Consolidated Financial Statements
for the year ended 31 December, 2016 and 2015
in accordance with
International Financial Reporting Standards
(IFRS, as adopted by the EU)
Qingdao Haier Co., Ltd
和信
INDEPENDENTAUDITOR’S REPORT
TO THE SHAREHOLDERS OF
QINGDAO HAIER CO.,LTD___________________________________________________1 (Incorporated in the People's Republic of China with limited liability)
Opinion
We have audited the consolidated financial statements of Qingdao Haier Co., Ltd (the “Company”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated statement of financial position as at 31 December 2016 and 2015, the consolidated statement of profit or loss, the consolidated statement of other comprehensive income, the consolidated statement of changes in equity, the consolidated statement of cash flows for the fiscal years from 1 January to 31 December 2016 and 1 January to 31 December 2015, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2016 and 2015, and of its consolidated financial performance and its consolidated cash flows for the fiscal years from 1 January to 31 December 2016 and 1 January to 31 December 2015, in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board ("IASB") as adopted by the European Union (“IFRSs”).
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (“ISAs”) issued by the Internal Audit Standards Board. Our responsibilities under those standards are further described in theAuditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the China Code of Ethics for Certified Public Accountants issued by the Chinese Institute of Certified Public Accountants (the "Code"), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.
INDEPENDENTAUDITOR’S REPORT
TO THE SHAREHOLDERS OF
QINGDAO HAIER CO.,LTD___________________________________________________2 (Incorporated in the People's Republic of China with limited liability)
We have fulfilled the responsibilities described in theAuditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.
Impairment testing of goodwill
The management performs impairment test Our audit procedures included the assessment annually for goodwill. This requires an of key assumptions, including those related to estimation of the net recoverable amount of revenue growth rates and discount rates which the cash-generating unit (the “CGU”) to were assessed by our internal valuation which the goodwill was allocated. The specialists by benchmarking against calculation of theCGU’s net recoverable independent data from the industry index. We amount is complex and involves significant compared the forecasted figures with the management judgements and estimates, such historical financial performance of the as forecasted cash flows, revenue growth corresponding CGU.
rates and discount rates, which were sensitive
to the expected future market conditions and
theCGU’s actual performance.
Relevant disclosures are included in notes 16
to the financial statements.
Provision for inventories
As at 31 December 2016 and 31 December Our audit procedures included the evaluation 2015, theGroup’s inventories were exposed to of the inventory provisioning policy through inventory obsolete and excess risks as a result inquiry with the management and checking to of the fast technology innovation and the relevant assessment documentation. We macroeconomic challenges. The determination checked to the underlying data, such as the of the provision amount is complex and selling prices, subsequent sales, and the involves significant judgements and estimates estimated selling expenses to assess the net because it depends on the net realisable value realisable value of inventories on a sample of inventories. basis. We reviewed theinventories’ ageing report. We reviewed subsequent sales of Relevant disclosures are included in notes 10 finished goods and subsequent usage of raw and 21 to the financial statements. materials.
INDEPENDENTAUDITOR’S REPORT
TO THE SHAREHOLDERS OF
QINGDAO HAIER CO.,LTD___________________________________________________3 (Incorporated in the People's Republic of China with limited liability)
Product warranty and installation provisions
Product warranty and installation provisions are Our audit procedures included the review made with reference to the sales volume and the of the provision estimation process, the expected unit costs for warranties and installation examination of the underlying data of the services. The assessment of the provision amount provision estimation process as well as the involves management assumptions, judgements review of the computation of the provision and estimates. Changes in the assumptions could amount based on themanagement’s have a significant impact on the provision methodology at year end.
amount.
Relevant disclosures are included in notes 33 to
the financial statements.
Responsibilities of the directors for the consolidated financial statements
The directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRSs, and for such internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, the directors are responsible for assessing the Group's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors of the company either intend to liquidate the Group or to cease operations or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue anauditor’s report that includes our opinion. We report our opinion solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
INDEPENDENTAUDITOR’S REPORT
TO THE SHAREHOLDERS OF
QINGDAO HAIER CO.,LTD___________________________________________________4 (Incorporated in the People's Republic of China with limited liability)
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
 Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
 Obtain an understanding of internal control systems relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control systems.
 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors.
 Conclude on the appropriateness of the directors' use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in ourauditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
 Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that the consolidated financial statements give a fair view of the financial position and financial performance in compliance with IFRSs.
 Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the Audit Committee with a statement that we have complied with relevant ethical requirements regarding independence and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 6 CONSOLIDATED STATEMENT OF PROFIT OR LOSS
For the year ended 31 December Notes 2016 2015RMB’M RMB’M Revenue 7 119,117 89,834 Cost of sales (83,131) (65,492) Gross profit 35,986 24,342 Other income 7 1,312 1,241 Other gains and losses 8 688 578 Selling and distribution expenses (21,254) (13,108) Administrative and other expenses (8,789) (6,664) Finance costs 9 (729) (119) Share of profits of associates 974 696 Profit before taxation 10 8,188 6,966 Income tax expense 11 (1,492) (1,056) Profit for the year 6,696 5,910 Attributable to:
Owners of the Company 5,042 4,289 Non-controlling interests 1,654 1,621 6,696 5,910 Earnings per share
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 7 CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME
For the year ended 31 December Notes 2016 2015RMB’M RMB’M Profit for the year 6,696 5,910 Other comprehensive income
Items that will not be reclassified subsequently
to profit or loss:
Changes in net liabilities or net assets arising from
re-measurement, of defined benefit plans (23) (6) Items that may be reclassified subsequently
to profit or loss:
Net (loss)/gains arising from associates (16) 40 Net (loss)/gains from change in fair value of
available-for-sale investments (454) 34 Net fair value gain on hedging instruments
entered into for cash flow hedges 12 1 Exchange differences on translation of
financial statements denominated in
foreign currencies 445 5 Other comprehensive (loss)/income
for the year (36) 74 Total comprehensive income for the year 6,660 5,984 Attributable to:
Owners of the Company 4,981 4,346 Non-controlling interests 1,679 1,638 6,660 5,984
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 8 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December Notes 2016 2015RMB’M RMB’M NON-CURRENT ASSETS
Property, plant and equipment 13 17,399 9,874 Investment properties 14 35 12 Prepaid land lease payment 15 1,428 1,234 Goodwill 16 21,004 392 Other intangible assets 17 5,816 221 Investments in associates 18 11,058 4,959 Available-for-sale investments 19 1,556 2,776 Prepayment for property, plant and equipment
and prepaid land payments 777 317 Derivative financial instruments 24 38 78 Deferred tax assets 36 1,592 971 Other non-current assets 20 1,013 205 61,716 21,039 CURRENT ASSETS
Inventories 21 15,285 8,575 Trade and bills receivables 22 26,062 18,742 Prepayments, deposits and other receivables 23 4,178 2,613 Derivative financial instruments 24 100 22 Other financial assets 25 491 250 Pledged deposits 26 287 32 Cash and cash equivalents 26 23,295 24,726 69,698 54,960 Assets held for sale 27 56 74 69,754 55,034 CURRENT LIABILITIES
Trade and bills payables 28 33,007 26,270 Receipt in advance, other payables and accruals 29 18,552 10,874 Interest-bearing borrowings 30 19,872 1,847 Convertible and exchangeable bonds 31 1,223 - Finance lease payables 9 11 Due to non-controlling shareholder of a subsidiary 32 28 26 Tax payables 931 712 Provisions 33 1,494 1,096 Other current liabilities 16 62 Derivative financial instruments 24 2 8 75,134 40,906
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 10 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December
Attributable to owners of the Company
Share
Held
for the Remeasurement
Restricted of defined
Share Capital Capital Awarded benefit Cash flow Share Award Treasury reduction Capital redemption share plans hedging Other capital Scheme share reserve reserve reserve reserve reserve reserve equityRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M At 1 January 2016 6,123 (30) (47) - - - - 17 - - Profit for the year - - - - - - - - - - Other comprehensive income for the year - - - - - - - (23) 12 - Total comprehensive income for the year - - - - - - - (23) 12 - Purchase of treasury shares - - (113) - - - - - - - Cancellation of treasury shares (18) - 160 - (142) - - - - - Dividend payments - - - - - - - - - - Transfer to reserves fund - - - - - - - - - - Cancellation of restricted shares (7) 29 - - (22) - - - - - Changes in ownership interests in subsidiaries that do not
result in a loss of control - - - - 106 - - - - - Business combination under common control - - -
Draft
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 11 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)
For the years ended 31 December
Attributable to owners of the Company
Available-
Equity for-sale
Share method financial Exchange Non- option investments assets Reserve Other fluctuation Retained Sub- controlling Total reserve reserve reserve fund reserve reserve profit total interests equityRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M At 1 January 2016 - 51 456 2,030 82 105 14,009 22,796 9,735 32,531 Profit for the year - - - - - - 5,042 5,042 1,654 6,696 Other comprehensive income for the year - (16) (449) - - 415 - (61) 25 (36) Total comprehensive income for the year - (16) (449) - - 415 5,042 4,981 1,679 6,660 Purchase of treasury shares - - - - - - - (113) - (113) Cancellation of treasury shares - - - - - - - - - - Dividend payments - - - - - - (1,293) (1,293) (228) (1,521) Transfer to reserves fund - - - 57 - - (57) - - - Cancellation of restricted shares - - - - - - - - - - Changes in ownership interests in subsidiaries that do not
result in a loss of control - - - - - - - 106 56 162 Business combination under common control - - - - - - - (39) - (39) Transfer to capital reserve - - - (10) - - (87) - - - Draft
At 31 December 2016 - 35 7 2,077 82 520 17,614 26,438 11,242 37,680
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 12 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)
For the years ended 31 December
Attributable to owners of the Company
Share
Held
for the Remeasurement
Restricted of defined
Share Capital Capital Awarded benefit Cash flow Share Award Treasury reduction Capital redemption share plans hedging Other capital Scheme share reserve reserve reserve reserve reserve reserve equityRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M At 1 January 2015 3,046 (47) - - 5,862 - - 23 - - Business combination under common control - - - - - - - - (1) - Restated total equity at the beginning of the financial year 3,046 (47) - - 5,862 - - 23 (1) - Profit for the year - - - - - - - - - - Other comprehensive income for the year - - - - - - - (6) 1 - Total comprehensive income for the year - - - - - - - (6) 1 - Equity-settled share option arrangements 31 - - - 255 - - - - - Capitalisation of capital reserve into shares 3,046 - - - (3,046) - - - - - Purchase of treasury shares - - (47) - - - - - - - Dividend payments - - - Draft - - - - - - - Transfer to reserves fund - - - - - - - - - - Restricted share award scheme arrangement - (2) - - 2 - - - - - Transfer of awarded share reserve upon the forfeiture or expiry of awarded shares - 19 - - - - - - - - Changes in ownership interests in subsidiaries that do not
result in a loss of control - - - - 168 - - - - - Acquisition from non-controlling interests - - - - (19) - - - - - Employee share schemes - value of employee services - - - - - - - - - - Business combination under common control - - - - (5,147) - - - - - Transfer to capital reserve - - - - 1,925 - - - - - Other changes - - - - - - - - - - At 31 December 2015 6,123 (30) (47) - - - - 17 - -
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 13 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED)
For the years ended 31 December
Attributable to owners of the Company
Available-
Equity for-sale
Share method financial Exchange Non- option investments assets Reserve Other fluctuation Retained Sub- controlling Total reserve reserve reserve fund reserve reserve profit total interests equityRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M At 1 January 2015 - 11 422 2,024 117 122 13,029 24,609 7,315 31,924 Business combination under common control - - - 3 - (5) 116 113 28 141 Restated total equity at the beginning of the financial year - 11 422 2,027 117 117 13,145 24,722 7,343 32,065 Profit for the year - - - - - - 4,289 4,289 1,621 5,910 Other comprehensive income for the year - 40 34 - - (12) - 57 17 74 Total comprehensive income for the year - 40 34 - - (12) 4,289 4,346 1,638 5,984 Equity-settled share option arrangements - - - - (36) - - 250 - 250 Capitalisation of capital reserve into shares - - - - - - - - - - Purchase of treasury shares - - - - - - - (47) - (47) Dividend payments - - - - - - (1,497) (1,497) (225) (1,722) Transfer to reserves fund - - - 195 - - (195) - - - Draft
Restricted share award scheme arrangement - - - - - - - - - - Transfer of awarded share reserve upon the forfeiture or expiry of awarded shares - - - - - - - 19 - 19 Changes in ownership interests in subsidiaries that do not
result in a loss of control - - - - - - - 168 - 168 Acquisition from non-controlling interests - - - - - - - (19) (31) (50) Employee share schemes - value of employee services - - - - 1 - - 1 - 1 Business combination under common control - - - - - - - (5,147) - (5,147) Transfer to capital reserve - - - (192) - - (1,733) - - - Other changes - - - - - - - - 1,010 1,010 At 31 December 2015 - 51 456 2,030 82 105 14,009 22,796 9,735 32,531
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 14 CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December Notes 2016 2015RMB‟M RMB‟M CASH FLOWS FROM OPERATING ACTIVITIES
Profit before taxation 8,188 6,966 Adjustments for:
Income tax expense recognised in the profit or loss (1,492) (1,056) Depreciation, amortisation and impairment 2,917 1,362 Loss/ (gain) on disposal/written-off of items of property,
plant and equipment, net 8 3 (10) Fair value change on derivative financial instruments 8 (95) 90 Finance costs 9 729 119 Share of profits of associates (974) (696) Net gain on disposal of associates 8 (86) (339) Dividend income from available-for-sale investments 7 (27) (121) Net gain on disposal of available-for-sale investments 8 (699) (55) Net (gain)/loss on disposal of derivatives held for trading 8 10 (50) Gain on fair value of investment 8 - (49) Interest income from other financial assets 7 (10) (11) Change in other working capital, other non-cash items (133) (180) Operating profit before changes in working capital 8,331 5,970 Decrease/ (increase) in deferred tax assets (398) (59) Increase/ (decrease) in deferred tax liabilities 571 (12) (Increase) /decrease in inventories (1,695) 376 Decrease/ (increase) in trade and bills receivables (3,010) 4,579 Increase/ (decrease) in trade and bills payables 4,563 (5,307) NET CASH FLOWS FROM OPERATING ACTIVITIES 8,362 5,547 CASH FLOWS FROM INVESTING ACTIVITIES
Payment for acquisition of subsidiaries, net of cash acquired (36,667) (5,639) Payment for acquisition of subsidiaries in prior year (55) - Payment for the contingent consideration (35) (37) Payment for acquisition of associates (665) (331) Payment for purchase of property, plant and equipment (2,627) (2,512) Payment for available-for-sale investments (95) (1,291) Loan to related parties (5) (27) Proceeds from disposal of property, plant and equipment 261 11 Proceeds from disposal of available-for-sale investments 102 99 Proceeds from disposal of subsidiaries, net of cash received 9 408 Proceeds from disposal of subsidiaries in prior year 95 - Repayment of loan by related parties 32 - Proceeds from disposal of associates 28 - Payment for other financial assets (566) (930) Redemption of other financial assets 346 915 Received in advance for equity transfer 104 50 Dividends from associates 6 - Interest received from other financial assets 11 11 Received of government grant related to assets 10 11 Interest received on available-for-sale investments 113 96
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 15 CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December Notes 2016 2015RMB‟M RMB‟M NET CASH USED IN
INVESTING ACTIVITIES (39,598) (9,166) CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of additional equity of non-wholly
owned subsidiaries 94 342 Proceeds from borrowings 43,471 6,603 Proceeds from issue of convertible and exchangeable bonds - - Proceeds from sale and finance lease-back arrangements - 17 Repurchases of shares (140) (47) Repayment of borrowings (11,685) (6,940) Interest paid for borrowings (300) (67) Capital element of finance lease obligation (11) (30) Interest element of finance lease obligation (1) (1) Payment for option bought back (33) (76) (Increase)/decrease in pledged deposit (255) 73 Transaction with non-controlling interest (37) (1,128) Dividend paid to shareholders (1,293) (1,482) Dividends paid to non-controlling shareholders (215) (213) NET CASH GENERATED FROM/(USED IN)
FINANCING ACTIVITIES 29,595 (2,949) Net increase/(decrease) in cash and cash equivalents (1,641) (6,568) Cash and cash equivalents at the beginning of the year 24,726 31,140 Effect of foreign exchange rate changes 210 154 CASH AND CASH EQUIVALENTS AT THE END
OF THE YEAR 23,295 24,726 Analysis of balances of cash and cash equivalents
Cash and bank balances 26 23,295 24,726
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2016 and 2015
1. GENERAL INFORMATION
Qingdao Haier Co., Ltd. was incorporated in the People Republic of China. The Company is listed on Shanghai Stock Exchange since the year 1993.
The registered office of the Company is located at the Haier Industrial Park of Laoshan District, Qingdao, Shandong Province, and the headquarters is located at the Haier Industrial Park of Laoshan District, Qingdao, Shandong Province.
In the opinion of the directors of the Company, the ultimate holding company of the Company is Haier Group Corporation (“Haier Corp”), which is established in the PRC.
The Company and its subsidiaries (collectively referred to as the “Group”) are mainly engaged in manufacturing and trading as well as research and development(R&D) of refrigerator, air- conditioner, freezer, washing machine, water heater, dishwashers, gas stove, kitchen appliances and relevant products and commercial circulation business.
Pursuant to E.U. Prospectus Regulation No. 80 9/2004, anissuer‟s listing prospectus must include historical financial information covering the previous three fiscal years.
The principal activities of subsidiaries of the Company are set out in note 54 to the consolidated financial statements.
2. BASIC OF PREPARATION
The consolidated financial statements consist of consolidated statements of profit or loss, consolidated statements of other comprehensive income, consolidated statements of financial position, consolidated statements of cash flows, consolidated statements of changes in equity and notes to the consolidated financial statements for the year ended 31 December 2016 and 2015. The consolidated financial statements have been prepared and published in million of RMB(“RMB‟M”) except when otherwise indicated and on a historical cost basis as modified by the revaluation of financial assets and financial liabilities, including derivative instruments at fair value through profit or loss.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
2. BASIC OF PREPARATION (CONTINUED)
Consolidated financial statements of the Company and its subsidiaries (the “Group”) as of and for the year ended 31 December 2016 and 2015 have been prepared in accordance with International Financial Reporting Standards (“IFRS”), as endorsed by the European Union (“EU”). All IFRS standards whose application was mandatory for the year ended 31 December 2017 have been applied consistently for each of the years ended 31 December 2016 and 2015. IFRS does not provide guidance for the preparation of financial information on a combined basis nor for business combinations involving entities under common control. As such, IAS 8.10 requires management to use judgment in developing and applying a suitable accounting policy. In making this judgment, IAS 8.12 requires management to consider the most recent pronouncements of other standard-setting bodies that use a similar conceptual framework to developing accounting standards, other accounting literature and accepted industry practices. Merger accounting for business combinations under common control
During the year end 31 December 2017 the Group acquired100% interests in Tianjin Ririxin Assets Management Co., Ltd. (“Tianjin Ririxin”) and Fisher& Paykel Production Machinery Limited (“PML”) at a cash consideration ofRMB56,093,000 and USD 48,615,481 (equivalent to RMB330,682,500) respectively. During the year ended 31 December 2016, the Group acquired100% interests in Haier Group (Dalian) Electrical Appliances Industry Co., Ltd. (“Haier Group (Dalian)”) at a cash consideration of RMB39,002,700. During the year ended 31 December 2015, the Group acquired Haier Singapore Investment Holding Pte., Ltd. (“Singapore Investment Holding”), HaierGroup‟s overseas white goods business, for a total cash consideration of RMB4.9 billion. Singapore Investment Holding is the holding company of 26 overseas operating companies. (the “Acquisitions under Common Control”)
Tianjin Ririxin, PML Haier Group (Dalian), and Singapore Investment Holding (“Merger Accounting”)were indirect wholly-owned subsidiaries of Haier Group Corporation (“Haier Corp”).
