 2,315,186 | 96.88% | 2,176,110 | 96.88% |
| 1 to 2 years | 32,931 | 1.38% | 26,925 | 1.20% |
| 2 to 3 years | 16,862 | 0.71% | 22,895 | 1.02% |
| Over 3 years | 24,552 | 1.03% | 20,247 | 0.90% |
| Total | 2,389,531 | 100.00% | 2,246,177 | 100.00% |
As at 30 June 2020, advances to suppliers over 1 year with a carrying amount of RMB 74,345,000 (31December 2019: RMB 70,067,000) were mainly unsettled prepayments for raw materials.As at 30 June 2020, the five largest advances to suppliers aggregated by debtors were summarised andanalysed as follows:
| Item | Amount | % of total balance |
| Total amount of the five largest advances to suppliers | 407,448 | 17.05% |
(8) Contract assets
| Item | Ending balance | Opening balance | Ending balance of prior year |
| Contract assets | 3,723,394 | 4,009,176 | —— |
| Less: Provision for impairment of contract assets | (51,290) | - | —— |
| Total | 3,672,104 | 4,009,176 | —— |
For contract assets, the Group measures the loss provision based on the lifetime ECLs regardless ofwhether there exists a significant financing component.As at 30 June 2020, contract assets for which provision for impairment was made on grouping basiswere analysed as follows:
| Grouping | Ending balance | ||
| Book balance | Lifetime ECL rate | Provision for bad debts | |
| Domestic business grouping | 796,739 | 1.22% | (9,725) |
| Overseas business grouping | 2,926,655 | 1.42% | (41,565) |
| Total | 3,723,394 | (51,290) | |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(9) Loans and advances
(a)By individual and corporation:
| Item | Ending balance | Opening balance |
Loans and advances measured at amortised cost
| Loans and advances to individuals | 1,594,285 | 1,110,127 |
| Loans and advances to corporations | 12,042,730 | 10,708,289 |
| Including: Loans | 9,101,789 | 9,558,953 |
| Discounted bills | 2,940,941 | 1,149,336 |
| Sub-total | 13,637,015 | 11,818,416 |
| Less: Provision for loan impairment | (207,522) | (158,919) |
| Total | 13,429,493 | 11,659,497 |
As at 30 June 2020, loans and advances over 1 year amounted to RMB 1,245,342,000 (31 December2019: RMB 790,101,000).(b)By type of collateral held
| Item | Ending balance | Opening balance |
| Unsecured loans | 1,557,240 | 1,075,217 |
| Guaranteed loans | 936,067 | 1,476,273 |
| Pledged loans | 11,143,708 | 9,266,926 |
| Sub-total | 13,637,015 | 11,818,416 |
| Less: Provision for loan losses | (207,522) | (158,919) |
| Total | 13,429,493 | 11,659,497 |
(10) Inventories
(a)Inventories are summarised by categories as follows:
| Item | Ending balance | Opening balance | Ending balance of prior year | ||||||
| Book balance | Provision for declines in the value of inventories | Carrying amount | Book balance | Provision for declines in the value of inventories | Carrying amount | Book balance | Provision for declines in the value of inventories | Carrying amount | |
| Finished goods | 15,017,849 | (439,895) | 14,577,954 | 22,046,730 | (407,598) | 21,639,132 | 22,046,730 | (407,598) | 21,639,132 |
| Raw materials | 5,427,401 | (69,343) | 5,358,058 | 5,009,197 | (67,875) | 4,941,322 | 5,009,197 | (67,875) | 4,941,322 |
| Work in progress | 1,484,356 | - | 1,484,356 | 1,596,042 | - | 1,596,042 | 1,596,042 | - | 1,596,042 |
| Consigned processing material | 245,935 | - | 245,935 | 219,542 | - | 219,542 | 219,542 | - | 219,542 |
| Projects completed but unsettled | —— | —— | —— | —— | —— | —— | 4,009,176 | - | 4,009,176 |
| Others | 48,490 | - | 48,490 | 38,185 | - | 38,185 | 38,185 | - | 38,185 |
| Total | 22,224,031 | (509,238) | 21,714,793 | 28,909,696 | (475,473) | 28,434,223 | 32,918,872 | (475,473) | 32,443,399 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(10) Inventories (Cont’d)
(b)Provision for decline in the value of inventories is analysed as follows:
| Item | Opening balance | Increase of provision in current period | Decrease by reversal or write-off in current period | Differences on translation of foreign currency financial statements | Ending balance |
| Finished goods | 407,598 | 115,693 | (84,023) | 627 | 439,895 |
| Raw materials | 67,875 | 20,959 | (20,867) | 1,376 | 69,343 |
| Total | 475,473 | 136,652 | (104,890) | 2,003 | 509,238 |
(c)Provision for decline in the value of inventories is as follows:
| Item | Basis for provision for decline in the value of inventories | Reason for written-off of provision for decline in the value of inventories for current period |
| Finished goods | Stated at the lower of cost and net realisable value | Sales |
| Raw materials | Stated at the lower of cost and net realisable value | Requisition for production |
(11) Other current assets
| Item | Ending balance | Opening balance |
Structural deposits(a)
| 64,328,797 | 60,038,855 |
Monetary investments
| 24,598,276 | - | |
| VAT input to be deducted | 2,447,853 | 3,159,794 |
| Prepaid expenses | 951,916 | 875,451 |
| Others | 991,667 | 936,927 |
| Total | 93,318,509 | 65,011,027 |
(a)As at 30 June 2020, structural deposits represented deposits in financial institutions due within one year,mostly measured at fair value through profit or loss.
(12) Other debt investments
| Item | Ending balance | Opening balance |
| Fair value through other comprehensive income | ||
| - Transferable certificate of deposit | 19,283,310 | - |
| Less: Provision for impairment of other debt investments | - | - |
| Total | 19,283,310 | - |
(13) Long-term receivables
| Item | Ending balance | Opening balance |
| Long-term receivables | 1,115,195 | 1,208,079 |
| Less: Provision for bad debts | - | - |
| Total | 1,115,195 | 1,208,079 |
The Group’s long-term receivables are presented in net amount of finance lease receivables afteroffsetting the unrealised financing income.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(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 equity investments
Long-term equity investments are classified as follows:
| Item | Ending balance | Opening balance |
| Investment in associates (a) | 2,998,466 | 2,790,806 |
| Less: Provision for impairment of long-term equity investments | - | - |
| Total | 2,998,466 | 2,790,806 |
(a)Investment in associates mainly refers to the investments in Guangdong Shunde Rural CommercialBank Co., Ltd. and Hefei Royalstar Motor Co., Ltd. and other companies by the Group.
(15) Other non-current financial assets
| Item | Ending balance | Opening balance |
| Measured at fair value | ||
| - Equity of unlisted companies | 2,138,404 | 1,750,107 |
| Less: Provision for impairment of other non-current financial assets | - | - |
| Total | 2,138,404 | 1,750,107 |
(16) Fixed assets
| Item | Buildings | Overses land | Machinery and equipment | Motor vehicles | Electronic equipment and others | Total |
| Cost | ||||||
| Opening balance | 17,900,603 | 1,296,493 | 19,702,128 | 707,703 | 4,510,738 | 44,117,665 |
| Increase in current period | 488,204 | 109,950 | 1,233,502 | 168,139 | 367,468 | 2,367,263 |
| 1)Purchase | 32,640 | 109,950 | 715,062 | 9,560 | 331,653 | 1,198,865 |
| 2)Transfers from construction inprogress | 97,879 | - | 68,094 | 2,577 | 24,406 | 192,956 |
| 3)Increase by businesscombinations | 357,685 | - | 450,346 | 156,002 | 11,409 | 975,442 |
| Decrease in current period | (8,164) | - | (211,869) | (18,988) | (149,164) | (388,185) |
| 1)Disposal or retirement | (8,164) | - | (211,869) | (18,988) | (149,164) | (388,185) |
| Differences on translation of foreign currency financial statements | (6,131) | 9,704 | (56,598) | (125) | (3,087) | (56,237) |
| Ending balance | 18,374,512 | 1,416,147 | 20,667,163 | 856,729 | 4,725,955 | 46,040,506 |
| Accumulated depreciation | ||||||
| Opening balance | 7,362,635 | - | 11,405,514 | 509,473 | 3,135,874 | 22,413,496 |
| Increase in current period | 428,074 | - | 821,218 | 47,936 | 355,359 | 1,652,587 |
| 1)Provision | 428,074 | - | 821,218 | 47,936 | 355,359 | 1,652,587 |
| Decrease in current period | (4,705) | - | (154,760) | (16,698) | (103,489) | (279,652) |
| 1)Disposal or retirement | (4,705) | - | (154,760) | (16,698) | (103,489) | (279,652) |
| Differences on translation of foreign currency financial statements | (18,901) | - | (36,681) | (118) | (8,203) | (63,903) |
| Ending balance | 7,767,103 | - | 12,035,291 | 540,593 | 3,379,541 | 23,722,528 |
| Provision for impairment loss | ||||||
| Opening balance | 6,746 | 5,907 | 17,713 | 210 | 8,911 | 39,487 |
| Increase in current period | - | - | 1,145 | - | - | 1,145 |
| 1)Provision | - | - | 1,145 | - | - | 1,145 |
| Decrease in current period | - | - | (2,163) | - | - | (2,163) |
| 1)Disposal or retirement | - | - | (2,163) | - | - | (2,163) |
| Differences on translation of foreign currency financial statements | 72 | 160 | 48 | 8 | 229 | 517 |
| Ending balance | 6,818 | 6,067 | 16,743 | 218 | 9,140 | 38,986 |
| Carrying amount at end of period | 10,600,591 | 1,410,080 | 8,615,129 | 315,918 | 1,337,274 | 22,278,992 |
| Carrying amount at beginning of period | 10,531,222 | 1,290,586 | 8,278,901 | 198,020 | 1,365,953 | 21,664,682 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(16) Fixed assets (Cont’d)
(a)For the six months ended 30 June 2020, depreciation charged to fixed assets amounted to RMB 1,652,587,000 (for the six months ended 30 June 2019: RMB1,659,120,000) and was recognised in full in the income statement.(b)As at 30 June 2020, the Company was still in the course of obtaining the ownership certificate for the fixed asset with a carrying amount of RMB 262,707,000(31 December 2019: RMB 219,475,000).
