Midea Group Co., Ltd.
The 2017 Annual Report
The 2017 Annual Report of Midea Group Co., Ltd. Letter to Shareholders
Fifty years ago, in 1968, Midea founder, He Xiangjian, sowed the seeds of Midea's enterprises with the goal of improving lives. After half a century, Midea has prospered into a towering presence and become a technology group with operations in consumer appliances, HVAC systems, robotics and industrial automation systems, and smart supply chain (logistics) as it takes the lead in grasping new opportunities brought forth by industrial networks, digitalization, artificial intelligence, and human-machine collaboration.
Each momentous advancement in human history is dependent on the grand context of the era; we must salute and express our gratitude to this vibrant time, for it was in these 40 years of economic reforms in China that gave birth to entrepreneurship and propagated the nation's revival. Each generation of Midea people has fought through dire times, and their unwavering resolve and courage to embrace changes and innovation has advanced Midea's glorious transformation from that small rural workshop 50 years ago.
Midea achieved some remarkable results in 2017, boasting a51.35% growth in revenue to RMB241.92 billion, while net profit attributable to shareholders of the company rose by17.70% to RMB17.28 billion. Midea ranked 450th in the Fortune 500 rankings of 2017, moving up 31 places from the previous year. Midea also ranked 335th in the Forbes 2017 Global 2000, an improvement of 67 ranks. According to the"BrandZ™ Top 100 Most Valuable Chinese Brands 2018", Midea rose to the 26th spot in their rankings and maintained its lead as the highest-ranking home appliance brand in three consecutive years. Midea was featured among the Top 10 companies of CCTV's "National Brands Plan” and it has been selected as one of the top ten public companies in China by CCTV for two consecutive years. As of the end of 2017, Midea's market value reached RMB 363 billion after an annual growth of more than100%.
By the age of fifty, people must be able to understand and accept their place in the world, give up on superficial complaints, and be free of idle thoughts. To be an evergreen enterprise, we should keep up with the times, set high goals, restore confidence in entrepreneurship and the creative spirit, and undertake tasks set forth by the times.
Thisera’s changes have been beyond imaginable. Half of the top Fortune 500 companies from 2000 have disappeared from the rankings. A large group of companies that were once great have fallen from grace in 2017. Under the swift current of changes of this era, Midea
The 2017 Annual Report of Midea Group Co., Ltd. must remain humble and respectful while embracing changes and innovation in order to keep up with the times. We must always keep a progressive mind and an entrepreneurial spirit to fulfill our dreams and abandon mediocrity. Today, Midea must progress with simultaneous grace and vigor; much like the flowing Amazon River, still waters run deep. Today, Midea must look to the stars while keeping its feet planted firmly on the ground in order to strike forward thousands of miles with small steps.
Our past is merely a preface to our future achievements. In 2018, Midea will be moving forward with a new transformative phase and reform with greater courage and resolve. We shall boldly choose what is right; only by abandoning the alluring sights before us can we make long-term plans for the future and attain our renaissance. Our struggles inside our cocoon shall give birth to a beautiful butterfly embodied in yet another glorious era for Midea. This year, Midea shall initiate a new round of change based on user-centric core values as we reconstruct the value chain, corporate structure, and corporate culture to improve user experience and create value for users.
We shall continue to focus on fostering internal growth within the company and seize market opportunities in consumptive and structural upgrades. We shall build a user-centric business model and management system to expand investment in innovation, improve theR&D environment, innovate incentive systems, recruit topR&D talents, and improveR&D layout. We shall also continue to improve user experience and build high-quality products to improve the overall core competitive ability of our products.
We shall further promote transformation of corporate digitalization and use software and data to construct and drive high-performance operations in the value chain, includingR&D, planning, manufacturing, procurement, quality, logistics, customer service, and installation. We aim to implement an end-to-end synergy, advance flexible customization, production platformization and modularization, digitalized craftsmanship, smart logistics, smart customer services, and other in-depth reforms to strengthen the foundation of industrial internet.
We shall continue to advance the integration and business development in robotics and automation and speed up our preparation for the entire industrial automation and robotics sectors. We shall seize opportunities in the robotics market in China and advance the integration and rapid growth of domestic robots in China. We shall improve our capabilities
The 2017 Annual Report of Midea Group Co., Ltd. in developing core robotic parts and software systems as well as integrate artificial intelligence and sensory and visual technologies for expansion into new sectors such as smart manufacturing, smart logistics, smart home, and medical and recovery.
We shall advance the integration and synergy of global operations andM&A projects and advance Midea's global presence to establish a framework for different sectors, different market spaces and regions, and different cultural backgrounds and mindsets. We shall promote our global sales operations and increase the growth of our own brand as we strengthen risk controls overseas and establish a comprehensive overseas corporate governance and compliance system.
Midea is standing at the forefront of the era, but only by actively seeking changes and rapid reforms can it fulfill its mission in the midst of the great rejuvenation of the Chinese nation, resonate with the nation, and write a more beautiful chapter.
The path towards transformation is still long and arduous. In 2018, the Midea team shall demonstrate resolve and courage for reforms in every opportunity and make unremitting efforts. The peak may be steep but we must climb.
Hereby, we would like to thank all shareholders for their company, support and trust, and pay tribute to all shareholders and investors who are committed to our value creation! Board of Directors, Midea Group Co., Ltd. March 2018
The 2017 Annual Report of Midea Group Co., Ltd. Section I Important Statements, Contents and Definitions The Board of Directors, the Supervisory Committee, directors, supervisors and senior management of Midea Group Co., Ltd. (hereinafter referred to as the “Company”) hereby guarantee that the information presented in this report is free of any misrepresentations, misleading statements or material omissions, and shall together be wholly liable for the truthfulness, accuracy and completeness of its contents.
All directors of the Company attended the Board meeting to review this Annual Report. There are no directors, supervisors, or senior management who do not warrant or who dispute the truthfulness, accuracy and completeness of the contents of this Annual Report.
The financial statements for 2017 have been audited by PricewaterhouseCoopers China (LLP) and have obtained a standard unqualified audit report.
Mr. Fang Hongbo, Chairman of the Board and President of the Company and Mr. Xiao Mingguang, Director of Finance of the Company, have represented and warranted that the financial statements in this report are true and complete.
The Board has considered and approved the following dividend payout plan for the year 2017: based on the Company's total existing shares of 6,584,022,574, it is proposed that the Company should distribute a cash dividend of RMB12 (tax inclusive) per 10 shares to all the shareholders.
The future plans and some forward-looking statements mentioned in this report shall not be considered as virtual promises of the Company to investors. Therefore, investors are kindly reminded to pay attention to possible investment risks.
This report has been prepared in both Chinese and English. Should there be any discrepancies or misunderstandings between the two versions, the Chinese version shall prevail.
The 2017 Annual Report of Midea Group Co., Ltd. Contents
SECTION I IMPORTANT STATEMENTS, CONTENTS AND DEFINITIONS ....................... 5 SECTION II COMPANY PROFILE AND KEY FINANCIAL RESULTS .................................. 8 SECTION III BUSINESS PROFILE.................................................................................... 16 SECTION IV PERFORMANCE DISCUSSION AND ANALYSIS ........................................ 27 SECTION V SIGNIFICANT EVENTS ................................................................................. 70 SECTION VI CHANGES IN SHARES AND INFORMATION ABOUT SHAREHOLDERS.113 SECTION VII PREFERENCE SHARES .......................................................................... 124 SECTION VIII INFORMATION ABOUT DIRECTORS, SUPERVISORS, SENIOR MANAGEMENT AND EMPLOYEES ................................................................................ 125 SECTION IX CORPORATE GOVERNANCE ................................................................... 140 SECTION X FINANCIAL REPORT .................................................................................. 149 SECTION XI DOCUMENTS AVAILABLE FOR REFERENCE ......................................... 268
The 2017 Annual Report of Midea Group Co., Ltd. Definitions
|||
|-|-|
|Term|Definition|
|The “Company”, “Midea”, “Midea||
||Midea Group Co., Ltd.|
|Group” or the “Group”||
|Midea Holding|Midea Holding Co., Ltd.|
|Little Swan|Wuxi Little Swan Company Limited|
|Toshiba|Toshiba Corporation|
|TLSC|Toshiba Lifestyle Products & Services Corporation|
|KUKA|KUKA Aktiengesellschaft|
|SMC|Servotronix Motion Control Ltd. and its subsidiaries|
|MECCA|MECCA International (BVI) Limited|
||In RMB yuan, in RMB thousand yuan, in RMB ten|
|RMB, RMB’000, RMB’0,000||
||thousand yuan|
|Reporting Period|1 January 2017 to 31 December 2017|

The 2017 Annual Report of Midea Group Co., Ltd. Section II Company Profile and Key Financial Results 1. Corporate Information
|||||
|-|-|-|-|
|Stock abbreviation|Midea Group|Stock code|000333|
|Stock exchange where the shares of the||||
||Shenzhen Stock Exchange|||
|Company are listed||||
|Name of the Company in Chinese|美的集团股份有限公司|||
|Abbr. of the Company name in Chinese|美的集团|||
|Name of the Company in English (if any)|M idea Group Co., Ltd.|||
|Abbr. of the Company name in English (if||||
||Midea Group|||
|any)||||
|Legal representative|Fang Hongbo|||
||Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town,|||
|Registered address||||
||Shunde District, Foshan City, Guangdong Province, China|||
|Postal code|528311|||
||Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town,|||
|Business address||||
||Shunde District, Foshan City, Guangdong Province, China|||
|Postal code|528311|||
|Company website|http://www.midea.com|||
|E-mail|IR@midea.com|||

The 2017 Annual Report of Midea Group Co., Ltd. 2. Contact Us
||||
|-|-|-|
||Company Secretary|Representative for Securities Affairs|
|Name|Jiang Peng|Ou Yunbin|
||Midea Headquarters Building, No. 6 Midea Avenue, Beijiao Town, Shunde District,||
|Address|||
||Foshan City, Guangdong Province, China||
|Tel.|0757-22607708|0757-23274957|
|Fax|0757-26605456||
|E-mail|IR@midea.com||

3. Information Disclosure and Place Where the Annual Report Is Kept
|||
|-|-|
|Newspaper designated by the Company for|China Securities Journal, Securities Times and Shanghai|
|information disclosure|Securities News|
|Website designated by the China Securities||
|Regulatory Commission (CSRC) for the|http://www.cninfo.com.cn|
|publication of the Annual Report||
|Place where the Annual Report of the||
||Office of the Board of Directors of the Company|
|Company is kept||

4. Company Registration and Alteration
|||
|-|-|
|Organization code|91440606722473344C|
|Changes in main business activities||
||None|
|since the Company was listed (if any)||
|Changes of controlling shareholder of||
||None|
|the Company (if any)||

The 2017 Annual Report of Midea Group Co., Ltd. 5. Other Relevant Information
Accounting firm engaged by the Company
|||
|-|-|
|Name of the accounting firm|PricewaterhouseCoopers China (LLP)|
|Business address of the|11/F., PricewaterhouseCoopers Center, 2 Corporate Avenue, 202 Hu Bin|
|accounting firm|Road, Huangpu District, Shanghai 200021, PRC|
|Name of accountants writing||
||Huang Meimei and Qiu Xiaoying|
|signatures||

Sponsor engaged by the Company to continuously perform its supervisory function during the Reporting Period
□ Applicable√ N/A
Financial advisor engaged by the Company to continuously perform its supervisory function during the Reporting Period
√ Applicable□ N/A
|||||
|-|-|-|-|
|||Representative||
|Name of the financial||||
||Business office of the financial advisor|of the financial|Supervisory period|
|advisor||||
|||advisor||
||CITIC Securities Tower, No. 8 Zhong Xin San|||
|CITIC Securities Co.,||Wu Renjun and|2017.1.6-|
||Road, Futian District, Shenzhen City, Guangdong|||
|Ltd.||Li Wei|2018.12.31|
||Province 518040|||

Note: Upon the receipt of a personnel change notice from CITIC Securities Co., Ltd. on 8 March 2018, the Company issued an announcement stating that Mr. Lin Junjian of CITIC Securities was no longer responsible for relevant work during the supervisory period due to his personal reasons. Mr. Li Wei would replace him to work with Mr. Wu Renjun as a representative of the financial advisor during the supervisory period.
6. Key Accounting Data and Financial Indicators
Whether the Company performed a retroactive adjustment to or restatement of accounting
The 2017 Annual Report of Midea Group Co., Ltd. data
□ Yes√ No
||||||
|-|-|-|-|-|
||||2017-over-2016||
||2017|2016||2015|
||||change (%)||
|Operating revenues (RMB'000)|240,712,301|159,044,041|51.35%|138,441,226|
|Net profits attributable to|17,283,689|14,684,357|||
|shareholders of the Company|||17.70%|12,706,725|
|(RMB'000)|||||
|Net profits attributable to|||||
|shareholders of the Company before|||||
||15,614,103|13,492,866|15.72%|10,911,341|
|non-recurring gains and losses|||||
|(RMB'000)|||||
|Net cash flow from operating|24,442,623|26,695,009|||
||||-8.44%|26,764,254|
|activities (RMB'000)|||||
|Basic earnings per share|2.66|2.29|||
||||16.16%|2.00|
|(RMB/share)|||||
|Diluted earnings per share|2.63|2.28|||
||||15.35%|1.99|
|(RMB/share)|||||
|Weighted average ROE (%)|25.88%|26.88%|-1.00%|29.06%|
||||Change of 31||
||31 December|31 December|December 2017|31 December|
||2017|2016|over 31|2015|
||||December 2016||
|Total assets (RMB'000)|248,106,858|170,600,711|45.43%|128,841,935|
|Net assets attributable to|73,737,437|61,126,923|||
|shareholders of the Company|||20.63%|49,201,852|
|(RMB'000)|||||

The 2017 Annual Report of Midea Group Co., Ltd. Notes: 1. According to an international professional evaluation agency and Chinese accounting standards, the amortization of theM&A expense on KUKA and TLSC for 2017 was recognized at RMB2,413,944,000. 2. As of the end of 2017, as per Chinese accounting standards, the share-based payments for theCompany’s equity incentive schemes were recognized at RMB841,566,000 for 2017.
3. For 2017, KUKA achieved operating revenue of RMB26,722,910,000, up18% YoY.
Total share capital of the Company on the last trading session before disclosure:
|||
|-|-|
|Total share capital of the Company on the last||
||6,584,022,574|
|trading session before disclosure (share)||
|Fully diluted earnings per share based on the latest||
||2.63|
|share capital above (RMB/share)||