Pursuant to the Acquisitions under Common Control, the Company became an indirect holding company of Tianjin Ririxin, PML, Haier Group (Dalian) and Singapore Investment Holding. Since the Company, Tianjin Ririxin, PML, Haier Group (Dalian)and Singapore Investment Holding were ultimately controlled by Haier Corp both before and after the completion of the Acquisition, the Acquisitions were under common control were accounted for using the principles of merger accounting.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
2. BASIC OF PREPARATION (CONTINUED)
The consolidated statements of profit or loss, the consolidated statements of other comprehensive income, the consolidated statements of changes in equity and the consolidated statements of cash flows of the Group for the years ended 31 December 2016 and 2015 include the results, changes in equity and cash flows of all companies then comprising the Group, Tianjin Ririxin, PML, Haier Group (Dalian) and Singapore Investment Holding as if the corporate structure of the Group immediately after the completion of the Acquisitions under Common Control had been in existence throughout the years ended 31 December 2016 and 2015, or since their respective dates of acquisition, incorporation or registration, where this is a shorter period.
The consolidated statement of financial position of the Group as at 31 December 2016 and 2015 have been prepared to present the state of affairs of the Group, Tianjin Ririxin PML, Haier Group (Dalian) and Singapore Investment Holding as if the corporate structure of the Group immediately after the completion of the Acquisitions under common control had been in existence and in accordance with the respective equity interests and/or the power to exercise control over the individual companies attributable to the Company as at 31 December 2016 and 2015.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
2. BASIC OF PREPARATION (CONTINUED)
The operating results previously reported by the Group for the year ended 31 December 2016 have been restated to include the operating results of Tianjin Ririxin and PML as set out below:
The Group
(Figures before Tianjin
merger accounting) Ririxin PML Elimination TotalRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M Revenue 119,051 - 129 (63) 119,117 Profit/ (loss) before tax 8,183 (1) 6 - 8,188 Profit/ (loss) for the year 6,691 (1) 6 - 6,696 Draft
The financial position previously reported by the Group at 31 December 2016 has been restated to include assets and liabilities of Tianjin Ririxin and PML as set out below:
The Group
(Figures before Tianjin
merger accounting) Ririxin PML Elimination TotalRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M Non-current assets 61,663 48 5 - 61,716 Current assets 69,592 92 70 - 69,754 Current liabilities (75,022) (92) (20) - (75,134) Non-current liabilities (18,653) - (3) - (18,656) Total equity 37,580 48 52 - 37,680
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
2. BASIC OF PREPARATION (CONTINUED)
The operating results previously reported by the Group for the year ended 31 December 2015 have been restated to include the operating results of Haier Group (Dalian), Tianjin Ririxin and PML as set out below:
The Group Haier
(Figures before Group Tianjin
merger accounting) (Dalian) Ririxin PML Elimination TotalRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M Revenue 89,732 49 - 67 (14) 89,834 Profit/(loss) before tax 6,975 10 (1) (16) (2) 6,966 Profit/(loss) for the year 5,922 6 (1) (14) (3) 5,910 Draft
The financial position previously reported by the Group at 31 December 2015 has been restated to include assets and liabilities of Haier Group (Dalian), Tianjin Ririxin and PML as set out below:
The Group Haier
(Figures before Group Tianjin
merger accounting) (Dalian) Ririxin PML Elimination TotalRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M Non-current assets 20,988 14 33 4 - 21,039 Current assets 54,972 669 15 60 (682) 55,034 Current liabilities (40,925) (649) - (20) 688 (40,906) Non-current liabilities (2,634) - - (2) - (2,636) Total equity 32,401 34 48 42 6 32,531*The figures of Singapore Investment Holding had been included since 1 January 2015.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company:
- has power over the investee;
- is exposed, or has rights, to variable returns from its involvement with the investee; and
- has the ability to use its power to affect its returns.
The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.
When the Group has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Group considers all relevant facts and circumstances in assessingDraft whether or not theGroup‟s voting rights in an investee are sufficient to give it power, including:
- the size of theGroup‟s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;
- potential voting rights held by the Group, other vote holders or other parties;
- rights arising from other contractual arrangements; and
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(a) Basis of consolidation (continued)
Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non- controlling interests even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with theGroup‟s accounting policies.
All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. (b) Merger accounting for common control combination
The consolidated financial statement incorporates the financial statement items of the combining entities or business in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.
Draft
The net assets of the combining entities or business are combined using the existing book values from the controllingparty‟s perspective. No amount is recognised with respect to goodwill or any excess ofacquirer‟s interest in the net fair value of theacquiree‟s identifiable assets, liabilities and contingent liabilities over its cost at the time of common control combination, to the extent of the contribution of the controllingparty‟s interest.
The consolidated statements of profit or loss and other comprehensive income include the results of each of the combining entities or business from the earliest date presented or since the date when combining entities or business first came under common control, where this is a shorter period, regardless of the date of common control combination.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(c) Investments in associates
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.
TheGroup‟s investments in associates and joint ventures are stated in the consolidated statement of financial position at theGroup‟s share of net assets under the equity method of accounting, less any impairment losses. Adjustments are made to bring into line any dissimilar accounting policies that may exist.
TheGroup‟s share of the post-acquisition results and other comprehensive income of associates and joint ventures is included in the consolidated statement of profit or loss and consolidated statement of comprehensive income, respectively. In addition, when there has been a change recognised diDraftrectly in the equity of the associate or joint venture, the Group recognises its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and its associates or joint ventures are eliminated to the extent of theGroup‟s investments in the associates or joint ventures, except where unrealised losses provide evidence of an impairment of the assets transferred. Goodwill arising from the acquisition of associates or joint ventures is included as part of theGroup‟s investments in associates or joint ventures.
If an investment in an associate becomes an investment in a joint venture or vice versa, the retained interest is not remeasured. Instead, the investment continues to be accounted for under the equity method. In all other cases, upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognises any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognised in profit or loss.
If there is objective evidence of impairment, an impairment test is performed by comparing theinvestment‟s recoverable amount, which is the higher of its value in use and fair value less costs to sell, with its carrying amount. An impairment loss recognised in prior periods is only reversed if there has been a change in the estimates used to determine theinvestment‟s recoverable amount since the last impairment loss was recognized. If this is the case the carrying amount of the investment is increased to its higher recoverable amount.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 24 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Business combinations and goodwill
Business combinations are accounted for using the acquisition method. The consideration transferred is measured at the acquisition date fair value which is the sum of the acquisition date fair values of assets transferred by the Group, liabilities assumed by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation at fair value or at the proportionate share of theacquiree‟s identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition-related costs are expensed as incurred.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts of the acquiree.
If the business combination is achieved in stages, the previously held equity interest is remeasured at its acquisition date fair value and any resulting gain or loss is recognised in profit or loss. Draft
Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability is measured at fair value with changes in fair value recognised in profit or loss. Contingent consideration that is classified as equity is not measured and subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of theGroup‟s previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair value of the net assets acquired, the difference is, after reassessment, recognised in profit or loss as a gain on bargain purchase.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is tested for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of theGroup‟s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 25 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Business combinations and goodwill (continued)
Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period.
Where goodwill has been allocated to a cash-generating unit (or group of cash- generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on the disposal. Goodwill disposed of in these circumstances is measured based on the relative value of the operation disposed of and the portion of the cash-generating unit retained.
(e) Fair value measurement
The Group measures its derivative financial instruments and certain available-for-sale investments at fair value at the end of each reporting period. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the mDraft easurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a marketparticipant’ s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Fair value measurement (continued)
Level 1– based on quoted prices (unadjusted) in active markets for identical assets or liabilities
Level 2– based on valuation techniques for which the lowest level input that is significant to the fair value measurement is observable, either directly or indirectly
Level 3– based on valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. (f) Impairment of non-financial assets
Where an indication of impairment exists, or when annual impairment testing for an Draft
asset is required (other than inventories, financial assets and goodwill), theasset’s recoverable amount is estimated. Anasset‟s recoverable amount is the higher of theasset‟s or cash-generatingunit‟s value in use and its fair value less costs of disposal, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the statement of profit or loss in the period in which it arises in those expense categories consistent with the function of the impaired asset. An assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the statement of profit or loss in the period in which it arises.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(g) Related parties
A party is considered to be related to the Group if:
(a) the party is a person or a close member of thatperson‟s family and that person: (i) has control or joint control over the Group;
(ii) has significant influence over the Group; or
(iii) is a member of the key management personnel of the Group or of a parent of the Group.
(b) the party is an entity where any of the following conditions applies:
(i) the entity and the Group are members of the same group;
(ii) one entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
(iii) the entity and the Group are joint ventures of the same third party;
Draft
(iv) one entity is a joint venture of a third entity and the other entity is an associate of the third entity;
(v) the entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
(vi) the entity is cont rolled or jointly controlled by a person identified in (i); (vii) a person identified in ( i ) ( a ) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity); and
(viii) the entity, or any member of a group of which it is a part, provides key management personnel services to the Group or to the parent of the Group.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) Property, plant and equipment and depreciation
Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.
Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the statement of profit or loss in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carrying amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciates them accordingly.
Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The principal annual rates used for this purpose are as follows:
Buildings 2%to19%
Draft
Leasehold improvements 10% to20%
Plant and machinery 5% to33%
Tools, furniture and fixtures 5% to33%
Motor vehicles 9% to33%
Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end.
An item of property, plant and equipment including any significant part initially recognised is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the statement of profit or loss in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset.
Construction in progress is stated at cost less any impairment losses, and is not depreciated. Construction in progress is reclassified to the appropriate category of the property, plant and equipment when completed and ready for use.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(i) Investment properties
Investment properties are interests in buildings (including the leasehold interest under an operating lease for a property which would otherwise meet the definition of an investment property) held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and any impairment losses. Depreciation is calculated on the straight-line method to write off the cost of each investment property over its estimated useful life. The principal annual rates used for this purpose rangefrom4% to5%.
Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of profit or loss in the year of the retirement or disposal. (j) Intangible assets (other than goodwill)
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value at the date of acquisition. The useful lives of intDaraftngible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year end.
Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis.
(i) Patents, licences and software
Purchased patents, licences and software are stated at cost less any impairment losses and software acquired through business combinations are initially stated at fair value. They are amortised on the straight-line basis over their estimated useful lives.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(j) Intangible assets (other than goodwill) (continued)
(ii) Trademark
Trademark has an indefinite useful life and is stated at cost, less any identified impairment losses.
(iii) Research and development costs
All research costs are charged to the statement of profit or loss as incurred. Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.
Deferred development costs aDraftre stated at cost less any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products, commencing from the date when the products are put into commercial production.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) Leases
Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases, including prepaid land lease payments under finance leases, are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the statement of profit or loss so as to provide a constant periodic rate of charge over the lease terms.
Assets acquired through hire purchase contracts of a financing nature are accounted for as finance leases, but are depreciated over their estimated useful lives.
Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the statement of profit or loss on the straight-line basis over the leDraftase terms. Where the Group is the lessee, rentals payable under operating leases net of any incentives received from the lessor are charged to the statement of profit or loss on the straight-line basis over the lease terms.
Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.
When a sale and leaseback transaction results in a finance lease, the transaction in substance is a means whereby the lessor provides finance to the lessee, with the assets as security. An excess/deficit of sales proceeds over/less than the carrying amount of the assets is deferred and amortised over the lease term. The assets will be restated to the lower of its fair value and the present value of the minimum lease payments in exactly the same way as any other assets acquired under a finance lease.
(l) Investments and other financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as financial assets at fair value through profit or loss (“FVTPL”), held-to-maturity investments, loans and receivables and available-for-sale investments, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. When financial assets are recognised initially, they are measured at fair value plus transaction costs that are attributable to the acquisition of the financial assets, except in the case of financial assets recorded at fair value through profit or loss.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Investments and other financial assets (continued)
Initial recognition and measurement (continued)
All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Subsequent measurement
The subsequent measurement of financial assets depends on their classification as follows:
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss.
A financial asset is classified as held for trading if:
 it has been acquired principally for the purpose of selling it in the near term; or Draft
 on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit- taking; or
 it is a derivative that is not designated and effective as a hedging instrument.
A financial asset other than a financial asset held for trading or contingent consideration that may be paid by an acquirer as part of a business combination may be designated as at FVTPL upon initial recognition if:
 such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
 the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with theGroup‟s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
 such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Investments and other financial assets (continued)
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value with positive net changes in fair value presented as other income and gains and negative net changes in fair value presented as other expenses and losses in the statement of profit or loss. These net fair value changes do not include any dividends or interest earned on these financial assets, which are recognised in accordance with the policies set out for “Revenue recognition” below.
Financial assets designated upon initial recognition as at fair value through profit or loss are designated at the date of initial recognition and only if the criteria in IAS 39 are satisfied.
Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated as at fair value through profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognised in the statement of profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset ouDratft of the fair value through profit or loss category. Held-to-maturity investments
Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortized cost using the effective interest rate method less any allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in other income and gains in the statement of profit or loss. The loss arising from impairment is recognised in the statement of profit or loss in other expenses and losses.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(l) Investments and other financial assets (continued)
Available-for-sale financial investments
Available-for-sale financial investments are non-derivative financial assets in listed and unlisted equity investments and debt securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated as at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in market conditions.
After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with unrealised gains or losses recognised as other comprehensive income in the available-for-sale investment revaluation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognized in the statement of profit or loss in other income, or until the investment is determined to be impaired, when the cumulative gain or loss is reclassified from the available-for-sale investment revaluation reserve to the statement of profit or loss in other gains or losses. Interest and dividends earned whilst holding the available-for-sale financial investments are reported as interest income and dividend income, respectively and are recognised in the statement of profit or loss as other income in accordance with the policies set out for “Revenue recognition” below. Draft
When the fair value of unlisted equity investments cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such investments are stated at cost less any impairment losses.
The Group evaluates whether the ability and intention to sell its available-for-sale investments in the near term are still appropriate. When, in rare circumstances, the Group is unable to trade these financial assets due to inactive markets, the Group may elect to reclassify these financial assets if management has the ability and intention to hold the assets for the foreseeable future or until maturity.
For a financial asset reclassified from the available-for-sale category, the fair value carrying amount at the date of reclassification becomes its new amortized cost and any previous gain or loss on that asset that has been recognised in equity is amortized to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortized cost and the maturity amount is also amortized over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the statement of profit or loss.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(m) Derecognition of financial assets
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
On derecognition of a financial asset in its entirety, the difference between theasset‟s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.
On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it continues to recognise under continuing involveDraftment, and the part it no longer recognises on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognised and the sum of the consideration received for the part no longer recognised and any cumulative gain or loss allocated to it that had been recognised in other comprehensive income is recognised in profit or loss. A cumulative gain or loss that had been recognised in other comprehensive income is allocated between the part that continues to be recognised and the part that is no longer recognised on the basis of the relative fair values of those parts.
(n) Impairment of financial assets
The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. An impairment exists if one or more events that occurred after the initial recognition of the asset have an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Impairment of financial assets (continued)
Financial assets carried at amortised cost
For financial assets carried at amortized cost, the Group first assesses whether impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
The amount of any impairment loss identified is measured as the difference between theasset‟s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financialasset‟s original effective interest rate (i.e., the effective interest rate computed at initial recognition).
The carrying amount of the asset is re duced through the use of an allowance account and the loss is recognised in the statemenDraftt of profit or loss. Interest income continues to be accrued on the reduced carrying amount using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Group.
If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to the statement of profit or loss.
Assets carried at cost
If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between theasset‟s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(n) Impairment of financial assets (continued)
Available-for-sale financial investments
For available-for-sale financial investments, the Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired.
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the statement of profit or loss, is removed from other comprehensive income and recognised in the statement of profit or loss. In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. “Significant” is evaluated against the original cost of the investment and “prolonged” against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss– measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss– is removed from other comprehensive income and recognised in the statement of profit or loss. Impairment losses on equity instrumeDraftnts classified as available for sale are not reversed through the statement of profit or loss. Increases in their fair value after impairment are recognised directly in other comprehensive income.
The determination of what is “significant” or “prolonged” requires judgement. In making this judgement, the Group evaluates, among other factors, the duration or extent to which the fair value of an investment is less than its cost.
In the case of debt instruments classified as available for sale, impairment is assessed based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. Impairment losses on debt instruments are reversed through the statement of profit or loss if the subsequent increase in fair value of the instruments can be objectively related to an event occurring after the impairment loss was recognised in the statement of profit or loss.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.
Subsequent measurement
The subsequent measurement of financial liabilities depends on their classification as follows:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as he ld for trading if
Draft
 it has been incurred principally for the purpose of repurchasing it in the near term; or on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit- taking; or
 it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for trading or contingent consideration that may be paid by an acquirer as part of a business combination may be designated as at FVTPL upon initial recognition if:
 such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or
 the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or
 it forms part of a contract containing one or more embedded derivatives, and IAS 39 permits the entire combined contract to be designated as at FVTPL.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) Financial liabilities (continued)
Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability and is included in the„other gains and losses' line item.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the statement of profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the statement of profit or loss.
Convertible bonds
The component of convertible bonDraftds that exhibits characteristics of a liability is recognised as a liability in the statement of financial position, net of transaction costs. On issuance of convertible bonds, the fair value of the liability component is determined using a market rate for an equivalent non-convertible bond; and this amount is carried as a long-term liability on the amortised cost basis until extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included inshareholders‟ equity, net of transaction costs. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible bonds based on the allocation of proceeds to the liability and equity components when the instruments are first recognised.
If the conversion option of convertible bonds exhibits characteristics of an embedded derivative, it is separated from its liability component. On initial recognition, the derivative component of the convertible bonds is measured at fair value and presented as part of derivative financial instruments. Any excess of proceeds over the amount initially recognised as the derivative component is recognised as the liability component.
Transaction costs are apportioned between the liability and derivative components of the convertible bonds based on the allocation of proceeds to the liability and derivative components when the instruments are initially recognised. The portion of the transaction costs relating to the liability component is recognised initially as part of the liability. The portion relating to the derivative component is recognised immediately in the statement of profit or loss.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(p) Derecognition of financial liabilities
A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference between the respective carrying amounts is recognised in the statement of profit or loss.
(q) Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously.
(r) Treasury shares
Own equity instruments which are rDeraft acquired and held by the Company or the Group (treasury shares) are recognised directly in equity at cost. No gain or loss is recognised in the statement of profit or loss on the purchase, sale, issue or cancellation of theGroup‟s own equity instruments.
(s) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on the estimated selling prices less any estimated costs to be incurred to completion and disposal.
(t) Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of theGroup‟s cash management.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(t) Cash and cash equivalents (continued)
For the purpose of the consolidated statement of financial position, cash and cash equivalents comprise cash on hand and at banks and other financial institutions, including term deposits, and assets similar in nature to cash, which are not restricted as to use.
(u) Income tax
Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity.
Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.
Deferred tax is provided, using the li ability method, on all temporary differences at the end of the reporting period betweenDraft the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable temporary differences, except:• when the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and• in respect of taxable temporary differences associated with investments in subsidiaries and associates, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognised, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, the carry forward of unused tax credits and unused tax losses can be utilised, except:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 42 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(u) Income tax (continued)
• when the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
• in respect of deductible temporary differences associated with investments in subsidiaries and associates, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.