(17) Construction in progress
(a)Movement of significant projects of construction in progress
| Project name | Opening balance | Increase in current period | Transfer to fixed assets | Transfer to intangible assets | Other decrease | Differences on translation of foreign currency financial statements | Ending balance | Accumulated capitalised borrowing costs | Including: Borrowing costs capitalised in current period | Capitalisation rate in current period | Source of fund |
| Midea Headquarters A04 Land Parcel Project | 85,493 | 48,737 | - | - | - | - | 134,230 | - | - | - | Self-financing |
| Indian Science Park | 274,429 | 116,656 | (124,213) | - | - | (11,646) | 255,226 | - | - | - | Self-financing |
| Other projects | 834,728 | 438,086 | (68,743) | (8,043) | (4,918) | 6 ,834 | 1,197,944 | 1,696 | 155 | - | Loan/Self-financing |
| Total | 1,194,650 | 603,479 | (192,956) | (8,043) | (4,918) | (4,812) | 1,587,400 | 1,696 | 155 | - |
As at 30 June 2020, the Group believed that there was no need to make provision for impairment of construction in progress with the carrying amountconsistent with the carrying amount; and the cost of construction in progress matched the budget amount. The projects were carried out on schedule.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(18) Intangible assets
| Item | Land use rights | Patents and non-patent technologies | Trademark rights | Trademark use rights | Others | Total |
| Cost | ||||||
| Opening balance | 4,655,273 | 2,088,792 | 4,993,393 | 2,689,087 | 5,021,178 | 19,447,723 |
| Increase in current period | 113,811 | 100,106 | - | - | 190,988 | 404,905 |
| 1)Purchase | - | 10,316 | - | - | 16,064 | 26,380 |
| 2)Increase by businesscombinations | 113,811 | 83,846 | - | - | 25,711 | 223,368 |
| 3)Others | - | 5,944 | - | - | 149,213 | 155,157 |
| Decrease in current period | - | - | - | - | (80,449) | (80,449) |
| 1)Disposal | - | - | - | - | (80,449) | (80,449) |
| Differences on translation of foreign currency financial statements | 877 | 32,932 | 80,016 | 72,256 | 90,574 | 276,655 |
| Ending balance | 4,769,961 | 2,221,830 | 5,073,409 | 2,761,343 | 5,222,291 | 20,048,834 |
| Accumulated amortisation | ||||||
| Opening balance | 912,013 | 578,738 | 108,928 | 238,714 | 2,112,508 | 3,950,901 |
| Increase in current period | 45,042 | 62,568 | 16,633 | 30,212 | 350,258 | 504,713 |
| 1)Provision | 45,042 | 62,568 | 16,633 | 30,212 | 350,258 | 504,713 |
| Decrease in current period | - | - | - | - | (74,521) | (74,521) |
| 1)Disposal | - | - | - | - | (74,521) | (74,521) |
| Differences on translation of foreign currency financial statements | 45 | 12,578 | 582 | 9,174 | 35,455 | 57,834 |
| Ending balance | 957,100 | 653,884 | 126,143 | 278,100 | 2,423,700 | 4,438,927 |
| Provision for impairment loss | ||||||
| Opening balance | - | 11,412 | - | - | 1,231 | 12,643 |
| Increase in current period | - | - | - | - | - | - |
| 1)Provision | - | - | - | - | - | - |
| Decrease in current period | - | - | - | - | - | - |
| 1)Disposal | - | - | - | - | - | - |
| Differences on translation of foreign currency financial statements | - | 328 | - | - | 35 | 363 |
| Ending balance | - | 11,740 | - | - | 1,266 | 13,006 |
| Carrying amount at end of period | 3,812,861 | 1,556,206 | 4,947,266 | 2,483,243 | 2,797,325 | 15,596,901 |
| Carrying amount at beginning of period | 3,743,260 | 1,498,642 | 4,884,465 | 2,450,373 | 2,907,439 | 15,484,179 |
(a)For the six months ended 30 June 2020, the amortisation of intangible assets amounted to RMB504,713,000 (for the six months ended 30 June 2019: RMB 518,955,000) and was recognised in full inthe income statement.(b)As at 30 June 2020, the Group had no pending land use right certificate.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(19) Goodwill
The Group’s goodwill had been allocated to the asset groups and groups of asset groups at theacquisition date, and the allocation is as follows:
| Name of investee | Ending balance | Opening balance |
| KUKA Group | 22,654,173 | 22,240,132 |
| TLSC Group | 3,064,270 | 2,984,110 |
| Little Swan | 1,361,306 | 1,361,306 |
| Others | 2,431,466 | 2,173,765 |
| Sub-total | 29,493,215 | 28,759,313 |
| Less: Provision for impairment | (560,425) | (552,248) |
| Total | 28,932,790 | 28,207,065 |
(20) Long-term prepaid expenses
The long-term prepaid expenses mainly include expenses prepaid for software and projectreconstruction.
(21) Deferred tax assets and deferred tax liabilities
(a) Deferred tax assets before offsetting
| Item | Ending balance | Opening balance | ||
| Deductible temporary differences and deductible losses | Deferred tax assets | Deductible temporary differences and deductible losses | Deferred tax assets | |
| Deductible losses | 1,625,851 | 453,644 | 1,457,853 | 416,248 |
| Provision for asset impairments | 1,798,340 | 354,878 | 1,489,044 | 291,763 |
| Employee benefits payable | 1,369,676 | 331,510 | 1,394,921 | 337,172 |
| Other current liabilities | 26,518,293 | 5,218,255 | 24,574,237 | 4,767,558 |
| Others | 6,266,522 | 1,514,090 | 6,408,056 | 1,484,817 |
| Total | 37,578,682 | 7,872,377 | 35,324,111 | 7,297,558 |
(b)Deferred tax liabilities before offsetting
| Deferred tax liabilities | Ending balance | Opening balance | ||
| Taxable temporary differences | Deferred tax liabilities | Taxable temporary differences | Deferred tax liabilities | |
| Changes in fair value | 641,758 | 147,625 | 827,153 | 162,129 |
| Business combination involving enterprise not under common control | 11,534,573 | 3,446,831 | 11,785,555 | 3,474,098 |
| Others | 11,657,317 | 2,703,837 | 9,644,666 | 2,448,340 |
| Total | 23,833,648 | 6,298,293 | 22,257,374 | 6,084,567 |
(c)The net balances of deferred tax assets and liabilities after offsetting are as follows:
| Item | Balance after offsetting at end of period | Balance after offsetting at beginning of period |
| Deferred tax assets | 6,300,811 | 5,768,993 |
| Deferred tax liabilities | 4,726,727 | 4,556,002 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(22) Details of provision for asset impairments
| Item | 31 December 2019 | Changes in accounting policies | 1 January 2020 | Increase in current period | Decrease in current period | Differences on translation of foreign currency financial statements | 30 June 2020 | |
| Reversal | Written-off | |||||||
| Provision for bad debts | 1,179,868 | - | 1,179,868 | 629,789 | (167,791) | (54,772) | (11,599) | 1,575,495 |
| Including: Provision for bad debts of accounts receivable | 967,825 | - | 967,825 | 468,158 | (146,892) | (53,084) | (13,872) | 1,222,135 |
| Provision for loan losses | 158,919 | - | 158,919 | 61,140 | (12,537) | - | - | 207,522 |
| Provision for bad debts of other receivables | 53,124 | - | 53,124 | 50,360 | (8,362) | (1,688) | 1,114 | 94,548 |
| Provision for impairment of contract assets | —— | —— | - | 50,131 | - | - | 1,159 | 51,290 |
| Provision for decline in the value of inventories | 475,473 | - | 475,473 | 136,652 | (4,378) | (100,512) | 2,003 | 509,238 |
| Provision for impairment of fixed assets | 39,487 | - | 39,487 | 1,145 | - | (2,163) | ||
| 38,986 | ||||||||
| Provision for impairment of intangible assets | 12,643 | - | 12,643 | - | - | - | 363 | 13,006 |
| Provision for impairment of investment properties | 12,576 | - | 12,576 | - | - | - | - | 12,576 |
| Provision for impairment of goodwill | 552,248 | - | 552,248 | - | - | - |
8,177
| 560,425 | ||||||||
| Total | 2,272,295 | - | 2,272,295 | 767,586 | (172,169) | (157,447) | (539) | 2,709,726 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(23) Assets with use rights restricted
As at 30 June 2020, assets with use rights restricted were as follows:
| Item | Ending balance | Opening balance |
| Cash at bank and on hand | 21,739,782 | 40,077,847 |
| Accounts receivable | 106,704 | - |
| Fixed assets | 464,645 | - |
| Intangible assets | 12,514 | - |
| Total | 22,323,645 | 40,077,847 |
(24) Short-term borrowings
| Item | Ending balance | Opening balance |
| Unsecured borrowings | 5,771,402 | 5,665,756 |
| Guaranteed borrowings | 7,096,348 | 36,082 |
| Mortgage borrowings | 130,050 | - |
| Total | 12,997,800 | 5,701,838 |
(a)As at 30 June 2020, the annual interest rate range of short-term borrowings was 0.6% to 11.52% (31December 2019: 0.57% to 9.4%).
(25) Notes payable
| Item | Ending balance | Opening balance |
| Bank acceptance notes | 27,027,043 | 23,891,600 |
| Trade acceptance notes | 14,890 | - |
| Total | 27,041,933 | 23,891,600 |
(26) Accounts payable
| Item | Ending balance | Opening balance |
| Materials cost payable | 45,757,359 | 39,528,815 |
| Others | 3,734,424 | 3,006,962 |
| Total | 49,491,783 | 42,535,777 |
(a) As at 30 June 2020, accounts payable with ageing over 1 year amounted to RMB 980,952,000 (31
December 2019: RMB 886,355,000), mainly representing unsettled accounts payable for materials.
(27) Advances from customers
| Item | Ending balance | Opening balance | Ending balance of prior year |
| Advances on sales | - | - | 14,054,839 |
| Settled but not completed | - | - | 2,177,015 |
| Total | - | - | 16,231,854 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(28) Contract liabilities
| Item | Ending balance | Opening balance | Ending balance of prior year |
| Advances for construction projects | 2,109,441 | 2,177,015 | —— |
| Advances on sales and services | 13,216,113 | 16,259,544 | —— |
| Total | 15,325,554 | 18,436,559 | —— |
(29) Employee benefits payable
| Item | Ending balance | Opening balance |
| Short-term employee benefits payable (a) | 4,630,419 | 6,118,722 |
| Others | 211,479 | 317,387 |
| Total | 4,841,898 | 6,436,109 |
(a) Short-term employee benefits
| Item | Opening balance | Increase in current period | Decrease in current period | Ending balance |
| Wages and salaries, bonus, allowances and subsidies | 5,714,684 | 10,932,686 | (12,440,207) | 4,207,163 |
| Staff welfare | 255,901 | 406,999 | (374,659) | 288,241 |
| Social security contributions | 89,603 | 1,026,249 | (1,040,501) | 75,351 |
| Including: Medical insurance | 87,173 | 990,339 | (1,004,179) | 73,333 |
| Work injury insurance | 1,303 | 5,398 | (5,575) | 1,126 |
| Maternity insurance | 1,127 | 30,512 | (30,747) | 892 |
| Housing funds | 28,445 | 207,837 | (213,021) | 23,261 |
| Labour union funds and employee education funds | 20,361 | 36,641 | (34,181) | 22,821 |
| Other short-term employee benefits | 9,728 | 416,781 | (412,927) | 13,582 |
| Sub-total | 6,118,722 | 13,027,193 | (14,515,496) | 4,630,419 |
(30) Taxes payable
| Item | Ending balance | Opening balance |
| Enterprise income tax payable | 2,782,210 | 2,985,670 |
| Unpaid VAT | 1,184,711 | 900,204 |
| Others | 932,787 | 1,210,393 |
| Total | 4,899,708 | 5,096,267 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(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 payables
| Item | Ending balance | Opening balance |
| Other payables | 4,241,494 | 3,800,568 |
(a)Other payables are mainly restricted share repurchase obligation, deposit and security deposit payable,reimbursed logistics expense, manufacturing equipment expense, dividend payable, etc.(b)As at 30 June 2020, other payables with ageing over 1 year with a carrying amount of RMB 849,207,000(31 December 2019: RMB 765,092,000) were mainly those recognised for performing equity incentiveplan and deposit and security deposit payable, which were unsettled for related projects that wereuncompleted.
(32) Current portion of non-current liabilities
| Item | Ending balance | Opening balance |
| Current portion of long-term borrowings | 7,449,214 | 1,230,966 |
| Current portion of long-term payables | 66,670 | 39,426 |
| Current portion of equity purchase payables | 193,256 | 189,725 |
| Total | 7,709,140 | 1,460,117 |
(33) Other current liabilities
| Item | Ending balance | Opening balance | Ending balance of prior year |
| Accrued sale rebates | 28,754,755 | 26,175,014 | 26,175,014 |
| Short-term financing bonds (a) | 10,022,538 | - | - |
| Others | 10,626,861 | 10,695,058 | 12,899,763 |
| Total | 49,404,154 | 36,870,072 | 39,074,777 |
(a)As at 30 June 2020, short-term financing bonds payable represented super short-term financing bondswith a total face value of RMB 10,000,000,000 issued by the Company, with a term of 90 to 240 days,and a coupon rate of 1.3% to 1.8%.