Whether there are any corporate bonds
□ Yes√ No
7. Differences in Accounting Data under Domestic and Overseas Accounting Standards
7.1 Differences in the net profits and net assets disclosed in the financial reports prepared under China Accounting Standards (CAS) and International Financial Reporting Standards (IFRS)
□ Applicable√ N/A
No such differences for the Reporting Period.
7.2 Differences in the net profits and net assets disclosed in the financial reports prepared under CAS and foreign accounting standards
□ Applicable√ N/A
No such differences for the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd. 7.3 Reasons for the differences
□ Applicable√ N/A
8. Key Financial Results by Quarter
RMB'000
||||||
|-|-|-|-|-|
||2017 Q1|2017 Q2|2017 Q3|2017 Q4|
|Operating revenues|59,755,914|64,694,151|62,498,801|53,763,435|
|Net profits attributable to|||||
|shareholders of the|4,352,587|6,458,735|4,186,853|2,285,514|
|Company|||||
|Net profits attributable to|||||
|shareholders of the|||||
||4,263,125|5,628,641|4,078,172|1,644,165|
|Company before non-|||||
|recurring gains and losses|||||
|Net cash flow from operating|||||
||7,008,571|6,887,361|6,171,710|4,374,981|
|activities|||||

Whether there are any material differences between the financial indicators above or their summations and those which have been disclosed in theCompany’s quarterly or semi- annual reports
□ Yes√ No
9. Non-recurring Profits and Losses
√ Applicable□ N/A
RMB'000
||||||
|-|-|-|-|-|
|Item|2017|2016|2015|Note|
|Profit or loss from disposal of non-current|1,363,041|-134,258|-242,814||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||
|-|-|-|-|
|assets||||
|Government grants accounted for, in the|1,332,301|||
|profit or loss for the current period (except||||
|for the government grants closely related to||||
|||1,330,065|1,348,652|
|the business of the Company and given at||||
|a fixed amount or quantity in accordance||||
|with the State's uniform standards)||||
|Profit generated for the costs of the||||
|Company in the acquisition of subsidiaries,||||
|associates or joint ventures are lower than|||19,513|
|the fair value of the Company’s share in the||||
|identifiable net assets of the investees||||
|Profit or loss from entrusted investments or||||
||||1,008,770|
|entrusted asset management||||
|Corporate restructuring costs (e.g. staff||||
|replacement costs and expenses for||||
|consolidation)||||
|Except for effectively hedging business|77,484|||
|related to normal business operations of||||
|the Company, profit or loss arising from the||||
|change in the fair value of held-for-trading||||
|financial assets and liabilities, as well as||-25,408|369,806|
|investment profit or loss produced from the||||
|disposal of held-for-trading financial assets||||
|and liabilities and available-for-sale||||
|financial assets||||
|Impairment provision reversal of the||||
||||45,752|
|accounts receivable on which||||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||
|-|-|-|-|-|
|the impairment test is carried out|||||
|separately|||||
|Other non-operating income and|-238,243||||
|expenditure except above-mentioned||246,361|-16,398||
|items|||||
|Less: Corporate income tax|702,139|272,925|505,642||
|Minority interests (after tax)|162,858|-47,656|232,255||
|Total|1,669,586|1,191,491|1,795,384|--|

 Explain the reasons if the Company classifies an item as a non-recurring profit/loss according to the definition in the<Explanatory Announcement No. 1 on Information Disclosure for Companies Offering Their Securities to thePublic—Non-Recurring Profits andLosses>, or classifies any non-recurring profit/loss item mentioned in the said explanatory announcement as a recurring profit/loss item
□ Applicable√ N/A
No such cases for the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd. Section III Business Profile
1. Business Scope in the Reporting Period
1.1 Summary of business scope
Midea is a technologies group in HVAC systems, consumer appliances, robotics& industrial automation systems, and smart supply chain (logistics). Midea offers diversified products and services, including HVAC centered on residential air-conditioning, commercial air- conditioning, heating& ventilation systems; consumer appliances centered on kitchen appliances, refrigerators, laundry appliances, and various small home appliances; robotics and industrial automation systems centered on KUKA and joint ventures with YASKAWA; and smart supply chain (logistics) centered on Annto Logistics Technology Co., Ltd. as a service platform providing integrated solutions.
Upholding the principle of “Creating Value for Customers”, Midea is committed to improving lives for consumers. Midea focuses on continuous technological innovation to improve products and services, and to make life more comfortable and pleasant for around 300 million users, major customers and strategic partners from all fields across the globe every year.
Midea, a global operating company, has now established a global platform of over 135 thousand employees, around 200 subsidiaries, more than 60 overseas branches and 12 strategic business units, as well as being the majority shareholder of KUKA, a Germany- based world-leading company in robotics and automation, with a stake of approximately95%.
1.2 Position in the household appliance industry
Midea has been given excellent credit ratings by the three major international credit rating agencies, Standard&Poor’s, Fitch Ratings andMoody’s. The Ratings are in leading position among home appliance manufacturers worldwide as well as among Chinese non State- owned enterprises.
The 2017 Annual Report of Midea Group Co., Ltd. Midea ranks No. 450 on the 2017 Fortune Global 500 list, a big step forward compared to No. 481 in 2016. On the Forbes 2017 Global 2000 list, Midea ranks No. 335, beating down another 67 competitors on the list from where it was last year. In addition, Midea has climbed to No. 26 on the WPP 2018BrandZ™ Top 100 Most Valuable Chinese Brands list, making it the highest-ranking among home appliances brands for 3 consecutive years. Also, in the “National Brands Plan” launched by CCTV,China’s national state-run television broadcaster, Midea is selected again as one of the top 10 brands and has been recognized by CCTV as one ofChina’s Top 10 Listed Companies for two years in a row. At the end of 2017, the market value of Midea reached RMB363 billion, an incresse of more than100% for 2017. Over20% of it shares are held by international institutional investors.
According to data from AVC, the table below shows the offline market shares and rankings of theCompany’s primary household appliance products (by retail sales) in 2017:
|||||||
|-|-|-|-|-|-|
||Product category||Market share||Ranking|
|Air conditioners||24.6%||2||
|Laundry appliances||24.6%||2||
|Refrigerators||10.7%||3||
|Rice cookers||44.8%||1||
|Electric pressure cookers||47.7%||1||
|Induction cookers||52.5%||1||
|Electric fans and heaters||45.0%||1||
|Microwave ovens||45.3%||2||
|Water purifiers||23.1%||2||
|Electric water heaters||19.6%||3||
|Gas water heaters||11.4%||3||
|Hobs||7.0%||4||
|Range hoods||8.5%||4||

The 2017 Annual Report of Midea Group Co., Ltd.Midea’s online sales during 2017 exceeded RMB40 billion, up80% YoY and accounting for30% of its total domestic sales, which means Midea remains the best-selling household appliance maker online (by combined sales through major e-commerce channels of Tmall, JD and Suning). The table below shows the online market shares and rankings of theCompany’s primary household appliance products (by retail sales) in 2017:
|||||||
|-|-|-|-|-|-|
||Product category||Market share||Ranking|
|Air conditioners||24%||2||
|Laundry appliances||29%||1||
|Refrigerators||15%||2||
|Range hoods||17%||1||
|Rice cookers||33%||1||
|Induction cookers||42%||1||
|Electric kettles||25%||1||
|Electric heaters||21%||1||
|Garment steamers||30%||1||
|Electric ovens||21%||1||
|Electric water heaters||34%||1||
|Gas water heaters||21%||1||
|Air to water heat pump||38%||1||
|Water dispensers||30%||1||
|Water purifiers||12%||3||

 1.3 Industry review and outlook
a. The industry of residential air conditioners
In 2017, benefiting from the stable operation of macro economy, the industrial structure and
consumption upgrading, the outburst of emerging market, and other comprehensive effects
The 2017 Annual Report of Midea Group Co., Ltd. achieved by various positive factors, the household appliance enterprises have made unremitting effort to perform the supply-side structural reform, enhance the technical innovation and the product structure optimization, and seize the opportunities for the consumption and product structure upgrading. In despite of the rise in raw material costs and the pressure caused by corresponding regulatory policies, main operation indices realized their steady growth. According to the data from the State Statistics Bureau, the total output of household refrigerators achieved 86.703 million from January to December in 2017, up13.6% year on year; residential air conditioners 180.398 million, up26.4% YoY; and domestic washing machines 75.009 million, up3.2% YoY. From January to December in 2017, the revenue of the household appliance industry amounted to RMB 1513.57 billion (with a cumulative year-on-year increase of18.7%), and the total profit RMB 116.93 billion (with a cumulative year-on-year increase of6.1%). In 2017, the overall market scale of kitchen appliance achieved nearly RMB 100 billion and maintained its rapid growth trend. As indicated by the monitoring data from AVC, the market terminal retail sales of the kitchen appliances in 2017 achieved RMB 69.4 billion with a year-on-year increase of9.0%, of which, the retails sales of range hoods achieved RMB 41.44 billion with a year-on-year increase of9.7%, gas hobs RMB 21.53 billion with8.1%, sterilizer RMB 5.38 billion with7.6%, and dishwashers RMB 4.4 billion with129.2%.
In 2017, the online sales in the household appliance industry still maintained its high-speed growth, and the scale of the B2C domestic householdappliance’s online market (including the mobile terminal) amounted to RMB 490.6 billion with a year-on-year increase of27.6%. In addition, the penetration rate of the online market of the household appliance industry also reached a high record(26.5%), and the online sales of traditional major appliances (including air conditioners, refrigerators and washing machines etc.) achieved a year-on- year increase of70%. As the high-end upgrading of online market, domestic brands begin to occupy the dominant position.
In 2017, the development of the household appliance industry demonstrated the following features: 1) due to the rise in raw material costs and the consumption and industrial upgrading, various home appliance enterprises accelerated the product upgrading and
The 2017 Annual Report of Midea Group Co., Ltd. updating and improved their high-end layout; 2) while the e-commerce maintained its high- speed growth, the integration of various retail channels would speed up , and the business mode of“online+offline+logistics+service” is changing the market; 3) based on the Internet of Things Technology, with the overall platform of hardware, software and cloud computing, , the smart home ecosphere would become the mainstream, including of the remote control, the ineterconnection of household appliances, and the self-learning; 4) the“hardware+service” age would come, and the sales of both hardware and services would become an important feature of the entire household appliance industry; 5) the health concept would be accepted by more and more people, as people are inclined to pursue the healthy life, the way to keep human health would be an important factor while designing various household appliances. Household appliances or various functions positioned to diet and health, home environment and personal care would become the consumption hot topics; 6) the intelligent manufacturing era of the household appliance industry would gradually come. As driven by applicable national policies, various household appliance enterprises would speed up their transformation and intelligentizing process, and the intelligent ecosystem would thus be established in the future integratingR&D, manufacturing, sales, user interaction and post-sale services; 7) the development of kitchen appliances and domestic appliances would drive the increase fo entire industry . As the improvement of the living standard, demand for the improvement of life quality would become higher, and the growth rate of kitchen appliances and domestic appliances were expected to be higher than that of other traditional household appliances.
b. The industry of robotics and industrial automation
As predicted by International Federation of Robotics (IFR), the global sales of industrial robots would achieve 347,000 units in 2017, year-on-year increase of18%. In the next three years, the annual sales of the global industrial robots will maintain the growth rate of15%, and the sales of that will exceed 500,000 units in 2020, and the newly-increased total sales will reach about 1.7 million units. Since 2013, China has consecutively beentheworld’s top 1 robots consumption country, and the growth rate of Chinese robots industrial scale has basically maintained above20%, playing an important role in the steady increase of the
The 2017 Annual Report of Midea Group Co., Ltd. global robots industrial scale. According to the relevant data, the amount of industrial robots reached 136,600 units in the Chinese market in 2017 with a year-on-year increase of60%, accounting for 1/3 of the total output in the world. As stated by IFR, the reason for the rapid increase of the robots in China is that the robots density in China is relatively low. In China, robots density is only about 68 robots per every 10,000 workers, and the robots density in Korea is 10 times of that in China. In terms of robots usage density, Korea now occupies the dominant position (every 10,000 workers own 631 robots) and is followed by Singapore (488 robots) and Germany (309 robots). In the world, the average robots density is 74 robots per 10,000 workers.
As predicted by the World Health Organization, in 2050,35% of Chinese people will be over 60 years old, and China will become one of the severest aging countries in the world. The labor shortage and the rise in labor costs will also propel the rapid growth of demands for automation and intelligent devices including industrial robots, and the development space of the domestic robots industry will be broad. Meanwhile, robots will also be widely applied to various manufacturing processes, and the general equipment manufacturing industry, the household appliance manufacturing industry, the electronic equipment manufacturing industry, the rubber and plastics manufacturing industry (expect the motor industry) will become more and more dependent of the large-scale industrial robots, and such dependence is also expected to extend to the textile industry and logistics industry (high labor intensity), the defense and military industry& the civil explosive industry (high risk), the pharmacy, semiconductor and food industry (high requirements in the clean production environment), and the ceramics and brick-making industry (harmful to human health). Therefore, the Chinese industrial robots market in the future is promising, and the market scale is expected to reach RMB 100 billion.
2. Significant Changes in the Main Assets
2.1 Significant changes in the main assets
|||
|-|-|
|Main assets|Reasons for any significant change|

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|Equity assets|Up 19% YoY, primarily driven by acquisition of subsidiaries|
|Intangible assets|Up 121% YoY, primarily driven by acquisition of subsidiaries|
|Construction in progress|Up 51% YoY, primarily driven by acquisition of subsidiaries|