Draft
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
(v) Provisions
A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that are liable estimate can be made of the amount of the obligation.
When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the statement of profit or loss.
Provisions for installation services and product warranties granted by the Group on certain products are recognised based on sales volume and past experience of the level of installation services rendered, repairs or returns, discounted to their present values as appropriate.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 43 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(v) Provisions (continued)
A contingent liability recognised in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of (i) the amount that would be recognised in accordance with the general guidance for provisions above; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with the guidance for revenue recognition.
(w) Government grants
Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the costs, which it is intended to compensate, are expensed.
Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the statement of profit or loss over the expected useful life of the relevant asset by equal annual instalments or deducted from the carrying amount of the asset and released to the statement of profit or loss by way of a reduced depreciation charge.
Draft
(x) Revenue recognition
Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:
(a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;
(b) from the rendering of services, when the services are rendered;
(c) rental income, on a time proportion basis over the lease terms;
(d) interest income, on an accrual basis using the effective interest method by applying the rate that exactly discounts the estimated future cash receipts over the expected life of the financial instrument or a shorter period, when appropriate, to the net carrying amount of the financial asset;
(e) dividend income, when theshareholders‟ right to receive payment has been established; and
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(y) Employee benefits
Share-based payments
The Company operates a share option incentives scheme and shares held for the restricted share award scheme (note 39) for the purpose of providing incentives and rewards to eligible participants who contribute to the success of theGroup‟s operations. Employees (including directors) of the Group receive remuneration in the form of share- based payments, whereby employees render services as consideration for equity instruments (“equity-settled transactions”).
The cost of equity-settled transactions with employees for grants is measured by reference to the fair value at the date at which they are granted. The fair value is determined by an external valuer using a binomial model.
The cost of equity-settled transactions is recognised in employee benefit expense, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and theGroup‟s best estimate of the number of equity instruments t hat will ultimately vest. The charge or credit to the statement of profit or loss for a peDraftriod represents the movement in the cumulative expense recognised as at the beginning and end of that period.
Service and non-market performance conditions are not taken into account when determining the grant date fair value of awards, but the likelihood of the conditions being met is assessed as part of theGroup‟s best estimate of the number of equity instruments that will ultimately vest. Market performance conditions are reflected within the grant date fair value. Any other conditions attached to an award, but without an associated service requirement, are considered to be non-vesting conditions. Non-vesting conditions are reflected in the fair value of an award and lead to an immediate expensing of an award unless there are also service and/or performance conditions.
For awards that do not ultimately vest because non-market performance and/or service conditions have not been met, no expense is recognised. Where awards include a market or non-vesting condition, the transactions are treated as vesting irrespective of whether the market or non-vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Where the terms of an equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified, if the original terms of the award are met. In addition, an expense is recognised for any modification that increases the total fair value of the share-based payments, or is otherwise beneficial to the employee as measured at the date of modification.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(y) Employee benefits (continued)
Share-based payments (continued)
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the control of either the Group or the employee are not met. However, if a new award is substituted for the cancelled award, and is designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award, as described in the previous paragraph.
The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.
Pension schemes
The Group participates in various defined contribution retirement benefit plans which are available to all relevant employees. These plans are generally funded through payments to schemes established by governments or trustee-administered funds. A defined contribution plan is a pension plan under which the Group pays contributions on a mandatory, contractual or voluntary basis into a separate fund. The Group has no legal Draft
or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee services in the current and prior periods. TheGroup‟s contributions to the defined contribution plans are expensed as incurred and not reduced by contributions forfeited by those employees who leave the plan prior to vesting fully in the contributions.
Termination benefit
Termination benefits are recognised at the earlier of when the Group can no longer withdraw the offer of those benefits and when it recognises restructuring costs involving the payment of termination benefits.
Employee leave entitlements
Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the end of the reporting period. Employee entitlements to sick and maternity leave are not recognised until the time of leave.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(z) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.
(aa) Dividends
Final dividends are recognised as a liability when they are approved by the shareholders in a general meeting.
Interim dividends are simultaneously proposed and declared, because theCompany‟s Bye-Laws grant the directors the authority to declare interim dividends. Consequently, interim dividends are recognised imm ediately as a liability when they are proposed and Draft
declared.
(ab) Foreign currencies
These financial statements are presented in RMB, which is also the functional currency of the Group. The functional currency of the Company is the RMBand certain of its overseas subsidiaries is United States Dollars (“USD”), Euro (“EUR”) and certain other currencies, while the RMB is used as the presentation currency of the financial statements of the Company as the major operations of the Group are within the PRC. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rates of exchange ruling at the end of the reporting period. Differences arising on settlement or translation of monetary items are recognised in the statement of profit or loss.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 47 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ab) Foreign currencies (continued)
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non- monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was measured. The gain or loss arising on translation of a non-monetary item measured at fair value is treated in line with the recognition of the gain or loss on change in fair value of the item (i.e., translation difference on the item whose fair value gain or loss is recognised in other comprehensive income or profit or loss is also recognised in other comprehensive income or profit or loss, respectively).
The functional currencies of the subsidiaries not established in the PRC are currencies other than the RMB. As at the end of the reporting period, the assets and liabilities of these entities are translated into RMB at exchange rates prevailing at the end of the reporting period and their statements of profit or loss are translated into RMB at the weighted average exchange rates for the year.
The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuati on reserve. On disposal or liquidation of a foreign operation, the component of other Draftcomprehensive income relating to that particular foreign operation is recognised in the statement of profit or loss.
For the purpose of the consolidated statement of cash flows, the cash flows of the subsidiaries not established in the PRC are translated into RMB at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of these subsidiaries which arise throughout the year are translated into RMB at the weighted average exchange rates for the year.
(ac) Derivative financial instruments
The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, interest rate swaps and cross currency swaps.
Derivatives are initially recognised at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 48 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ac) Derivative financial instruments (continued)
Embedded derivatives
Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at FVTPL.
(ad) Hedge accounting
The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument is highly effective in offs etting changes in fair values or cash flows of the hedged item attributable to the hedgedDraft risk.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognised in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in profit or loss in the line item relating to the hedged item.
Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to profit or loss from that date.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ad) Hedge accounting (continued)
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income and accumulated under the heading of cash flow hedging reserve. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss, and is included in the other gains andlosses‟ line item.
Amounts previously recognised in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss, in the same line as the recognised hedged item. However, when the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously recognised in other comprehensive income and accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.
Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accoun ting. Any gain or loss recognised in other comprehensive income and accumulaDratfted in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognised immediately in profit or loss.
(ae) Changes in theGroup’s ownership interests in existing subsidiaries
Changes in theGroup‟s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of theGroup‟s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 50 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(ae) Changes in theGroup’s ownership interests in existing subsidiaries (continued) When the Group loses control of a subsidiary, a gain or loss is recognised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.
4. NEW ACCOUNTING PRONOUNCEMENT
The following pronouncements, issued by the International Accounting Standards Board (“IASB”), are not yet effective and have not yet been adopted by the Group:
Draft
IFRS 2 (Amendments) Classification and Measurement of Share-based Payment Transaction1
IFRS 4 (Amendments) Applying IFRS 9 Financial Instruments with IFRS Insurance Contracts1
IFRS 9 Financial Instruments1
IFRS 9 (Amendments) Prepayment Features with Negative Compensation2 IFRS 10 and IAS 28 (Amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture4
IFRS 15 Revenue from Contracts with Customers1
IFRS 15 (Amendments) Clarifications to IFRS 15 Revenue from Contracts with Customers1
IFRS 16 Leases1
IFRS 17 Insurance Contracts3
IAS 19 (Amendments) Employee Benefits3
IAS 28 (Amendments) Investments in Associates and Joint Ventures2 IFRIC 22 Foreign Currency Transactions and Advance
Consideration1
IFRIC 23 Uncertainty over Income Tax Treatment2
Annual Improvements IFRS 1 and IAS 28 (Amendments)1
2014-2016 Cycle
Annual Improvements IFRS 3, IFRS 11, IAS 12 and IAS 232
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 51 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
4. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED)
1 Effective for annual periods beginning on or after 1 January 2018
2 Effective for annual periods beginning on or after 1 January 2019
3 Effective for annual periods beginning on or after 1 January 2021
4 No mandatory effective date yet determined but available for adoption
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9, bringing together all phases of the financial instruments project to replace IAS 39 and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment and hedge accounting. The Group will adopt IFRS 9 from 1 January 2018. The Group will not restate comparative information and will recognise any transition adjustments against the opening balance of equity at 1 January 2018. During 2016 and 2015, the Group has performed a detailed assessment of the impact of the adoption of IFRS 9. The expected impacts relate to the classification and measurement and the impairment requirements and are summarised as follows: (a) Classification and measurement
The Group expects that the adoption of IFRS 9 will have an impact on the classification and measurement of its financial assets. It expects to continue measuring at fair value all financial assets currently held at fair valuDreaft . Unquoted equity investments currently measured at cost in accordance with IAS 39 will be measured at fair value through other comprehensive income as the investments are intended to be held for the foreseeable future and the Group expects to apply the option to present fair value changes in other comprehensive income. Gains and losses recorded in other comprehensive income for the equity investments cannot be recycled to profit or loss when the investments are derecognised.
(b) Impairment
IFRS 9 requires an impairment on debt instruments recorded at amortized cost or at fair value through other comprehensive income, lease receivables, loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under IFRS 9, to be recorded based on an expected credit loss model either on a twelve- month basis or a lifetime basis. The Group will apply the simplified approach and record lifetime expected losses that are estimated based on the present values of all cash shortfalls over the remaining life of all of its trade receivables. Furthermore, the Group will apply the general approach and record twelve-month expected credit losses that are estimated based on the possible default events on its other receivables within the next twelve months. The Group has determined that the provision for impairment will have no significant changes upon the initial adoption of the standard.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 52 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
4. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED)
(c) Hedge accounting
IFRS 9 also incorporates new hedge accounting rules that intend to align hedge accounting with risk management practices. Generally, some restrictions under current rules have been removed and a greater variety of hedging instruments and hedged items become available for hedge accounting. IFRS 9 includes an accounting policy choice to defer the adoption of IFRS 9 hedge accounting and to continue with IAS 39 hedge accounting.
IFRS 15 Revenue from Contracts with Customers
The new standard establishes a single revenue recognition framework. The core principle of the framework is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. IFRS 15 supersedes existing revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations.
IFRS 15 requires the application of a 5-step approach to revenue recognition:
(a) Identify the contract(s) with a customer
(b) Identify the performance obligations in theDraft contract
(c) Determine the transaction price
(d) Allocate the transaction price to each performance obligation
(e) Recognise revenue when each performance obligation is satisfied
IFRS 15 includes specific guidance on particular revenue related topics that may change the current approach taken under IFRSs. The standard also significantly enhances the qualitative and quantitative disclosures related to revenue.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 53 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
4. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED)
IFRS 15 Revenue from Contracts with Customers (continued)
The new standard is based on the principle that revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified retrospective approach for the adoption.
TheGroup‟s principal activities consist of the manufacture and sale of air-conditioner, washing machines and water heaters, the sale and distribution of home appliances and other products as well as providing after-sale and other value-added consumer services and providing logistics services. The expected impacts arising from the adoption of IFRS 15 on the Group are summarised as follows:
(a) Sale of air-conditioner, washing machines and water heaters with installation services The Group provides installation services for the sale of air-conditioner, washing machines and water heaters. Currently, when installation services are bundled together with the sale of air-conditioner, washing machines and water heaters, revenue from the sale of air- conditioner, washing machines and water heaters is recognised at a point in time when control of the asset is transferred to the customer, generally on delivery of the goods, and the installation cost is provided as expense estimated based on the sales volume. Upon the adoption of IFRS 15, the Group assessed that the sales of air-conditioner, washing machines and water heaters with installation serDraftvices provide in the PRC market should not be considered as the separate performance obligations under IFRS 15 due to the general market practice. The Group further assessed that the installation services provided in the rest of market and does not expected that significant impact on the recognition of revenue due to the installation service income was recognised separately in previous years.
(b) Variable consideration on the sale and distribution of home appliances
The Group provides a right of return, trade discounts or volume rebates for some of the sales contracts of home appliances with customers. Currently, the Group recognises revenue from the sale of goods measured at fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. If revenue cannot be reliably measured, revenue recognition is deferred until the uncertainty is resolved. Under IFRS 15, a transaction price is considered variable if a customer is provided with a right of return, trade discounts or volume rebates. The Group is required to estimate the amount of consideration to which it will be entitled in the sale of its home appliances and the estimated amount of variable consideration will be included in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognised will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Group has decided to use the expected value method to estimate the goods that will be returned as this method better predicts the amount of variable consideration to which the Group will be entitled. The Group has estimated that, when it adopts IFRS 15, its revenue and the related cost of sales will be adjusted after taking into consideration of the expected sales return, and the corresponding adjustment is yet to be finalised. The Group will present a refund liability and an asset for the right to recover products from customers separately in the consolidated statement of financial position upon the adoption of IFRS 15.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 54 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
4. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED)
IFRS 15 Revenue from Contracts with Customers (continued)
(c) Presentation and disclosure
The presentation and disclosure requirements in IFRS 15 are more detailed than those under the current IAS 18. The presentation requirements represent a significant change from current practice and will significantly increase the volume of disclosures required in theGroup‟s financial statements. Many of the disclosure requirements in IFRS 15 are new and the Group has assessed that the impact of some of these disclosure requirements will be significant. In particular, the Group expects that the notes to the financial statements will be expanded because of the disclosure of significant judgments made on determining the transaction prices of those contracts that include variable consideration, how the transaction prices have been allocated to the performance obligations, and the assumptions made to estimate the stand-alone selling price of each performance obligation. In addition, as required by IFRS 15, the Group will disaggregate revenue recognised from contracts with customers into categories that depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. It will also disclose information about the relationship between the disclosure of disaggregated revenue and revenue information disclosed for each reportable segment.
Draft
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 55 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
4. NEW ACCOUNTING PRONOUNCEMENT (CONTINUED)
IFRS 16 Leases
In January 2016, the IASB issued IFRS 16, Leases. IFRS 16 eliminates the current classification model forlessee‟s lease contracts as either operating or finance leases and, instead, introduces a single lessee accounting model requiring lessees to recognize right-of-use assets and lease liabilities for leases with a term of more than twelve months. This brings the previous off- balance leases on the balance sheet in a manner largely comparable to current finance lease accounting. IFRS 16 is effective for annual periods beginning on or after 1 January 2019. The Group will adopt the standard for the fiscal year beginning as of 1 January 2019, presumably by applying the modified retrospective approach, i.e. comparative figures for the preceding year would not be adjusted. Currently, it is expected that the majority of the transition effect relates to properties leased by the Group in aggregate of approximately RMB1,744 million.
5. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of theGroup‟s financial statements requires management to make estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and their accompanying disclosures, and the disc losure of contingent liabilities. Uncertainty about these assumptions and estimates could reDrasft ult in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future.
The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. Impairment of goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value-in-use of the cash-generating units to which the goodwill is allocated. Estimating the value-in-use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2016 and 2015 of approximatelyRMB21,004 million and RMB392 million respectively. Further details are given in note 16 to the consolidated financial statements.
Recoverability of trade and bills receivables
The Group maintains an allowance for estimated losses arising from the inability of its debtors to make the required payments. The Group makes its estimates based on the debtors‟ creditworthiness, and historical write-off experience. If the financial condition of its debtors was to deteriorate so that the actual impairment loss might be higher than expected, the Group would be required to revise the basis of making the allowance. As at 31 December2016 and 2015, the carrying amounts of trade and bills receivables were RMB26,062 million and RMB18,742 million respectively.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 56 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
5. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (CONTINUED) Provision for inventories
Write-down of inventories to net realisable value is made based on the estimated net realizable value of inventories. The assessment of the write-down amount involvesmanagement‟s judgments and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will impact the carrying value of the inventories and the write-down charge/reversal in the period in which such estimate has been changed. As at 31 December 2016 and 2015, the carrying amount of inventories was RMB15,285 million and RMB8,575 million respectively.
Product warranty and installation provisions
Product warranty and installation provisions are made with reference to the sales volume and the expected unit cost for warranties and installation services. The assessment of the provision amount involvesmanagement‟s judgments and estimates. Where the actual outcome or expectation in future is different from the original estimate, such differences will impact the carrying amount of the product warranty and installation provisions and the provision amount charged/reversed in the period in which such estimate has been changed. As at 31December2016 and 2015, the product warranty and installation provisions amounted to RMB2,276 million and RMB1,842 million respectively.
Impairment of non-financial assets (other th an goodwill)
The Group assesses whether there are any indDrafticators of impairment for all non-financial assets at the end of each reporting period. Indefinite life intangible assets are tested for impairment annually and at other times when such an indicator exists. Other non-financial assets are tested for impairment when there are indicators that the carrying amounts may not be recoverable. An impairment exists when the carrying value of an asset or a cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value-in- use. The calculation of the fair value less costs of disposal is based on available data from binding sales transactions in anarm‟s length transaction of similar assets or observable market prices less incremental costs for disposing of the asset. When value-in-use calculations are undertaken, management must estimate the expected future cash flows from the asset or cash- generating unit and choose a suitable discount rate in order to calculate the present value of those cash flows.
Useful lives of items of property, plant and equipment
Management determines the estimated useful lives and related depreciation for theGroup‟s property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of items of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and competitor actions in response to industry cycles. The depreciation charge will increase when the useful lives are less than the previously estimated useful lives, or management will write off or write down obsolete or non- strategic assets that have been abandoned or sold. As at 31 December 2016 and 2015, the carrying amount of the property, plant and equipment was RMB17,399 million and RMB9,874 million respectively.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 57 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
5. SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES (CONTINUED) Deferred tax assets
Deferred tax assets are recognised for deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. As at 31 December2016 and 2015 the carrying value of deferred tax assets was RMB1,592 million and RMB971 million respectively.
6. SEGMENT INFORMATION
For management purposes, the Group is organised into business units based on their products and services and has six reportable segments as follows:
 Refrigerator segment mainly engaged in manufacture and sales of refrigerator and freezers products;
 Air-conditioner segment mainly engaged in manufacture and sales of household air conditioners and commercial air conditioners; Draft
 Washing machine segment mainly engaged in manufacture and sales of washing machine products; Kitchenware and bathroom appliances segment mainly engaged in manufacture and sales of water heater and kitchen appliances products;
 Equipment components segment mainly engaged in procurement, manufacture and sales of upstream matching accessories for household appliances, manufacture and sales of mould; and Integrated channel services and others segment mainly engaged in distribution business, logistics business, after-sale business, small home appliance business and others.
TheGroup‟s 3rd and 4th tier markets channel business is treated as integrated channel services and assessed separately from other segments. Accordingly, operating profits from 3rd and 4th tier markets of refrigerator, air-conditioner, kitchenware and bathroom appliances, washing machine businesses were not reflected in operating profits of each segment.
Management monitors the results of theGroup‟s operating segments separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on the operating segment profits, which is a measure of adjusted profit before tax. The adjusted profit before tax is measured consistently with theGroup‟s profit before tax except other income, other gains and losses, share of profits of associates, corporate and other unallocated income and gains, corporate and other unallocated expenses and losses as well as finance costs are excluded from such measurement.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 58 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
6. SEGMENT INFORMATION (CONTINUED)
Segment assets exclude goodwill, available-for-sale investments, investments in associates, deferred tax assets, cash and cash equivalents and corporate and other unallocated assets as these assets are managed on a group basis.
Segment liabilities exclude deferred tax liabilities, tax payable, interest-bearing borrowings, convertible and exchangeable bonds and corporate and other unallocated liabilities as these liabilities are managed on a group basis.