(34) Long-term borrowings
| Item | Ending balance | Opening balance |
| Mortgage borrowings (a) | 29,459,546 | 28,892,783 |
| Guaranteed borrowings | 7,997,605 | 6,569,414 |
| Unsecured borrowings | 7,101,306 | 7,067,146 |
| Pledged borrowings | 27,403 | - |
| Total | 44,585,860 | 42,529,343 |
| Less: Current portion of mortgage borrowings | (49,396) | (39,078) |
| Current portion of guaranteed borrowings | (2,187,431) | - |
| Current portion of unsecured borrowings | (5,205,536) | (1,191,888) |
| Current portion of pledged borrowings | (6,851) | - |
| Total | 37,136,646 | 41,298,377 |
(a)As at 30 June 2020, mortgage borrowings of RMB 29,410,773,000 were pledged by 81.04% equity ofKUKA Group, which was acquired by the subsidiary of the Company (31 December 2019: RMB28,892,783,000). Interest is paid on a semi-annual basis.(b)As at 30 June 2020, the annual interest rate range of long-term borrowings was 0.5% to 6.83% (31December 2019: 0.5% to 5.5%).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(35) Long-term employee benefits payable
| Item | Ending balance | Opening balance |
| Supplementary retirement benefits (a) | 2,230,191 | 2,267,015 |
| Others | 147,845 | 151,548 |
| Total | 2,378,036 | 2,418,563 |
(a)Supplementary retirement benefits are derived from its subsidiaries KUKA and TLSC.
(36) Other non-current liabilities
Other non-current liabilities are mainly payable for equity acquisition.
(37) Share capital
| Item | Opening balance | Movements for current period | Ending balance | |||
| Share-based payment incentive plan | Desterilisation | Repurchases and written-offs | Sub-total | |||
| RMB-denominated ordinary shares - | ||||||
| RMB-denominated ordinary shares subject to trading restriction | 165,403 | - | (10,075) | (3,507) | (13,582) | 151,821 |
| RMB-denominated ordinary shares not subject to trading restriction | 6,806,497 | 41,353 | 10,075 | - | 51,428 | 6,857,925 |
| Total | 6,971,900 | 41,353 | - | (3,507) | 37,846 | 7,009,746 |
(38) Treasury stock
| Item | Opening balance | Movements for current period | Ending balance | |
| Increase in current period | Decrease in current period | |||
| Treasury stock used for share-based payment incentive plan | 3,759,732 | 802,059 | (353,631) | 4,208,160 |
| Total | 3,759,732 | 802,059 | (353,631) | 4,208,160 |
(a)In the six months ended 30 June 2020, the Group’s repurchased shares amounted to RMB 802,059,000.As at 30 June 2020, treasury stock mainly comprised restricted shares amounting to RMB2,007,119,000 that have not met unlock condition and unallocated repurchased shares of RMB2,201,041,000 pursuant to the employee stock ownership plans, amounting to RMB 4,208,160,000 intotal.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(39) Capital surplus
| Item | Opening balance | Increase in current period | Decrease in current period | Ending balance |
| Share premium (a) | 15,683,499 | 1,693,228 | (85,353) | 17,291,374 |
| Share-based payment incentive plan (b) | 1,443,942 | 417,920 | (847,679) | 1,014,183 |
| Others | 2,512,872 | 39,626 | (7,128) | 2,545,370 |
| Total | 19,640,313 | 2,150,774 | (940,160) | 20,850,927 |
(a)The increase in the share premium arose from the exercise of stock options and the unlocking ofrestricted shares, and the decrease arose from the repurchase of restricted shares.(b)The increase in the share-based payment incentive plan arose from equity attributable to shareholdersof the parent company in the total expenses recognised as a result of the share-based paymentincentive plan, and the decrease arose from the share premium transferred from the exercise of shareoptions and the unlocking of restricted shares.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(40) Other comprehensive income
| Item | Other comprehensive income in the balance sheet | Other comprehensive income in the income statement | ||||||
| 31 December 2019 | Attributable to the parent company after tax | 30 June 2020 | Amount arising before income tax in current period | Less: Reclassification of previous other comprehensive income to profit or loss | Less: Income tax expenses | Attributable to the parent company after tax | Attributable to minority shareholders after tax | |
| Other comprehensive income items which will not be reclassified subsequently to profit or loss | ||||||||
| Changes arising from remeasurement of defined benefit plan | (92,685) | (55,359) | (148,044) | (66,663) | - | 8,110 | (55,359) | (3,194) |
| Other comprehensive income items which will be reclassified subsequently to profit or loss | ||||||||
| Other comprehensive income that will be transferred subsequently to profit or loss under the equity method | (65,736) | (8,721) | (74,457) | (8,721) | - | - | (8,721) | - |
| Effective portion of gains or losses on hedging instruments in a cash flow hedge | 12,620 | 79,279 | 91,899 | 139,762 | (13,175) | (28,228) | 79,279 | 19,080 |
| Differences on translation of foreign currency financial statements | (565,753) | (311,173) | (876,926) | (541,807) | - | - | (311,173) | (230,634) |
| Total | (711,554) | (295,974) | (1,007,528) | (477,429) | (13,175) | (20,118) | (295,974) | (214,748) |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(41) Surplus reserve
| Item | Opening balance | Increase in current period | Decrease in current period | Ending balance |
| Statutory surplus reserve | 6,447,658 | - | - | 6,447,658 |
(42) Undistributed profits
| Item | Current period | Same period of prior year |
| Undistributed profits at end of prior year | 72,713,631 | 58,762,315 |
| Changes in accounting policies | - | (337,447) |
| Undistributed profits at beginning of period | 72,713,631 | 58,424,868 |
| Add: Net profit attributable to owners of the parent company for current period | 13,928,295 | 15,187,069 |
| Less: Ordinary share dividends payable | (11,122,406) | (8,553,897) |
| Appropriation to general risk reserve | - | - |
| Undistributed profits at end of period | 75,519,520 | 65,058,040 |
(a)Ordinary share dividends distributed in current yearIn accordance with the resolution at the shareholders’ meeting dated 22 May 2020, the Companydistributed a cash dividend to the shareholders at RMB 1.60 per share, amounting to RMB11,131,490,000 calculated by 6,957,181,058 issued shares against the repurchased shares. Besides,3,507,000 repurchased shares under the restricted shares incentive plan were written off (Note 4(37)),and a cash dividend amounting to RMB 9,084,000 was cancelled for 2,218,000 shares repurchased butnot written off. The actual cash dividends distributed in current year amounted to RMB 11,122,406,000.
(43) Operating revenue and cost of sales
| Item | Current period | Same period of prior year |
| Revenue from main operations | 128,394,989 | 143,143,028 |
| Revenue from other operations | 10,672,033 | 10,627,272 |
| Sub-total | 139,067,022 | 153,770,300 |
| Item | Current period | Same period of prior year |
| Cost of sales from main operations | 94,233,389 | 99,246,019 |
| Cost of sales from other operations | 9,290,268 | 9,195,270 |
| Sub-total | 103,523,657 | 108,441,289 |
(a) Revenue and cost of sales from main operations
| Product or business category | Current period | Same period of prior year | ||
| Revenue | Cost of sales | Revenue | Cost of sales | |
| Heating & ventilation, as well as air-conditioner | 64,030,471 | 48,535,087 | 71,439,403 | 48,518,867 |
| Consumer appliances | 53,034,680 | 36,271,844 | 58,350,984 | 40,096,559 |
| Robotics and automation system | 9,523,415 | 7,714,140 | 12,023,626 | 9,337,888 |
| Others | 1,806,423 | 1,712,318 | 1,329,015 | 1,292,705 |
| Sub-total | 128,394,989 | 94,233,389 | 143,143,028 | 99,246,019 |
For the six months ended 30 June 2020, cost of sales was mainly material costs and labour costs,which accounted for over 80% of total cost of sales from main operations (The six months ended 30June 2019: over 80%).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(43) Operating revenue and cost of sales (Cont’d)
(b) Revenue and cost of sales from other operations
| Item | Current period | Same period of prior year | ||
| Revenue | Cost of sales | Revenue | Cost of sales | |
| Revenue from sales of material | 9,418,740 | 8,902,097 | 9,528,368 | 8,934,613 |
| Others | 1,253,293 | 388,171 | 1,098,904 | 260,657 |
| Sub-total | 10,672,033 | 9,290,268 | 10,627,272 | 9,195,270 |
For the six months ended 30 June 2020, cost of sales from other operations was mainly material costs,which accounts for over 80% of total cost of sales from other operations (The six months ended 30 June2019: over 80%).
(44) Interest income and interest expenses
Interest income and expenses arising from the normal course of financial business of the financialenterprise are presented as follows:
| Item | Current period | Same period of prior year |
| Interest income from loans and advances | 582,039 | 503,691 |
| Including: Interest income from loans and advances to corporations and individuals | 526,175 | 312,811 |
| Interest income from note discounting | 55,864 | 190,880 |
| Interest income from deposits with banks, other financial institutions and the Central Bank | 70,060 | 58,006 |
| Interest income | 652,099 | 561,697 |
| Interest expenses | (78,092) | (105,543) |
(45) Taxes and surcharges
| Item | Current period | Same period of prior year |
| City maintenance and construction tax | 320,145 | 400,925 |
| Educational surcharge | 235,154 | 292,839 |
| Others | 199,546 | 234,826 |
| Total | 754,845 | 928,590 |
(46) Selling and distribution expenses
| Item | Current period | Same period of prior year |
| Selling and distribution expenses | 12,631,101 | 19,529,822 |
For the six months ended 30 June 2020, selling and distribution expenses were mainly maintenanceexpenses, advertisement and promotion fee, transportation and storage fee, employee benefits andrental expenses, which accounted for over 70% of total selling and distribution expenses (The sixmonths ended 30 June 2019: over 70%).
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(47) General and administrative expenses
| Item | Current period | Same period of prior year |
| General and administrative expenses | 4,102,149 | 4,110,125 |
For the six months ended 30 June 2020, general and administrative expenses were mainly employeebenefits, expenses of depreciation and amortisation, technical maintenance expenses andadministrative office expenses, which accounted for over 70% of total general and administrativeexpenses (The six months ended 30 June 2019: over 70%).
(48) Research and development expenses
| Item | Current period | Same period of prior year |
| Research and development expenses | 4,410,737 | 4,534,760 |
For the six months ended 30 June 2020, research and development expenses were mainly employeebenefits, expenses of depreciation and amortisation, trial products and material inputs expenses, whichaccounted for over 80% of total research and development expenses (The six months ended 30 June2019: over 80%).