2.2 Main assets overseas
□ Applicable√ N/A
3. Core Competitiveness Analysis
3.1 As one of the leaders among the global household appliance makers and a dominator in the major appliance sectors, Midea Group provides high-quality, one- stop home solutions through its wide product range, complete with full specifications. As a white goods and HVAC enterprise with a whole industrial chain and full product line, Midea Group has developed a complete industrial chain combiningR&D, manufacturing and sales of key components and finished products, supported by an industry-leadingR&D centre and the manufacturing technology of core components (such as compressors, electrical controls and magnetrons), and ultimately based on its powerful capabilities in logistics and services. Midea is widely known as a top appliance and HVAC brand in China. Its dominance in the major appliance and HVAC markets means that it can provide a wide range of competitive product sets. It also means internal synergies in brand awareness, price negotiation as a whole,customers’ needs research andR&D investments. Compatibility, coordination and interaction among household appliances have become increasingly important since smart home is gaining popularity. With a full product line, Midea has had a head start in providing a combined and compatible e-home platform with integrated home solutions for customers.
3.2 GlobalR&D resource integration capabilities, continuing lead inR&D and
technical innovation
The 2017 Annual Report of Midea Group Co., Ltd. The Group is focused on building a competitive, multi-layered globalR&D system centering on user experience and product functions, which represents world-classR&D input and strength. With more than RMB20 billion invested inR&D over the past five years, the Group has set up a total of 20 research centers in nine countries including China, with itsR&D employees over 10,000 and senior foreign experts over 300. As shown in The State of Innovation Report 2017 released by Clarivate Analytics, Midea Group has processed the most invention patents in the global household appliance sector for the past three years in a row. While establishing its own research centers around the world, the Group has also signed technical cooperation agreements with domestic and foreign scientific research institutions, such as MIT, UC Berkeley, UIUC, Stanford, Purdue University, Tsinghua University and the Chinese Academy of Sciences, in order to establish joint labs and build a global innovation ecosystem. TheGroup’s long-term focus on building technology, marketing, product and open innovation systems, building a cutting-edge research system and building reserves in technology for the mid/long term, has provided a solid foundation for the Group to maintain technical superiority across the globe.
3.3 A stronger network of global operations developed and designed withMidea’s continual global resource allocation and investments, globally-advanced manufacturing capabilities and advantage of scale
The success of a series of global acquisitions and new business expansion moves has further solidifiedMidea’s global operations and leading advantages in robotiscs and automation. With theworld’s leading production capacity and experience, and a wide variety of products as well as its production bases all over the world, the Group has been able to expand rapidly into the emerging overseas markets and is becoming a stronger competitor in those mature overseas markets. The Group is one of the biggest manufacturers in the world for many product categories, which gives it competitive edges in efficiency and cost that its overseas competitors are unable to obtain. Overseas sales of theGroup’s accounts for close to50% of the total sales revenue. Its products have been exported to over 200 countries and it owns 18 overseas manufacturing bases and dozens of overseas marketing units. In addition, with a deep knowledge and understanding on product characteristics and
The 2017 Annual Report of Midea Group Co., Ltd. product demands in overseas market, Midea is promoting world-wild branding and expanding through global collaboration and cooperation set up. In this way, the global competitiveness of Midea is increased steadily.
3.4 Broad channel networks and a well-established smart supply chain system ensuring the steady growth ofMidea’s online and off-line sales
By virtue of years of development and investments, Midea Group has formed an all- dimensional market coverage. In the mature first and second-tier markets, the Company has developed and maintained good partnerships with large home appliance retail chains. While in the broad third and fourth-tier markets, the Company uses flagship stores, specialty shops, traditional channels and new channels as effective supplements. Already, the Company has achieved100% coverage in first and second-tier markets, as well as over95% coverage in third and fourth-tier markets. Additionally, the Company's dominance in branding, products, offline channels and logistics distribution have also created powerful guarantees for the Company's rapid expansion of its e-commerce business and channels. Achieving the highest online sales amongChina’s household appliance manufacturers,Midea’s online sales exceeded RMB40 billion (around30% ofMidea’s total domestic sales) in 2017. With advanced smart equipment technology, Annto Logistics Technology Co., Ltd. (Annto), a subsidiary of Midea, has possessed core competitiveness and advantages in logistics automation. Annto has established an efficient, customer-oriented and quick response nationwide warehouses and direct distribution network, which covers 118 logistics centers nationwide and can offer fast delivery which can be finished in 24 hours within 100 kilometers and in 48 hours within 200 kilometers. Annto increases its investments in logistics automation, warehousing robotics, etc. Annto made in-depth research in smart logistics equipment, smart logistics solutions, big data analysis and artificial intelligence has achieved remarkable results. Automatic guided vehicles (AGVs) with visual navigation and laser guiding system developed by Annto has an industry-leading technical performance. Additionally, the mobile terminal system, the smart tracking equipment and the 3D visual technology developed by Annto all promote the efficiency of logistics intelligentization.
3.5 A solid foundation for digitalization-driven Industrial Internet operations
The 2017 Annual Report of Midea Group Co., Ltd. Midea has been promoting a strategy of “Smart Home+ Smart Manufacturing”. With continual research and investment in artificial intelligence (AI), chip, sensor, big data, cloud computing and other new technologies, Midea has built the biggest AI team in the household appliance industry, which is committed to enabling products, machines, production processes and systems to sense, perceive, understand and make decision with the combination of big data and AI, in order to reduce intermediaries for man-machine interaction to the minimum and create truly smart appliances without any assistance in interaction.
Upon years of a digitalized reform characterized by “One Midea, One System, One Standard”, Midea has successfully materialized operations driven by software and data through its value chain, connecting end to end and coveringR&D, PO, scheduling, flexible manufacturing, procurement, follow-up of product quality, logistics, installation& post-sale services, etc. TheGroup’s cloud platform has made come true C2M flexible manufacturing, platform-based, modularized and digitalized production techniques, logistics simulation, intelligent logistics, digital marketing, digital customer service, etc. In addition to applying these cloud platform solutions to its manufacturing bases across the world and tens of thousands of its products, the Group also markets these solutions to other companies and sectors. Therefore, it is safe to say that Midea has built a solid foundation regarding industrial internet systems.
3.6 Sound corporate governance mechanism and effective incentive mechanism to provide a solid foundation forMidea’s sustained and steady development
Paying close attention to the construction of a governance framework, regarding its corporate control, centralization and decentralization systems, the Group formed a mature management system for professional managers. The divisional system has been in operation for many years, and its performance-oriented evaluation and incentive mechanism featuring full decentralization has become a training and growth platform for the Group's professional managers. The Group's senior management team consists of professional managers who have been trained and forged in the operational practices of Midea Group. They have been working for Midea on average for more than 15 years, so they all have rich
The 2017 Annual Report of Midea Group Co., Ltd. industry and professional experience, a deep understanding of the home appliance industry throughout both China and the world, and an accurate understanding of theindustry’s functioning environment and corporate operations management. The Company's advantages in systems and mechanisms have laid a solid foundation for the efficient and effective business operations, as well as the promising, stable and sustainable future development of the Company.
So far, the Company has launched four stock option incentive schemes, one restricted share incentive scheme and three “partner” stock ownership schemes for key managerial and technical personnel, marking the establishment of a governance structure aligning the interests of management and shareholders, as well as the formulation of an incentive scheme comprising long and short-term incentives and restrains.
The 2017 Annual Report of Midea Group Co., Ltd. Section IV Performance Discussion and Analysis
1. Overview
In the first half of 2017, guided by the three core strategies of “Leading Products, Operational Efficiency and Global Operations”, Midea focused on improving products, investigatingusers’ needs, increasing input to technology, and promoting lean management and excellent performance through the value chain. As a result, the business objectives set for the year were successfully fulfilled, sales revenue of each product categories reached fast growth, and product quality and reputation kept improving. Meanwhile, the integration of the global acquisitions proceeded well, further strengtheningMidea’s competitiveness in various product categories and global operation synergies. For 2017, Midea achieved, on a consolidated basis, total revenue of RMB241.919 billion, up51.35% YoY; and net profits attributable to Midea Group shareholders of RMB17.284 billion, up17.70% year-on-year. In 2017, the Company carried out the following tasks:
a. Focused on users, continuously optimized the product structure and steadily improved product competitive advantages
—— Residential Air Conditioners: by virtue of the powerful and solid technical advantages and aggresive and bold innovations, Midea residential air conditioners have won many honors and wide recognition of all sectors from home and abroad. During the IF Award appraisal campaign, three kinds of Midea residential air conditioners won the IF Design awards; during the conference of EU Energy Efficiency Standard Upgrading, Midea actively participated in establishing corresponding EU standards, advocated the upgrading of the industrial energy efficiency and improved its global influences; in 2017, Midea won two awards conferred by the Ministry of Science and Technology--Outstanding Private Science and Technology Enterprise and First Prize for Innovative Product; during the appraisal campaign of The 14th Top China Real Estate, Midea residential air conditioners was awarded “The First-choice Powerful Brand for China Real Estate”; under the organization of
The 2017 Annual Report of Midea Group Co., Ltd. China National Light Industry Associations, two projects completed by Midea (High IQ Room Air Conditioner Key Technology Research and Industrialization and Integral-type Air Conditioner Mute Key Technology Research and Industrialization) were unanimously authenticated to achieve a leading level in the world by the authoritative expert panel. In the list of the 19th Chinese Outstanding Patented Invention& Industrial Design published by the State Intellectual Property Bureau of China, the patents of “the floor air conditioner air duct structure and indoor unit” and “the intelligent power module and the manufacturing method” won the Excellence Awards. In 2017-2018 China Air Conditioning Industry Summit Forum, Midea Air Conditioners won four industrial awards, including Leader Brand on Health& Comfort Technology of 2017-2018 Air Conditioner Industry, Star of Comfort Technology of 2017-2018 Air Conditioner Industry, King of High Temperature of 2017-2018 Air Conditioner Industry and Outstanding Chinese Air Conditioner Installer of 2017-2018 Air Conditioner Industry.
—— Commercial Air Conditioners: depending on its rich technology accumulated in many years, Midea holds over 1,000 patents. By virtue of its remarkable product advantages and brand influence, Midea has won more than 50,000 important projects in the world (including the FIFA World Cup stadiums in Brazil, Rio Olympic Games stadiums,, Singapore Changi International Airport, the UAE Government Residential Villa, Exhibition halls of the EXPO 2010 and the EXPO 2015 etc.) providing various world-level air solutions, relating to various fields such as hotels, real estate, education, sports and transportation etc.. In 2017, Midea won the bidding of 2018 FIFA World Cup Russia Venues Air Conditioner Project, proving its global competitiveness again. According to relevant monitoring data collected by Commercial Air Conditioner Market, the share occupied by Midea Air Conditioners in the Chinese commercial air conditioner market reached15.4%, ranking first in this industry. The new-generation MDVS Full-DC Inverter Intelligent Multi-link air conditioner is driven by the M-Ai Full Frequency Conversion quasi two-stage compression technology and can enable the 24-hour real-time monitoring, the remote diagnosis, and the automatic repairing application. As a matter of fact, it has realized an all-round upgrading from threeaspects— energy-saving, comfortableness and intelligence, and won the Golden Prize of The 7th Hong
The 2017 Annual Report of Midea Group Co., Ltd. Kong Innovative Science and Technology Achievements; in the real estate market, Midea has developed various commercial air conditioners, including the MDV X series of commercial air conditioners for the exclusive use of villas, the TR series of residential air conditioners dedicated to the duplex apartments and the large apartments, the air-water heat pump as the solution of domestic hot water, the fresh air processing machine as the indoor air quality solution, the gas boiler for the household heating, the household appliances dedicated to the “coal to electricity” conversion projectin northern China, and the air source heat pump, and is able to offer various complete and professional air conditioning, hot water, fresh air and heating solutions. During the appraisal campaign of The 14th Top China Real Estate, Midea was awarded “The First-choice Powerful Brand for China Real Estate”; in the field of rail traffic, Midea commercial air conditioner has occupied the majority share in the domestic high-speed railway market. According to relevant statistics, Midea has served 650 high-speed train stations, covering more than 300 cities and involved in more than50% of national high-speed train heating and ventilation projects. In 44 cities obtaining the approval for the construction of metro, Midea has earned orders from 20 cities for their urban metro engineering, and covered 18 provinces, occupying45% of all cities with metros. Midea is also reputed as the brand involving the most cities, covering the longest metro mileage and receiving the most orders.
—— Laundry Appliances: since the Company has owned the world-leading frequency conversion technology and various core technologies including the intelligent drive control, the structural design and the industrial design, it has obtained more than 2,000 patents related to laundry appliances, and developed its own technical advantages in the industry. Adhering to the high-quality principle, the Company made great effort to continuously promote various boutique engineering projects, enhanced the technical innovation andR&D investment, improved the product structure and enriched the medium and hi-end product layout. Through strengthening research onconsumers’ needs and having an insight into theusers’ pain points and the market demands, the Company has solved theusers’ pain points and further optimized the product structure by various innovative solutions including the i- Add, the water magic cube, the i-WIFI, the cold wash, the nanometer silver disinfection, the
The 2017 Annual Report of Midea Group Co., Ltd. anti-allergy, the ultrasonic wash and the classified wash etc. Little Swan has won the AWE Award, and the Beverly washing machine the Household Appliance Innovation Award. In addition, the Little Swan Washing& Drying AIO machine has obtained the anti-allergic testing certificate, and the wall-mounted washing machine the Golden Prize of the 10th China Outstanding Patented Technology and Industrial Design in Jiangsu Province. Meanwhile, the Little Swan Testing Center has been authenticated by German CTF Accredited Laboratory. In 2017 China Washing Machine& Clothes Dryer Industry Summit Forum, Midea washing machines won six awards. As the technical advantages are further strengthened and theproduct’s competitiveness arecontinuously improved, Midea laundry appliances win wide recognition from the customers and the markets.
—— Refrigerators: the Company will continuously manufacture innovative first-class products and usher in the product upgrading in the refrigerator industry. Midea BCD-629 Frequency Conversion Air-cooled Refrigerator can present the customers with a new intelligent experience by means of 360-degree sensitive temperature sensing and various intelligent settings such as the timely cooling adjustment, the remote temperature control, the expiry reminder, the online report to repair etc.; Midea Vandelo BCD-532 French Refrigerator has dug deep into theuser’s needs, and won 2017 Red Dot Design Award by virtue of various delicate designs including 90-degree Door Opening, independent multifunctional area, cosmeceuticals container on the indoor, the precise control of temperature and humidity, the full-open drawer, and the curved surface light source in association with the breathing lights for dynamic disinfection. In 2017 China Refrigerator Industry Summit Forum, Midea was entitled as Leading Brand on Innovative Technology of 2016-2017 China Refrigerator Industry, 532 Golden Refrigerator won the award of Leading Fresh Refrigerator of 2016-2017 China Refrigerator Industry, andBCD-525 Refrigerator obtained the award of Hi-end Intelligent Best-seller Product of 2016-2017 China Refrigerator Industry.
—— Small Household Appliances: the Company has relied on its continuous technical innovations to drive the improvement of product, and many small household appliances have won various authoritative awards at home and abroad for consecutive years, including
The 2017 Annual Report of Midea Group Co., Ltd. the IF Design Award, the Red Dot Award, and the AWE Award etc., which has manifested the international first-class product competitiveness of Midea. Midea “Polar Light” range hood adopted the “Sky-eye Monitoring” system to monitor the real-time temperature changes and automatically adjust corresponding working conditions without any manual operation, With the large air flow of20m³/min, the technology of high temperature steam- cleaning completely solve theuser’s trouble; Midea M-BOX “Cooking Robot” Electric Cooker has won the AWE Award (Golden Award) by virtue of various intelligent functions including rice identification, rice placement, rice washing, watering and cooking etc.; Midea Vacuum Transformer IH Electric Cooker has made many breakthroughs in the IH Heating Technology and is able to intelligently identify the type of rice and match the cooking curve of each rice type to satisfy different needs of consumers, and it also won the golden prize of the multi- stage IH Heating Technology at the IFA exhibition; Midea 105kpa High-speed Aroma Electric Pressure Cooker is able to finish cooking in 19 minutes and perform sterilization at the high- temperature of121℃, and steadily ranks the first in the pressure cooker industry; Midea Hi- end High-speed Blenders of “Gangtiexia” and “Xiaogangpao” have taken the initiative in applying the eccentric disturbed flow technology and their diversified functions and the high efficiency in boiling have won positive comments from the world, ranking the first in this industry; Midea buuilt-in dishwasher has integrated the functioins of Chinese washing machine, fruit& vegetable cleaner, food waste grinder and kitchen sink to completely solve various kitchen problems, with one button for disposal of food wastein, and create a cleaning, comfortable and high-end experience for the customers; Midea free-installation dishwasher has broken through the restriction of installation and has the diversified cleaning modes, including 29 minutes cleaning mode, which is specially designed for small families; Midea Qingyu Smart Fan has applied the biomimetic feather blade design to blow softly and satisfy the needs of children and the aged, and it can also be linked with the air conditioner to provide different work programs under different temperature conditions; Midea wireless hand-held cleaner POWER P75 has applied the fast charging technology and equipped with the multiple-cone filtering system and the powerful motor to maintain the powerful suction and the long-lasting electric quantity, and it has won the award of Annual Innovative Product
The 2017 Annual Report of Midea Group Co., Ltd. at the IFA; Midea Beverly G400E Water Purifier has a compact volume with the 1L/min net water flux to provide customers the diversified high-quality experience; Midea Beverly I8 Water Heater has applied various innovative technologies including the 3.0T zero-cold water, an adaptive constant-temperature system and the sine sonic noise reduction technology, and won 2017 AWE Award.
b. Continuously increased theR&D investment, focused on the innovativeR&D, promoted the globalR&D layout and established the leading technology-driven Hi-tech company. Emphasis has been placed to increase theR&D investment, construct the innovation system and steadily improve various products. Various platforms including Technical Innovation, User Innovation and Product Innovation etc. are also applied to support the overall technical breakthroughs. Meanwhile, special effort is also made tocontinuously perfect Midea 4-gradeR&D System Management Mode, systematically establish the technical innovation planning system from the product strategic planning to the technical planning, improve the standards of high-quality project system, simplify and optimize the product platform, focus on breakthrough in the advenced technology research and the generic technology research, highlight the overall arrangement of the medium and long-term technical reserves and the long-term competitiveness improvement, and develop the core selling points of product. In 2017, great effort was made to continuously improve the globalR&D layout of Midea Group, and the company indeed made progress in speeding up corresponding technical research and materializing the localized development both in scope and in depth through integrating the globalR&D resources: in Apri, the Emerging Technology Center (ETC) in Silicon Valley opened, and the America Research Center in Louisville moved to a new office; in May, the Japan Research Center was established, and Midea EuropeanR&D and Innovation Center was founded in Graz, Austria; in June, Midea User Experience& Innovation (Shanghai) Lab was formally open for business; in July, SingaporeR&D Center was established, and GermanyR&D Center was in preparation. At the end of 2017, Midea Group established 20R&D Centers all over the world, covering 9 countries (China included). While enhancing the globalR&D Center layout, Midea has also signed the technical cooperation agreements with various first-class scientific research institutions at home and
The 2017 Annual Report of Midea Group Co., Ltd. abroad, including MIT, UC Berkeley, UIUC, Stanford, Purdue University, Tsinghua University and Chinese Academy of Sciences etc. in order to set up the united lab, deepen the technical cooperation and create the global innovative ecosystem.
While carrying out the core technology research, Midea has attached great importance to the transformation ofR&D achievements, and continuously won many awards and certificates. Midea Smart Technology Co., Ltd. was recognizedas Guangdong Provincial Internet of Things Smart Home Engineering and Technological Research Center, and Guangdong Provincial White Household Appliances Technical Innovation Center by the Department of Science and Technology of Guangdong Province. In 2017, 16 technologies were identified by the authoritative expert panel to achieve the international leading level, including High IQ Room Air Conditioner Key Technology Research and Industrialization, Eccentric Disturbed Flow and Multi-layer Steady Fire IH Technology-based High-speed Blender Research and Industrialization, M-Ai Full Frequency Conversion Quasi Two-stage Compression Technology and its application to MDVS, the application of spray technology in the ultra-wide circumstance temperature high-temperature backwater distributed central heating system, the research and application of household kitchen ventilator intelligent steam cleaning technology, the research and industrialization of the new-generation variable-frequency power source applied to the micro-wave oven, the modular easy-to-clean materials and their application in kitchen appliances, and the AC No-polar Frequency Conversion Technology etc.. In the field of industrial design, the Company won 72 international design awards in 2017, including 20 German Red Dot Awards, 26 American IDEA Awards, 17 German IF Awards, 5 Janpanese GMARK Awards and 4 Korean GD Awards etc.
In 2017, Midea applied for 16,934 patents in total, including 7,714 patents for invention. At the end of 2017, the number of domestic patents applied by Midea exceeded 70,000 in total and 35,000 patents were effective. According to The State of Innovation Report 2017 issued by Clarivate Analytics, the number of patents obtained by Midea in the field of household appliances has ranked the first in the world for three consecutive years, and also ranked the first in domestic appliances and kitchen appliances.
The 2017 Annual Report of Midea Group Co., Ltd. c. Continued with the marketing reform and the channel transformation, improved the channel efficiency and promoted the rapid growth of e-commerce business.
The Company continued with the transformation of channel, simplified the tiers of offline channels, canceled the 2-tier dealers, focused on the core channels, completely propelled the optimization and integration of agents and the empowerment construction, connected the commodities, capital, information and logistics, promoted the direct sales on various e- commerce platforms, decreased the channel inventory, largely improved the channel efficiency, and strengthened the full-category synergy of the domestic sales terminals. In 2017, the Company set up 29 business centers in China in charge of undertaking the full- category synergy in various regions. Through clearly defining the responsibilities and rights, the energy and vitality of various business centers can thus be stimulated. Meanwhile, the united promotion activities in diversified forms were frequently held in line with the actual situation, achieving remarkable results. About 1,000 core shop managers were employed to strengthen theshop’s full-category synergy, the shopping guide ordering, the purchase package and the sharing of shopping guide, further promote the synergistic basic construction, propel the improvement and upgrading of the domestic sales synergy proceeding in the aspects of the organizational system, the institutional rules, the methods and abilities and the resources incentive mechanism, and enhance thechannel’s long-term sustainable development.
Efforts were also made to continuously deepen the channel layout. In 2017, by making use of Midea multi-category synergistic advantages, the Company continued to develop and expand six major sales channels including flagship stores, Suning, Gome, Regional Chains (TOP Clients), micro-region chains (VIP Clients) and township exclusive shops so as to realize the channel layout at different levels from the villages and towns, the counties to the first-tier cities. The cooperation with Gome and Suning would be deepened, andit’s also necessary to actively promote the cooperation with TOP Club and strengthen the construction of VIP medium and small-sized chain clubs. In the meantime, special effort was made to cooperate with various house fittings chain platforms. In 2017, Midea took the initiative to establish the Whole House Appliances Experience Hall, and in line with the
The 2017 Annual Report of Midea Group Co., Ltd.consumer’s home decoration style and life style, the most suitable intelligent household appliances package could be customized for the customers. In this case, the consumers only need to place an order and their demands for all needed appliances could thus be satisfied without worrying about any installation problem because the Company would provide the consumers with the one-stop services (including the pre-sales service, the post- sales service and the installation and delivery service) and devoted to providing more comfortable home life experience for the users. Moreover, the Company also expanded new channels, successively developed corresponding platform-based reward points accumulation business (including banks, communication and aviation), continuously broadened new retail channels and diversified the cross-industry cooperation.
The e-commerce supply chain system efficiency was enhanced thorough focusing on the user experience. By taking advantage ofMidea’s omni-channel layout featuring “Online User andOrder+Offline FlagshipStore+Logistics and Storage”, the Internet-based big data platform was established by depending on the full-category products. Besides,it’s also necessary to improve the user operation system, explore the digital precision marketing based on the user and big data, and promote the omni-channel project through linking the online products, the offline products, orders and users together. In 2017, the whole online sales exceeded RMB 40 billion with a year-on-year increase of70%.
d. Relying on the advanced technology and the intelligent equipment technology, developed the core competitiveness and capacity advantages based on the automation of logistics. Relying on Annto Logistics Platform, the Company has established the high-efficiency integrated storage and delivery service, and continued improving the delivery network based on the warehouses, strengthened the trunk movement allocating capacity and thesystem’s flexibility, integrated the online and offline marketing activities and the logistics, warehousing and delivery resources, reduced corresponding operating cost, and enhanced the entirelink’s response and the customer experience. In 2017, the Company completed the layout of the quick-response nationwide direct delivery network to satisfy thecustomer’s needs. Since such network covered 118 cities in China, delivery could be finished in 24 hours within 100km, and 48 hours 200km. In the same year, the revenue from the end-to-end integrated
The 2017 Annual Report of Midea Group Co., Ltd. warehousing and delivery business reached20% of the total revenue of Annto.
Unremitting effort will be made to develop the core competitiveness based on the automation of logistics, continuously increase the investment into the automation of logistics and the warehousing robots, and deepen relevant researches and output favorable results from various aspects such as the intelligent logistics equipment, the intelligent logistics solutions, the big data analysis and the artificial intelligence. In 2017, AGV products with proprietary intellectual property rights of Annto, equipped with AIR-PICK Visual Navigation system and SLAM laser guiding system, featured advanced and outstanding technical performance, and corresponding multi-agent robot control program was also worked out and put into use; through researching, developing and applying the 4GRF mobile terminal, the digitized and paperless field management could thus be realized with high efficiency and rapid deployment; the whole logistics process was visible by developing and applying intelligent tracking devices; the logistics system could be intelligentized by researching and applying the 3D visual technology.
In 2017, Annto developed its external partners and made concerted effort to establish the advanced and high-efficiency logistics service system, obviously improving its influences in this industry. During the Double Eleven period (November 11), Annto efficiently undertook the Double Eleven Project for Tmall, and various operating indice were in the front rank among Cainiao Alliance Large Transport Partners. As a result, Annto won the Jinhong Award of Cainian Alliance, and received wide recognition from the entire industry. In October 2017, Annto and Jingdong Logistics cooperated with each other to establish the 300,000 m2 cloud warehouse project (five warehouses in four places), integrating relevant regional logistics resources, linking corresponding data platform, effectively reducing the operating cost of the industrial chain, warehousing and delivery, and providing various e-commerce platforms and brand owners with professional, standardized and high-efficiency e-commerce logistics services.
e. Implemented the “Digitization 2.0” Project and promoted the whole value chain operating management by means of digitization.
It’s necessary to actively implement the “Digitization 2.0” Project, and drive the linking of the
The 2017 Annual Report of Midea Group Co., Ltd. end-to-end business by means of the software and data with the C2M (Customization) as the guiding principle. Meanwhile, all links(R&D, the supply chain, manufacturing, finance, and customer service) will be driven by orders and data to realize the flexible delivery. A digital planning platform has been established, in which way, all data from the value chain throughout the process will be collected and analyzed by means of the big data platform. The product concept database is also built to complete the analysis of the product life cycle data and accordingly support the product digitization planning; in terms of the product development, Midea propelled the product design of parameterization, standardization, modularization and platformization, and by implementing the super BOM, sales stimulated and determined the platform architecture, the module division, and the solidification and optimization of the modular interface; the digital process management system would be established to realize the electronization and structuralization of the process management data. However, C2M Phase I has made a breakthrough in the channel customization. Namely, the customers can directly customize their products on the selection and matching platform, which means that Midea has entered into the age of customization.
In addition, great importance shall be attached to promote the digitization of the channel terminal business and the online management and upgrade the CCS2.0 System. The Midea Cloud Sales System is newly launched to support and guarantee thecustomer’s basic information maintenance, the buying and selling relationship management, the purchase- sell-stock data management, the price/order/sales management and the implementation of policies so as to largely enhance the channelinventory’s authenticity control, realize the information transparency and sharing, and provide corresponding data support and system guarantee for various sales strategies. In 2017, the RMS System (Retail Management System) was released to enable two major functions with the improvement of the terminal marketing efficiency as the core, including the realization of Service Terminal Management (including the terminal inspection, work diary, promotion management, purchase-sell-stock data search) and the improvement of shopping guide (including retail reporting, salary calculation and payment, and live class). CCS, Midea Cloud Sales System and RMS served as the three fundamental management systems to support the sales in domestic market,
The 2017 Annual Report of Midea Group Co., Ltd. covering the whole channel, the information management of terminal stores, the delivery, the distribution and the retail. As a result, all business processes can be completed online, the information will be visualized and the efficiency improved.
The customer service system has completely combined with the mobile terminals in order to fully improve the work efficiency of all information staffs and various management levels. Meanwhile, electronic bills are also available now, including Electronic Invoice and Electronic Contract, and the electronic signature technology is also introduced. Besides, the legalperson’s identity information and three major certificates can also be authenticated online. Further, the signing of contract is visualized in real time, which will not only improve the contract signing efficiency and correctness, but also save corresponding costs.
By means of the integrated planning and purchasing project, the supplychain’s upstream and downstream can thus be connected; the production can be stimulated and the seamless connection between the planning and the implementation will be realized. The production scheduling will be optimized in line with the actual production performance, and the 2-4 hour scheduling and stock system has also been established to realize the intensive production scheduling and the intensive delivery, preparing a high-efficiency supply system for the flexible manufacturing and increasing83% production scheduling efficiency. Special attention is also paid to implement the supplier planned production synergy, the logistics synergy and the full coverage of the vehicle entry booking system, strengthen the capacity visualization synergy efficiency and thesystem’s usability, and support the order tracking throughout the process. By means of the prior order scheduling, it is possible to realize the quick appraisal of thefactory’s orders received based onT+3 Mode, the precise positioning and efficient analysis of corresponding resources gaps, which will promote the systematical implementation of the general collecting mode and effectively reduce corresponding product costs.
It’s also required to expand the big data technology platform, improve the enterprise-level indicator system and the data operation mechanism in order to visualize the whole process and drive the full-field data. Related data will be collected based on various products, materials, techniques and projects for the purpose of data research, and two kinds ofR&D
The 2017 Annual Report of Midea Group Co., Ltd. data sub-products have also been developed including Product Cube andR&D Steward; in terms of the data from domestic sales and export sales, the omni-channel data monitoring system shall be established to focus on the product sales structure, the price system and the market layout, visualizing all data ranging from the order placement to the after-sales service; the big manufacturing data shall regard the visualization of capacity as the core objective, and completely improve the digital management on the manufacturing field; big financial and economic data shall be analyzed and applied to measure the profit and loss, the profitability and the costs indicators so as to provide a valid data support for theenterprise’s endogenous growth.
f. Efficiently promotedMidea’s globalized business layout and business growth; strengthened the operation organization and the compliance management; and accelerated the cooperative integration of Toshiba Household Appliances Project.
Midea has become a company involved in global operations, and will strictly adhere to its global business strategies and improve its global layout from various aspects such asR&D, manufacturing and sales to enhance its ability in global operations.Midea’s global businesses involve more than 200 countries and regions, and it has established 18 overseas production bases with more than 35,000 employees from 21 countries. In addition, its overseas businesses also involve 22 settlement currencies; Midea has successfully set up its globalR&D Center respectively in the U.S.A., Japan, Italy, Germany, India, Singapore, Austria and Israel etc. In 2017, Midea initiated the “Green Space” Project in India, which will further enlarge the localized layout of air conditioners, refrigerators, washing machines and other household appliances in India. Midea has established 24 sales and operation agencies all over the world, covering the Northern America, the South America, the Europe, the Asia, the Africa and the Oceania in order to stimulate and strengthen its localized operations overseas. In 2017, the business revenue fromMidea’s overseas companies increased rapidly, and the exports of residential air conditioners, micro-wave ovens, refrigerators, dishwasher, water heaters, fans, washing machines and induction cookers continued keeping ahead of other domestic household appliances enterprises.Midea’s brand awareness is promoted steadily and continuously.
The 2017 Annual Report of Midea Group Co., Ltd. Special measures are taken to strengthen the control of overseas risks; the governance, legal affairs and compliance system framework geared to overseas companies is also established; proceeding from the board operation, the license management, the internal control mechanism, the anti-monopoly policy, the anti-corruption policy, the export control and the product liability, various mechanisms will be promoted and implemented including the affiliate transactions, the internal loan, the transnational capital transfer and the protection of theshareholder’s equity. By establishing the regional headquarters of Midea Group, corresponding internationalized corporate governance principles will be further implemented in line with the actual local conditions and applicable laws and regulations. In 2017, emphasis was placed to speed up the restructuring of core businesses, value chain, business flow and other structural adjustments, continue implementing the Toshiba Household Appliances Global Operating Strategy, cooperate with Toshiba to finish the cross licensing between brand and technology, the arrangement of internal and external supply chain, the channel licensing and the integration of corporate management, and create corresponding environment to support the self-owned brand strategy of Midea Group. In 2017, Toshiba took effective measures to conduct and deepen the reform and pay special attention to the structural adjustment. Firstly, Toshiba completely cooperated with corresponding Midea Household Appliances Business Department to enhance the product layout of Toshiba Brand in the global market and accelerate the realization of cooperative effect throughout the value chain covering the brand, channel, innovativeR&D, supply chain and quality manufacturing together with Midea Product& Business Department. In 2017, there were over 75 cooperative projects. Secondly, through introducing the international 632 business system, the global IT basic platform and the internal system process were further established and the operation efficiency was also improved. Thirdly, the strategy of “Further Expand the Japanese Market and Focus on Overseas Countries” was firmly implemented, and various measures were also taken to arrange the e-commerce business in order to make comprehensive preparations for turning losses into gains in 2018 from such aspects as market, product, system and mechanism. However, Toshiba realized an annual revenue of over RMB 15 billion in 2017. Although Toshiba did not make profit on in the year due to
The 2017 Annual Report of Midea Group Co., Ltd. various external factors (including the YEN Exchange Rate, the rise of raw material prices and the complicated global economic situation), its core household appliances business increased. Especially in the intensely competitive Japanese market, the shares ofToshiba Refrigerators, washing machines and air conditioners still rosesteadily.
g. Seized the opportunity of global development for robotics and automation system business, and cooperatively promote the rapid growth of the business.
Concerted effort was made to promote the rapid growth of KUKA Robotics business. In 2017, the revenue of KUKA Robotics business achieved a year-on-year increase of18%, reaching the highest level in history, and new orders were obtained from time to time as well. The company took effective measures to expand its businesses in China from various aspects such as the application of intelligent manufacturing, the customer resources sharing, the development of logistics and medical automation business, the collaboration of governmental resources and the support.
KUKA Robotics has always maintained its investment intoR&D, and explored corresponding market expansion and layout. A transition will also be finished from the hardware advantages to the software, intelligent manufacturing data system, cloud platform and the overall solutions for the purpose of enhancing the upgrading of Industry 4.0. In terms of networking, the Cloud-based software platform KUKA Connect developed by KUKA can enable the customers to access to relevant robotic data at any place in the world, in which way, the production performance and efficiency can thus be improved; in light of Human and Robot Collaboration, KUKA Sensing System can narrow or even remove the security fence between operators and robots. In 2017, KUKA invested in the Cloud Technology and the Internet of Things, and strengthened the cooperative development with various partners. Visual Components merged by KUKA is specialized in the 3D simulation software solutions geared to the factory planning, and such simulation technology will effectively enhance the application ability based on the KUKA simulation ecosystem. Besides, KUKA also invested Device Insight GmbH (an Internet of Things company in Munich) which is a leading IoT company specialized in the IoT platform, the automation industry and the network products. Based on such investment, KUKA is expected to strengthen and broaden its professional
The 2017 Annual Report of Midea Group Co., Ltd. knowledge and domains related to the Internet of Things and improve its innovation ability in the field of Industry 4.0. Meanwhile, KUKA has also deepened the strategic partnership with Volkswagen Enterprise Research Company to jointly develop the creative robotics concept geared to vehicles in the future. The company has planned and built a production system applied to manufacture various battery modules and high-tension batteries that are suitable for the electric automobiles produced by leading manufacturers in Europe. In the field of service robots, KUKA and Volkswagen cooperated with each other to research the CarLa, the charging robot for electric automobiles.
Further efforts are made to integrate the Midea Robotics and automation business platform and the drive control business. The Robotics Platform of Midea is capable of working out corresponding design standards and customizing motion control solutions for the automation system suppliers, and contains a series of products including the hardware servo motor, the controller and the encoder etc. Through integrating corresponding drive control business and investing the development of ASR, AI and visual and sensing technology, Midea further expands the application of Robotics& automation system and such as Intelligent Manufacturing, Intelligent Logistics, Smart Home and Rehabilitation Therapy etc. Meanwhile, Midea has also cooperated with others to research and develop the intelligent logistics robotics system, and now 40 sets are put into production in commission, which has been continuously tested for more than 1,400 hours, and 21 patents for invention and 12 patents for utility models in total has been applied. As a result, the traditional work mode will be overturned and replaced by a brand-new mode, which will satisfy the demand for small batches& rich varieties, largely improve the order picking efficiency and the warehouse utilization rate, reduce the error rate and decrease the overall logistics costs.
The robotic platform team construction is accelerated. In 2017, Midea Automation Business Platform newly introduced a professional team consisting of 120 talents in charge of coordinating with various units to work out the medium and long-term automation planning, implementing the standardized management geared to the robotic and professional equipment, integrating internal and external resources, carrying out the key automation demonstration project, and gradually establishingMidea’s ability and influences in
The 2017 Annual Report of Midea Group Co., Ltd. formulating the overall solutions in the field of 3C Household Appliances and Automation. The product application of Midea Yaskawa Service Robotics Co., Ltd. is also accelerated. At present, several products have obtained corresponding ISO13485 Medical Equipment Authentication, and 5 new products have obtained CFDA Medical Equipment Authentication. In 2017, 3 of the 5 new rehabilitation exercise products were put into volume production. h. Deepen the industrial layout for Smart Home Appliance and promote the implementation of Smart Home Appliance Strategy.
In 2017, Midea Smart Technology would continue and strengthen the implementation of the M-Smart Strategy, optimize the Cloud Platform, Meiju, Communication Module, Intelligent Security System and the post-sales service, and continuously improve the customer satisfaction. Meanwhile, special effort is also made to expand the overseas Internet ofThings+ Business, improve the integration of Echo/Alexa ecology. The Smart Home Layout can provide strong support forMidea’s Globalization Strategy.
The Company has always increased the investment into theR&D and market resources of intelligent household appliances, and continuously enhanced the market competitiveness of various intelligent household appliances. In March 2017, Midea Smart Technology launched the Internet of Things Security Wi-Fi Security Chip which was designed in conformity with the national financial security demand standards and reached the highest security level standard set by China Information Security Evaluation Center in the field of USBKEY. In May 2017, Midea Smart Technology passed corresponding security products testing conducted by PICC, and various intelligent products were insured by PICC. In fact, Midea is the first manufacturer in this industry to purchase corresponding product liability insurance for its products. In December 2017, Midea Smart Technology released Meiju APP 4.0 with the new and upgraded page and simplified operation procedures. Having an insight into various frequently-used functions, it is able to design corresponding intelligent services for the user according to the specific scenario. In 2017, Midea Smart Technology obtained 7 international industrial design awards (including IF, Red Dot, and IDEA etc.), and its patent for invention won the Excellence Award of The 19th Chinese Outstanding Patented Invention& Industrial
Design.
The 2017 Annual Report of Midea Group Co., Ltd. The Company has also made great effort to propel the construction of M-Smart big platform ecosphere, developed the third-party IoT platform Meizhi by adhering to the concept of M- Smart Inside, promoted the cooperation with Hengda, Country Garden, Vanke and other real estate companies, and realized the combination of Smart Community with Smart Home. In the meantime,it’s also necessary to completely open the M-Smart system to the public, and strengthen the external cooperation from such aspects as Cloud-to-Cloud Docking, the third- party mobile terminal control, the intelligent hardware access and the introduction of the third-party content resources. As a result, 105 partners have been introduced in total, and corresponding strategic partnerships are also established with China Mobile, Huawei, SGCC, COFCO, HONYAR, OnStar, Whaley, Ayla Networks, DOOYA and Hutlon etc. Midea Smart Technology has taken the lead in establishing its systematical service capacity. In 2017, Midea Smart Technology launched a series of independently-developed new products and new technologies, including the intelligent gateway, intelligent door lock, the combustible gas detector, the smoke detector and the smart panel etc. for the purpose of creating a safe, convenient and cozy living environment for the users. As a matter of fact, it is not easy for Midea Smart Technology to become a provider that is able to offer the overall smart home solutions including chips, Cloud and Terminal.
i. Improved the corporate governance level and enhanced the long-term incentive schemes. In 2017, Midea launched the first restricted share incentive scheme and the fourth stock option incentive scheme for its medium and top management and core business backbones as well as the third Midea Group “Partner” scheme for its core management posennel that play a significant role in theCompany’s overall business performance and medium and long- term development in order to encourage the management to take responsibility for theCompany’s long-term value and growth. The incentive schemes have helped to align the long-term interests of senior management and key personnel with that of all shareholders, and the corporate governance has been further improved.
The 2017 Annual Report of Midea Group Co., Ltd. 2. Analysis of Main Business
2.1 Overview
Same with the contents presented in “1. Overview” of this section
√ Yes□ No
See “1. Overview” of this section.
2.2 Revenues and Costs
2.2.1 Breakdown of operating revenues
Unit:RMB’000
|||||||
|-|-|-|-|-|-|
||2017||2016|||
|||As a percentage||As a percentage||
||||||YoY Change (%)|
||Amount|of total operating|Amount|of total operating||
|||revenues (%)||revenues (%)||
|Total|240,712,301|100%|159,044,041|100%|51.35%|
|By business segment||||||
|Manufacturing|221,137,529|91.87%|145,266,238|91.34%|52.23%|
|By product category||||||
|HVAC|95,352,449|39.61%|68,726,349|43.21%|38.74%|
|Consumer||||||
||98,748,018|41.02%|76,539,889|48.12%|29.02%|
|appliances||||||
|Robotics and||||||
|automation|27,037,062|11.23%|-|-|-|
|systems||||||
|By geographical segment||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||
|-|-|-|-|-|-|
|PRC|136,756,269|56.81%|94,943,776|59.70%|44.04%|
|Outside PRC|103,956,032|43.19%|64,100,265|40.30%|62.18%|