Intersegment sales of the air-conditioner, washing machine, water heater, refrigerator, kitchenware and bathroom appliances businesses represent the sales of air-conditioner, washing machines, water heaters, refrigerator, kitchenware and bathroom appliances through theGroup‟s channel services business. Intersegment sales of the logistics business represent the logistics services provided to the air-conditioner, washing machines, water heaters, refrigerator, kitchenware and bathroom appliances as well as channel services businesses, while intersegment sales of the channel services business represent the after-sale services provided to the air- conditioner, washing machines, water heaters, refrigerator, kitchenware and bathroom appliances businesses. Such intersegment sales and transfers are transacted in accordance with the terms and conditions mutually agreed by the parties involved.
Draft
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
6. SEGMENT INFORMATION (CONTINUED)
Segment revenue and results
Revenue from external customers Inter-Segment revenue Total segment revenue Segment‟s profit before tax 2016 2015 2016 2015 2016 2015 2016 2015RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M Refrigerator segment 17,450 9,741 15,853 15,694 33,303 25,435 2,561 1,982 Air-conditioner segment 5,868 5,684 11,338 9,860 17,206 15,544 568 271 Washing machine segment 9,707 4,897 11,860 10,843 21,567 15,740 1,741 1,364 Kitchenware and bathroom appliances segment 12,713 1,072 5,533 4,717 18,246 5,789 1,635 615 Equipment components segment 2,710 2,146 30,153 28,423 32,863 30,569 298 504 Integrated channel services and others segment 70,669 66,294 7,407 8,225 78,076 74,519 (368) 481 Total segment 119,117 89,834 82,144 77,762 201,261 167,596 6,435 5,217 Draft
Reconciliation to consolidated
financial statements - - (82,144) (77,762) (82,144) (77,762) 1,753 1,749 119,117 89,834 - - 119,117 89,834 8,188 6,966 Reconciliation to consolidated financial statements:
Total ofsegment’s profit before tax 6,435 5,217 Other income 1,312 1,241 Other gains and losses 688 578 Share of profits of associates 974 696 Finance costs (729) (119) Eliminations, Corporate Treasury, Corporate Items, other items (492) (647) Reconciliation to consolidated financial statements 1,753 1,749 Profit before tax 8,188 6,966
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 60 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
6. SEGMENT INFORMATION (CONTINUED)
Segment assets and liabilities
Total assets Total liabilities 2016 2015 2016 2015RMB‟M RMB‟M RMB‟M RMB‟M Refrigerator segment 12,795 6,376 21,272 6,394 Air-conditioner segment 13,259 5,842 6,076 3,821 Washing machine segment 10,066 4,285 4,055 2,255 Kitchenware and bathroom appliances segment 13,407 2,131 5,762 1,541 Equipment components segment 23,099 14,845 21,746 19,044 Integrated channel services and others segment 26,812 22,868 24,219 20,869 Total segment 99,438 56,347 83,130 53,924 Reconciliation to consolidated financial statements Draft 32,032 19,726 10,660 (10,382) 131,470 76,073 93,790 43,542 Reconciliation to consolidated financial statements:
Total assets
Total ofsegment‟s assets 99,438 56,347 Goodwill 21,004 392 Deferred tax assets 1,592 971 Available-for-sale investments 1,556 2,776 Investments in associates 11,058 4,959 Eliminations, Corporate Treasury, Corporate Items, other items (3,178) 10,628 Reconciliation to consolidated financial statements 32,032 19,726 Total assets 131,470 76,073
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 61 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
6. SEGMENT INFORMATION (CONTINUED)
Segment assets and liabilities
Total liabilities
Total ofsegment‟s liabilities 83,130 53,924 Convertible and exchangeable bonds 1,223 1,108 Tax payables 931 712 Interest-bearing borrowings 35,496 2,187 Deferred tax liabilities 133 113 Eliminations, Corporate Treasury, Corporate Items, other items (27,123) (14,502) Reconciliation to consolidated financial statements 10,660 (10,382) Total liabilities 93,790 43,542 Draft
Other segment information
Product warranty and installation provisions Depreciation and amortisation 2016 2015 2016 2015RMB‟M RMB‟M RMB‟M RMB‟M Refrigerator segment 1,150 974 730 312 Air-conditioner segment 666 638 271 195 Washing machine segment 741 620 339 105 Kitchenware and bathroom appliances segment 430 229 570 62 Equipment components segment - - 145 149 Integrated channel services and others segment - - 371 232 Total segment 2,987 2,461 2,426 1,055
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 62 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
6. SEGMENT INFORMATION (CONTINUED)
Geographical information
The following table sets out information about the geographical location of (i) theGroup‟s revenue from external customers and (ii) theGroup‟s property, plant and equipment, investment properties, prepaid land lease payments, other intangible assets, long-term prepayment and other non-current assets (“specified non-current assets”). The geographical location of customers is based on the location at which the services were provided or the goods were delivered. The geographical location of the specified non-current assets is based on the physical location of the asset, in the case of property, plant and equipment, investment properties, prepaid land lease payments and long-term prepayment, the location of the operation to which they are allocated in the case of other intangible assets.
Revenues from Specified
external customers non-current assets
2016 2015 2016 2015RMB‟M RMB‟M RMB‟M RMB‟M Mainland China 71,533 71,081 11,215 10,823 Othercountries/regions* 47,584 18,753 15,253 1,040 119, 117 89,834 26,468 11,863 Draft
* Othercountries/regions‖ in this report refers to all other countries/regions (including Hong Kong and Macau Special Administration Region and Taiwan) other than the Mainland China for the purpose of information disclosure.
Information about major customers
During the years ended 31 December 2016 and 2015, there was no revenue from a single customer which individually accounted for10% or more of theGroup‟s revenue.
7. REVENUE AND OTHER INCOME
Revenue represents the net invoiced value of goods sold, net of value-added tax and after allowances for returns and trade discounts; and the value of services rendered during the years. An analysis of revenue and other income is as follows:
2016 2015RMB‟M RMB‟M Revenue
Sales of goods 114,387 85,884 Rendering of services 4,730 3,950 119,117 89,834
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 63 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
7. REVENUE AND OTHER INCOME (CONTINUED)
2016 2015RMB‟M RMB‟M Other income
Bank interest income 226 525 Interest income from other financial assets 10 11 Government grants 697 308 Compensation received from suppliers 224 236 Rental income 14 16 Dividend income from available-for-sale
investments 27 121 Others 114 24 1,312 1,241 8. OTHER GAINS AND LOSSES
2016 2015 Draft RMB‟M RMB‟M Net gain on disposal of associates
and subsidiaries 86 339 Net gain on disposal of available-for-sale
investments 699 55 Gain on deemed disposal of a subsidiary - 49 (Loss)/gain on disposal/written-off of items of
property, plant and equipment, net (3) 10 Net foreign exchange (losses)/gains (179) 165 Net gain/(loss) on disposal of derivatives
financial instruments (10) 50 Fair value change on derivative financial instruments 95 (90) 688 578
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 64 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
9. FINANCE COSTS
2016 2015RMB‟M RMB‟M Interest on interest-bearing borrowings 628 63 Interest on convertible bonds - 21 Interest on convertible and exchangeable bonds 37 34 Other interest expenses 64 1 729 119 10. PROFIT BEFORE TAXATION
Profit before taxation is arrived at after charging/(crediting):
2016 2015RMB‟M RMB‟M Draft
Cost of inventories sold 78,932 62,061 Cost of services provided 4,199 3,431 Depreciation of property, plant and equipment 2,167 969 Depreciation of investment properties 2 - Amortisation of prepaid land lease payment 28 26 Amortisation of other intangible assets 214 29 Research and development costs 3,186 2,344 Employee benefit expenses 13,152 7,976 Provision for obsolete and slow-moving
inventories, net 467 250 Product warranty and installation provisions 2,987 2,461 Provision/(reversal of provision) for
impairment of trade receivables, net (34) 59 Provision/(reversal of provision for
impairment of prepayments and
other receivables, net 56 (8) Provision for impairment of property, plant
And equipment 2 5 Foreign exchange differences, net 179 (165)
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 65 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
11. INCOME TAX EXPENSES
2016 2015RMB‟M RMB‟M Current tax
Charge for the year 1,398 1,249 Overprovision in prior years (79) (122) 1,319 1,127 Deferred tax 173 (71) Total income tax expense for the year 1,492 1,056 (i) PRC corporate income tax
PRC corporate income tax has been provided for at applicable tax rates under the relevant regulations of the PRC after considering the available tax benefits from refunds and allowances, and on the estimated assessable profits of entities within the Group established in the PRC for the years ended 31 December2016 and 2015. The general PRC corporate income tax rate is25% in2016 and 2015.Certain subsidiaries of the Company in the PRC were approved as High and New Techno logy Enterprises or were granted, the West China Draft
Development and certain preferential taxation benefit, and accordingly, they were subject to a reduced preferential corporate income tax rate of15% for the years ended 31 December 2016 and 2015.
(ii) Corporate income tax in other countries
Income tax expenses arising in other jurisdictions are calculated at the rates prevailing in the relevant jurisdictions.
(iii) Withholding tax
According to applicable tax regulations prevailing in the PRC, dividends distributed by a company established in the PRC to a foreign investor with respect to profits derived after 1 January 2008 are generally subject to a10% withholding tax.
Withholding taxes on dividends distribution at respective applicable tax rates are under certain jurisdictions that theGroup‟s entities operate.
The taxation on theGroup‟s profit before taxation differs from the theoretical amount that would arise using the tax rate of25% for the years ended 31 December2016 and 2015, being the tax rate of the major subsidiaries of the Group before enjoying preferential tax treatments, as follows:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 66 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
11. INCOME TAX EXPENSES (CONTINUED)
2016 2015RMB‟M RMB‟M Profit before taxation 8,188 6,966 Tax calculated at a tax rate of25% 2,047 1,741 Effects of different tax rates in other
jurisdiction and preferential
taxation benefit granted (689) (592) Adjustments in respect of current tax of
previous periods (79) (122) Income not subject to tax (191) (128) Expenses not deductible for tax 115 56 Net derecognition of deferred tax 289 101 Income tax expense 1,492 1,056 12. EARNINGS PER SHARE ATTRIBUTABDraftLE TO ORDINARY EQUITY HOLDERSOF THE COMPANY
The calculation of the basic earnings per share amount is based on the profit for the year attributable to ordinary equity holders of the Company, and the weighted average number of ordinary shares of 6,099,297,846 and 6,094,732,973 in issue during the years ended 31 December 2016 and 2015 respectively, as adjusted to exclude the shares issued or repurchased under the Restricted Share Award Scheme in prior years.
The calculation of the diluted earnings per share amount is based on the profit for the year attributable to ordinary equity holders of the Company, adjusted to reflect the interest on and effect of the convertible and exchangeable bonds, where applicable. The weighted average number of ordinary shares used in the calculation is the weighted average number of ordinary shares in issue during the years, as used in the basic earnings per share calculation, and the weighted average number of ordinary shares assumed to have been issued at no consideration on the deemed exercise or conversion of all dilutive potential ordinary shares into ordinary shares.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 67 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
12. EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE COMPANY (CONTINUED)
The calculations of basic and diluted earnings per share are based on:
2016 2015RMB‟M RMB‟M Earnings
Profit attributable to ordinary equity holders of
the Company used in the basic earnings
per share calculation 5,042 4,289 Profit for the year from subsidiaries used in the
calculation of diluted earnings per shares from
convertible and exchangeable bonds (16) (16) Interest on convertible and exchangeable bonds - - 5,026 4,273 2016 2015 Draft Number of Number of shares shares Weighted average number of
Ordinary shares in issue 6,099,297,846 6,094,732,973
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 68 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
13. PROPERTY, PLANT AND EQUIPMENT
Land Machinery Furniture,
and Leasehold and Motor fixtures and Construction
building improvement equipment vehicles equipment in progress TotalRMB’M RMB’M RMB’M RMB’M RMB’M RMB’M RMB’M Cost
At 1 January 2015 5,125 57 7,593 195 697 1,357 15,024 Additions 23 10 4 32 7 2,162 2,238 Written-off/disposals (59) (1) (627) (55) (67) - (809) Reclassified as held for sale (124) - (111) - (2) - (237) Acquisition through business
combinations (note 42) 97 - 7 88 7 12 211 Disposal of subsidiaries (note 43) (18) - (327) - (10) (6) (361) Transfer from construction in progress 909 - 929 33 263 (2,134) - Exchange difference 4 - (9) (8) 1 1 (11) At 31 December 2015 and
1 January 2016 5,957 66 7,459 285 896 1,392 16,055 Additions 2 35 357 7 50 2,069 2,520 Written-off/disposals (150) - (658) (34) (141) (5) (988) Acquisition through business
combinations (note 42) 1,105 2 5,918 - - 119 7,144 Transfer from construction in progress 630 - 994 12 170 (1,806) - Transfer to investment properties (note 14) (23) - - - - - (23) Exchange difference 131 - 414 2 17 19 583 At 31 December 2016 7,652 103 14,484 272 992 1,788 25,291 Accumulated depreciation and
impairment
At 1 January 2015 1,672 - 4,077 104 377 15 6,245 Charge for the year 257 14 555 64 79 - 969 Written-off/disposals (29) - (488) (46) (58) - (621) Transfer from construction in progress 15 - - - - (15) - Disposal of subsidiaries (note 43) (9) - (164) - (4) - (177) Reclassified as held for sale (114)
D-raft
(104) - (2) - (220) Impairment provided for the year 5 - - - - - 5 Exchange difference 3 - (9) (14) - - (20) At 31 December 2015 and
1 January 2016 1,800 14 3,867 108 392 - 6,181 Charge for the year 366 19 1,531 61 190 - 2,167 Written-off/disposals (54) - (415) (31) (115) - (615) Impairment provided for the year - - - - - 2 2 Exchange difference 28 - 124 1 4 - 157 At 31 December 2016 2,140 33 5,107 139 471 2 7,892 Net book values
At 31 December 2016 5,512 70 9,377 133 521 1,786 17,399 At 31 December 2015 4,157 52 3,592 177 504 1,392 9,874
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 69 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
13. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
As at 31 December 2016 and 2015 certain of theGroup‟s land and buildings with an aggregate net book value of approximately RMB2,306 million and RMB2,963 million, respectively, which did not have building ownership certificates registered under the names of the respective subsidiaries of the Company, respectively.
With respect to the above properties, theGroup‟s investment properties and prepaid land lease payments, in prior years, Haier Corp issued to the Group three undertakings, pursuant to which Haier Corp agreed to provide other suitable properties to the Group to ensure the operations of certain subsidiaries of the Company are not disrupted and/or indemnify the Group against any losses arising from the above defective property title issue. The aggregate net book value of theGroup‟s buildings indemnified by Haier Corp as at 31 December 2016 and 2015 amounted to approximately RMB120 million and RMB130 million, respectively.
In the opinion of the directors of the company, the Group is entitled to lawfully and validly occupy and/or use the buildings and investment properties for its daily operations, notwithstanding the fact that the related building ownership certificates have not yet been obtained.
(i) Leased assets
Fixed assets included the following amounts w here the Group is a lessee under finance leases. Draft
2016 2015RMB‟M RMB‟M Leased equipment
Cost 32 33 Accumulated depreciation (20) (5) Net book value 12 28 (ii) Non-current assets pledged as security
Refer to note 47 for information on non-current assets pledged as security by the Group.
(iii) Impairment losses recognised during the year
The carrying amounts of property, plant and equipment is assessed at the end of each reporting period for indications of impairment with reference to the assessment undertaken by management. Such assessment assessed the recoverable amount of each asset being the higher of its value in use or its fair value less costs to sell. During the year ended 31 December 2016 and 2015 an impairment loss of approximately RMB2 million and RMB5 million was recognised in the consolidated statement of profit or loss respectively.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 70 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
14. INVESTMENT PROPERTIES
2016 2015RMB‟M RMB‟M Cost at 1 January, net of accumulated depreciation 12 39 Transfer from owner-occupied properties (note 13) 23 - Transfer to assets held-for-sale - (27) Depreciation provided during the year (2) - Exchange realignment 2 - Cost at 31 December, net accumulated depreciation 35 12 At 31 December:
Cost 49 24 Accumulated depreciation (14) (12) Net carrying amount 35 12 TheGroup‟s investment properties consist of one commercial property in Hong Kong and two industrial properties in Mainland China. Draft
The fair values of theGroup‟s investment properties erected on land are as following:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 71 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
14. INVESTMENT PROPERTIES (CONTINUED)
As at 31 December2016 and 2015, theGroup‟s investment properties erected on land in Mainland China amounted to RMB11 million and RMB12 million, respectively, which did not have building ownership certificates registered under the names of the respective subsidiaries of the Company. The Group obtained an undertaking from Haier Corp in relation to this defective property title issue, details of which are set out in note 13 to the consolidated financial statements. 15. PREPAID LAND LEASE PAYMENTS
2016 2015RMB‟M RMB‟M Carrying amount at 1 January 1,266 923 Additions 238 320 Acquisition of subsidiaries (note 42) - 53 Disposal of subsidiaries (note 43) (21) (4) Amortisation for the year (28) (26) Exchange realignment 3 - Carrying amount at 31 December 1,458 1,266 Draft
Current portion included in prepayments,
deposits and other receivables (30) (32) Non-current portion 1,428 1,234 As at 31 December 2016 and 2015, certain parcels of theGroup‟s leasehold land with an aggregate carrying amount of approximately RMB108 million and RMB139 million, respectively, which did not have land use right certificates registered under the names of the respective subsidiaries of the Company. Details of the undertakings granted by Haier Corp to the Company in relation to this defective property title issue are set out in note 13 to the consolidated financial statements.
As at 31 December 2016 and 2015, certain parcels of theGroup‟s leasehold land with an aggregate carrying amount of RMB13 million and, RMB11 million, respectively, were pledged to secure loans granted to the Group (note 30).
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 72 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
16. GOODWILL
2016 2015RMB‟M RMB‟M Cost at 1 January 392 74 Acquisition of subsidiaries (note42) 19,462 318 Exchange realignment 1,150 - Cost at 31 December 21,004 392 At 31 December:
Cost 21,004 392 Accumulated impairment - - Net carrying amount 21,004 392 Goodwill acquired through business combinations are allocated to the following cash-generating units for impairment testing:
 Qingdao Goodaymart Home Furnishing
SeDraftrvice
Co., Ltd. (“Qingdao Furnishing Service”); Shanghai Boyol New Brothers Supply Chain Management Co., Ltd.(“Shanghai Beiye Supply Chain”) ;
 Sheng Feng Logistics Group Co., Ltd. (“Shengfeng Logistics”);
 GE Appliances, Household Appliance Assets and Business of General Electric(“GEA”);
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
16. GOODWILL (CONTINUED)
Qingdao Furnishing Service
The recoverable amount of Qingdao Furnishing Service has been determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The discount rate applied to the cash flow projections is17.2% and17.5% for the years ended 31 December 2016 and 2015 respectively. The growth rate used to extrapolate the cash flows beyond the five-year period is3% and3% for the years ended 31 December 2016 and 2015 respectively.
Shanghai Beiye Supply Chain
The recoverable amount of Shanghai Beiye Supply Chain has been determined based on a value in use calculation using cash flow projections based on financial budgets covering a five-year period approved by senior management. The discount rate applied to the cash flow projections is18.5% and18.2% for the years ended 31 December 2016 and 2015 respectively. The growth rate used to extrapolate the cash flows beyond the five-year period is3% and3% for the years ended 31 December 2016 and 2015 respectively.