(49) Financial expenses
The Group's financial expenses, other than those arising from financial business (Note 4(44)), arepresented as follows:
| Item | Current period | Same period of prior year |
| Interest expenses | 637,348 | 401,129 |
| Less: Interest income | (1,674,669) | (2,088,716) |
| Add: Exchange gains or losses | 97,209 | 160,162 |
| Add: Others | 88,185 | 91,780 |
| Total | (851,927) | (1,435,645) |
(50) Asset impairment losses
| Item | Current period | Same period of prior year |
| Losses on decline in value of inventories and impairment losses on contract performance costs (Note 4(10)) | 132,274 | 144,461 |
| Impairment losses on fixed assets (Note 4(16)) | 1,145 | 77 |
| Impairment losses on intangible assets (Note 4(18)) | - | 118 |
| Total | 133,419 | 144,656 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(51) Credit impairment losses
| Item | Current period | Same period of prior year |
| (Reversal of)/Losses on bad debts of accounts receivable (Note 4(4)) | 321,266 | 113,158 |
| (Reversal of)/Losses on bad debts of other receivables (Note 4(5)) | 41,998 | 10,413 |
| (Reversal of)/Losses on contract assets (Note 4(8)) | 50,131 | —— |
| (Reversal of)/Losses on impairment of loans (Note 4(9)) | 48,603 | 55,476 |
| Total | 461,998 | 179,047 |
(52) Gains/(Losses) on changes in fair value
| Item | Current period | Same period of prior year |
| Derivative financial assets and liabilities | (144,928) | 513,728 |
| Other financial assets | 392,628 | (165,866) |
| Total | 247,700 | 347,862 |
(53) Investment income
| Source of investment income | Current period | Same period of prior year |
| Investment income from wealth management products | - | 78,219 |
| Gains on disposition of derivative financial assets and liabilities | 147,205 | (422,174) |
| Investment income from associates and joint ventures | 261,136 | 232,596 |
| Profit or loss arising from derecognition of financial assets measured at amortised costs | - | (709) |
| Others | 680,206 | 124,708 |
| Total | 1,088,547 | 12,640 |
There is no significant restriction on recovery of investment income of the Group.
(54) Gains on disposal of assets
| Item | Current period | Same period of prior year |
| Gains on disposal of non-current assets | 14,319 | 13,803 |
| Losses on disposal of non-current assets | (25,389) | (27,508) |
| Total | (11,070) | (13,705) |
(55) Other income
| Item | Current period | Same period of prior year | Asset related/ Income related |
| Special subsidy | 580,359 | 661,949 | Income related |
(56) Income tax expenses
| Item | Current period | Same period of prior year |
| Current income tax | 2,714,255 | 3,786,798 |
| Deferred income tax | (385,194) | (957,206) |
| Total | 2,329,061 | 2,829,592 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(56) Income tax expenses (Cont’d)
The reconciliation from income tax calculated based on the applicable tax rates and total profitpresented in the consolidated financial statements to the income tax expenses is listed below:
| Item | Current period | Same period of prior year |
| Total profit | 16,396,071 | 18,889,515 |
| Income tax calculated at tax rate of 25% | 4,099,018 | 4,722,379 |
| Effect of different tax rates applicable to subsidiaries | (1,379,513) | (1,363,283) |
| Effect of income tax annual filing for prior periods | (49,614) | (85,020) |
| Income not subject to tax | (130,465) | (86,580) |
| Costs, expenses and losses not deductible for tax purposes | 167,828 | 172,898 |
| Utilisation of previous temporary differences or deductible losses not realised as deferred tax assets | (27,277) | (810) |
| Others | (350,916) | (529,992) |
| Income tax expenses | 2,329,061 | 2,829,592 |
(57) Calculation of basic and diluted earnings per share
(a) Basic earnings per share
Basic earnings per share is calculated by dividing consolidated net profit attributable to ordinaryshareholders of the Company by the weighted average number of ordinary shares outstanding:
| Item | Unit | Current period | Same period of prior year |
| Consolidated net profit attributable to ordinary shareholders of the parent company | RMB’000 | 13,928,295 | 15,187,069 |
| Less: Dividends payable to restricted shares | RMB’000 | (64,930) | (23,538) |
| Consolidated net profit attributable to ordinary shareholders of the Company (excluding dividends payable to restricted shares) | RMB’000 | 13,863,365 | 15,163,531 |
| Weighted average number of outstanding ordinary shares | Thousands shares | 6,896,105 | 6,542,991 |
| Basic earnings per share | RMB Yuan/share | 2.01 | 2.32 |
(b) Diluted earnings per share are calculated by dividing consolidated net profit attributable to ordinary
shareholders of the parent company by the diluted weighted average number of outstanding ordinaryshares:
| Item | Unit | Current period | Same period of prior year |
| Consolidated net profit attributable to ordinary shareholders of the Company | RMB’000 | 13,928,295 | 15,187,069 |
| Weighted average number of outstanding ordinary shares | Thousands shares | 6,896,105 | 6,542,991 |
| Weighted average number of ordinary shares increased from share-based payment | Thousands shares | 30,868 | 47,639 |
| Weighted average number of diluted outstanding ordinary shares | Thousands shares | 6,926,973 | 6,590,630 |
| Diluted earnings per share | RMB Yuan/share | 2.01 | 2.30 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(58) Notes to the cash flow statement
(a) Cash received relating to other operating activities
| Item | Current period | Same period of prior year |
| Non-operating income | 107,900 | 144,360 |
| Other income | 595,782 | 657,717 |
| Revenue from other operations | 1,170,031 | 1,061,576 |
| Financial interest income | 6,819 | 225,405 |
| Others | 426,409 | 292,415 |
| Total | 2,306,941 | 2,381,473 |
(b) Cash paid relating to other operating activities
| Item | Current period | Same period of prior year |
| General and administrative expenses and research and development expenses (excluding employee benefits and taxes and surcharges) | 4,500,046 | 4,715,126 |
| Selling and distribution expenses (excluding employee benefits and taxes and surcharges) | 9,442,152 | 12,234,373 |
| Others | 968,936 | 888,966 |
| Total | 14,911,134 | 17,838,465 |
(c) Supplementary information to the cash flow statement
Reconciliation of net profit to cash flow from operating activities is as follows:
| Supplementary Information | Current period | Same period of prior year |
| 1)Reconciliation of net profit to cash flowsfrom operating activities: | ||
| Net profit | 14,067,010 | 16,059,923 |
| Add: Provision for asset impairment | 133,419 | 144,656 |
| Provision for credit impairment | 461,998 | 179,047 |
| Depreciation and amortisation | 2,503,345 | 2,443,803 |
| Net loss on disposal of non-current assets | 11,117 | 13,705 |
| Losses on changes in fair value | (247,700) | (347,862) |
| Financial expenses | (920,100) | (1,352,564) |
| Investment income | (1,088,547) | (12,640) |
| Share-based payments | 458,560 | 392,759 |
| Decrease in deferred tax assets | (498,512) | (1,027,243) |
| Increase in deferred tax liabilities | 117,269 | 139,686 |
| Decrease in inventories | 8,082,466 | 5,763,508 |
| Decrease in operating receivables | (7,527,241) | (12,882,038) |
| Increase in operating payables | 2,852,407 | 12,273,150 |
| Net cash flows from operating activities | 18,405,491 | 21,787,890 |
| 2)Net increase/(decrease) in cash and cashequivalents: | ||
| Cash at end of period | 31,012,301 | 14,897,180 |
| Less: Cash at beginning of period | (30,441,760) | (17,952,282) |
| Net increase/(decrease) in cash and cash equivalents | 570,541 | (3,055,102) |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(58) Notes to the cash flow statement (Cont’d)
(d) Composition of cash and cash equivalents
| Item | Current period | Same period of prior year |
| Cash on hand | 2,490 | 2,214 |
| Deposits that can be readily drawn on demand | 10,630,979 | 12,189,067 |
| Other cash balances that can be readily drawn on demand | 145,200 | 65,114 |
| Deposits with the Central Bank that can be readily drawn on demand | 470,326 | 255,357 |
| Deposits with banks and other financial institutions | 19,763,306 | 2,385,428 |
| Cash and cash equivalents at end of period | 31,012,301 | 14,897,180 |
(59) Monetary items denominated in foreign currencies
| Item | 30 June 2020 | ||
| Foreign currency balance | Exchange rate | RMB balance | |
| Cash at bank and on hand | |||
| USD | 457,842 | 7.0795 | 3,241,292 |
| JPY | 2,889,816 | 0.0658 | 190,173 |
| HKD | 110,520 | 0.9134 | 100,953 |
| EUR | 149,120 | 7.9610 | 1,187,144 |
| BRL | 137,225 | 1.2928 | 177,408 |
| Other currencies | Not applicable | Not applicable | 1,397,168 |
| Sub-total | 6,294,138 | ||
| Accounts receivable | |||
| USD | 1,232,972 | 7.0795 | 8,728,825 |
| JPY | 17,833,576 | 0.0658 | 1,173,592 |
| HKD | 65,446 | 0.9134 | 59,781 |
| EUR | 415,754 | 7.9610 | 3,309,818 |
| BRL | 463,879 | 1.2928 | 599,713 |
| Other currencies | Not applicable | Not applicable | 2,896,725 |
| Sub-total | 16,768,454 | ||
| Other receivables | |||
| USD | 90,925 | 7.0795 | 643,704 |
| JPY | 1,409,525 | 0.0658 | 92,758 |
| HKD | 1,317 | 0.9134 | 1,203 |
| EUR | 40,868 | 7.9610 | 325,350 |
| BRL | 166,064 | 1.2928 | 214,691 |
| Other currencies | Not applicable | Not applicable | 207,726 |
| Sub-total | 1,485,432 | ||
| Total | 24,548,024 | ||
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(59) Monetary items denominated in foreign currencies (Cont’d)
(Cont’d)
| Item | 30 June 2020 | ||
| Foreign currency balance | Exchange rate | RMB balance | |
| Short-term borrowings | |||
| JPY | 2,500,000 | 0.0658 | 164,520 |
| EUR | 34,704 | 7.9610 | 276,279 |
| BRL | 84,962 | 1.2928 | 109,841 |
| Other currencies | Not applicable | Not applicable | 237,144 |
| Sub-total | 787,784 | ||
| Accounts payable | |||
| USD | 269,963 | 7.0795 | 1,911,203 |
| JPY | 5,807,273 | 0.0658 | 382,165 |
| HKD | 33,182 | 0.9134 | 30,310 |
| EUR | 190,755 | 7.9610 | 1,518,601 |
| BRL | 238,938 | 1.2928 | 308,905 |
| Other currencies | Not applicable | Not applicable | 1,169,470 |
| Sub-total | 5,320,654 | ||
| Other payables | |||
| USD | 13,428 | 7.0795 | 95,064 |
| JPY | 6,737,919 | 0.0658 | 443,409 |
| HKD | 13,309 | 0.9134 | 12,157 |
| EUR | 812 | 7.9610 | 6,464 |
| Other currencies | Not applicable | Not applicable | 182,515 |
| Sub-total | 739,609 | ||
| Current portion of non-current liabilities | |||
| EUR | 442,332 | 7.9610 | 3,521,405 |
| USD | 10,042 | 7.0795 | 71,093 |
| Other currencies | Not applicable | Not applicable | 16,442 |
| Sub-total | 3,608,940 | ||
| Long-term borrowings | |||
| USD | 146,453 | 7.0795 | 1,036,814 |
| EUR | 3,946,823 | 7.9610 | 31,420,658 |
| JPY | 69,460,005 | 0.0658 | 4,571,024 |
| Other currencies | Not applicable | Not applicable | 43,147 |
| Sub-total | 37,071,643 | ||
| Total | 47,528,630 | ||
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(59) Monetary items denominated in foreign currencies (Cont’d)
(Cont’d)
| Item | 31 December 2019 | ||
| Foreign currency balance | Exchange rate | RMB balance | |
| Cash at bank and on hand | |||
| USD | 317,624 | 6.9762 | 2,215,810 |
| JPY | 5,212,777 | 0.0641 | 334,139 |
| HKD | 100,593 | 0.8958 | 90,111 |
| EUR | 180,362 | 7.8155 | 1,409,618 |
| BRL | 150,491 | 1.7308 | 260,469 |
| VND | 377,386,667 | 0.0003 | 113,216 |
| Other currencies | Not applicable | Not applicable | 1,309,279 |
| Sub-total | 5,732,642 | ||
| Accounts receivable | |||
| USD | 872,897 | 6.9762 | 6,089,502 |
| JPY | 14,299,236 | 0.0641 | 916,581 |
| HKD | 24,233 | 0.8958 | 21,708 |
| EUR | 345,216 | 7.8155 | 2,698,038 |
| BRL | 578,855 | 1.7308 | 1,001,883 |
| VND | 1,233,736,667 | 0.0003 | 370,121 |
| Other currencies | Not applicable | Not applicable | 1,982,229 |
| Sub-total | 13,080,062 | ||
| Other receivables | |||
| USD | 118,625 | 6.9762 | 827,551 |
| JPY | 2,392,309 | 0.0641 | 153,347 |
| HKD | 11,071 | 0.8958 | 9,917 |
| EUR | 88,187 | 7.8155 | 689,229 |
| BRL | 99,705 | 1.7308 | 172,569 |
| Other currencies | Not applicable | Not applicable | 146,583 |
| Sub-total | 1,999,196 | ||
| Total | 20,811,900 | ||
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
4 Notes to the consolidated financial statements (Cont’d)
(59) Monetary items denominated in foreign currencies (Cont’d)
(Cont’d)
| Item | 31 December 2019 | ||
| Foreign currency balance | Exchange rate | RMB balance | |
| Short-term borrowings | |||
| BRL | 54,530 | 1.7308 | 94,380 |
| EUR | 159,081 | 7.8155 | 1,243,298 |
| Other currencies | Not applicable | Not applicable | 164,160 |
| Sub-total | 1,501,838 | ||
| Accounts payable | |||
| USD | 230,576 | 6.9762 | 1,608,545 |
| JPY | 7,697,192 | 0.0641 | 493,390 |
| HKD | 73,082 | 0.8958 | 65,467 |
| EUR | 183,248 | 7.8155 | 1,432,176 |
| BRL | 262,096 | 1.7308 | 453,636 |
| Other currencies | Not applicable | Not applicable | 1,191,342 |
| Sub-total | 5,244,556 | ||
| Other payables | |||
| USD | 31,148 | 6.9762 | 217,296 |
| JPY | 6,349,314 | 0.0641 | 406,991 |
| HKD | 73,628 | 0.8958 | 65,956 |
| EUR | 8,944 | 7.8155 | 69,899 |
| Other currencies | Not applicable | Not applicable | 105,353 |
| Sub-total | 865,495 | ||
| Current portion of non-current liabilities | |||