 Note: Consumer appliances in the table above primarily include refrigerators, laundry equipment, kitchen appliances and small domestic appliances.
2.2.2 Business segments, products or geographical segments contributing over10% of the operating revenues or profits
√ Applicable□ N/A
Unit:RMB’000
||||||||
|-|-|-|-|-|-|-|
|||||YoY change of|YoY change of|YoY change of|
||Operating||Gross profit||||
|||Operating cost||operating|operating cost|gross profit|
||Revenue||margin||||
|||||revenue (%)|(%)|margin (%)|
|By business segment|||||||
|Manufacturing|2 21,137,529|162,510,418|26.51%|52.23%|57.40%|-2.42%|
|By product category|||||||
|HVAC|95,352,449|67,664,335|29.04%|38.74%|40.94%|-1.11%|
|Consumer|||||||
||98,748,018|71,722,720|27.37%|29.02%|29.85%|-0.46%|
|appliances|||||||
|Robotics and|||||||
|automation|27,037,062|23,123,363|14.48%|-|-|-|
|systems|||||||
|By geographical segment|||||||
|PRC|136,756,269|97,432,060|28.75%|44.04%|44.48%|-0.22%|
|Outside PRC|103,956,032|83,028,492|20.13%|62.18%|72.34%|-4.71%|