Assumptions were used in the value in use calculation of the cash-generating units for years ended 31 December2016 and 2015. The following des cribes each key assumption on which management has based its cash flow projections to undertakDeraft impairment testing of goodwill:
Budgeted gross margins– The basis used to determine the value assigned to the budgeted gross margins is the actual gross margin achieved in the year immediately before the budget year and expected market development.
Discount rates– The discount rates used are before tax and reflect specific risks relating to the relevant units.
Shengfeng Logistics
The recoverable amount of Shengfeng Logistics has been determined based on its fair value less cost of disposal categorised in Level 3 using cash flows projections on financial budgets covering a ten-year period approved by senior management. The discount rate applied to the cash flow projections is14.5% and14.4% for the years ended 31 December 2016 and 2015 respectively. The growth rate used to extrapolate the cash flows beyond the ten-year period is3% and3% for the years ended 31 December 2016 and 2015 respectively.
Assumptions were used in the fair value calculation for the year ended 31 December 2016 and 2015. The following describes each key assumption on which management has based its cash flow projections to determine the fair value:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 74 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
16. GOODWILL (CONTINUED)
Shengfeng Logistics (continued)
Revenue growth rate– The basis used to determine the revenue growth rate is the average growth rate achieved in the years immediately before the budget year, increased for expected market development.
Budgeted gross margins– The basis used to determine the value assigned to the budgeted gross margins is the average gross margin in the years immediately before the budget year, increased for expected efficiency improvement and market development.
Turnover days of net working capital– The basis used to determine the value assigned to the turnover days of net working capital is the actual turnover days for the years ended 31 December 2016 and 2015, decreased for management efficiency improvement.
Discount rates– The discount rates used are before tax and reflect specific risks relating to the units.
GEA
The recoverable amount of GEA has been determined based on its fair value less cost of disposal categorised in Level 3 using cash flows projeDcrafttions on financial budgets covering a sixteen-year period approved by senior management. The range of discount rate applied to the cash flow projections for the year ended 31 December 2016 of was approximately9% and10%. The growth rate used to extrapolate the cash flows beyond the sixteen-year period is2% for the years ended 31 December 2016.
Assumptions were used in the fair value calculation for 31 December 2016. The following describes each key assumption on which management has based its cash flow projections to determine the fair value:
Revenue growth rate– The basis used to determine the revenue growth rate is the average growth rate achieved in the years immediately before the budget year, increased for expected market development.
Budgeted gross margins– The basis used to determine the value assigned to the budgeted gross margins is the average gross margin in the years immediately before the budget year, increased for expected efficiency improvement and market development.
Turnover days of net working capital– The basis used to determine the value assigned to the turnover days of net working capital is the actual turnover days for the years ended 31 December 2016, decreased for management efficiency improvement.
Discount rates– The discount rates used are before tax and reflect specific risks relating to the units.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 75 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
16. GOODWILL (CONTINUED)
The carrying amount of goodwill allocated to each of the cash-generating units is as follows: 2016 2015RMB‟M RMB‟M Qingdao Furnishing Service 6 6 Shanghai Beiye Supply Chain 68 68 Shengfeng Logistics 318 318 GEA 20,612 - 21,004 392 17. OTHER INTANGIBLE ASSETS
Patents
Proprietary and Software
Technology licences Trademarks & others TotalRMB’M RMB’M RMB’M RMB’M RMB’M 31 December 2016
At 1 January 2016: Draft
Cost 3 - - 356 359 Accumulated amortisation
and impairment (3) - - (135) (138) Net carrying amount - - - 221 221 Cost at 1 January 2016, net of
accumulated amortisation
and impairment - - - 221 221 Acquisition of subsidiaries (note 42) 727 3,714 622 259 5,322 Additions - - - 120 120 Disposal of subsidiaries (note 43) - - - (2) (2) Amortisation provided for the year (44) (56) - (114) (214) Exchange difference 42 218 37 72 369 Cost at 31 December 2016, net of
accumulated amortisation
and impairment 725 3,876 659 556 5,816 At 31 December 2016:
Cost 773 3,933 659 808 6,173 Accumulated amortisation
and impairment (48) (57) - (252) (357) Net carrying amount 725 3,876 659 556 5,816
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 76 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
17. OTHER INTANGIBLE ASSETS (CONTINUED)
31 December 2015
At 1 January 2015:
Cost 3 - - 227 230 Accumulated amortisation
and impairment (3) - - (108) (111) Net carrying amount - - - 119 119 Cost at 1 January 2015, net of
accumulated amortisation
and impairment - - - 119 119 Acquisition of subsidiaries (note 42) - - - 1 1 Additions - - - 130 130 Amortisation provided for the year - - - (29) (29) Cost at 31 December 2015, net of
accumulated amortisation
and impairment - - - 221 221 At 31 December 2015:
Cost 3 - - 356 359 Accumulated amortisation
and impairment (3) - - (135) (138) Net carrying amount - - - 221 221 The following useful lives are used in the calculation of amortisation:
Proprietary technology
Draft
10 years
Patents and licences 40 years
Trademarks Indefinite
Software& Others not exceeding than10 years
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
18. INVESTMENTS IN ASSOCIATES
2016 2015RMB‟M RMB‟M At 1 January 4,959 3,583 Additions during the year 5,184 634 Share of post-acquisition profits,
net of dividend received 942 685 Share of other comprehensive income/loss (16) 40 Other changes in equity (1) 36 Disposals during the year (10) (19) At 31 December 11,058 4,959 TheGroup‟s trade and other receivable and payable balances with the associates are disclosed in notes 45 to the consolidated financial statements, respectively.
Details of each of theGroup‟s material investments in associates method at 31 December 2016 and 2015 are as follows:
Draft
Name of associates Principal activity Place of incorporation Proportion of ownership and principal place interest/voting rights held of business held by the Group
2016 2015% % Haier Group Finance Co., Ltd. Financing PRC 42.00 42.00 Controladora Mabe, Manufacturing of household Mexico 48.41 - S.A.deC.V appliances
Bank of Qingdao co., Ltd. Commercial bank PRC 9.47 - Haier Group Finance Co., Ltd.
Set out below are the summarised financial information of Haier Group Finance Co., Ltd. extracted from its financial statements prepared under generally accepted accounting principles in the PRC.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 78 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
18. INVESTMENTS IN ASSOCIATES (CONTINUED)
2016 2015RMB‟M RMB‟M Revenue 2,333 2,721 Profit for the year 1,274 1,523 Other comprehensive income/loss (75) 74 Total comprehensive income 1,199 1,597 Dividend received 294 - Reconciliation to carrying amounts:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 79 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
18. INVESTMENTS IN ASSOCIATES (CONTINUED)
Controladora Mabe, S.A. de C.V.
Set out below are the summarised financial information of Controladora Mabe, S.A.deC.V.extracted from its financial statements prepared under International Financial Reporting Standards.
2016 2015RMB‟M RMB‟M Non-current assets 9,986 - Current assets 5,411 - Current liabilities (5,948) - Non-current liabilities (6,151) - 2016 2015RMB‟M RMB‟M Revenue 9,967 - Profit for the year 452 - Other comprehensive income/loss 155 - Total comprehensive income
Draft
607 - Dividend received - - Reconciliation to carrying amounts:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 80 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
18. INVESTMENTS IN ASSOCIATES (CONTINUED)
Bank of Qingdao co., Ltd.
Set out below are the summarised financial information of Bank of Qingdao co., Ltd. extracted from its financial statements.
2016 2015RMB‟M RMB‟M Non-current assets 159,107 - Current assets 118,881 - Current liabilities (214,236) - Non-current liabilities (46,116) - 2016 2015RMB‟M RMB‟M Revenue 5,996 - Profit for the year 2,089 - Other comprehensive income/loss (420) - Total comprehensive income 1,669 - Draft
Dividend received 77 - Reconciliation to carrying amounts:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 81 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
19. AVAILABLE-FOR-SALE INVESTMENTS
2016 2015RMB‟M RMB‟M Listed equity investments, at fair value 52 1,454 Unlisted equity investments, at cost 1,507 1,325 Impairment (3) (3) 1,556 2,776 As at the end of the reporting period, certain of theGroup‟s available-for-sale investments were stated at cost less impairment because the range of reasonable fair value estimates is so significant that the directors are of the opinion that their fair values cannot be measured reliably. The Group does not intend to dispose of them in the near future.
20. OTHER NON-CURRENT ASSETS
Included in other non-current assets are balances of approximately RMB913 million and RMB78 million as at 31 December 2016 and 2015,respectively,which related to the expenditure incurred on developing new technology and software an d to be amortised using the straight-line basis over Draft
the commercial lives of the technology and software, when they are put into commercial production.
21. INVENTORIES
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 82 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
22. TRADE AND BILLS RECEIVABLES
2016 2015RMB‟M RMB‟M Trade receivables 12,674 6,511 Impairment (409) (443) 12,265 6,068 Bills receivables 13,797 12,674 26,062 18,742 TheGroup‟s trading terms with the sizeable customers are mainly on credit, where payment in advance is normally required on the remain customers. The credit period is generally ranging from 30 to 90 days. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables to minimise credit risk. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that theGroup‟s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. The Group does not hold any collateral or other credit enhancements over its trade receivable balances. Trade receivables are non-interest-bearing.
Draft
As at 31 December 2016 and 2015, included in theGroup‟s trade and bills receivables are amounts due from Haier Corp and its subsidiaries and/or associates (Collectively referred to as “Haier Affiliates”) of RMB820 million and RMB1,504 million and due from associates of RMB273 million and RMB280 million which are repayable on credit terms similar to those offered to the major customers of the Group. Further details of the sales to these related parties are set out in note 45 to the consolidated financial statements.
The movements in provision for impairment of trade receivables are as follows:
2016 2015RMB‟M RMB‟M At 1 January 443 422 Acquisition of subsidiaries - 8 Disposal of subsidiaries - (10) Provision/ (reversal of provision) for
impairment of trade receivables, net (34) 59 Amount written off as uncollectible (21) (6) Exchange realignment 21 (30) At 31 December 409 443
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 83 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
22. TRADE AND BILLS RECEIVABLES (CONTINUED)
Included in the above provision for impairment of trade receivables is a provision for impaired trade receivables for the year ended 31 December 2016 and 2015 of approximately RMB409 million and RMB443 million respectively, with a carrying amount before provision of RMB12,674 million and RMB6,511 million respectively.
The impaired trade receivables relate to customers that were in default in principal payments and only a portion of the receivables is expected to be recovered. Receivables that were neither past due nor impaired relate to customers for whom there was no recent history of default.
Receivables that were past due but not impaired relate to a number of customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. At 31 December 2016 and 2015, certain of theGroup‟s trade and bills receivables of approximately RMB8,480 million and RMB7,943 million were pledged to secure certain of theGroup‟s bills payable respectively (note 28).
At 31 December 2016 certain of theGroup‟s trade and bills receivables of approximately RMB873 million pledged to secure certain of theGroup‟s borrowings, respectively (note 30). The carrying amounts of the trade receivables include receivables which are subject to the Draft
factoring and securitisation arrangements. Under these arrangements, the Group has transferred the relevant receivables to the factor in exchange for cash and is prevented from selling or pledging the receivables. However, the Group has retained late payment and credit risk. The Group therefore continues to recognise the transferred assets in their entirety in its statement of consolidated financial position. The amount repayable under the factoring agreement is presented as secured borrowing.
2016 2015RMB‟M RMB‟M Trade receivables under factoring and
securitisation arrangements 4,907 30
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 84 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
23. PREPAYMENT, DEPOSITS AND OTHER RECEIVABLES
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 85 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
24. DERIVATIVE FINANCIAL INSTRUMENTS
Derivatives are only used for economic hedging purposes and not as speculative investments. However, where derivatives do not meet the hedging criteria or are not designated as hedging instruments, they are classified as„held fortrading‟ for accounting purposes below. The Group has the following derivative financial instruments:
2016 2015RMB‟M RMB‟M Non-current assets
Financial assets at fair value through profit or loss 38 78 38 78 Current assets
Foreign currency forward contracts
– held for trade 80 22– fair value hedges 3 - Interest rate swaps
– cash flow hedges 17 - Draft
100 22 Current liabilities
Foreign currency forward contracts
– held for trade 2 8 Non-current liabilities
Foreign currency forward contracts
– fair value hedges 583 - 583 - Note:
Derivative financial assets represent the amounts the Group would receive whilst derivative financial liabilities represent the amounts the Group would pay if the positions were closed at the end of the reporting period. In respect of derivative financial instruments that do not qualify for hedge accounting or are not designated as hedging instruments, their corresponding changes in fair values have been recognised in the consolidated statement of profit or loss.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 86 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
24. DERIVATIVE FINANCIAL INSTRUMENTS (CONTINUED)
During the year ended 31 December 2016, a foreign subsidiary of the Company entered into foreign currency forward contracts to minimise the exposure to fluctuations in RMB exchange rates of borrowings, which are denominated in RMB, in respect of the principal repayments. The foreign currency forward contracts designated as hedging instruments in fair value hedges will offset the impact of future changes in exchange rate on the fair value of the underlying borrowings. The foreign currency forwards are reflected at fair value in the consolidated statement of financial position and the related portion of borrowings being hedged is reflected at an amount equal to the sum of its carrying amount plus an adjustment representing the change in fair value of the borrowings attributable to the currency risk being hedged.
During the year ended 31 December 2016, the foreign subsidiary of the Company also entered into interest rate swap contracts with various financial institutions to minimise its exposure to fluctuations in interest rates of its variable interest bearing borrowings. At 31 December 2016, the Group has interest swap contracts outstanding with an aggregate notional contract amount ofUS$145 million, respectively.
The fair values of the above derivative under hedge accounting are based on the valuation provided by the counterparty financial institutions and measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.
Draft
25. OTHER FINANCIAL ASSETS
Other financial assets represented financial products with original maturity of within one year when acquired from banks. The principals of these financial products are guaranteed by banks and cannot be withdrawn prior to the maturity date.
26. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS
2016 2015RMB‟M RMB‟M Cash and bank balances and time deposits 23,582 24,758 Less: Deposits pledged for bank guarantee
and bills payable (note 28) (287) (32) Cash and cash equivalents 23,295 24,726
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 87 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
26. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS (CONTINUED)
As at 31 December 2016 and 2015, the cash and bank balances and time deposits of the Group denominated in RMB are amounted to RMB19,469 million and RMB21,428 million respectively. These cash and bank balances are subject to the rules and regulations of foreign exchange control promulgated by the PRC government. However, under MainlandChina‟s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.
Cash at banks earns interest at floating rates based on daily bank deposit rates. Time deposits are made for varying periods of up to one year depending on the immediate cash requirements of the Group, and earn interest at the deposit rates of the respective periods. The bank balances and pledged deposits are deposited with creditworthy banks or financial institutions with no recent history of default.
Included in theGroup‟s cash and cash equivalents are deposits of approximately RMB9,651 million and RMB11,183 million as at 31 December 2016 and 2015placed with Haier Group Finance Co., Ltd. (“Haier Finance”) respectively, which is a fellow subsidiary of the Group and is a financial institution approved by thePeople‟s Bank of China. The interest rate on these deposits ranges from0.3% to3.3% per annum. Further details of the interest income attributable to the deposits placed with Haier Finance are set out in note 45 to the consolidated financial statements. Draft
27. ASSETS HELD-FOR-SALE
During the years 2015 and 2014, Qingdao Haier Refrigerator (International) Co., Ltd and Qingdao Haier Air Conditioner Gen Corp., Ltd. signed a demolition compensation agreement with the local government with regards to certain land use rights with the local government. The Group classified the land use rights and property, plant and equipment as assets held for sale. Due to delay of the settlement, approximately RMB56 million and RMB74 million of the aforementioned assets remains at assets held for sale as at 31 December 2016 and 2015, respectively.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 88 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
28. TRADE AND BILLS PAYABLES
2016 2015RMB‟M RMB‟M Trade payables 20,602 14,673 Bills payable 12,405 11,597 33,007 26,270 The trade and bills payables are non-interest-bearing and are normally settled on credit terms ranging from 30 to 180 days.
Included in theGroup‟s trade and bills payables are amounts due to Haier Affiliates as at 31 December 2016 and 2015 of RMB1,786 million and RMB3,138 million, respectively. As at 31 December 2016 and 2015, the amounts due to associates of RMB1,384 million and RMB83 million respectively are repayable on credit terms similar to those offered by other similar suppliers of the Group respectively. Further details of the purchases from these related parties are set out in note 45 to the consolidated financial statements.
At 31 December 2016 and 2015 certain of theGroup‟s bills payable are secured by the pledge of Draft
theGroup‟s bank deposits amounting to RMB287 million and RMB32 million (note 26) respectively and theGroup‟s trade and bills receivables amounting to RMB8,480 million, RMB7,943 million respectively.
29. RECEIPT IN ADVANCE, OTHER PAYABLES AND ACCRUALS
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
29. RECEIPT IN ADVANCE, OTHER PAYABLES AND ACCRUALS (CONTINUED)
As at 31 December 2016 and 2015, included in theGroup‟s other payables and accruals, receipt in advance, dividend payable and interest payable are amounts due to Haier Affiliates of RMB1,241 million and RMB841 million respectively.
30. INTEREST-BEARING BORROWINGS
2016 2015RMB‟M RMB‟M Bank loans 26,070 1,139 Other loans 9,426 1,048 35,496 2,187 Secured loans 27,511 1,126 Unsecured loans 7,985 1,061 35,496 2,187 Draft
2016 2015RMB‟M RMB‟M Analysed into:
loans repayable within
one year or on demand 19,872 1,847 Between one and five years 15,577 308 Over five years 47 32 35,496 2,187 Less: Current portion of
interest-bearing borrowings (19,872) (1,847) Non-current portion of interest-bearing borrowings 15,624 340
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 90 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
30. INTEREST-BEARING BORROWINGS (CONTINUED)
Loans at principal amounts are denominated in the following currencies (inclusive of the effect of hedging transactions):
2016 2015RMB‟M RMB‟M US dollars 25,670 190 RMB 8,450 131 Other currencies 1,376 1,866 35,496 2,187 The ranges of effective interest rates on theGroup‟s loans are as follows:
2016 2015
Effective interest rates 1.05% to11.05% 1.05% to11.65% Draft
The assets pledged as security or corporate guarantee provided for theGroup‟s secured loans are as follows:
2016 2015RMB‟M RMB‟M Assets
Inventories - 31 Property, plant and equipment 18 55 Prepaid land lease payment 13 11 Trade and bills receivables 873 - 904 97 Corporate guarantee
Haier Corp 23,351 1,001 Others 50 - 23,401 1,001
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
30. INTEREST-BEARING BORROWINGS (CONTINUED)
As at 31 December 2016, bank loan of approximately USD2,371 million (equivalent to approximately RMB16,451 million) were guaranteed by Haier Corp and shares of Haier US Appliance solution, Inc.
31. CONVERTIBLE AND EXCHANGEABLE BONDS
In the year 2014, the Group and the Alibaba Group agreed on a strategic collaboration through the Strategic Investments Agreements to further develop theGroup‟s logistics business carried out by Qingdao Goodaymart Logistics Co., Ltd. (“Goodaymart Logistics”), a then indirect wholly-owned subsidiary of the Company.