| USD | 9,987 | 6.9762 | 69,674 |
| EUR | 176,223 | 7.8155 | 1,377,267 |
| Other currencies | Not applicable | Not applicable | 13,176 |
| Sub-total | 1,460,117 | ||
| Long-term borrowings | |||
| USD | 148,000 | 6.9762 | 1,032,475 |
| EUR | 4,070,228 | 7.8155 | 31,810,870 |
| JPY | 69,444,836 | 0.0641 | 4,451,414 |
| Other currencies | Not applicable | Not applicable | 3,618 |
| Sub-total | 37,298,377 | ||
| Total | 46,370,383 | ||
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
5 Changes of consolidation scope(1)Business combinations involving enterprises not under common control(a)Business combinations involving enterprises not under common control in the current yearIn May 2020, the Group acquired Hiconics. The acquisition has little impact on the Group's overallfinancial position.(2)Changes of consolidation scope due to other reasons(a)Increase of consolidation scopeThe Company and its wholly-owned subsidiary Foshan Midea Air-conditioning Industry Investment Co.,Ltd. established Midea Group (Shanghai) Co. Ltd. in January 2020, holding 90% and 10% of the equityrespectively.The Company's wholly-owned subsidiary Foshan Shunde Midea Household Appliances Industry Co., Ltd.established Chongqing Midea Commercial Factoring Co., Ltd. in March 2020.The Company's wholly-owned subsidiary Wuhu Annto Investment Co., Ltd. and the Company's wholly-owned subsidiary Annto Logistics Technology Co., Ltd. established Tianjin Annto Network TechnologyCo., Ltd. in April 2020, holding 99% and 1% of the equity respectively.The Company and its wholly-owned subsidiary Foshan Midea Air-conditioning Industry Investment Co.,Ltd. established Western-style Electric Products Company in June 2020, holding 90% and 10% of theequity respectively.(b)Decrease of consolidation scopeDecrease of consolidation scope mainly includes deregistration of subsidiaries, details are as follows:
| Name of company | Disposal method of the equity | Disposal time-point of the equity |
| Wuhu Midea Washing Appliances Trade Co., Ltd. | Deregistration | January 2020 |
| Dongguan Kafei Electric Products CO., Ltd | Deregistration | March 2020 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
6 Interests in other entities
(1) Interests in subsidiaries
(a) Composition of significant subsidiaries
| Subsidiaries | Major business location | Place of registration | Nature of business | Shareholding (%) | Acquisition method | |
| Direct | Indirect | |||||
| GD Midea Air-Conditioning Equipment Co., Ltd. | Foshan, PRC | Foshan, PRC | Manufacture and sales of air conditioner | 73% | 7% | Business combination involving enterprise not under common control |
| GD Midea Group Wuhu Air-Conditioning Equipment Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Manufacture and sales of air conditioner | 73% | 7% | Business combination involving enterprise not under common control |
| Midea Group Wuhan Refrigeration Equipment Co., Ltd. | Wuhan, PRC | Wuhan, PRC | Manufacture of air conditioner | 73% | 7% | Establishment |
| Wuhu Maty Air-Conditioning Equipment Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Manufacture of air conditioner | 87% | 13% | Establishment |
| Zhejiang Meizhi Compressor Co., Ltd. | Ningbo, PRC | Ningbo, PRC | Manufacture of compressor | 100% | - | Establishment |
| Hefei Hualing Co., Ltd. | Hefei, PRC | Hefei, PRC | Manufacture of refrigerator | 75% | 25% | Business combination involving enterprise not under common control |
| Ningbo Midea United Materials Supply Co. Ltd. | Ningbo, PRC | Ningbo, PRC | Process and sales of materials | 100% | - | Business combinations involving enterprises under common control |
| Guangdong Midea Kitchen Appliances Manufacturing Co., Ltd. | Foshan, PRC | Foshan, PRC | Manufacture of small household appliances | - | 100% | Establishment |
| Foshan Shunde Midea Electrical Heating Appliances Manufacturing Co., Ltd. | Foshan, PRC | Foshan, PRC | Manufacture of small household appliances | - | 100% | Establishment |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Manufacture of small household appliances | 90% | 10% | Business combinations involving enterprises under common control |
| Wuxi Little Swan Electric Co., Ltd. | Wuxi, PRC | Wuxi, PRC | Manufacture of washing machine | 100% | - | Establishment |
| Midea Electric Trading (Singapore) Co., Pte. Ltd. | Singapore | Singapore | Export trade | - | 100% | Establishment |
| Midea Microfinance Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Petty loan | 5% | 95% | Business combination involving enterprise not under common control |
| MECCA INTERNATIONAL (BVI) LIMITED | British Virgin Islands | British Virgin Islands | Investment holding | - | 100% | Establishment |
| Midea International Corporation Company Limited | Hong Kong | Hong Kong | Investment holding | 100% | - | Establishment |
| Wuhu Midea Life Appliances Mfg Co., Ltd. | Wuhu, PRC | Wuhu, PRC | Manufacture of small household appliances | 100% | - | Establishment |
| Midea Electric Netherlands (I) B.V. | Netherlands | Netherlands | Investment holding | - | 100% | Establishment |
| Toshiba Consumer Marketing Corporation | Japan | Japan | Manufacture of home appliances | - | 100% | Business combination involving enterprise not under common control |
| TLSC | Japan | Japan | Manufacture of home appliances | - | 100% | Business combination involving enterprise not under common control |
| KUKA | Germany | Germany | Manufacture and sales of robots | - | 95% | Business combination involving enterprise not under common control |
| Midea Commercial Factoring Co., Ltd. | Shenzhen, PRC | Shenzhen, PRC | Factoring | - | 100% | Establishment |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
6 Interests in other entities (Cont’d)
(2) Interest in associates and joint ventures
The Group’s associates and joint ventures have no significant influence on the Group and aresummarised as follows:
| Item | Current period | Same period of prior year |
| Aggregated carrying amount of investments | 2,998,466 | 2,619,985 |
| Aggregate of the following items in proportion | ||
| Net profit (i) | 261,136 | 232,596 |
| Other comprehensive income (i) | (8,721) | (251) |
| Total comprehensive income | 252,415 | 232,345 |
(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 andassociates and the unification of accounting policies adopted by the joint ventures and the associates tothose adopted by the Company.7 Segment information
The reportable segments of the Group are the business units that provide different products or service,or operate in the different areas. Different businesses or areas require different technologies andmarketing strategies, the Group, therefore, separately manages the production and operation of eachreportable segment and evaluates their operating results respectively, in order to make decisions aboutresources to be allocated to these segments and to assess their performance.The Group identified 4 reportable segments as follows:
-Heating & ventilation, as well as air-conditioner
-Consumer appliances-Robotics and automation system-OthersInter-segment transfer prices are measured by reference to selling prices to third parties.The assets are allocated based on the operations of the segment and the physical location of the asset.The liabilities are allocated based on the operations of the segment. Expenses indirectly attributable toeach segment are allocated to the segments based on the proportion of each segment’s revenue.Operating expenses include cost of sales, interest expenses, fee and commission expenses, businesstaxes and surcharges, selling and distribution expenses, general and administrative expenses, researchand development expenses and financial expenses.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(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 six months ended 30 June 2020 is as follows:
| Item | Current period | |||||
| Heating & ventilation, as well as air-conditioner | Consumer appliances | Robotics and automation system | Other segments and unallocated | Elimination | Total | |
| Revenue from external customers | 72,226,513 | 55,444,326 | 9,566,800 | 2,481,639 | - | 139,719,278 |
| Inter-segment revenue | 1,106,271 | 131,504 | 69,473 | 3,854,479 | (5,161,727) | - |
| Operating expenses | (65,461,208) | (48,664,573) | (10,395,446) | (5,299,952) | 5,167,193 | (124,653,986) |
| Segment profit | 7,871,576 | 6,911,257 | (759,173) | 1,036,166 | 5,466 | 15,065,292 |
| Other profit or loss | 1,330,779 | |||||
| Total profit | 16,396,071 | |||||
| Total assets | 136,165,971 | 119,403,019 | 35,643,752 | 160,618,342 | (117,168,420) | 334,662,664 |
| Total liabilities | 95,110,168 | 86,527,001 | 25,342,328 | 142,206,904 | (126,885,838) | 222,300,563 |
| Long-term equity investments in associates and joint ventures | 348,022 | 101,184 | 83,959 | 2,465,301 | - | 2,998,466 |
| Investment income from associates and joint ventures | 83,347 | 3,413 | (11,786) | 186,162 | - | 261,136 |
| Increase in non-current assets (excluding long-term equity investments, financial assets, goodwill and deferred tax assets) | 1,009,325 | 822,837 | 1,615,944 | 150,978 | - | 3,599,084 |
| Losses on/(Reversal of) asset impairment | 30,949 | 82,862 | 18,861 | 747 | - | 133,419 |
| Losses on/(Reversal of) credit impairment | 165,412 | 54,730 | 79,298 | 186,826 | (24,268) | 461,998 |
| Depreciation and amortisation | 880,664 | 818,324 | 514,688 | 289,669 | - | 2,503,345 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(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 six months ended 30 June 2019 is as follows:
| Item | Same period of prior year | |||||
| Heating & ventilation, as well as air-conditioner | Consumer appliances | Robotics and automation system | Other segments and unallocated | Elimination | Total | |
| Revenue from external customers | 79,778,444 | 60,426,835 | 12,084,387 | 2,042,977 | - | 154,332,643 |
| Inter-segment revenue | 993,792 | 264,787 | 47,256 | 3,661,828 | (4,967,663) | - |
| Operating expenses | (71,907,225) | (52,887,636) | (12,140,447) | (4,260,502) | 4,977,655 | (136,218,155) |
| Segment profit | 8,865,011 | 7,803,986 | (8,804) | 1,444,303 | 9,992 | 18,114,488 |
| Other profit or loss | 775,027 | |||||
| Total profit | 18,889,515 | |||||
| Total assets | 121,477,633 | 103,830,902 | 30,350,434 | 94,354,997 | (65,980,141) | 284,033,825 |
| Total liabilities | 82,545,313 | 68,130,341 | 28,194,003 | 86,580,130 | (80,017,965) | 185,431,822 |
| Long-term equity investments in associates and joint ventures | 188,801 | 86,822 | 95,577 | 2,248,785 | - | 2,619,985 |
| Investment income from associates and joint ventures | 56,685 | (3,690) | (14,086) | 193,687 | - | 232,596 |
| Increase in non-current assets (excluding long-term equity investments, financial assets, goodwill and deferred tax assets) | 859,981 | 586,123 | 385,257 | 186,190 | - | 2,017,551 |
| Losses on/(Reversal of) asset impairment | 95,918 | (5,346) | 51,295 | 2,789 | - | 144,656 |
| Losses on/(Reversal of) credit impairment | 240,705 | 92,404 | (111,056) | 1,406 | (44,412) | 179,047 |
| Depreciation and amortisation | 799,036 | 832,223 | 528,676 | 283,868 | - | 2,443,803 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(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 or geographicalareas, and the total non-current assets other than long-term equity investments, financial assets,goodwill and deferred tax assets located domestically and in foreign countries or geographical areas(including Germany, Japan, Hong Kong, Macau, Singapore, Brazil, etc.) are as follows:
| Revenue from external customers | Current period | Same period of prior year |
| Domestic | 77,885,398 | 92,226,461 |
| In other countries/geographical areas | 61,833,880 | 62,106,182 |
| Total | 139,719,278 | 154,332,643 |
| Total non-current assets | Current period | Same period of prior year |
| Domestic | 23,375,157 | 22,478,988 |
| In other countries/geographical areas | 18,283,578 | 18,488,441 |
| Total | 41,658,735 | 40,967,429 |
9 Related parties and significant related party transactions
(1) Information of the parent company
(a)General information of the parent company
| Name of the parent company | Relationship | Place of registration | Nature of business |
| Midea Holding Co., Ltd. | Controlling shareholder | Shunde District, Foshan | Commercial |
The Company’s ultimate controlling person is Mr. He Xiangjian.(b)Registered capital and changes in registered capital of the parent company
| Name of the parent company | Registered capital |
| Midea Holding Co., Ltd. | 330,000 |
(c)The percentages of shareholding and voting rights in the Company held by the parent company
| Name of the parent company | At end of period | At beginning of period | ||||
| Shareholding (%) | Voting rights (%) | Shareholding (%) | Voting rights (%) | |||
| Direct | Indirect | Direct | Indirect | |||
| Midea Holding Co., Ltd. | 31.56% | - | 31.56% | 31.73% | - | 31.73% |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
9 Related parties and significant related party transactions (Cont’d)
(2) Information of the Company's subsidiaries
Please refer to Note 6(1) for the information of the Company’s main subsidiaries.