Under the circumstances that the statistical standards for the Company's main business
data adjusted in the Reporting Period, the Company's main business data in the recent year
The 2017 Annual Report of Midea Group Co., Ltd. is calculated based on adjusted statistical standards at the end of the Reporting Period□ Applicable√ N/A
2.2.3 Whether revenue from physical sales is higher than service revenue
√ Yes□ No
|||||||
|-|-|-|-|-|-|
|Business||||||
||Item|Unit|2017|2016|YoY Change (%)|
|segment||||||
|||In thousand||||
||Sales||408,024.5|317,277.2|28.60%|
|||units/sets||||
|Home appliances||||||
||Output|Ditto|420,739.3|327,127.4|28.62%|
||Inventory|Ditto|47,235.0|34,732.3|36.02%|

 Note: The aforementioned statistics about output, sales and inventory were calculated based on internal standards. Lighting products and robotics and automation systems are excluded.
Reason for any over30% YoY movements in the data above
√ Applicable□ N/A
The36.02% YoY increase in the inventory was mainly due to an increase in orders.
2.2.4 Execution of significant sales contracts in the Reporting Period
□ Applicable√ N/A
2.2.5 Breakdown of operating cost
By product category
Unit:RMB’000
||||||||
|-|-|-|-|-|-|-|
|||2017||2016|||
|Product||||||YoY Change|
||Item||As a||As a||
|category||Amount||Amount||(%)|
||||percentage of||percentage of||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||
|-|-|-|-|-|-|-|
||||total operating||total operating||
||||cost (%)||cost (%)||
||Raw materials|119,259,564|85.56%|87,868,769|85.11%|35.72%|
|Home|Labor costs|8,502,610|6.10%|6,267,030|6.07%|35.67%|
|appliances|Depreciation|2,495,028|1.79%|2,330,741|2.26%|7.05%|
||Energy|2,090,806|1.50%|1,574,007|1.52%|32.83%|