According to the Convertible and Exchangeable Bond Agreement entered into between the Group and the Alibaba Group on 20 March 2014, Haier Electronics Group Co., Ltd. (“Haier Electronics”), issued convertible and exchangeable bonds (the “CEB”) to Alibaba Group with a principal amount ofHK$1,316,036,000 (equivalent to RMB1,055,023,000). The CEB is interest- bearing at a rate of1.5% per annum and is due to mature on 20 March 2017. The CEB is convertible into ordinary shares of Haier Electronics at a conversion price ofHK$19.334 per share (the “Conversion Right”) or exchangeable into the ordinary shares of Goodaymart Logistics (the “Exchange Right”), at the option of the CEB holders. If the Conversion Right is exercised, all interests accrued up to the date of the convDeraft rsion will be payable and taken into account in arriving at the number of convertible shares. If the Exchange Right is exercised, no interest will be payable by Haier Electronics.
The fair value of the liability component of the CEB amounting to RMB1,000,185,000 was estimated at the issuance date using an equivalent market interest rate for a similar bond without conversion and exchange options.
The components of the CEB on the issuance date were recognised into as follows:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 92 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
31. CONVERTIBLE AND EXCHANGEABLE BONDS (CONTINUED)
The movement of the liability component of CEB is as follows:
2016 2015RMB‟M RMB‟M At 1 January 1,108 1,024 Additions - - Interest expense (note 9) 37 34 Exercise of CEB - - Exchange realignment 78 50 At 31 December 1,223 1,108 32. AMOUNT DUE TO NON-CONTROLLING SHAREHOLDER OF A SUBSIDIARY
The amount due to non-controlling shareholder of a subsidiary was unsecured, interest-free and repayable on demand.
33. PROVISION
Draft
Current Non-current
2016 2015 2016 2015RMB‟M RMB‟M RMB‟M RMB‟M Product warranties
and installation 1,494 1,096 782 746 Legal claim - - 19 14 1,494 1,096 801 760 (i) Information about individual provisions and significant estimates
Product warranties and installation
Significant assumptions and estimates related to the estimated charges of Product warranties and installations: the Company rationally estimates the rate of– Product warranties and installations according to the previous actual expenditures and sales data on “Product Warranties” and installations, and estimates the potential charges of Product warranties and installations based on the policy of Product warranties and installations and the realised sales data.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 93 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
33. PROVISION (CONTINUED)
(i) Information about individual provisions and significant estimates (continued)
Legal claim
As at 31 December 2016and 2015, the Group had provisions classified as non-current liabilities in respect of a number of legal proceedings arising in the normal course of its business. This provision was recognised based onmanagement‟s best estimate after consultation with the legal counsel on the possible outcome and liability of the Group. In cases where the actual future outcomes differ from the estimation, further provision may be required.
(ii) Movements in provisions
Product warranties Legal
And installations claim TotalRMB‟M RMB‟M RMB‟M Carrying amount as at
1 January 2015 1,913 19 1,932 Charged to profit or loss 2,461 - 2,461 Exchange realignment 1 - 1 Amounts used during the year (2,533) (5) (2,538) Carrying amount as at
31 December 2015
and 1 January 2016
Draft
1,842 14 1,856 Charged to profit or loss 2,987 4 2,991 Acquisition of subsidiaries (note 42) 256 - 256 Exchange realignment 27 1 28 Amounts used during the year (2,836) - (2,836) Carrying amount as at
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 94 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
34. OTHER NON-CURRENT LIABILITIES
The put option liabilities are carried at fair value. The fair values as at 31 December 2016 and 2015 were calculated on the basis of the actual operational performance outcome of the operations for the year ended 31 December 2015 which was the last assessment period during the tenures of the put options and are categorised in Level 2 of the fair value measurements.
35. DEFERRED INCOME
As at 31 December 2016 and 2015, the Group has unused government grants in relation to the construction of qualifying assets and its future achievements. The deferred income will be recognised over the useful life of the qualifying assets and upon satisfaction of its future achievements.
36. DEFERRED TAX
The deferred tax assets and liabilities are offset when there is a legally enforceable right to set off and when the deferred income taxes relate to the same fiscal authority. The amounts shown in the consolidated statement of financial position are determined after appropriate offset.
2016 2015RMB‟M RMB‟M Draft
Deferred tax assets 1,592 971 Deferred tax liabilities 133 113 Net deferred tax assets 1,459 858 The amounts shown as below are determined before appropriate offset:
2016 2015RMB‟M RMB‟M Deferred tax assets
Accruals 1,589 704 Provisions 206 125 Unrealised profits 306 176 Others 11 10 2,112 1,015
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 95 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
36. DEFERRED TAX (CONTINUED)
2016 2015RMB‟M RMB‟M Deferred tax liabilities
Withholding taxes 39 9 Accelerated depreciation and amortisation 461 5 Others 153 143 653 157 Total deferred tax assets, net 1,459 858 Deferred tax assets have not been recognized with respect of the following items:
2016 2015RMB‟M RMB‟M Deductible temporary differences 273 237 Tax loss carry-forwards Draft 467 264 740 501 37. EMPLOYEE BENEFIT OBLIGATION
2016 2015
Non- Non-
Current current Total Current current TotalRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M RMB‟M Defined pension
benefit (i) 46 838 884 - - - Termination benefit - 54 54 - 36 36 Provision for work-related
Injury compensation - 317 317 - - - 46 1,209 1,255 - 36 36
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 96 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
37. EMPLOYEE BENEFIT OBLIGATION (CONTINUED)
(i) Defined pension benefit
TheGroup‟s major defined benefit plans are in Japan and the United States. The plans are either contributory final salary pension plans or contributory career average pay plans or non- contributory guaranteed return defined contribution plans.
The amounts recognised in the consolidated statement of financial position and the movements in the net defined pension benefit over the year are as follows:
Impact of
minimum
funding
Present Fair value requirement
value of of plan / asset Net obligation assets Total ceiling amountRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M At 1 January 2015 276 (283) (7) - (7) Current service cost 9 - 9 - 9 Interest expense/(income) 3 (5) (2) - (2) Total amount recognised Draft
in profit or loss 12 (5) 7 - 7 Remeasurements
Experience losses 6 - 6 - 6 Total amount recognised
in other comprehensive income 6 - 6 - 6 Exchange differences 14 (14) - - - Contributions:
Employers - (12) (12) - (12) Benefit payments (22) 22 - - - At 31 December 2015
and 1 January 2016 286 (292) (6) - (6) Current service cost 68 - 68 - 68 Past services cost (120) - (120) - (120) Interest expense/(income) 19 (4) 15 - 15 Total amount recognised
In profit or loss (33) (4) (37) - (37)
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 97 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
37. EMPLOYEE BENEFIT OBLIGATION (CONTINUED)
(i) Defined pension benefit (continued)
Impact of
minimum
funding
Present Fair value requirement
value of of plan / asset Net obligation assets Total ceiling amountRMB‟M RMB‟M RMB‟M RMB‟M RMB‟M Remeasurements
Return on plan assets,
excluding amounts
included in interest/(income) - (1) (1) - (1) Experience losses 24 - 24 - 24 Total amount recognised
in other comprehensive income 24 (1) 23 - 23 Exchange differences 76 (31) 45 - 45 Contributions:
Employers - (21) (21) - (21) Business combination 885 - 885 - 885 Benefit payments (46) 41 (5) - (5) Draft
At 31 December 2016 1,192 (308) 884 - 884 The net liabilities/ (assets) disclosed above relates to funded and unfunded plans as follows:
2016 2015RMB‟M RMB‟M Present value of funded obligations 659 286 Less: Fair value of plan assets (308) (292) Deficit/ (surplus) of funded plans 351 (6) Present value of unfunded obligations 533 - Total deficit of defined benefit pension
plans (before asset ceiling) 884 (6)
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 98 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
37. EMPLOYEE BENEFIT OBLIGATION (CONTINUED)
(i) Defined pension benefit (continued)
The following table shows a breakdown of the defined benefit obligation and plan assets by country:
For the year ended 31 December 2016
Japan US TotalRMB‟M RMB‟M RMB‟M Present value of obligation 315 877 1,192 Less: Fair value of plan assets (300) (8) (308) Total liability/ (assets) 15 869 884 For the year ended 31 December 2015
Japan US TotalRMB‟M RMB‟M RMB‟M Present value of obligation 286 - 286 Less: Fair value of plan assets Draft (292) - (292) Total liability/ (assets) (6) - (6) The net defined benefit liabilities presented above represent the deficit calculated in accordance with International Accounting Standard 19“Employee Benefits” (“IAS 19”) and is the difference between the present value of the defined benefit obligation and the fair value of plan assets. Management appointed actuaries to carry out a valuation of these pension plans to determine the pension obligation and the fair value of the plan assets that are required to be disclosed and accounted for in the financial statements in accordance with IAS 19 (the “accounting actuarial valuations”). The realisation of the deficit disclosed above is contingent upon the realisation of the actuarial assumptions made which is dependent upon a number of factors including the market performance of plan assets. The accounting actuarial valuations are not used for the purposes of determining the funding contributions to the defined benefit pension plans. Contributions to fund the obligations are based upon the recommendations of independent qualified actuaries for each of theGroup‟s pension plans to fully fund the relevant schemes on an ongoing basis. Funding requirements of theGroup‟s major defined benefit pension plans are detailed below.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
37. EMPLOYEE BENEFIT OBLIGATION (CONTINUED)
(i) Defined pension benefit (continued)
Fair value of the plan assets are analysed as follows:
2016 2015% % Cash and cash equivalent 36 68 Other assets 64 32 100 100 IAS 19 “Employee Benefits” requires disclosure of a sensitivity analysis for the significant actuarial assumptions, used to determine the present value of the defined benefit obligations, that shows the effects of a hypothetical change in the relevant actuarial assumption at the end of the reporting period on defined benefit obligations.
The effect that is disclosed in the following assumes that (a) a hypothetical change of the relevant actuarial assumption had occurred at the end of the reporting period and had applied to the relevant actuarial assumption in existence on that date; and (b) the sensitivity analysis for each type of actuarial assumption does not reflect inDraftter-dependencies between different assumptions. The preparation and presentation of the sensitivity analysis for significant actuarial assumptions is solely for compliance with IAS 19 disclosure requirements in respect of defined benefit obligations. The sensitivity analysis measures changes in the defined benefit obligations from hypothetical instantaneous changes in one actuarial assumption (e.g. discount rate or future salary increase), the amount so generated from the sensitivity analysis are “what-if” forward-looking estimates. The sensitivity analyses are for illustration purposes only and it should be noted that in practice actuarial assumptions rarely change in isolation. Actual results in the future may differ materially from the sensitivity analyses due to developments in the markets which may cause fluctuations in actuarial assumptions (e.g. discount rate or future salary increase) to vary and therefore it is important to note that the hypothetical amounts so generated do not present a projection of likely future events and profits or losses.
The principal actuarial assumptions used for the purpose of the actuarial valuation were as follows: 2016 2015
Japan US Japan US% % % % Discount rate 1.10-2.00 3.21-3.98 1.10-2.00 - Future salary increases 5.31 3.75 12.24 - Average term of defined benefit obligation/year 14.90 12.14 14.70 -
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 100 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
38. SHARE CAPITAL
2016 2015RMB‟M RMB‟M As at 1 January 6,123 3,046 Equity-settled share option arrangements - 31 Capitalisation of capital reserve into shares - 3,046 Cancellation of treasury shares (18) - Cancellation of restricted share (7) - As at 31 December 6,098 6,123 The movements of theCompany‟s issued share capital during the year are follows:
Number Issued
of Shares share
in issue capital Total‘million RMB’M RMB’M At 1 January 2015 3,046 3,046 3,046 Equity-settled share option arrangements 31 31 31 Capitalisation of capital reserve into shares 3,046 3,046 3,046 Draft
At 31 December 2015 and 1 January 2016 6,123 6,123 6,123 Cancellation of treasury shares (18) (18) (18) Cancellation of restricted share (7) (7) (7) At 31 December 2016 6,098 6,098 6,098 Equity-settled Share options
Details of theCompany‟s share option scheme and the share options issued under the scheme are included in note 39 to the consolidated financial statements.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 101 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
39. SHARE OPTION INCENTIVES SCHEME AND SHARES HELD FOR THE RESTRICTED SHARE AWARD SCHEME
The Company operates a share option incentive scheme and restricted share award scheme, which aim at providing incentives and rewards to the eligible participants who contribute to the success of the operations of the Group. Eligible participants of the share option scheme include any employee, executive or officer of the Group (including executive, nonexecutive and independent non-executive directors of the Company) and any supplier, consultant, agent, adviser, shareholder, customer, partner or business associate who, in the opinion of the board of directors of the Company (the “Board”), have contributed to the Group. Under the restricted share award scheme, the Company may purchase the scheme shares in the open market and hold the purchased shares in the Share Award Scheme Trust for the relevant selected employees until such shares vest or issue and allot new scheme shares to the trustee. The board of the Company has discretion to decide whether the awarded shares are to be purchased or subscribed.
(a) In December 2012, the conditions for the third exercise period of Phase I Share Option Incentive Scheme and first exercise period of Phase II Share Option Incentive Scheme of the Company have been fulfilled. On 10 and 11 January 2013, the Company directionally issued additional 7,184,400 and 3,597,600 ordinary shares to determined and qualified participates of Phase I and Phase II Share Option Incentive Scheme respectively at a price of RMB5.07 per share and RMB10.94 per share, respectively. The aggregate 10,782,000 shares above mentioned were listed on 18 January 2013.
Draft
(b) In September 2013, the Company induced a proposal on the introduction of the strategic investor through non-public issuance of no more than 305 million A ordinary shares to KKR (Luxembourg) with proceeds of not more than RMB3.447 billion. After the approval received from the general meeting of the shareholders of the Company, Ministry of Commerce and CSRC, the Board of the Company conducted relevant share transfer procedures in July 2014 and determined 302,992,994 shares to be issued at the issue price of RMB10.83 per share. The listing of the relevant shares will be effective on 17 July 2017. (c) In April 2014, the Company introduced Phase IV Share Option Incentive Scheme. The Scheme involves 54,560,000 options, of which, 49,110,000 options (including 42,879,000 share options and 6,231,000 restricted shares) were granted under the first grant and 5,450,000 options (including 4,761,000 share options and 689,000 restricted shares) were reserved shares. After no objection filing with the CSRC and the approval of the Scheme at a general meeting of the shareholders of the Company, the Board determined the date of the First Grant was 20 June 2014 and 48,780,000 options (including 42,679,000 share options at the exercise price of RMB16.63 per share; and 6,101,000 restricted shares at the grant price of RMB7.73 per share) were granted to scheme participants (adjusted after one participant left the Company) under the first grant. The registration of transfer of the abovementioned restricted shares was completed on 7 July 2014.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 102 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
39. SHARE OPTION INCENTIVES SCHEME AND SHARES HELD FOR THE RESTRICTED SHARE AWARD SCHEME (CONTINUED)
(d) In November 2014, the conditions for the third exercise period of PhaseⅡ Share Option Incentive Scheme, the second exercise period of Phase III Share Option Incentive Scheme of the Company have been fulfilled. On 25 November 2014, the Company directionally issued additional 4,779,200, and 11,226,000 ordinary shares to determined and qualified participants of Phase II and Phase III Share Option Incentive Scheme at prices of RMB10.11 and RMB10.36 per share respectively. The aggregate 16,005,200 shares above mentioned were listed on 2 December 2014.
(e) In February 2015, according to theCompany‟s reserved equity under the Phase IV Share Option Incentive Scheme, an aggregate of 650,000 share options were granted with the exercise price of RMB20.44 per share while 190,000 restricted shares were granted with the granting price of RMB10.06 per share. The Board of Directors determined that the Grant date was 26 February 2015. Registration and transfer issues of the restricted shares have been completed on 8 April 2015.
(f) In July 2015, the conditions of the first exercise/unlocking of equity initially granted under Phase IV Share Option Incentive Scheme were fulfilled. The Company directionally issued additional 30,904,000 ordinary shares to determined and qualified participants of the first exercise of equity granted under Phase IV Share Option Scheme at a price of RMB8.07 per share. The above shares were listed on 5
ADraftugust
2015.
As at 31 December 2016 and 2015, the numbers of issued restricted share options were 228,000 and 7,701,200.
The following restricted awarded shares were outstanding under during the year:
2016 2015
Weighted Weighted
average average
issue issue
price Number price Number per share of awarded per share of awarded RMB shares RMB shares At 1 January 6.13 7,701,200 7.73 6,101,000 Grant during the year - - 8.07 380,000 Grant during the year due to
dividend share issued - - 3.62 6,101,000 Forfeited/lapsed during the year 6.13 (7,473,200) 7.73 (4,880,800) At 31 December 8.07 228,000 6.13 7,701,200 The exercise prices and exercise periods of the awarded shares outstanding as at the end of the reporting period are as follows:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
39. SHARE OPTION INCENTIVES SCHEME AND SHARES HELD FOR THE RESTRICTED SHARE AWARD SCHEME (CONTINUED)
For the year ended 31 December 2016
Number of awarded shares Exercise price per share RMB 28 July 2015 to 26 July 2017 228,000 8.07 For the year ended 31 December 2015
Exercise period Number of awarded shares Exercise price per share RMB 7 July 2014 to 20 June 2016 7,321,200 3.62 28 July 2015 to 26 July 2016 152,000 8.07 28 July 2015 to 26 July 2017 228,000 8.07 7,701,200 6.13 40. RESERVES
Draft
The amounts of theGroup‟s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity on pages 10 to 13 of the consolidated financial statements.
(a) PRC laws and regulations require companies registered in the PRC to maintain certain statutory reserves, which are to be appropriated from the retained earnings (after offsetting accumulated losses from prior years) as reported in their respective statutory financial statements, before distributing retained earnings to their shareholders. Statutory reserves are created for specific purposes. In accordance with the Company Law, PRC companies are required to appropriate10% of the net profits to statutory surplus reserves. A company may discontinue the appropriation when the balance of its statutory surplus reserve is more than50% of its registered capital. The statutory surplus reserves shall only be used to make up losses of the companies or to increase capital of the companies. In addition, a company may make further contribution to a discretionary surplus reserve based on a resolution of the board of directors.
(b) Other reserves mainly represent the additional equity share from the associates.
(c) Fair value changes arising from the effective portion of hedging instruments designated as cash flow hedges are included in the hedging reserve.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 104 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
41. DIVIDEND
2016 2015RMB‟M RMB‟M Final dividend paid in respect of the year ended 31 December 2015
and 2014 of 21.2 cents and 49.2 cents
per fully paid share respectively 1,293 1,497 Draft
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
42. ACQUISTION OF SUBSIDIARIES
For the year ended 31 December 2016
Acquisition of GEA
During the year ended 31 December 2016, the Group acquired100% interests in GEA at a cash consideration of USD5,612 million (equivalent to RMB36,758 million).
The following table summarises the fair value of assets acquired, liabilities assumed recognised, on a provisional basis, as a result of the GEA Integration at the completion date.
GEARMB‟M Total consideration:
Cash consideration 36,758 Recognised amounts of identifiable assets acquired and liabilities assumed:
GEA Draft
RMB‟M Property, plant and equipment and
intangible assets 13,205 Investments in associates 2,757 Other non-current assets 793 Inventories 5,394 Trade and other receivables 5,599 Cash and bank balances 150 Trade and other payables (8,591) Tax payable (45) Provisions (256) Payroll obligations, provisions for
pensions and similar obligations (1,710) Total identifiable net assets 17,296 Goodwill 19,462 36,758
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
42. ACQUISTION OF SUBSIDIARIES (CONTINUED)
Net cash outflow arising on acquisition:
Consideration paid in cash (36,758) Cash and cash equivalents acquired 150 (36,608) The GEA contributed revenue of approximately RMB25,917 million and net profit of approximately of RMB1,012 million to the Group for the period from the relevant acquisition dates to 31 December 2016.