(3) Information of other related parties
| Name of other related parties | Relationship |
| GuangDong Wellkey Electric Material Co., Ltd. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholder |
| Anhui Wellkey Electric Material Co., Ltd. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholder |
| Infore Material-Tech Corp. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholder |
| Orinko Advanced Plastics Co., Ltd. | Under the common control of the direct relatives of the Company’s ultimate controlling shareholder |
| Guangdong Ruizhu Intelligent Technoloy Co., ltd. | Under the common control of the Company’s ultimate controlling shareholder |
| Foshan Micro Midea Filter Mfg. Co., Ltd. | Associates of the Company |
| Guangdong Shunde Rural Commercial Bank Co., Ltd. | Associates of the Company |
| Changsha Weikang Power Technology Co., Ltd | Associated enterprise of the Company's holding subsidiary |
(4) Information of related party transactions
The following primary related party transactions with major related parties are conducted inaccordance with normal commercial terms or relevant agreements.(a)Purchase of goods:
| Related parties | Content of related party transactions | Pricing policies of related party transactions | Current period | Same period of prior year |
| Orinko Advanced Plastics Co., Ltd. | Purchase of goods | Agreed price | 518,566 | 684,725 |
| GuangDong Wellkey Electric Material Co., Ltd. | Purchase of goods | Agreed price | 380,731 | 449,341 |
| Foshan Micro Midea Filter Mfg. Co., Ltd. | Purchase of goods | Agreed price | 132,510 | 136,125 |
| Anhui Wellkey Electric Material Co., Ltd. | Purchase of goods | Agreed price | 125,375 | 159,781 |
| Total | 1,157,182 | 1,429,972 |
(b)Selling of goods:
| Related parties | Content of related party transactions | Pricing policies of related party transactions | Current period | Same period of prior year |
| Guangdong Ruizhu Intelligent Technoloy Co., ltd. | Selling of goods | Agreed price | 74,206 | 30,481 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
9 Related parties and significant related party transactions (Cont’d)
(5) Receivables from and payables to related parties
Receivables from related parties:
| Items | Related parties | Ending balance | Opening balance |
| Cash at bank and on hand | Guangdong Shunde Rural Commercial Bank Co., Ltd. | 3,789,151 | 3,058,300 |
| Other receivable | Changsha Weikang Power Technology Co., Ltd. | 38,018 | - |
| Sub-total | 3,827,169 | 3,058,300 |
Payables to related parties:
| Items | Related parties | Ending balance | Opening balance |
| Accounts payable | GuangDong Wellkey Electric Material Co., Ltd. | 149,594 | 201,956 |
| Foshan Micro Midea Filter Mfg. Co., Ltd. | 57,791 | 68,258 | |
| Orinko Advanced Plastics Co., Ltd. | 122,008 | 80,121 | |
| Anhui Wellkey Electric Material Co., Ltd. | 46,516 | 60,373 | |
| Sub-total | 375,909 | 410,708 | |
| Notes payable | GuangDong Wellkey Electric Material Co., Ltd. | 33,492 | - |
| Total | 409,401 | 410,708 |
10 Share-based payment
(1) Share option incentive plan
(a) Pursuant to the seventh share option incentive plan (the “Seventh Share Option Incentive Plan”)
approved at the 2019 annual shareholders’ meeting in 2020, the Company granted 65,180,000 shareoptions with exercise price of RMB 50.43 to 1,423 employees. Under the circumstance that theCompany meets expected performance, 1/3 of the total share options granted will become effectiveafter 1 year, 2 years and 3 years respectively since 5 June 2020.The completion of the registration ofshare options granted under this plan is 8 July 2020.Determination method for fair value of share options at the grant date
| Exercise price of options: | RMB 50.43 |
| Effective period of options: | 4 years |
| Current price of underlying shares: | RMB 58.95 |
| Estimated fluctuation rate of share price: | 35.67% |
| Estimated dividend rate: | 3.13% |
| Risk-free interest rate within effective period of options: | 2.06% |
The fair value of the Seventh Share Option Incentive Plan calculated pursuant to the aboveparameters is: RMB 1,001,164,000.(b) Movements in share options during the six months ended 30 June 2020
| Item | For the six months ended 30 June 2020 (Share in thousands) | For the six months ended 30 June 2019 (Share in thousands) |
| Share options issued at beginning of year | 182,905 | 229,836 |
| Share options granted during current period | - | 51,880 |
| Share options exercised during current period | (41,353) | (51,733) |
| Share options lapsed during current period | (16,051) | (8,916) |
| Share options issued at end of period | 125,501 | 221,067 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
10 Share-based payment (Cont’d)
(1) Share option incentive plan (Cont’d)
(b) Movements in share options during the six months ended 30 June 2020 (Cont’d)
As at 30 June 2020, the residual contractual maturity date of the Third Share Option Incentive Plan ison 27 June 2021. The residual contractual maturity date of the Fourth Share Option Incentive Plan ison 11 May 2021. The residual contractual maturity date of the Fifth Share Option Incentive Plan is on6 May 2024. The residual contractual maturity date of the Fifth Reserved Share Option Incentive Planis on 10 March 2025. The residual contractual maturity date of the Sixth Share Option Incentive Planis 29 May 2025.
(2) Restricted share plan
(a) Pursuant to the restricted shares incentive plan for 2020 approved at the 2019 annual shareholders’
meeting in 2020 (the "Restricted Shares Incentive Plan for 2020"), the Company granted 34,180,000restricted shares with exercise price of RMB 24.42 to 520 employees. Under the circumstance that theCompany meets expected performance, 1/3 of the total restricted shares granted will be unlockedafter 1 year, 2 years and 3 years respectively, since 5 June 2020. The listing date for the grantedrestricted shares of this plan is 14 July 2020.(b) Movements in restricted shares during the six months ended 30 June 2020
(3) The total expenses due to the above share-based payment incentive plan for the six months ended 30
June 2020, were RMB 458,560,000. As at 30 June 2020, the balance relating to the share-basedpayment incentive and accrued from capital surplus was RMB 1,106,156,000.11 Contingencies
As at 30 June 2020, the amount in tax disputes involving Brazilian subsidiary with 51% interests heldby the Company is about BRL 669 million (equivalent to RMB 865 million) (Some cases have lastedfor more than 10 years. The above amount includes the principal and interest). As at 30 June 2020,relevant cases are still at court. Original shareholders of Brazilian subsidiary have agreed tocompensate the Company according to verdict results of the above tax disputes. The maximumcompensation amount is about BRL 157 million (equivalent to RMB 203 million). With reference tojudgements of third-party attorneys, that the probability of losing lawsuits and making compensation issmall, and expects no significant risk of tax violation .
| Item | For the six months ended 30 June 2020 (Share in thousands) | For the six months ended 30 June 2019 (Share in thousands) |
| Restricted shares issued at beginning of year | 57,139 | 40,185 |
| Restricted shares granted during current period | - | 30,980 |
| Restricted shares unlocked during current period | (10,577) | (7,193) |
| Restricted shares lapsed during current period | (3,507) | (6,833) |
| Restricted shares issued at end of period | 43,055 | 57,139 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
12 Commitments
The Group has no significant commitments as at the balance sheet date.13 Events after the balance sheet date
Nil.14 Financial risk
The Group is exposed to various financial risks in the ordinary course of business, mainly including:
? Market risk (mainly including foreign exchange risk, interest rate risk and price risk)
? Credit risk
? Liquidity risk
The following mainly relates to the above risk exposures and relevant causes, objectives, policies and
process of risk management, method of risk measurement, etc.
The objective of the Group's risk management is to seek balance between risk and income,
minimising the adverse impact of financial risks on the Group's financial performance. Pursuant to the
risk management objective, the Group has made risk management policies to identify and analyse the
risks it is exposed to and set appropriate risk resistant level and design relevant internal control
procedures to monitor the Group’s risk level. The Group reviews regularly these risk management
policies and relevant internal control systems to adapt to changes in market condition or its operating
activities.
(1) Market risk
(a) Foreign exchange risk
The Group mainly operates in China, Europe, America, Asia, South America and Africa for the
manufacturing, sales, investments and financing activities. Any foreign currency denominated
monetary assets and liabilities other than in RMB would subject the Group to foreign exchange
exposure.