 2.2.6 Changes in the scope of the consolidated financial statements for the Reporting Period
√ Yes□ No
For the main subsidiaries included in the consolidated financial statements of the current year, please refer to Note 5 and Note 6 to the Financial Statements herein. For the newly consolidated companies, see Note 5, 5.1 and 5.2, (a), and they primarily include: Guangdong Midea Electric Co., Ltd., Guangdong Midea Smart Robots Co., Ltd., Chongqing Midea Microcredit Co., Ltd., Guangdong Midea GiMAY Technology Co., Ltd., Hefei Midea Smart Technology Co., Ltd., Guangdong Midea Kafei Coffee Machine Manufacturing Co., Ltd., Midea Electric Netherlands (I) B.V., KUKA Aktiengesellschaft, SMC, Dongguan Kafei Electric Manufacturing Co., Ltd. and Fujitsu (Guangdong) Technology Service Co., Ltd. For the companies deconsolidated in the current year, see Note 5, 5.2, (b).
2.2.7 Major changes in the business, products or services in the Reporting Period□ Applicable√ N/A
2.2.8 Main customers and suppliers
Major customers of the Company
|||
|-|-|
|Total sales to top five customers (RMB'000)|23,812,870|
|Total sales to top five customers as a percentage of|9.89%|

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|the total sales for the year (%)||
|Total sales to related parties among top five||
|customers as a percentage of the total sales for the|0|
|year (%)||

Information on top five customers
|||||
|-|-|-|-|
||||As a percentage of the total salesrevenue (%)|
|No.|Customer|Sales revenue (RMB'000)||
|1|Customer A|12,027,783|5.00%|
|2|Customer B|4,847,226|2.01%|
|3|Customer C|3,135,444|1.30%|
|4|Customer D|2,001,579|0.83%|
|5|Customer E|1,800,838|0.75%|
|Total|--|23,812,870|9.89%|

 Major suppliers of the Company
|||
|-|-|
|Total purchases from top five suppliers (RMB'000)|9,800,909|
|Total purchases from top five suppliers as a||
||5.73%|
|percentage of the total purchases for the year (%)||
|Total purchases from related parties among top five||
|suppliers as a percentage of the total purchases for|0|
|the year (%)||

Information on top five suppliers of the Company
|||||
|-|-|-|-|
|||Purchase (RMB'000)|As a percentage of the total|
|No.|Supplier|||
||||purchases (%)|
|1|Supplier A|2,464,169|1.44%|
|2|Supplier B|2,106,841|1.23%|
|3|Supplier C|1,892,036|1.11%|

The 2017 Annual Report of Midea Group Co., Ltd.
|||||
|-|-|-|-|
|4|Supplier D|1,747,344|1.02%|
|5|Supplier E|1,590,519|0.93%|
|Total|--|9,800,909|5.73%|

 2.3 Expense
Unit: RMB'000
||||||
|-|-|-|-|-|
||||YoY Change||
||2017|2016||Reason for any significant change|
||||(%)||
|Selling and|26,738,673|17,678,451|||
|||||Sales increase and consolidation of KUKA and|
|distribution|||51.25%||
|||||TLSC|
|expenses|||||
|General and|14,780,236|9,620,777|||
|||||Sales increase and consolidation of KUKA and|
|Administrative|||53.63%||
|||||TLSC|
|expenses|||||
|Finance costs|815,949|-1,005,979|181.11%|exchange losses and loan interest increase|

 2.4R&D investment
√ Applicable□ N/A
In the Reporting Period, Midea continued to build a “customer-oriented” operating system. It promoted technological innovation and product improvement through improving its global, openR&D system covering four links from prior study to product development. Also, a world- classR&D team has been set up andR&D investment has been increased to work on core technology, basic technology and future technology. In this way, Midea is able to develop advanced, quality products with unique selling points appealing to customers and create differential competitive edges. For more details aboutR&D investment and product
competitiveness improvement, please refer to the relevant contents presented in “Core
Competitiveness Analysis” under “Section III Business Profile” and “Overview” under
The 2017 Annual Report of Midea Group Co., Ltd. “Section IV Operating Performance Discussion and Analysis”.
Information aboutR&D input
|||||
|-|-|-|-|
||2017|2016|YoY Change (%)|
||10,520|8,741|20.35%|
|Number of R&D personnel||||
|R&D personnel as a||||
||10.33%|9.07%|1.26%|
|percentage in total employees||||
||8,500,000|6,045,800|40.59%|
|R&D input (RMB’000)||||
|R&D input as a percentage in||||
||3.53%|3.80%|-0.27%|
|operating revenues||||
|Capitalized R&D input (RMB||||
||-|-|-|
|Yuan)||||
|Capitalized R&D input as a||||
||-|-|-|
|percentage in total R&D||||
|investment||||

Note: The data in the table above excludes those of TLSC and KUKA.
Reason for any significant YoY change in the percentage of theR&D investment in the operating revenues
□ Applicable√ N/A
Reason for any sharp variation in the percentage of the capitalizedR&D investment and rationale
□ Applicable√ N/A
2.5 Cash flow
Unit: RMB'000
|||||
|-|-|-|-|
|Item|2017|2016|YoY Change (%)|
|Subtotal of cash inflows from|207,315,612|162,658,812||
||||27.45%|
|operating activities||||
|Subtotal of cash outflows due to|182,872,989|135,963,803||
||||34.50%|
|operating activities||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||
|-|-|-|-|
|Net cash flow from operating|24,442,623|26,695,009||
||||-8.44%|
|activities||||
|Subtotal of cash inflows from|89,296,086|76,323,327||
||||17.00%|
|investing activities||||
|Subtotal of cash outflows due to|124,035,694|96,104,411||
||||29.06%|
|investing activities||||
|Net cash flow from investing|-34,739,608|-19,781,084||
||||-75.62%|
|activities||||
|Subtotal of cash inflows from|63,838,091|35,236,372||
||||81.17%|
|financing activities||||
|Subtotal of cash outflows due to|44,186,446|35,076,460||
||||25.97%|
|financing activities||||
|Net cash flow from financing|19,651,645|159,912||
||||12,189.04%|
|activities||||
|Net increase in cash and cash|9,317,923|7,326,413||
||||27.18%|
|equivalents||||

Explanation of why the data above varied significantly
√ Applicable□ N/A
a. Primarily driven by increase in net cash paid to acquire subsidiaries, net cash flow from investing activities decreased75.62% from last year.
b. Primarily driven by increase in borrowings obtained, net cash flow from financing activities increased12,189.04% from last year.
Explanation of main reasons leading to the material difference between net cash flow from operating activities during the Reporting Period and net profit for the year
□ Applicable√ N/A
The 2017 Annual Report of Midea Group Co., Ltd. 3. Analysis of Non-Core Business
□ Applicable√ N/A
4. Assets and Liabilities
4.1 Material changes of asset items
Unit: RMB'000
||||||||
|-|-|-|-|-|-|-|
||31 December 2017||31 December 2016||||
|||As a||As a|Change in||
|||||||Explanation about any|
|||percentage of||percentage|percentage||
||Amount||Amount|||material change|
|||total assets||of total|(%)||
|||(%)||assets (%)|||
|Cash at bank|48,274,200||27,169,118||||
|||19.46%||15.93%|3.53%||
|and in hand|||||||
|Accounts|17,528,717||13,454,511||||
|||7.06%||7.89%|-0.83%||
|receivable|||||||
|Inventories|29,444,166|11.87%|15,626,897|9.16%|2.71%||
|Investment|420,802||494,122||||
|||0.17%||0.29%|-0.12%||
|properties|||||||
|Long-term|2,633,698||2,211,732||||
|equity||1.06%||1.30%|-0.24%||
|investments|||||||
|Fixed assets|22,600,724|9.11%|21,056,791|12.34%|-3.23%||
|Construction|879,576||580,729||||
|||0.35%||0.34%|0.01%||
|in progress|||||||
|Short-term|2,584,102||3,024,426||||
|||1.04%||1.77%|-0.73%||
|borrowings|||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||
|-|-|-|-|-|-|
|Long-term|32,986,325||2,254,348|||
|||13.30%||1.32%|11.98%|
|borrowings||||||

4.2 Assets and liabilities measured at fair value
√ Applicable□ N/A
Unit: RMB'000
|||||||||
|-|-|-|-|-|-|-|-|
|||Profit or||||||
||||Cumulative|||||
|||loss from||||||
||||fair value||Purchased|||
||Opening|change in||||Sold in the|Closing|
|Item|||change|Other|in the|||
||balance|fair value||||period|balance|
||||charged to||period|||
|||during the||||||
||||equity|||||
|||period||||||
|Financial assets||||||||
|1. Financial assets||||||||
|with fair value||||||||
|changes included in||||||||
|profit or loss||||||||
|(excluding derivative||||||||
|financial assets)||||||||
|2. Derivative financial||||||||
||424,163|-119,132|349,508|59,646|||714,185|
|assets||||||||
|3. Financial assets||||||||
||33,627,760|-|147,634|-10,128|26,517,841|38,069,681|22,213,426|
|available for sale||||||||
|Sub-total of financial||||||||
||34,051,923|-119,132|497,142|49,518|26,517,841|38,069,681|22,927,611|
|assets||||||||
|Investment||||||||
|properties||||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||||
|-|-|-|-|-|-|-|-|
|Productive living||||||||
|assets||||||||
|Others||||||||
|Sub-total of the||||||||
||34,051,923|-119,132|497,142|49,518|26,517,841|38,069,681|22,927,611|
|above||||||||
|Financial liabilities|96,102|-94,087|-4,387|94,680|||92,308|

 Whether there were any material changes on the measurement attributes of major assets of the Company during the Reporting Period
□ Yes√ No
4.3 Restricted asset rights as of the end of this Reporting Period
As of the end of this Reporting Period, there were no such circumstances where any main assets of the Company were sealed, distrained, frozen, impawned, pledged or limited in any other way.
5. Investment made
5.1 Total investment amount
√ Applicable□ N/A
||||
|-|-|-|
|Total investment amount of|Total investment amount of last||
|||YoY Change (%)|
|Reporting Period (RMB’000)|year (RMB’000)||
|124,035,694|96,104,411|29.06%|

 5.2 Significant equity investment made in the Reporting Period
√ Applicable□ N/A
The 2017 Annual Report of Midea Group Co., Ltd. Unit: RMB'000
||||||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|-|-|-|
||||||||||Invest|||||Inde|
||Main|||The|||||||Return||||
||||||Sour||||ment|||||x to|
||busine|||Compa|||||||on||Discl||
|||Way|||ce of|Join|Term|Type|progre|Proje||Litiga||discl|
||ss|||ny’s|||||||invest||osure||
|Invest||of|Amount of||inves|t|of|of|ss as|cted||tion||osed|
||scope|||stake|||||||ment in||date||
|ee||invest|investment||tment|inve|inves|inves|of|earni||invol||infor|
||of|||in|||||||Reporti||(if||
|||ment|||capit|stor|t ment|t ment|b alanc|ngs||ved||mati|
||invest|||investe|||||||ng||any)||
||||||al||||e sheet|||||on (if|
||ee|||e|||||||Period||||
||||||||||date|||||any)|
|||||||||Smar|||||||
|||Acqui|||||Long||||||||
||Smart|||||||t|||||||
|||sition||81.04|Borro|Non|-||Compl||675,41||||
|KUKA|autom||27,001,856|||||auto||N/A||None|-|-|
|||in||%|wing|e|lastin||eted||0||||
||ation|||||||matio|||||||
|||cash|||||g||||||||
|||||||||n|||||||
||||||||||||675,41||||
|Total|--|--|27,001,856|--|--|--|--|--|--|-||--|--|--|
||||||||||||0||||

5.3 Significant non-equity investments ongoing in the Reporting Period
□ Applicable√ N/A
5.4 Financial investments
5.4.1 Securities investments
□ Applicable√ N/A
No such cases in the Reporting Period.
5.4.2 Derivatives investments
√ Applicable□ N/A
The 2017 Annual Report of Midea Group Co., Ltd. Unit: RMB'0,000
|||||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|-|-|
|||||||||||||Closin||
|||||||||||||g||
|||||||||||||invest||
||Rel|||||||||||||
|||||||||||||ment||
||atio|||||||Purc||Amoun||||
|||Rel|||||||Sold|||amoun||
||nshi|||||||hase||t|||Actual|
|||ate|Type|Initial|||Opening||in||Closing|t as a||
|Oper|p|||||||d in||provid|||gain/loss|
|||d|of|investm|Starting|Ending|investm||Repo||investm|percen||
|ating|with|||||||Repo||ed for|||in|
|||tran|deriv|ent|date|date|ent||rting||ent|tage of||
|party|the|||||||rting||impair|||Reporting|
|||sact|ative|a mount|||amount||Perio||amount|the||
||Co|||||||Perio||ment (if|||Period|
|||ion|||||||d|||Compa||
||mp|||||||d||any)||||
|||||||||||||ny’s||
||any|||||||||||||
|||||||||||||closing||
|||||||||||||net||
|||||||||||||assets||
|Futur|No||Futur|||||||||||
|es|||es||01/01/20|31/12/|||||||10,096.9|
|||No||-11.5|||-11.5|-|-|-|6,588.20|0.09%||
|comp|||contr||17|2017|||||||0|
|any|||acts|||||||||||
||No||Forw|||||||||||
||||ard|||||||||||
|||||32,817.6|01/01/20|31/12/|32,817.6||||55,599.5||107,061.|
|Bank||No|forex|||||-|-|-||0.75%||
|||||0|17|2017|0||||0||00|
||||contr|||||||||||
||||acts|||||||||||
|||||32,806.1|||32,806.1||||62,187.7||117,157.|
|Total|||||--|--||-|-|-||0.84%||
|||||0|||0||||0||90|
|Source of derivatives||||||||||||||
|||||All from the Company’s own money||||||||||
|investment funds||||||||||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|Litigation involved (if||
||N/A|
|applicable)||
|Disclosure date of||
|theannouncement||
|about the board’s||
||31/03/2017|
|consent for the||
|derivative investment||
|(if any)||
|Disclosure date of the||
|announcement about||
|the general meeting’s||
||22/04/2017|
|consent for the||
|derivative investment||
|(if any)||
||For the sake of eliminating the cost risk of the Company's bulk purchases of raw|
||materials as a result of significant fluctuations in raw material prices, the Company not|
|Risk analysis of||
||only carried out futures business for some of the materials, but also made use of bank|
|positions held in||
||financial instruments and promoted forex funds business, with the purpose of avoiding|
|derivatives during the||
||the risks of exchange and interest rate fluctuation, realizing the preservation and|
|Reporting Period and||
||appreciation of forex assets, reducing forex liabilities, as well as achieving locked-in|
|explanation of control||
||costs. The Company has performed sufficient evaluation and control against|
|measures||
||derivatives investment and position risks, details of which are described as follows:|
|(Including but not||
||1. Legal risk: The Company's futures business and forex funds businesses shall be|
|limited to market risk,||
||conducted in compliance with laws and regulations, with clearly covenanted|
|liquidity risk, credit||
||responsibility and obligation relationship between the Company and the agencies.|
|risk, operational risk,||
||Control measures: The Company has designated relevant responsible departments to|
|legal risk, etc.)||
||enhance learning of laws and regulations and market rules, conducted strict|
||examination and verification of contracts, defined responsibility and obligation well,|