For the year ended 31 December 2015
Acquisition of Shengfeng Logistics
The following table summarises the fair value of assets acquired, liabilities assumed recognised, on a provisional basis, as a result of the Shengfeng Logistics Integration at the completion date. Shengfeng Logistics Draft
RMB‟M Cash Consideration 355 Capital in injection in cash 250 Contingent considerations 70 675
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
42. ACQUISTION OF SUBSIDIARIES (CONTINUED)
Recognised amounts of identifiable assets acquired and liabilities assumed:
Shengfeng LogisticsRMB‟M Property, plant and equipment 211 Prepaid land lease payment 53 Other intangible assets 1 Deferred tax assets 6 Investments in associates 84 Prepayments for items of property, plant and equipment 27 Inventories 1 Trade and bills receivables 234 Prepayments, deposits and other receivables 395 Cash and bank balances 27 Trade and bills payables (119) Other payables and accruals (78) Interest-bearing borrowings (160) Tax payable (8) Deferred income (18) Deferred tax liabilities Draft (3) Finance lease payables (23) Total identifiable net assets 630 Non-controlling interest (273) Goodwill 318 675 Net cash outflow arising on acquisition:
Consideration paid in cash (355) Cash and cash equivalents acquired 27 (328) The Shengfeng Logistics contributed revenue of approximately RMB1,418 million and net profit of approximately of RMB16 million to the Group for the period from the relevant acquisition dates to 31 December 2015.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 108 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
43. DISPOSAL OF SUBSIDIARIES
2016 2015RMB‟M RMB‟M Net assets disposed of:
Cash and bank balances 8 258 Prepayments, deposits and other receivables 17 98 Trade and bills receivables 51 483 Inventories 4 273 Property, plant and equipment - 184 Prepaid land lease payments 21 4 Other non-current assets - 2 Deferred tax assets - 2 Trade and bills payables (45) (469) Other payables and accruals (5) (178) Interest-bearing borrowings - (10) Tax payable - (6) Deferred income - (1) Exchange fluctuation reserve - - Non-controlling interests (25) (198) Draft 26 442 Gain/ (loss) on disposal of subsidiaries, net (6) 320 20 762 Satisfied by:
Cash 18 762 Other receivables 2 - 20 762 An analysis of the net inflow of cash and cash equivalents in respect of the disposal of subsidiaries is as follows:
2016 2015RMB‟M RMB‟M Cash consideration received 17 666 Cash and bank balances disposed of (8) (258) Net inflow of cash and cash
equivalents in respect
of the disposal of subsidiaries 9 408
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
44. TRANSACTIONS WITH NON-CONTROLLING INTERESTS
On 8 May 2015, the Company entered into a sale and purchase agreement with an independent third party, Qingdao Haier Collective Assets ManagementAssociation*, pursuant to which the Company has conditionally agreed to purchase13.33% of shares of Qingdao Haier Dishwasher Co.,Ltd* at a total consideration of approximately RMB50.40 million. Upon completion of the transaction, theGroup‟s equity interests in Qingdao Haier Dishwasher Co., Ltd were increased from86.67% to100%.
The effect on the equity attributable to the owners of the Company during the years is summarised as follows:
2016 2015RMB‟M RMB‟M Carrying amount of non-controlling
interests acquired - 31 Consideration paid to non-controlling interests - 50 Excess of consideration paid recognised in the
transactions with non-controlling
interests reserve within equity - 19 Draft
* The English name of the Company is for identification purpose only.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 110 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
45. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control.
(a) TheCompany‟s directors and theGroup‟s management consider the following entities are principal related parties of the Group with which the Group had transactions during the year. Name of related party Nature of relationship
Haier Group Electric Appliance Industry Co., Ltd. Controlled by Haier Corp
Fisher& Paykel Appliances Limited Controlled by Haier Corp
Qingdao Haier New Material Research and Development Co., Ltd. Controlled by Haier Corp
Qingdao Haier International Travel Agency Co., Ltd. Controlled by Haier Corp
Qingdao Haier International Trading Co., Ltd. Controlled by Haier Corp
Qingdao Haier Parts Procurement Co., Ltd. Controlled by Haier Corp
Haier Group Finance Co., Ltd. Controlled by Haier Corp
Chongqing Haier Electrical Appliances Sales Co., Ltd. Controlled by Haier Corp
Laiyang Haier Electrical Co. Ltd. Controlled by Haier Corp
Chongqing Haier Logistics Co., Ltd. Controlled by Haier Corp
Hefei Haier Logistics Co., Ltd. Controlled by Haier Corp
Haier International (HK) Limited Controlled by Haier Corp
Qingdao Haier Strauss Water Equipment Co., Ltd. Controlled by Haier Corp
Haier International Co., Ltd. Controlled by Haier Corp
Qingdao Haier Special Plastic Research and Development Co., Ltd. Controlled by Haier Corp
Haier Information Appliances S.R.L. Controlled by Haier Corp
Draft
Qingdao Haier Communications Co., Ltd. Controlled by Haier Corp
Feima Electronic (Qingdao) Co., Ltd. Controlled by Haier Corp
Hefei Hai Zhi Real Estate Co., Ltd. Controlled by Haier Corp
Haier Brothers Animation Industry Co., Ltd. Controlled by Haier Corp
Haier Energy Power Co., Ltd. Controlled by Haier Corp
Haier Group Corporation Controlled by Haier Corp
Qingdao Haier Industrial Development Co., Ltd. Controlled by Haier Corp
Brave Lion (HK) Limited Controlled by Haier Corp
Controladora Mabe, S.A. de C.V. Associate
Hefei Haier Special Steel Board Research& Development Co., Ltd. Associate
Wolong Electric Zhangqiu Haier Motor Co., Ltd. Associate
Qingdao Haier Carrier Refrigeration Equipment Co., Ltd. Associate
HNR Company (Private) Limited Associate
The following is a summary of significant related party transactions entered into in the ordinary course of business between the Group and Haier Affiliates and theGroup‟s associates.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
45. RELATED PARTY TRANSACTIONS (CONTINUED)
(a) Significant related party transactions
2016 2015RMB‟M RMB‟M Sales of goods/services to
- Associates 1,937 704 - Haier Affiliates 2,706 5,796 Purchase of goods/services from
- Associates 6,993 1,841 - Haier Affiliates 19,687 24,350 Bank interest income from
- Associates 123 258 Interest on other loans to
- Associates 299 36 Logistics service
- Associates 59 14 - Haier Affiliates 132 115 Other service fee expenses
- Haier Affiliates 232 285 (b) Balances with related parties
Draft
2016 2015RMB‟M RMB‟M Bank deposit in
Haier Group Finance Co., Ltd. 9,651 11,183 Trade and bills receivable due from
Haier Group Electric Appliance Industry Co., Ltd. 210 784 Fisher& Paykel Appliances Limited 226 165 Qingdao Haier New Material Research and
Development Co., Ltd. 45 48 Qingdao Haier International Travel Agency Co., Ltd. 35 124 Qingdao Haier International Trading Co., Ltd. - 85 Controladora Mabe, S.A. de C.V. - - Hefei Haier Special Steel Board Research&
Development Co., Ltd. 95 76 Wolong Electric Zhangqiu Haier Motor Co., Ltd. 6 111 HNR Company (Private) Limited 123 32 Other related parties 353 359 1,093 1,784
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 112 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
45. RELATED PARTY TRANSACTIONS (CONTINUED)
(b) Balances with related parties (continued)
Dividend receivable due from
Wolong Electric Zhangqiu Haier Motor Co., Ltd. 50 50 Qingdao Haier Carrier Refrigeration
Equipment Co., Ltd. 39 - Other related parties 13 11 102 61 Prepayments due from
Qingdao Haier Parts Procurement Co., Ltd. 54 17 Qingdao Haier International Trading Co., Ltd. 26 27 Other related parties 37 22 117 66 Interest receivables due from
Haier Group Finance Co., Ltd. 10 91 Draft
10 91 Other receivables due from
Haier Group Electric Appliance Industry Co., Ltd. 60 45 Chongqing Haier Electrical Appliances Sales Co., Ltd. 33 - HNR Company (Private) Limited 256 224 Other related parties 99 93 448 362
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
45. RELATED PARTY TRANSACTIONS (CONTINUED)
(b) Balances with related parties (continued)
Trade and bills payables due to
Qingdao Haier Parts Procurement Co., Ltd. 176 663 Chongqing Haier Logistics Co., Ltd. 54 139 Qingdao Haier International Trading Co., Ltd. 210 246 Hefei Haier Logistics Co., Ltd. 50 201 Haier International (HK) Limited 42 21 Chongqing Haier Electrical Appliances Sales Co., Ltd. 275 760 Qingdao Haier Strauss Water Equipment Co., Ltd. 47 - Haier International Co., Ltd. 61 22 Qingdao Haier Special Plastic Research and
Development Co., Ltd. 87 75 Haier Information Appliances S.R.L. 34 103 Qingdao Haier Communications Co., Ltd. 219 - Feima Electronic (Qingdao) Co., Ltd. 144 203 Haier Group Electric Appliance Industry Co., Ltd. 11 188 Controladora Mabe, S.A. de C.V. 1,232 - HNR Company (Private) Limited 76 83 Laiyang Haier Electrical Co. Ltd. 58 30 Wolong Electric Zhangqiu Haier Motor Co., Ltd. 76 - Other related parties 318 487 Draft 3,170 3,221 Advance from
Hefei Hai Zhi Real Estate Co., Ltd. 155 - Other related parties 37 37 192 37 Other payables due to
Haier Brothers Animation Industry Co., Ltd. 385 393 Chongqing Haier Logistics Co., Ltd. 52 52 Haier Energy Power Co., Ltd. 37 - Haier Group Corporation 163 - Qingdao Haier Industrial Development Co., Ltd. 91 - Other related parties 166 221 894 666 Interest payables due to
Haier Group Finance Co., Ltd. 15 6 15 6 Dividend payables due to
Brave Lion (HK) Limited 123 115 Other related parties 17 17 140 132
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 114 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
45. RELATED PARTY TRANSACTIONS (CONTINUED)
(b) Balances with related parties (continued)
Other loans due to
Haier Group Finance Co., Ltd. 9,426 1,048 (c) Information about theGroup’s borrowings were guaranteed by related parties:
Amount of Name of Name of borrower borrowing GuarantorRMB’M
For the year ended 31 December 2016
Qingdao Haier Special Refrigerator Co., Ltd. 700 Haier Group Corporation Hefei Haier Refrigerator Co., Ltd. 700 Haier Group Corporation Qingdao Haier Special Freezer Co., Ltd. 500 Haier Group Corporation Zhengzhou Haier Air-conditioning Co., Ltd. 250 Haier Group Corporation Qingdao Haier (Jiaozhou) Air-conditioning Co., Limited 600 Haier Group Corporation Qingdao Haier Air-Conditioner Electronics Co., Ltd. 300 Haier Group Corporation Chongqing Haier Electronics Sales Co., Ltd. 2,450 Haier Group Corporation Qingdao Haidayuan Procurement Service Co., Ltd. 1,000 Haier Group Corporation Haier Overseas Electric Appliance Co., Ltd. 400 Haier Group Corporation Draft
HAIER US APPLIANCE SOLUTIONS,INC 16,451 Haier Group Corporation 23,351
For the year ended 31 December 2015
Haier Shareholdings (Hong Kong) Limited 1,001 Haier Group Corporation (d) Key management personnel compensation
2016 2015
RMB‟M RMB‟M
Short term employee benefits 4 4
Equity-settled share option expenses, net - 10
Equity-settled Restricted Share
Award Scheme expense - 31
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
46. CONTINGENT LIABILITIES
At the end of the reporting period, the Group did not have any significant contingent liabilities. 47. ASSETS PLEDGED AS SECURITY
The carrying amounts of assets pledged as security for theGroup‟s borrowings and bills payables are:
2016 2015RMB‟M RMB‟M Inventories - 31 Pledged deposit 287 32 Prepaid land lease payments 13 11 Property, plant and equipment 18 55 Trade and bills receivables 9,353 7,943 9,671 8,072 Draft
48. OPERATING LEASE ARRANGEMENTS
(a) As lessor
The Group leases its investment properties under operating lease arrangements, with leases negotiated for terms ranging from 1 to 5 years. At the end of the reporting period, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows:
2016 2015RMB‟M RMB‟M Within one year 8 5 In the second to fifth years, inclusive 4 9 After five year 1 - 13 14 (b) As lessee
The Group leases certain properties under operating lease arrangements. Leases for the properties are negotiated for terms ranging from one to twenty years.
At the end of the reporting period, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 116 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
48. OPERATING LEASE ARRANGEMENTS (CONTINUED)
(b) As lessee (continued)
2016 2015RMB‟M RMB‟M Within one year 662 514 In the second to fifth years, inclusive 361 491 After five years 391 152 1,414 1,157 49. COMMITMENTS
In addition to the operating lease commitments detailed in note 48(b) above, the Group had the following commitments at the end of the reporting period:
2016 2015RMB‟M RMB‟M Draft
Contracted, but not provided for:
Property, plant and equipment 882 531 50. FINANCIAL INSTRUMENTS BY CATEGORY
The carrying amounts of each of the categories of financial instruments as at the end of the reporting period are as follows:
Financial assets
31 December 2016
Financial
assets at fair
value through
profit or loss-
designated Available
as such for-sale
upon initial Loan and financial
recognition receivables assets TotalRMB‟M RMB‟M RMB‟M RMB‟M Available-for-sale investments - - 1,556 1,556 Trade and bills receivables - 26,062 - 26,062 Other receivables - 3,497 - 3,497 Derivative financial instruments 138 - - 138 Other financial assets - 491 - 491 Cash and cash equivalents and pledged deposits - 23,582 - 23,582 138 53,632 1,556 55,326
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 117 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
50. FINANCIAL INSTRUMENTS BY CATEGORY (CONTINUED)
Financial assets (continued)
31 December 2015
Financial
assets at fair
value through
profit or loss- Available
designated as such for-sale
upon initial Loan and financial
recognition receivables assets TotalRMB‟M RMB‟M RMB‟M RMB‟M Available-for-sale investments - - 2,776 2,776 Trade and bills receivables - 18,742 - 18,742 Other receivables - 1,983 - 1,983 Derivative financial instruments 100 - - 100 Other financial assets - 250 - 250 Cash and cash equivalents and pledged deposits - 24,758 - 24,758 100 45,733 2,776 48,609 Financial liabilities
31 December 2016
Financial
liabilities at Financial
fair value liabilities
Draft through profit at amortised
or loss cost TotalRMB‟M RMB‟M RMB‟M Trade and bills payables - 33,007 33,007 Other payables - 5,639 5,639 Interest-bearing borrowings - 35,496 35,496 Finance lease payables - 17 17 Due to a non-controlling shareholder - 28 28 Derivative financial instruments 585 - 585 Other current liabilities 16 - 16 Other non-current liabilities - 15 15 Convertible and exchangeable bonds - 1,223 1,223 601 75,425 76,026 31 December 2015
Financial
liabilities at Financial
fair value liabilities
through profit at amortised
or loss cost TotalRMB‟M RMB‟M RMB‟M Trade and bills payables - 26,270 26,270 Other payables - 3,396 3,396 Interest-bearing borrowings - 2,187 2,187 Finance lease payables - 28 28 Due to a non-controlling shareholder - 26 26 Derivative financial instruments 8 - 8 Other current liabilities 62 - 62 Other non-current liabilities 44 - 44 Convertible and exchangeable bonds - 1,108 1,108 114 33,015 33,129
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 118 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
51. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of theGroup‟s financial instruments, other than those with carrying amounts that reasonably approximate to fair values, are as follows:
Carrying amounts Fair values 2016 2015 2016 2015RMB‟M RMB‟M RMB‟M RMB‟M Financial assets
Available-for-saleInvestments* 52 1,454 52 1,454 Derivative financial instruments 138 100 138 100 190 1,554 190 1,554 Financial liabilities
Finance lease payables 17 28 17 27 Derivative financial instruments 585 8 585 8 Other current liabilities 16 62 16 62 Other non-current liabilities - 44 - 42 Convertible and exchangeable bonds 1,223 1,108 1,366 1,115 1,841 1,250 1,984 1,254* As at 31 December 2016 and 2015, certain of theGroup‟s available-for-sale investments amounting to RMB1,504 million and RMB1,322 million, respectively, were stated at cost less impairment because the range of reasonable fair value estimates is so significant that the directors are of the opinion that their fair values cannot be measured reliably, respectively.
The table below analyses recurring fair valuDraeft measurements for financial assets and financial liabilities. These fair value measurements are categorised into different levels in the fair value hierarchy based on the inputs to valuation techniques used. The different levels are defined as follows:
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 assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3: Inputs for the assets or liabilities that are not based on observable market data (i.e. unobservable inputs).
Assets measured at fair values:
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 119 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
51. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)
31 December 2016
Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) TotalRMB‟M RMB‟M RMB‟M RMB‟M Available-for-sale investments 29 1 22 52 Derivative financial instruments - 100 38 138 29 101 60 190 31 December 2015
Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) TotalRMB‟M RMB‟M RMB‟M RMB‟M Available-for-sale investments 1,454 - - 1,454 Derivative financial instruments - 22 78 100 1,454 22 78 1,554 Draft
During the years ended 31 December 2015 and 2016, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3.
Liabilities measured at fair values:
31 December 2016
Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) TotalRMB‟M RMB‟M RMB‟M RMB‟M Derivative financial instruments - 585 - 585 Other current liabilities - 16 - 16 - 601 - 601
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 120 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
51. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)
31 December 2015
Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) TotalRMB‟M RMB‟M RMB‟M RMB‟M Derivative financial instruments - 8 - 8 Other current liabilities - 62 - 62 Other non-current liabilities - - 44 44 - 70 44 114 During the years ended 31 December 2015 and 2016, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3.
Liabilities for which fair values are disclosed:
31 December 2016
Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
Draft (Level 1) (Level 2) (Level 3) TotalRMB‟M RMB‟M RMB‟M RMB‟M Finance lease payables - - 17 17 Convertible and exchangeable bonds - - 1,366 1,366 - - 1,383 1,383
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 121 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
51. FAIR VALUE AND FAIR VALUE HIERARCHY OF FINANCIAL INSTRUMENTS (CONTINUED)
31 December 2015
Fair value measurement using
Quoted prices Significant Significant
in active observable unobservable
markets inputs inputs
(Level 1) (Level 2) (Level 3) TotalRMB‟M RMB‟M RMB‟M RMB‟M Finance lease payables - - 27 27 Convertible and exchangeable bonds - - 1,115 1,115 - - 1,142 1,142 During the years ended 31 December 2015 and 2016, there were no transfers of fair value measurements between Level 1 and Level 2 and no transfers into or out of Level 3.
52. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
TheGroup‟s principal financial instruments comprise interest-bearing borrowings, finance lease payables, amount due to a non-controlling shareholder, convertible and exchangeable bonds and cash and short term deposits. The main purpose of these financial instruments is to raise finance Draft
for theGroup‟s operations. The Group has various other financial assets and liabilities such as trade and bills receivables and trade and bills payables, which arise directly from its operations. TheGroup‟s activities expose it to a variety of financial risks: market risk (including foreign currency risk and interest rate risk), credit risk and liquidity risk. TheGroup‟s overall risk management strategy seeks to minimise the potential adverse effects on the financial performance of the Group. Risk management is carried out by the senior management of the Group.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 122 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
52. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk
(i) Foreign currency risk
TheGroup‟s businesses are based in mainland China, the US, Japan, Southeast Asia, South Asia, central and east Africa, Europe, and Australia, etc. and are settled in RMB, US dollar, and other currencies. TheGroup‟s overseas assets and liabilities denominated in foreign currencies as well as transactions settled in foreign currencies in the future expose the Group to fluctuations in exchange rates. TheGroup‟s finance department is responsible for monitoring the size of transactions in foreign currencies and assets and liabilities denominated in foreign currencies, so as to reduce its exposure to fluctuations in exchange rates to the largest extent. TheGroup‟s avoid its exposure to fluctuations in exchange rates by entering into forward foreign exchange contracts.