The Group’s finance department at its headquarters has a professional team to manage foreign
exchange risk, with approach of the natural hedge for settling currencies, signing forward foreign
exchange hedging contracts and controlling the scale of foreign currency assets and liabilities, to
minimise foreign exchange risk, and to reduce the impact of exchange rate fluctuations on business
performance.(b) Interest rate risk
The Group's interest rate risk arises from interest bearing borrowings including long-term borrowings
and debentures payable. Financial liabilities issued at floating rates expose the Group to cash flow
interest rate risk. Financial liabilities issued at fixed rates expose the Group to fair value interest rate
risk. The Group determines the relative proportions of its fixed rate and floating rate contracts
depending on the prevailing market conditions. As at 30 June 2020, the Group’s long-term interest
bearing borrowings at floating rates amounting to RMB 992,349,000 (31 December 2019: RMB
971,090,000) (Note 4(34)).
The Group’s finance department at its headquarters continuously monitors the interest rate position of
the Group. Increases in interest rates will increase the cost of new borrowing and the interest
expenses with respect to the Group’s outstanding floating rate borrowings, and therefore could have a
material adverse effect on the Group’s financial performance. The Group makes adjustments timely
with reference to the latest market conditions and may enter into interest rate swap agreements to
mitigate its exposure to interest rate risk.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
14 Financial risk (Cont’d)
(1) Market risk (Cont’d)
(c) Other price risk
The Group's other price risk arises mainly from financial assets held for trading (Note 4(2))and other non-current financial assets (Note 4(15)) measured at fair value. As at 30 June2020, if expected price of the investments held by the Group fluctuated, the Group's gains orlosses on changes in fair value would be affected accordingly.
(2) Credit risk
Credit risk mainly arises from cash at bank and on hand, deposits with the Central Bank,deposits with banks and other financial institutions, notes receivable, accounts receivable,receivables financing, loans and advances, other receivables, contract assets, other debtinvestments and derivative financial assets at fair value through profit or loss that are notincluded in the impairment assessment scope. As at the balance sheet date, the carryingamount of the Group’s financial assets represented the Group’s maximum exposure to creditrisk, and no guarantee was provided that would expose the Group to credit risk.The Group expects that there is no significant credit risk associated with cash at bank,deposits with the Central Bank and deposits with banks and other financial institutions sincethey are deposited at state-owned banks and other medium or large size listed banks.Management does not expect that there will be any significant losses from non-performanceby these counterparties.In addition, the Group has policies to limit the credit exposure on notes receivable, accountsreceivable, receivables financing, loans and advances, other receivables, contract assets,monetary investments in other current assets, structural deposits and other debt investments.The Group assesses the credit quality of and sets credit limits on its customers by taking intoaccount their financial position, the availability of guarantee from third parties, their credithistory and other factors such as current market conditions. The credit history of thecustomers is regularly monitored by the Group. In respect of customers with a poor credithistory, the Group will use written payment reminders, or shorten or cancel credit periods, toensure the overall credit risk of the Group is limited to a controllable extent.
(3) Liquidity risk
Cash flow forecasting is performed by each subsidiary of the Group and aggregated by theGroup’s finance department in its headquarters. The Group’s finance department at itsheadquarters monitors rolling forecasts of the Group's short-term and long-term liquidityrequirements to ensure it has sufficient cash and securities that are readily convertible tocash to meet operational needs, while maintaining sufficient headroom on its undrawncommitted borrowing facilities from major financial institutions so that the Group does notbreach borrowing limits or covenants on any of its borrowing facilities to meet the short-termand long-term liquidity requirements. As at 30 June 2020, monetary assets held by the Group,including cash at bank and on hand, notes receivable, notes receivable included in loans andadvances, discounted assets, notes receivable included in receivables financing andstructural deposits, monetary investments and other debt investments included in othercurrent assets amounted to RMB 177,892,421,000.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
14 Financial risk (Cont’d)
(3) Liquidity risk (Cont’d)
The financial liabilities of the Group at the balance sheet date are analysed by their maturity datesbelow at their undiscounted contractual cash flows:
30 June 2020
| Item | Within 1 year | 1 to 2 years | 2 to 5 years | Over 5 years | Total |
| Short-term borrowings (including interest) | 13,150,335 | - | - | - | 13,150,335 |
| Customer deposits and deposits from banks and other financial institutions | 62,935 | - | - | - | 62,935 |
| Notes payable | 27,041,933 | - | - | - | 27,041,933 |
| Accounts payable | 49,491,783 | - | - | - | 49,491,783 |
| Other payables | 4,241,494 | - | - | - | 4,241,494 |
| Derivative financial liabilities | 83,471 | - | - | - | 83,471 |
| Other current liabilities (including interest) | 20,703,361 | - | - | - | 20,703,361 |
| Current portion of non-current liabilities (including interest) | 7,830,700 | - | - | - | 7,830,700 |
| Long-term borrowings (including interest) | 350,032 | 1,085,871 | 36,428,221 | - | 37,864,124 |
| Long-term payable | - | 16,411 | 4,390 | - | 20,801 |
| Other non-current liabilities | - | - | 837,967 | - | 837,967 |
| Sub-total | 122,956,044 | 1,102,282 | 37,270,578 | - | 161,328,904 |
31 December 2019
| Ending balance | Within 1 year | 1 to 2 years | 2 to 5 years | Over 5 years | Total |
| Short-term borrowings (including interest) | 5,840,214 | - | - | - | 5,840,214 |
| Customer deposits and deposits from banks and other financial institutions | 62,521 | - | - | - | 62,521 |
| Notes payable | 23,891,600 | - | - | - | 23,891,600 |
| Accounts payable | 42,535,777 | - | - | - | 42,535,777 |
| Other payables | 3,800,568 | - | - | - | 3,800,568 |
| Derivative financial liabilities | 27,100 | - | - | - | 27,100 |
| Other current liabilities | 12,899,763 | - | - | - | 12,899,763 |
| Current portion of non-current liabilities (including interest) | 1,471,468 | - | - | - | 1,471,468 |
| Long-term borrowings (including interest) | 512,262 | 4,425,755 | 37,467,552 | - | 42,405,569 |
| Long-term payables | - | 29,256 | 4,390 | - | 33,646 |
| Other non-current liabilities | - | - | 863,826 | - | 863,826 |
| Sub-total | 91,041,273 | 4,455,011 | 38,335,768 | - | 133,832,052 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
15 Fair value estimates
The level in which fair value measurement is categorised is determined by the level of the fair valuehierarchy of the lowest level input that is significant to the entire fair value measurement:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly.Level 3: Unobservable inputs for the asset or liability.
(1) Assets and liabilities measured at fair value on a recurring basis
As at 30 June 2020, the assets and liabilities measured at fair value on a recurring basis by the abovethree levels are analysed below:
| Item | Fair value at end of period | |||
| Level 1 | Level 2 | Level 3 | Total | |
| Financial assets measured at fair value - | ||||
| Financial assets held for trading | 1,469,263 | - | - | 1,469,263 |
| Derivative financial assets | - | 110,454 | - | 110,454 |
| Receivables financing | - | 8,990,911 | - | 8,990,911 |
| Other current assets – hedging instruments | - | 168,942 | - | 168,942 |
| Structural deposits | - | 53,684,822 | - | 53,684,822 |
| Other debt investments | - | 19,283,310 | - | 19,283,310 |
| Other equity investments | - | - | 48,020 | 48,020 |
| Other non-current financial assets | - | - | 2,138,404 | 2,138,404 |
| Total assets | 1,469,263 | 82,238,439 | 2,186,424 | 85,894,126 |
| Financial liabilities measured at fair value - | ||||
| Derivative financial liabilities | - | 83,471 | - | 83,471 |
| Other financial liabilities – hedging instruments | - | 47,833 | - | 47,833 |
| Total liabilities | - | 131,304 | - | 131,304 |
As at 31 December 2019, the assets and liabilities measured at fair value on a recurring basis by theabove three levels are analysed below:
| Item | Fair value at beginning of year | |||
| Level 1 | Level 2 | Level 3 | Total | |
| Financial assets measured at fair value - | ||||
| Financial assets held for trading | 1,087,351 | - | - | 1,087,351 |
| Derivative financial assets | - | 197,412 | - | 197,412 |
| Receivables financing | - | 7,565,776 | - | 7,565,776 |
| Other current assets – hedging instruments | - | 98,572 | - | 98,572 |
| Structural deposits | 50,557,518 | - | 50,557,518 | |
| Other non-current financial assets | - | - | 1,750,107 | 1,750,107 |
| Total assets | 1,087,351 | 58,419,278 | 1,750,107 | 61,256,736 |
| Financial liabilities measured at fair value - | ||||
| Derivative financial liabilities | - | 27,100 | - | 27,100 |
| Other financial liabilities – hedging instruments | - | 32 | - | 32 |
| Total liabilities | - | 27,132 | - | 27,132 |
The Group takes the date on which events causing the transfers between the levels take place as thetiming specific for recognising the transfers. There was no significant transfer of fair valuemeasurement level of the above financial instruments among the three levels.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
15 Fair value estimates (Cont’d)
(1) Assets and liabilities measured at fair value on a recurring basis (Cont’d)
The fair value of financial instruments traded in an active market is determined at the quoted marketprice; and the fair value of those not traded in an active market is determined by the Group usingvaluation technique. The valuation models used mainly comprise discounted cash flow model andmarket comparable corporate model. Inputs of valuation technique mainly comprise risk-free interestrate, estimated interest rate and estimated annual yield.There was no change in the valuation technique for the fair value of the Group’s financial instrumentsin current year.The changes in Level 3 financial assets are analysed below:
| Item | Amount |
| 1 January 2020 | 1,750,107 |
| Increase | 380,520 |
| Decrease | (16,535) |
| Total gains of current period | |
| Income recognised in the income statement | 74,108 |
| Gains recognised in other comprehensive income | (1,776) |
| 30 June 2020 | 2,186,424 |
| Item | Amount |
| 31 December 2018 | 1,583,257 |
| Impact of changes in standards | 732,448 |
| 1 January 2019 | 2,315,705 |
| Increase | 4,232,805 |
| Decrease | (5,274,444) |
| Transfer out from Level 3 | (56,340) |
| Total gains of current period | |
| Income recognised in the income statement | 509,578 |
| Gains recognised in other comprehensive income | 22,803 |
| 31 December 2019 | 1,750,107 |
(a) The fair value of this part of other non-current financial assets is measured using discounted cash
flows approach. The judgement of Level 3 of the fair value hierarchy is based on the materiality ofunobservable inputs towards calculation of whole fair value. Significant unobservable inputs mainlyinclude the financial data of targeted company and risk adjusted discount rates.Assets and liabilities subject to Level 2 fair value measurement are mainly structural deposits,receivables financing, other debt investments and forward exchange contracts and are evaluated bymarket approach and income approach.
(2) Assets and liabilities not measured at fair value but disclosed
The Group's financial assets and financial liabilities measured at amortised cost mainly include: cashat bank and on hand, deposits with the Central Bank, deposits with banks and other financialinstitutions, notes receivable, accounts receivable, contract assets, loans and advances, otherreceivables, other current assets (excluding those mentioned in Note 15(1)), notes payable, accountspayable, contract liabilities, short-term borrowings, borrowings from the Central Bank, long-termborrowings, current portion of non-current liabilities, customer deposits and deposits from banks andother financial institutions, other payables, other current liabilities, etc.Carrying amounts of the Group’s financial assets and financial liabilities measured at amortised costas at 30 June 2020 and 31 December 2019 approximated to their fair value.