The 2017 Annual Report of Midea Group Co., Ltd.
||
|-|
|and strengthened compliance check, so as to ensure that the Company's derivatives|
|investment and position operations meet the requirements of the laws and regulations|
|and internal management system of the Company.|
|2. Operational risk: Imperfect internal process, staff, systems and external issues may|
|cause the Company to suffer from loss during the course of its futures business and|
|forex funds business.|
|Control measures: The Company has not only developed relevant management|
|systems that clearly defined the assignment of responsibility and approval process for|
|the futures business and forex funds business, but also established a comparatively|
|well-developed monitoring mechanism, aiming to effectively reduce operational risk by|
|strengthening risk control over the business, decision-making and trading processes.|
|3. Market risk: Uncertainties caused by changes in the prices of bulk commodity and|
|exchange rate fluctuations in foreign exchange market could lead to greater market|
|risk in the futures business and forex funds business. Meanwhile, inability to timely|
|raise sufficient funds to establish and maintain hedging positions in futures operations,|
|or the forex funds required for performance in forex funds operations being unable to|
|be credited into account could also result in loss and default risks.|
|Control measures: The futures business and forex funds business of the Company|
|shall always be conducted by adhering to prudent operation principles. For futures|
|business, the futures transaction volume and application have been determined strictly|
|according to the requirements of production & operations, and the stop-loss|
|mechanism has been implemented. Besides, to determine the prepared margin|
|amount which may be required to be supplemented, the futures risk measuring system|
|has been established to measure and calculate the margin amount occupied, floating|
|gains and losses, margin amount available and margin amount required for intended|
|positions. As for forex funds business, a hierarchical management mechanism has|
|been implemented, whereby the operating unit which has submitted application for|
|funds business should conduct risk analysis on the conditions and environment|
|affecting operating profit and loss, evaluate the possible greatest revenue and loss,|

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
||and report the greatest acceptable margin ratio or total margin amount, so that the|
||Company can update operating status of the funds business on a timely basis to|
||ensure proper funds arrangement before the expiry dates.|
|Changes in market||
|prices or fair value of||
|derivative products||
|during the Reporting||
||1. Gain from futures contracts during the Reporting Period was RMB100,969,000.|
|Period,||
||2. Gain from forward forex contracts during the Reporting Period was|
|specific methods||
||RMB1,070,610,000.|
|used and relevant||
||3. Public quotations in futures market or forward forex quotations announced by the|
|assumption and||
||Bank of China are used in the analysis of derivatives fair value.|
|parameter settings||
|shall be disclosed for||
|analysis of fair value||
|of derivatives||
|Explanation of||
|significant changes in||
|accounting policies||
|and specific financial||
|accounting principles||
|in respect of the||
|Company's|No change|
|derivatives for the||
|Reporting Period as||
|compared to the||
|previous Reporting||
|Period||

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|Special opinions|The Company's independent directors are of the view that the futures hedging|
|expressed by|business is an effective instrument for the Company to eliminate price volatility and|
|independent directors|implement risk prevention measures through enhanced internal control, thereby|
|concerning the|improving the operation and management of the Company; the Company's foreign|
|Company's|exchange risk management capability can be further improved through the forex funds|
|derivatives|business, so as to maintain and increase the value of foreign exchange assets and|
|investment and risk|the abovementioned investment in derivatives can help the Company to fully bring out|
|control|its competitive advantages. Therefore, it is practicable for the Company to carry out|
||derivatives investment business, and the risks are controllable.|

5.5 Use of funds raised
□ Applicable√ N/A
No such cases in the Reporting Period.
6. Sale of Major Assets and Equity Interests
6.1 Sale of major assets
□ Applicable√ N/A
No such cases in the Reporting Period.
6.2 Sale of major equity interests
□ Applicable√ N/A
7. Analysis of Major Subsidiaries
Main subsidiaries and joint stock companies with an over10% influence on the
Company’s net profit
||||||||||
|-|-|-|-|-|-|-|-|-|
||||Register|||Operatin|Operatin|Net|
|Company name|Company|Business||Total|Net||||
||||ed|||g|g profit||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||||
|-|-|-|-|-|-|-|-|-|
||type|scope|capital|assets|assets|Revenu|(in RMB|profit|
|||||(in RMB|(in RMB|e (in|million)|(in RMB|
|||||million)|million)|RMB||million)|
|||||||million)|||
|Guangdong Midea|||||||||
|||Manufacturing|||||||
|Kitchen Appliances|||USD72|10,658.7||15,562.2|||
||Subsidiary|of home|||2,908.31||1,961.87|1,717.38|
|Manufacturing Co.,|||million|6||4|||
|||appliances|||||||
|Ltd.|||||||||
|Guangdong Midea|||||||||
|Air-||Manufacturing|||||||
||||RMB854|35,569.5||38,027.7|||
|conditioning Equip|Subsidiary|of air|||3,803.92||625.60|685.67|
||||million|9||1|||
|ment Co., Ltd.||conditioners|||||||
|Foshan Shunde|||||||||
|Midea Electric||Manufacturing|||||||
||||USD42||||||
|Appliance|Subsidiary|of home||7,146.71|3,252.45|8,661.41|1,336.89|1,148.25|
||||million||||||
|Manufacturing Co.,||appliances|||||||
|Ltd.|||||||||
|Wuhu Midea|||||||||
|Kitchen &|||||||||
|||Manufacturing|||||||
|Bathroom Electric|||RMB60||||||
||Subsidiary|of water||5,883.87|771.54|6,895.77|681.61|608.60|
|Appliances|||million||||||
|||heaters|||||||
|Manufacturing Co.,|||||||||
|Ltd.|||||||||

Acquisition and disposal of subsidiaries during the Reporting Period
√ Applicable□ N/A
For the main subsidiaries included in the consolidated financial statements of the current
year, please refer to Note 5 and Note 6 to the Financial Statements herein. For the newly
The 2017 Annual Report of Midea Group Co., Ltd. consolidated subsidiaries, see Note 5, 5.1 and 5.2, (a), and they primarily include: Guangdong Midea Electric Co., Ltd., Guangdong Midea Smart Robots Co., Ltd., Chongqing Midea Microcredit Co., Ltd., Guangdong Midea GiMAY Technology Co., Ltd., Hefei Midea Smart Technology Co., Ltd., Guangdong Midea Kafei Coffee Machine Manufacturing Co., Ltd., Midea Electric Netherlands (I) B.V., KUKA Aktiengesellschaft, SMC, Dongguan Kafei Electric Manufacturing Co., Ltd. and Fujitsu (Guangdong) Technology Service Co., Ltd. For the newly deconsolidated subsidiaries, see Note 5, 5.2, (b).
8. Structured Bodies Controlled by the Company
□ Applicable√ N/A
9. Outlook for the Future Development of the Company
9.1 Development strategies of the Company
The Company will deepen its transformation towards a strategic vision of “becoming a world- leading technologies group in consumer appliances, HVAC systems, robotics and industrial automation systems, and smart supply chain (logistics)”. It will keep developing advanced products based on thecustomer’s needs by way of technological innovation, quality improvement and quality product programs. It will promote efficiency-driven growth by improving management, manufacturing and asset efficiency to create more cost efficiency. It will also promote global operations and try to lay a solid foundation in this regard through promoting its own branded products and strengthening law compliance. Additionally, it will strengthen its robotics and industrial automation operations to create new business and growth points. Meanwhile, it will push forward its Digitalization 2.0 program to improve operation and management through the entire value chain by way of digitalization, so as to construct its own industrial internet ecosystem.
9.2 Key operation points in 2018
a. It will focus on endogenous growth by further improving operation and management through the entire value chain. It will launch a new round of transformation and upgrading centered on thecustomer’s needs to rebuild its corporate structure, culture and value chain
The 2017 Annual Report of Midea Group Co., Ltd. so that it can create more value for the customer. It will optimize its inventory mix, reduce the cash-to-cash cycle and overheads, improve profitability, create more cost efficiency and leverage synergies among operations. Seizing opportunities arising from consumption upgrading, it will increaseR&D investment to improve its product mix and functions to maintain differential and large scale competitive edges in a changed domestic market. b. It will further promote digitalization to improve business and management flows. All the links must be digitalized and driven by software, and all business and core management flows must be accessible online around the clock. Through such digitalization through the entire value chain, it is laying a foundation for smart manufacturing and Industrial Internet. c. It will effectively push forward global operations and improve management and control in this respect. It will strengthen coordination among its business units and improve the operating capability of overseas branch companies for better operating results and better performance through the entire value chain. It is pushing forward business integration and synergies regarding newly acquired subsidiaries in an effective manner. TLSC has returned to profit; and a trial operational model for overseas operations characterized by proper centralization and well-organized decentralization has been launched in the ASEAN area and India. In the meantime, it will continue to strengthen corporate governance and law compliance in overseas operations and lay a more solid foundation in this respect. It will also increase investment in infrastructure of overseas operations to improve their logistics and after-sales service systems by setting up customer service hotlines for overseas customers.
d. It will further reform marketing by promoting flattening and optimization to increase channel efficiency and improve user experience. It will promote better connectivity among products, money, information and logistics. It will promote direct distribution and also use central distribution to build a shared inventory system for all channels so as to increase inventory and capital turnover.
e. Seizing opportunities arising from the development of the industrial automation and smart manufacturing sector, it will continue to work on industrial robots, commercial robots, service
robots and AI. It will try to develop more key industrial automation components, as well as
The 2017 Annual Report of Midea Group Co., Ltd. strengthen coordination and integration in its general industrial robots, warehousing automation and medical automation operations in China, so as to promote its fast expansion and growth in the domestic market.
9.3 Key capital expenditure plan in future
To adapt to changes in the industry environment, the Company will focus its 2018 investments on technological innovation, product quality improvement, robotics and industrial automation systems, digitalization, e-commerce channel expansion and new retail channels construction, global operation capability improvement and the smart home strategy. Meanwhile, the Company will strictly control investment in infrastructure and capacity expansion, as well as expenditures not associated with production. The money to be spent will primarily come from theCompany’s own money.
9.4 Main risks in future development
a. Risk of macro economy fluctuation
The market demand for theCompany’s consumer appliances and HVAC equipment, among other products, can be easily affected by the economic situation and macro control. If the global economy encounters a heavy hit, or the domestic economy consumer demand slows down in growth, the growth of the household appliance industry, to which the Company belongs, will slow down accordingly, and as a result, this may affect the product sales of Midea Group.
b. Risks in the fluctuation of production factors
The raw materials required by Midea Group to manufacture its consumer appliances and core components primarily include different grades of copper, steel, aluminum, and plastics. At present, the household appliance manufacturing sector belongs to a labor intensive industry. If the price of raw materials fluctuate largely, or there is a large fluctuation in the cost of production factors (labor, water, electricity, and land) caused by a change to the macroeconomic environment and policy change, or the cost reduction resulted from lean production and improved efficiency, as well as the sale prices of end products cannot offset the total effects of cost fluctuations, theCompany’s business will be influenced to some
The 2017 Annual Report of Midea Group Co., Ltd. degree.
c. Risk in global asset allocation and overseas market expansion
Internationalization and global operations is a long-term strategic goal of the Company. The Company has built joint-venture manufacturing bases in many countries around the world. Progress has been made day by day regarding theCompany’s overseas operations and new business expansion. However, its efforts in global resource integration may not be able to produce expected synergies; and in overseas market expansion, there are still unpredictable risks such as local political and economic situations, significant changes in law and regulation systems, and sharp increases in production costs.
d. Risk in product export and foreign exchange losses caused by exchange rate fluctuation As Midea carries on with its overseas expansion plan, its export revenue has accounted for nearly50% of the total revenues. Any sharp exchange rate fluctuation might not only bring negative effects on the export of the Company, but could also lead to exchange losses and increase its finance costs.
e. Market risks brought by trade barriers
With trade protectionism on the rise around the world, besides the tariff barriers, the non- tariff barriers among countries have become increasingly distinctive. These can mainly be seen on compulsory safety certificates, international standards and requirements, and product quality and management systems certification, energy-saving requirements, the call for increasingly strict environmental protection requirements, as well as with rigorous requirements for recycling household appliances waste. Trade protectionism and trade frictions caused by anti-dumping measures implemented by some countries and regions aggravate the burden in costs and expenses for household appliance enterprises, and have brought about new challenges to market expansion for enterprises.
The 2017 Annual Report of Midea Group Co., Ltd. 10. Visits Paid to the Company for Purposes of Research, Communication, Interview, etc.
10.1 In the Reporting Period
√ Applicable□ N/A
|||||
|-|-|-|-|
|Date of visit|Way of visit|Type of visitor|Index to main inquiry information|
||||Log Sheet of Investor Relations Activities for|
||One-on-one|||
|4~21 January 2017||Institution|4~21 January 2017 disclosed on|
||meeting|||
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for 20|
|20 February 2017|Ditto|Ditto||
||||February 2017 disclosed on www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for|
|22~24 February 2017|Ditto|Ditto|22~24 February 2017 disclosed on|
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for 31|
|31 March 2017|Ditto|Ditto||
||||March 2017 disclosed on www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for 4|
|4 May 2017|Ditto|Ditto||
||||May 2017 disclosed on www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for|
|10~12 May 2017|Ditto|Ditto|10~12 May 2017 disclosed on|
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for 18|
|18 May 2017|Ditto|Ditto||
||||May 2017 disclosed on www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for 5|
|5 June 2017|Ditto|Ditto||
||||June 2017 disclosed on www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for|
|7~9 June 2017|Ditto|Ditto||
||||7~9 June 2017 disclosed on www.cninfo.com.cn|