Thegroup‟s exposure to foreign currency risk at the end of the reporting period, expressed in RMB, was as follows:
For the year ended 31 December 2016
JPY USD EUR Draft RMB‟M RMB‟M RMB‟M Cash and cash equivalent 309 2,687 155 Trade and bills receivables 257 6,775 359 Interest-bearing borrowings (627) (25,670) (79) Trade payables (227) (6,203) (209) (288) (22,411) 226 For the year ended 31 December 2015
JPY USD EURRMB‟M RMB‟M RMB‟M Cash and cash equivalent 82 2,486 168 Trade and bills receivables 272 390 556 Interest-bearing borrowings (642) (190) (104) Trade payables (253) (734) (356) (541) 1,952 264
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 123 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
52. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk (continued)
(i) Foreign currency risk (continued)
The following sensitivity analysis disclosed the reasonable possible change in theGroup‟s profit before tax (due to changes in the fair value of monetary assets and liabilities) by increase/decrease in the exchange rates with all other variables held constant of United States dollar, Japan Yen and EURO at the ended of each reporting periods. There is no significant impact on other components of theGroup‟s equity. Impact of USD
During the year ended 31December 2016 and 2015, if RMB has strengthened by5%, with all other risk variables remained constant, theGroup‟s profit/(loss) after taxation of approximately RMB1,120 million and RMB(98) million respectively. For a5% weakening of RMB, there would be an equal and opposite impact on the profit after taxation and retained profits. Other components of consolidated equity would not be affected by the changes in foreign exchange rates.
Impact of JPY
During the year ended 31December 2016 and 2015, if RMB has strengthened by5%, with all other risk variables remained constant, theGroup‟s (loss)/profit after taxation of approximately RMB14 millioDnraft and RMB27 million respectively. For a5% weakening of RMB, there would be an equal and opposite impact on the profit after taxation and retained profits. Other components of consolidated equity would not be affected by the changes in foreign exchange rates.
Impact of EURO
During the year ended 31December 2016 and 2015, if RMB has strengthened by5%, with all other risk variables remained constant, theGroup‟s profit/(loss) after taxation of approximately RMB11 million and RMB(13) million respectively. For a5% weakening of RMB, there would be an equal and opposite impact on the profit after taxation and retained profits. Other components of consolidated equity would not be affected by the changes in foreign exchange rates.
The sensitivity analysis above has been determined assuming that the change in foreign exchange rate had occurred at the end of the reporting periods and had been applied to each of the Groupentities‟ exposure to currency risk for financial instruments in existence at that date, and that all other variables, in particular interest rates, remain constant. The stated changes representmanagement‟s assessment of reasonably possible changes in foreign exchange rate over the period until the end of next annual reporting period.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 124 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
52. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk (continued)
(i) Foreign currency risk (continued)
As at 31 December 2016, a foreign subsidiary of the Company has borrowings of approximately RMB8,600 million is denominated in RMB and such foreign currency risk is managed by entering into forward exchange currency contracts to hedge against its exposures to changes in foreign exchange rate on the borrowings. The forward exchange currency contracts are designated as effective hedging instruments and hedge accounting is used (see note 24 for details). The Group reviewed the continuing effectiveness of hedging instruments at the least at the end of each reporting period. The Group mainly uses regression analysis and comparison of change in fair value of the hedging instruments and the hedged items for assessing the hedge effectiveness. Draft
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 125 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
52. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (a) Market risk (continued)
(ii) Interest risk
The Group mainly faces interest rate risk from its bank and other loans and convertible and exchangeable bonds which are interest-bearing. Financial liabilities with floating interest rates expose the Group to cash flow interest rate risk, while financial liabilities with fixed interest rates expose the Group to fair value interest rate risk. The Group determines the percentage of fixed-interest rate and floating interest rate contracts in light of the prevailing market conditions.
During the year ended 31 December 2016, the Group entered into certain interest rate swap contracts to hedge its exposure arising from its borrowings carried at floating rates. Under these interest rate swap contracts, the Group agreed with the counterparties to exchange, at specified interval, the difference between fixed contract rates and floating- rate interest amounts calculated by reference to the agreed notional amounts. These interest rate swap contracts have the economic effect of converting borrowings from floating rates to fixed rates and were qualified as hedging accounting.
(b) Credit risk
Draft
The credit risk exposed to mainly comes from bank deposits, trade and bills receivables, interest receivables, other receivables and wealth management products in other financial assets.
TheGroup‟s bank deposits and wealth management products are mainly deposited with Haier Group Finance Co., Ltd., national banks and other large and medium size listed banks. The interest receivables mainly refer to the accrued interest from time deposits placed with the aforesaid banks. The Groupdoesn‟t believe there is any significant credit risk due to defaults of its counterparties which would cause any significant loss.
The Group only trades with recognised and creditworthy third parties. It is theGroup‟s policy that all consumers who wish to trade on credit terms are subject to credit verification procedures. The payment terms shall be determined on a reasonable basis. The Group monitors the balances of trade receivables on an ongoing basis and maintains credit insurances for significant accounts receivables due from its credit clients, so as to ensure the Group will not expose to significant risk of bad debts.
TheGroup‟s other receivables mainly include export tax rebate receivable, recurrent loans and advances to its employees. The Group strengthened the management of these receivables and corresponding business activities based on their historical reasons of occurrence, and continued to monitor such receivables, so as to ensure that theGroup‟s significant risk of bad debts are controllable and to further reduce such risks.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 126 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
52. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (c) Liquidity risk
Liquidity risk is the risk that an enterprise may encounter deficiency of funds in meeting obligations associated with financial liabilities. In order to control liquidity risk, the Group integrates the utilization of various financing methods such as settlement with bills and bank loans, to strive for a sustainable and flexible financing. The Group has secured line of credit with a great number of commercial banks to satisfy its needs for working capital and capital expenditures.
The maturity profile of theGroup‟s financial liabilities as at the end of the reporting period, based on the contractual undiscounted payments, is as follows:
On demand
or no fixed
terms of Within Over
repayment one year one year TotalRMB‟M RMB‟M RMB‟M RMB‟M 31 December 2016
Trade and bills payables - 33,007 - 33,007 Other payables 5,639 - - 5,639 Interest-bearing borrowings - 19,872 15,624 35,496 Derivative financial instrument - 2 583 585 Draft
Finance lease payables - 10 8 18 Due to a non-controlling shareholder 28 - - 28 Other current liabilities - 16 - 16 Other non-current liabilities - - 15 15 Convertible and exchangeable bonds - 1,223 - 1,223 5,667 54,130 16,230 76,027 31 December 2015
Trade and bills payables - 26,270 - 26,270 Other payables 3,396 - - 3,396 Interest-bearing borrowings - 1,847 340 2,187 Derivative financial instrument - 8 - 8 Finance lease payables - 12 17 29 Due to a non-controlling shareholder 26 - - 26 Other current liabilities - 62 - 62 Other non-current liabilities - - 44 44 Convertible and exchangeable bonds - - 1,153 1,153 3,422 28,199 1,554 33,175
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 127 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
52. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONTINUED) (d) Capital management
The primary objectives of theGroup‟s capital management are to safeguard theGroup‟s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximiseshareholders‟ value.
The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2016 and 2015.
The Group monitors working capital using a gearing ratio, which is net debt divided by total equity. Net debt includes interest-bearing borrowings, financial lease payables, amount due to non-controlling shareholders and convertible and exchangeable bonds less cash and cash equivalents. The gearing ratios as at the end of the reporting periods were as follows:
2016 2015RMB‟M RMB‟M Draft
Financial lease payables 17 28 Interest-bearing borrowings 35,496 2,187 Due to non-controlling shareholders 28 26 Convertible and exchangeable bonds 1,223 1,108 Total debt 36,764 3,349 Less: Cash and cash equivalents (23,295) (24,726) Net debt 13,469 (21,377) Total equity 37,680 32,531 Gearing ratio 36% N/A
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 128 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
53. EVENTS AFTER THE REPORTING PERIOD
(a) According to the resolution of the 13th meeting of the 9th session of the Board of Directors of the Company held on 24 April 2018, the profit for the year is proposed to be distributed on the basis of the total number of shares on the registration date when the plan is implemented in the future, the Company will declare cash dividend of RMB3.42 (including taxes) for every 10 shares to all shareholders.
(b) According to the resolution of the 12th meeting of the 9th session of the Board of Directors of the Company held on 10 April 2018, the Company passed the resolution of “Proposal of Qingdao Haier Co., Ltd on the Initial Public Offering in the D-shares Market of the China European International Exchange”. The Company intends to make Initial Public Offer of the D-shares on China European International Exchange (the “D- Shares Market”). The listing will be implemented through the access and listing transaction of the Frankfurt Stock Exchange. China Europe International Exchange Co., Ltd. is a jointly company established by the Shanghai Stock Exchange, the DeutscheBörse Group, and the China Financial Futures Exchange. The DeutscheBörse Group is the main body of the Frankfurt Stock Exchange. The Frankfurt Stock Exchange's listing rules apply to the D Shares Market. Subject to regulatory requirements such as the minimum issuance ratio of theCompany‟s stocks listed on the market, combined with thecompany‟s capital requirements for future business development, the number of D- shares to be issued this time will not exceed 400 million shares (before the execution of the over-allotment option) and may bDeraft awarded. The bookkeeping administrator does not exceed the above-mentioned over-allotment rights of15% of the number of issued D shares. The final number of issues is submitted to the general meeting of shareholders for authorization of the board of directors and authorized persons of the board of directors to be determined in accordance with legal requirements, regulatory approvals, and market conditions.
(c) The Company intends to acquire the100% equity interest of Haier New Zealand Investment Holding Company Limited (“Haier New Zealand”) which is held by Haier (Singapore) Management Holding Co. Pte. Limited (“Haier Singapore”), through overseas subsidiary Haier Singapore Investment Holding Pte. Ltd. at cash consideration. (the "Transaction"). On 24 April 2018, Haier Singapore Investment Holding Pte. Ltd. and Haier Singapore entered into a sale and purchase agreement (the “Equity Transfer Agreement”). Pursuant to the Equity Transfer Agreement, Haier Singapore Investment Holding Pte. Ltd. intends to acquire100% of the equity of Haier New Zealand held by Haier Singapore at a cash consideration of approximatelyUS$303 million. After the completion of this transaction, Haier New Zealand will become a wholly owned overseas subsidiary of the Company. The Transaction is subject to the approval of the overseas investment of domestic enterprises and the overseas anti-monopoly. The contractual party will examine the relevant filing, registration or examination and approval procedures in the competent authority according to relevant laws and regulations.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 129 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
53. EVENTS AFTER THE REPORTING PERIOD (CONTINUED)
(d) On 23 November 2017, the Company held the first extraordinary general meeting of shareholders in 2017, and passed the resolution of “Proposal on the Issue of Convertible Bonds by Qingdao Haier Co., Ltd.”. According to the resolution, the Company will issue convertible bonds of no more than RMB5.64 billion at RMB100 per face value, and the term of convertible bonds shall not exceed six years from the date of issue. The issue size, maturity, coupon interest rate and payment period of the convertible bonds are authorized by theCompany‟s Board of Directors to be implemented by the Company's shareholders. The issue of convertible bonds is subject to the approval of the China Securities Regulatory Commission, and there is still uncertainty about whether or not the approval can be obtained.
Saved as disclosed above, so far as is known to the directors, there are no other subsequent events occurred after 31 December 2017, which may have significant effects, on the assets and liabilities of future operations of the Group.
54. LIST OF SUBSIDIARIES
(a) Particulars of theCompany‟s principal subsidiaries are as follows:
Place of Draft
incorporation/
registration Issued
and registered Percentage of equity Voting
Name business share capital attributable to the Company right Principal activities (in million) Direct Indirect
2016 2015 2016 2015
% % % %
Haier Electronics Group Bermuda/PRC (2016: 2,792 14.06 14.06 29.79 29.78 (2016:55.91%* Investment holding, Co., Ltd and and production and sale 2015: 2,793) 2015:55.89%*) of washing machines and water heater, distribution services and logistics service Wonder Global (BVI) British Virgin (2016: USD981 - - 100.00 - (2016:100.00% Manufacture and Investment Limited Islands/USA and and sale of household 2015: N/A) 2015: N/A) appliances
Haier US Appliance USA/USA (2016: USD1,807 - - 100.00 - (2016:100.00% Manufacture and Solutions, Inc and and sale of household 2015: N/A) 2015: N/A) appliances
Qingdao Haier PRC/PRC (2016: 80 100.00 100.00 - - (2016:100.00% Development and Technology Co., Ltd. and and sales of software and 2015: 80) 2015:100.00%) information product Qingdao Haier Air PRC/PRC (2016: RMB218 99.95 99.95 - - (2016:99.95% Manufacture and Conditioner Gen and and operation of household Corp., Ltd 2015: RMB218) 2015:99.95%) air-conditioners Qingdao Haier Special PRC/PRC (2016: RMB166 100.00 100.00 - - (2016:100.00% Manufacture and Refrigerator Co., Ltd. and and sale of refrigerator 2015: RMB166) 2015:100.00%)
Hefei Haier Air- PRC/PRC (2016: RMB12 100.00 100.00 - - (2016:100.00% Manufacture and Conditioning Co., Ltd and and sales of air-
2015: RMB12) 2015:100.00%) conditioners
Hefei Haier PRC/PRC (2016: RMB49 100.00 100.00 - - (2016:100.00% Manufacture and Refrigerator Co., Ltd. and and sales of refrigerator 2015: RMB49) 2015:100.00%)
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 130 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
54. LIST OF SUBSIDIARIES (CONTINUED)
(a) Particulars of theCompany‟s principal subsidiaries are as follows: (continued)
Place of
incorporation/
registration Issued
and registered Percentage of equity Voting
Name business share capital attributable to the Company right Principal activities Direct Indirect
2016 2015 2016 2015
% % % %
Qingdao Haier Air- PRC/PRC (2016: RMB356 100.00 100.00 - - (2016:100.00% Manufacture and Conditioner Electronics and and sale of air-conditioners Co., Ltd 2015: RMB356) 2015:100.00%)
Chongqing Haier PRC/PRC (2016: RMB130 76.92 76.92 23.08 23.08 (2016:100.00% Manufacture and sale Air-conditioning Co., Ltd. and and of Air-conditioners 2015: RMB130) 2015:100.00%)
Qingdao Haier Refrigerator PRC/PRC (2016: RMB207 100.00 100.00 - - (2016:100.00% Manufacture and Co., Ltd and and production of fluorine- 2015: RMB201) 2015:100.00%) free refrigerators Qingdao Haier Special PRC/PRC (2016: RMB388 96.06 96.06 - - (2016:96.06% Research, manufacture Freezer Co., Ltd and and and sales of freezer - 2015: RMB388) 2015:96.06%) and other refrigeration products
Qingdao Haier Intelligent PRC/PRC (2016: RMB279 97.36 97.36 - - (2016:97.36% Design and
Electronics Co., Ltd and and development - 2015: RMB279) 2015:97.36%) of electronics and automatic control Draft system
* Reason for the ratio of voting rights higher than the ratio of shareholding of Haier Electronics Group Co., Ltd.: on 10 July 2015, HCH (HK) Investment Management Co., Limited (hereinafter referred to as―HCH) signed a Shareholder Voting Right Entrustment Agreement with the Company. HCH entrusted the Company to exercise the underlying shareholder voting rights of 336,600,000 shares of Haier Electronics Group Co., Ltd. Both parties agreed that HCH will not revoke the entrustment.
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 131 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
54. LIST OF SUBSIDIARIES (CONTINUED)
(b) Details of non-wholly owned subsidiaries that have material non-controlling interests The table below shows details of non-wholly owned subsidiaries of the Group that have material non-controlling interests:
Place of Proportion of
incorporation ownership interests
Name of and principal /voting rights held Profit allocated to Accumulated subsidiary place of business by non-controlling interests non-controlling interests non-controlling interests 2016 2015 2016 2015 2016 2015% % RMB‟M RMB‟M RMB‟M RMB‟M Haier Electronics Bermuda/PRC 56.15 56.16 1,585 1,589 10,660 9,201 Guizhou Haier PRC 41.00 41.00 8 11 105 102 Electronics
Co., Ltd
“Guizhou Haier”
Wuhan Haier PRC 40.00 40.00 13 31 205 193 Electronics
Co., Ltd
“Wuhan Haier”
Qingdao Haier PRC 25.00 25.00 - (4) 79 79 Refrigerator
(International) Co., Ltd
“Haier Refrigerator”
Summarised financial information in respect ofGroup‟s subsidiaries that have material non- controlling interests is set out below. The summarised financial information below represents amounts before intragroup eliminations.
Draft
Haier Electronics Guizhou Haier
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 132 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
54. LIST OF SUBSIDIARIES (CONTINUED)
(b) Details of non-wholly owned subsidiaries that have material non-controlling interests (continued)
Wuhan Haier Haier Refrigerator 2016 2015 2016 2015RMB‟M RMB‟M RMB‟M RMB‟M Non-current assets 132 138 56 56 Current assets 690 550 278 279 Current liabilities (308) (206) (17) (19) Non-current liabilities - - - - Non-controlling interests 205 193 79 79 Revenue and other income 1,636 1,710 - - Expenses 1,604 1,634 (1) 15 Profit/(loss) for the year 32 76 1 (15) Other comprehensive income - - - - Total comprehensive income for the year 32 76 1 (15) Net cash inflow/(outflow) from operating activities 330 33 57 24 Net cash inflow/(outflow) from investing activities (348) (18) (83) (190) Net cash inflow/(outflow) from financing activities - (20) - - Net cash inflow/(outflow) (18) (5) (26) (166) Draft
QINGDAO HAIER CO., LTD. AND ITS SUBSIDIARIES 133 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the year ended 31 December 2016 and 2015
55. NOTES TO THE CONSOLIDATED STATEMENTS OF CASH FLOW
Reconciliation of liabilities arising from financing activities:
Convertible
Interest-bearing and exchangeable Finance
borrowings bonds lease payable TotalRMB‟M RMB‟M RMB‟M RMB‟M As at 1 January 2015 2,292 1,801 - 4,093 Changes from financing cash flows:
Repayment of borrowings (6,940) - - (6,940) Proceeds from borrowings 6,603 - - 6,603 Interest paid (67) (8) (1) (76) Total changes from financing cash flows 1,888 1,793 (1) 3,680 Other changes:
Exchange realignment 86 49 - 135 Acquisition of subsidiaries 160 - - 160 Acquisition of property,
plant and equipment - - 28 28 Disposal of subsidiaries (10) - - (10) Exercised during the year - (789) - (789) Interest expenses 63 55 1 119 As at 31 December 2015 and 1
January 2016 2,187 1,108 28 3,323 Draft
Changes from financing cash flows:
Repayment of borrowings (11,685) - - (11,685) Repayment of obligations under
finance lease - - (11) (11) Proceeds from borrowings 43,471 - - 43,471 Interest paid (300) - (1) (301) Total changes from financing cash flows 33,673 1,108 16 34,797 Other changes:
Exchange difference 1,195 78 - 1,273 Interest expenses 628 37 1 666 As at 31 December 2016 35,496 1,223 17 36,736 56. APRROVAL OF CONSOLIDATED FINANCIAL STATEMENT
The consolidated financial statements were approved by the board of directors and authorised for issue on 30 May 2018.