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
16 Capital management
The Group’s capital management policies aim to safeguard the Group’s ability to continue as a goingconcern in order to provide returns for shareholders and benefits for other stakeholders, and tomaintain an optimal capital structure to reduce the cost of capital.In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paidto shareholders, refund capital to shareholders, issue new shares or sell assets to reduce debts.The Group is not subject to external mandatory capital requirements, and monitors capital structure onthe basis of gearing ratio (total liabilities divide total assets).As at 30 June 2020 and 31 December 2019, the Group's gearing ratio is as follows
| Item | Ending balance | Opening balance |
| Total liabilities | 222,300,563 | 194,459,322 |
| Total assets | 334,662,664 | 301,955,419 |
| Gearing ratio | 66.43% | 64.40% |
17 Notes to the parent company’s financial statements
(1) Other receivables
| Item | Ending balance | Opening balance |
| Other receivables | 18,428,387 | 18,377,123 |
| Less: Provision for bad debts | (14,067) | (7,258) |
| Total | 18,414,320 | 18,369,865 |
(a) The ageing of other receivables is analysed as follows:
| Ageing | Ending balance | Opening balance |
| Within 1 year | 18,154,570 | 18,356,942 |
| 1 to 2 years | 270,561 | 19,000 |
| 2 to 3 years | 3,256 | 1,181 |
| Total | 18,428,387 | 18,377,123 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the parent company’s financial statements (Cont’d)
(1) Other receivables (Cont’d)
(b) Provision for bad debts and changes in book balance statements
| Item | Stage 1 | Stage 3 | |||||
| 12-month ECL (Grouping) | 12-month ECL (Individual) | Lifetime ECL (Credit impaired) | Sub-total | ||||
| Book balance | Provision for bad debts | Book balance | Provision for bad debts | Book balance | Provision for bad debts | Provision for bad debts | |
| 1 January 2020 | 732,508 | 7,200 | 17,644,557 | - | 58 | 58 | 7,258 |
| Net increase in current period | (585,351) | 6,809 | 636,615 | - | - | - | 6,809 |
| Including: Written-off in current period | - | - | - | - | - | - | - |
| Derecognition | - | - | - | - | - | - | - |
| Reversal in current period | - | - | - | - | - | - | - |
| Differences on translation of foreign currency financial statements | - | - | - | - | |||
| 30 June 2020 | 147,157 | 14,009 | 18,281,172 | - | 58 | 58 | 14,067 |
As at 30 June 2020, the Company did not have other receivables in stage 2.(c) As at 30 June 2020, the Group’s other receivables at stage 1 and stage 3 were analysed as follows:
(i)As at 30 June 2020, other receivables for which the related provision for bad debts was provided on
the individual basis were analysed as follows:
| Category | Ending balance | |||
| Book balance | ECL rate in the following 12 months | Provision for bad debts | Reason | |
| Stage 1 | 18,281,172 | |||
0%
| - | Relatively low bad debt risks |
| Category | Ending balance | |||
| Book balance | ECL rate in the following 12 months | Provision for bad debts | Reason | |
| Stage 3 | 58 | 100.00% | (58) | The debtor encountered financial difficulties |
(ii)As at 30 June 2020, other receivables at stage 1 for which the related provision for bad debts was
provided on the grouping basis were analysed as follows:
| Item | Opening balance | ||
| Book balance | Provision for bad debts | ||
| Amount | Amount | Provision ratio | |
| Security deposit/guarantee payables grouping | 147,157 | (14,009) | 9.52% |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the parent company’s financial statements (Cont’d)
(1) Other receivables (Cont’d)
(d) As at 30 June 2020, other receivables from the top five debtors are analysed as below:
| Name of entity | Nature | Book balance | Ageing | % of total balance | Provision for bad debts |
| Company A | Current accounts | 16,320,000 | Within 1 year | 88.56% | - |
| Company B | Current accounts | 649,890 | Within 1 year | 3.53% | - |
| Company C | Receivables related to share options | 250,822 | Within 1 year | 1.36% | - |
| Company D | Current accounts | 249,997 | Within 1 year | 1.36% | - |
| Company E | Current accounts | 231,474 | Within 1 year | 1.26% | - |
| Sub-total | 17,702,183 | 96.07% | - |
(2) Long-term equity investments
Long-term equity investments are classified as follows:
| Item | Ending balance | Opening balance |
| Subsidiaries (a) | 51,533,711 | 51,025,905 |
| Associates (b) | 1,606,990 | 1,579,954 |
| Sub-total | 53,140,701 | 52,605,859 |
| Less: Provision for impairment | - | - |
| Total | 53,140,701 | 52,605,859 |
MIDEA GROUP CO., LTD.NOTES TO THE FINANCIAL STATEMENTSFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the parent company’s financial statements (Cont’d)(2)Long-term equity investments (Cont’d)(a)Subsidiaries
| Name of investee | Opening balance | Movements in current period | Ending balance | Cash dividends declared in current period | ||
| Increase in investment | Decrease in investment | Others | ||||
| Wuxi Little Swan Company Limited | 20,117,836 | - | - | 22,663 | 20,140,499 | - |
| Guangdong Midea Electric Co., Ltd. | 5,000,000 | - | - | - | 5,000,000 | - |
| Midea Group Finance Co., Ltd. | 3,358,112 | - | - | 1,726 | 3,359,838 | - |
| Foshan Shunde Midea Household Appliances Industry Co., Ltd. | 2,949,000 | - | - | - | 2,949,000 | - |
| Guangdong Midea Microwave Oven Manufacturing Co., Ltd. | 1,880,041 | - | - | - | 1,880,041 | - |
| GD Midea Air-Conditioning Equipment Co., Ltd. | 1,662,637 | - | - | 136,369 | 1,799,006 | - |
| Guangdong Midea Consumer Electric Manufacturing Co., Ltd. | 1,109,106 | - | - | 19,538 | 1,128,644 | - |
| Hefei Midea Heating & Ventilating Equipment Co., Ltd. | 1,071,459 | - | - | 3,332 | 1,074,791 | 1,499,310 |
| Guangdong Midea Intelligent Technologies Co., Ltd. | 1,051,011 | - | - | 522 | 1,051,533 | - |
| Hubei Midea Refrigerator Co., Ltd. | 847,490 | - | - | 2,161 | 849,651 | - |
| Wuhu Maty Air-Conditioning Equipment Co., Ltd. | 757,331 | - | - | 2,359 | 759,690 | - |
| GD Midea Heating & Ventilating Equipment Co., Ltd. | 700,228 | - | - | 33,026 | 733,254 | 1,045,319 |
| Hefei Midea Refrigerator Co., Ltd. | 512,920 | - | - | 9,629 | 522,549 | - |
| Ningbo Midea United Materials Supply Co. Ltd. | 495,419 | - | - | 1,982 | 497,401 | 656,827 |
| GD Midea Group Wuhu Air-Conditioning Equipment Co., Ltd. | 352,041 | - | - | - | 352,041 | - |
| Hefei Hualing Co., Ltd. | 212,852 | - | - | 19,586 | 232,438 | - |
| Midea International Corporation Company Limited | 176,974 | - | - | - | 176,974 | - |
| Wuhu Midea Kitchen & Bath Appliances Mfg. Co., Ltd. | 161,185 | - | - | 12,562 | 173,747 | 976,385 |
| Midea Group Wuhan Refrigeration Equipment Co., Ltd. | 102,959 | - | - | 3,177 | 106,136 | - |
| Zhejiang Meizhi Compressor Co., Ltd. | 65,654 | - | - | 1,211 | 66,865 | 857,440 |
| Foshan Shunde Midea Microfinance Loan Co., Ltd. | 56,332 | - | - | 489 | 56,821 | - |
| Wuhu Midea Life Appliances Mfg Co., Ltd. | 56,223 | - | - | - | 56,223 | - |
| Others | 8,329,095 | 50,000 | - | 187,474 | 8,566,569 | 650,872 |
| Total | 51,025,905 | 50,000 | - | 457,806 | 51,533,711 | 5,686,153 |
Note: Wuxi Little Swan Company Limited was merged into Wuxi Little Swan Electric Co., Ltd. in the current year.
MIDEA GROUP CO., LTD.SUPPLEMENTARY INFORMATIONFOR THE SIX MONTHS ENDED 30 JUNE 2020(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
17 Notes to the parent company’s financial statements (Cont’d)(2)Long-term equity investments (Cont’d)(b)AssociatesInvestments in associates are mainly the investments in Guangdong Shunde Rural Commercial BankCo., Ltd. and Hefei Royalstar Motor Co., Ltd. and other companies.(3)Operating revenueOperating revenue mainly comprises other operating revenue including the trademark royalty income,rental income, management fee income, etc. obtained by the Company from the subsidiaries.(4)Investment income
| Item | Current period | Same period of prior year |
| Income from long-term equity investments under cost method | 5,686,153 | 6,275,207 |
| Investment income from wealth management products purchased from financial institutions | - | 78,219 |
| Income from long-term equity investments under equity method | 134,639 | 144,453 |
| Others | 390,487 | 249,518 |
| Total | 6,211,279 | 6,747,397 |
There is no significant restriction on repatriation of the Company's investment income.
MIDEA GROUP CO., LTD.SUPPLEMENTARY INFORMATIONFOR THE SIX MONTHS ENDED 30 JUNE 2020
(All amounts in RMB’000 Yuan unless otherwise stated)[English translation for reference only]
1 Details of non-recurring profit or loss
| Item | Current period | Same period of prior year |
| Gains or losses on disposal of non-current assets | (11,070) | (13,705) |
| Except for the effective hedging activities related to the Company’s ordinary activities, profit or loss arising from changes in fair value of financial assets held for trading, derivative financial assets, financial liabilities held for trading, derivative financial liabilities and other non-current financial assets and investment income from disposal of financial assets held for trading, derivative financial assets, financial liabilities held for trading, derivative financial liabilities and other non-current financial assets. | 240,361 | (74,312) |
| Others (mainly including government grants, compensation income, penalty income and other non-operating income and expenses) | 422,455 | 944,851 |
| Sub-total | 651,746 | 856,834 |
| Less: Effect of enterprise income tax (decrease in income tax expressed with “-”) | (90,684) | (227,883) |
| Effect of minority interests (after tax) | (89,811) | 2,444 |
| Net non-recurring profit or loss attributable to shareholders of the parent company | 471,251 | 631,395 |
Basis of preparation of details of non-recurring profit or loss:
Under the requirements of the Explanatory Announcement No. 1 on Information Disclosure byCompanies Offering Securities to the Public – Non-recurring Profit or Loss [2008] from CSRC, non-recurring profit or loss refers to that arises from transactions and events that are not directly relevant toordinary activities, or that is relevant to ordinary activities, but is extraordinary and not expected to recurfrequently that would have an influence on users of financial statements making economic decisions onthe financial performance and profitability of an enterprise.2 Return on net assets and earnings per share
The Group's return on net asset and earnings per share calculated pursuant to the Compilation Rules forInformation Disclosure of Companies Offering Securities to the Public No. 9 - Calculation and Disclosureof Return on Net Asset and Earnings per Share (revised in 2010) issued by CSRC and relevantrequirements of accounting standards are as follows:
| Item | Weighted average return on net assets (%) | Earnings per share (Yuan/Share) | ||||
| Basic earnings per share | Diluted earnings per share | |||||
| Current period | Same period of prior year | Current period | Same period of prior year | Current period | Same period of prior year | |
| Net profit attributable to shareholders of the Company | 13.03% | 16.97% | 2.01 | 2.32 | 2.01 | 2.30 |
| Net profit attributable to shareholders of the Company net of on-recurring profit or loss | 12.59% | 16.27% | 1.94 | 2.22 | 1.94 | 2.21 |
Midea Group Co., Ltd. Semi-Annual Report 2020
Section XII Documents Available for Reference
1.The original of The Semi-Annual Report 2020 of Midea Group Co., Ltd. signed bythe legal representative;
2.The financial statements signed and stamped by the legal representative, theDirector of Finance and the accounting supervisor;
3.The originals of all company documents and announcements that are disclosed tothe public via newspaper designated for information disclosure during the ReportingPeriod; and
4.The electronic version of The Semi-Annual Report 2020 that is released onhttp://www.cninfo.com.cn.
Midea Group Co., Ltd.Legal Representative: Fang Hongbo
31 August 2020