The 2017 Annual Report of Midea Group Co., Ltd.
|||||
|-|-|-|-|
||||Log Sheet of Investor Relations Activities for|
|14~16 June 2017|Ditto|Ditto|14~16 June 2017 disclosed on|
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for|
|21~23 June 2017|Ditto|Ditto|21~23 June 2017 disclosed on|
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for 31|
|31 August~1 September||||
||Ditto|Ditto|August~1 September 2017 disclosed on|
|2017||||
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for 8|
|8 September 2017|Ditto|Ditto|September 2017 disclosed on|
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for 31|
|31 October~3 November||||
||Ditto|Ditto|October~3 November 2017 disclosed on|
|2017||||
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for|
|23~24 November 2017|Ditto|Ditto|23~24 November 2017 disclosed on|
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for|
|14~15 December 2017|Ditto|Ditto|14~15 December 2017 disclosed on|
||||www.cninfo.com.cn|
||||Log Sheet of Investor Relations Activities for|
|25~27 December 2017|Ditto|Ditto|25~27 December 2017 disclosed on|
||||www.cninfo.com.cn|

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|Times of visit|185|
|Number of visiting institutions|1,880|
|Number of visiting individuals|95|
|Number of other visitors|0|
|Significant undisclosed information|No|
|disclosed, revealed or leaked||

The 2017 Annual Report of Midea Group Co., Ltd. Section V Significant Events
1. Profit Distribution and Converting Capital Reserves into Share Capital for Common Shareholders
Formulation, execution or adjustments of profit distribution policy, especially cash dividend policy, for common shareholders in the Reporting Period
□ Applicable√ N/A
Plans (or preliminary plans) for profit distribution and converting capital reserves into share capital for common shareholders for the past three years (including the Reporting Period) For 2015, based on its total of 4,267,391,228 shares, the Company distributed a cash dividend of RMB12 (tax inclusive) and a share dividend of 5 additional shares (converted from capital reserves) per 10 shares to all shareholders. The book closure day was 5 May 2016 and the ex-right& ex-dividend day 6 May 2016.
For 2016, based on its total of 6,465,677,368 shares, the Company distributed a cash dividend of RMB10 (tax inclusive) per 10 shares to all shareholders. The book closure day was 9 May 2017 and the ex-dividend day 10 May 2017.
For 2017, based on its total of 6,584,022,574 shares, it is proposed that the Company should distribute a cash dividend of RMB12 (tax inclusive) per 10 shares to all shareholders. The proposal has been considered and approved by the 30th Meeting of the 2nd Board of the Company and will later be submitted to a general meeting of shareholders for further consideration.
Midea Group has attached great importance to returns to investors ever since its holistic listing in 2013. Its accumulated cash dividend payouts have reached RMB27 billion, with the cash dividend payout accounting for at least40% of the net profit attributable to Midea Group shareholders every year. And the Company reviews its plans for returns to shareholders at least every three years to ensure a consistent dividend payout policy.
The 2017 Annual Report of Midea Group Co., Ltd. Cash dividend to common shareholders in the past three years (including the Reporting Period)
Unit: RMB
||||||||
|-|-|-|-|-|-|-|
|||||Ratio to net|||
|||Net profit|||||
|||||profit|||
|||attributable to|||||
|||||attributable to|||
|||common|||||
|||||common|||
||Cash dividends|shareholders of||||Ratio of cash|
||||||Cash dividends||
|Year||||shareholders|||
|||||||dividends in|
||(tax included)|the Company in|||in other forms||
|||||in the||other forms|
|||the consolidated|||||
|||||consolidated|||
|||statement in the|||||
|||||statement in|||
|||year|||||
|||||the year|||
|2017|7,900,827,088.80|17,283,689,000.00|45.71%||0.00|0.00|
|2016|6,465,677,368.00|14,684,357,000.00|44.03%||0.00|0.00|
|2015|5,120,869,473.60|12,706,725,000.00|40.30%||0.00|0.00|

 The Company made a profit in the Reporting Period and the profit distributable to common shareholders of the Company (without subsidiaries) was positive, but it did not put forward a preliminary plan for cash dividend distribution to its common shareholders
□ Applicable√ N/A
2. Preliminary Plan for Profit Distribution and Converting Capital Reserves into Share Capital for the Reporting Period
√ Applicable□ N/A
|||
|-|-|
|Bonus shares for every 10 shares (share)||
||0|
|Dividend for every 10 shares (RMB) (tax|12|

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|included)||
|Additional shares converted from capital||
|reserves for every 10 shares (share)|0|
|Total shares as the basis for the||
|preliminary plan for profit distribution||
||6,584,022,574|
|(share)||
|Total cash dividends (RMB) (tax inclusive)|7,900,827,088.80|
|Distributable profits (RMB)|16,613,224,000|
|Percentage of cash dividends in the total||
|distributed profit (%)|100%|
|Cash dividend policy||
|Other||
|Details about the preliminary plan for profit distribution and converting capital reserves into share capital||
|As audited by PricewaterhouseCoopers China (LLP), the Company realized net profit of RMB10,777,631,000||
|for 2017. Pursuant to the relevant provisions under the Articles of Association, it provided 10% as statutory||
|surplus reserves, namely RMB1,077,763,000. Plus undistributed profit at the beginning of the year of||
|RMB13,379,033,000 and minus the profit distributed in the year of RMB6,465,677,000, the actual||
|distributable profit would be RMB16,613,224,000.||
|For 2017, based on its total of 6,584,022,574 shares, it is proposed that the Company should distribute a||
|cash dividend of RMB12.00 (tax inclusive) per 10 shares to all shareholders, representing a total cash||

The 2017 Annual Report of Midea Group Co., Ltd.
||
|-|
|dividend payment of RMB7,900,827,088.80. The remaining undistributed profit shall carry forward for future|
|distribution.|
|The said plan shall be submitted to the Company’s 2017 annual general meeting of shareholders for further|
|consideration.|

The 2017 Annual Report of Midea Group Co., Ltd. 3. Performance of Undertakings
3.1 Undertakings of theCompany’s actual controller, shareholders, related parties and acquirer, as well as the Company and other commitment makers fulfilled in the Reporting Period or ongoing at the period-end
√ Applicable□ N/A
||||||||
|-|-|-|-|-|-|-|
||Undert|Type of|||||
|Underta||||Undertakin|||
||aking|undertak|Details of undertaking||Term|Particulars on the performance|
|king||||g date|||
||giver|ing|||||
|Underta|||1. Midea Holding and He Xiangjian have undertaken as||||
|king|||follows: He Xiangjian, Midea Holding and their controlled||||
||Control||||||
|made in|||enterprises will remain independent from Midea Group in||||
||ling||||||
|offering|||respect of personnel, finance, assets, business and||||
||shareh|Mainten|||||
|docume|||institutions, in accordance with relevant laws and||||
||older|ance of|||Long-|1. There has been no violation of this|
|nts or|||regulations and regulatory documents. They will faithfully|28/03/2013|||
||and|indepen|||standing|undertaking.|
|sharehol|||fulfill the above undertaking, and assume the||||
||actual|dence|||||
|ding|||corresponding legal liability. If they fail to fulfill their||||
||controll||||||
|alternati|||obligations and responsibilities conferred by the||||
||er||||||
|on|||undertaking, they will bear the corresponding legal||||
|docume|||liabilities according to relevant laws, rules, regulations||||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||
|-|-|-|-|-|-|-|
|nts|||and regulatory documents.||||
||||2. In order to avoid possible competition within the||||
||||industry between Midea Group and Midea Holding and its||||
||||controlled enterprises as well as He Xiangjian, his||||
||||immediate family and his controlled companies, Midea||||
||||Holding and He Xiangjian have undertaken as follows:||||
||||(1) None of the entities or individuals mentioned above is||||
||Control||||||
||||or will be engaged in the same or similar business as the||||
||ling|Avoiding|||||
||||existing main business of Midea Group and its controlled||||
||shareh|competit|||||
||||companies. They are not or will not be engaged or||||
||older|ion|||Long-|2. There has been no violation of this|
|||||28/03/2013|||
||||participate in such business that is competitive to the||||
||and|within|||standing|undertaking.|
||||existing main business of Midea Group and its controlled||||
||actual|the|||||
||||companies by controlling other economic entities,||||
||controll|industry|||||
||||institutions or economic organizations;||||
||er||||||
||||(2) If Midea Group and its controlled companies expand||||
||||their business on the basis of the existing ones to those||||
||||where the above mentioned related entities or individuals||||
||||are already performing such production and operations,||||
||||as long as He Xiangjian is still the actual controller of||||
||||Midea Group, and Midea Holding the controlling||||

The 2017 Annual Report of Midea Group Co., Ltd.
||
|-|
|shareholder, they will agree on solving the problem of|
|competition within the industry arising therefrom within a|
|reasonable period;|
|(3) If Midea Group and its controlled companies expand|
|their business scope on the basis of the existing ones to|
|those where the above mentioned related subjects have|
|not gone into production or operation, as long as He|
|Xiangjian is still the actual controller of Midea Group, and|
|Midea Holding the controlling shareholder, they would|
|undertake as not to engage in competitive business to the|
|new ones of Midea Group and its controlled companies;|
|(4) In accordance with effective laws, regulations or other|
|regulatory documents of People's Republic of China, as|
|long as Midea Holding is identified as the controlling|
|shareholder of Midea Group, and He Xiangjian the actual|
|controller, they will not change or terminate this|
|undertaking.|
|(5) Midea Holding and He Xiangjian shall faithfully fulfill|
|the above undertaking, and assume the corresponding|
|legal responsibilities. If they fail to fulfill their obligations|

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||
|-|-|-|-|-|-|
|||and responsibilities conferred by the undertaking, they||||
|||would bear the corresponding legal responsibilities||||
|||according to relevant laws, rules, regulations and||||
|||regulatory documents.||||
|||3. In order to regulate matters of related transactions that||||
|||may occur in the future between Midea Group and Midea||||
|||Holding and its controlled companies as well as He||||
|||Xiangjian, his immediate family and his controlled||||
|Control||companies, Midea Holding and He Xiangjian have||||
|ling||undertaken as follows:||||
||Regulati|||||
|shareh||(1) They will regulate any related transactions with Midea||||
||on of|||||
|older||Group and its controlled companies using their utmost||Long-|3. There has been no violation of this|
||related||28/03/2013|||
|and||efforts to reduce them. For unavoidable related||standing|undertaking.|
||transacti|||||
|actual||transactions with Midea Group and its controlled||||
||ons|||||
|controll||companies, including but not limited to commodity trading,||||
|er||providing services to each other or as agent, they will sign||||
|||legal normative agreements with Midea Group, and go||||
|||through approval procedures in accordance with related||||
|||laws, regulations, rules, other regulatory documents, and||||
|||relevant provisions of the Articles of Association of Midea||||

The 2017 Annual Report of Midea Group Co., Ltd.
||
|-|
|Group. They guarantee to offer fair prices for related|
|transactions, and fulfill the information disclosure|
|obligations in respect of the related transactions|
|according to related laws, regulations, rules, other|
|regulatory documents, and relevant provisions of the|
|Articles of Association of Midea Group. They also|
|guarantee not to illegally transfer the funds or profits from|
|Midea Group, or damage the interests of its shareholders|
|at their advantages during the related transactions.|
|(2) They shall fulfill the obligation of withdrawing from|
|voting that involves the above mentioned related|
|transactions at the general meeting of Midea Group;|
|(3) The related subject mentioned above shall not require|
|Midea Group to offer more favorable conditions than|
|those to any independent third party in any fair market|
|transactions.|
|(4) In accordance with effective laws, regulations or other|
|regulatory documents of People's Republic of China, as|
|long as Midea Holding is identified as the controlling|
|shareholder of Midea Group, and He Xiangjian the actual|

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||
|-|-|-|-|-|-|
|||controller, they shall not change or terminate this||||
|||undertaking.||||
|||(5) Midea Holding and He Xiangjian will faithfully fulfill the||||
|||above undertaking and assume the corresponding legal||||
|||liabilities. If they fail to fulfill their obligations and||||
|||responsibilities conferred by the undertaking, they will||||
|||bear the corresponding legal responsibilities according to||||
|||relevant laws, rules, regulations and regulatory||||
|||documents.||||
||On|4. On 4 January 2001, the Midea Trade Union Committee||||
||Midea|signed the "Equity Transfer Contract" with five people,||||
|Control||||||
||Trade|namely He Xiangjian, Chen Dajiang, Feng Jingmei, Chen||||
|ling||||||
||Union|Kangning and Liang Jieyin, where it transferred all its||||
|shareh|||||4. So far, this shareholding transfer has not|
||Committ|limited equity of Midea Group (22. 85%) respectively to||||
|older||||Long-|brought about any loss caused by any|
||ee|those five people. According to the confirmation letter|28/03/2013|||
|and||||standing|dispute or potential disputes. There has|
||transferri|issued by members of the Midea Trade Union Committee||||
|actual|||||been no violation of this undertaking.|
||ng its|at that time, the equity transfer price was determined after||||
|controll||||||
||limited|mutual discussion on the basis of their true opinions,||||
|er||||||
||equity of|therefore there was no dispute or potential dispute.||||
||Midea|On 28 June 2013, Foshan Shunde Beijiao General Union,||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||
|-|-|-|-|-|-|
||Group|superior department of Midea Trade Union Committee,||||
|||issued a confirmation letter to the fact that the Midea||||
|||Trade Union Committee funded the establishment of||||
|||Midea Group Co., Ltd. In addition the letter also confirmed||||
|||that the council of Midea Trade Union Committee is||||
|||entitled to dispose any property of the committee, and||||
|||such property disposal does not need any agreement||||
|||from all staff committee members.||||
|||Midea Holding and He Xiangjian, respectively the||||
|||controlling shareholder and actual controller of Midea||||
|||Group Co., Ltd. have undertaken as follows: For any loss||||
|||to Midea Group caused by any dispute or potential dispute||||
|||arising from the matters of equity transfer mentioned||||
|||above, they are willing to assume full liability for such loss.||||
|Control|Issues|5. Midea Holding and He Xiangjian have undertaken to be||||
||||||5. So far, the payment of the staff social|
|ling|about|liable for (1) paying such expenses and related expenses||||
||||||insurance and the housing provident fund|
|shareh|Payment|on time based on the requirements of relevant state||Long-||
||||28/03/2013||has not brought about any controversy or|
|older|of the|departments if Midea Group is required to be liable for the||standing||
||||||potential disputes. There has been no|
|and|Staff|payment of staff social insurance, housing provident fund||||
||||||violation of this undertaking.|
|actual|Social|and the payment required by relevant state authorities||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||
|-|-|-|-|-|-|
|controll|Insuranc|prior to this merger, (2) paying corresponding||||
|er|e and|compensation for all direct and indirect losses incurred by||||
||the|Midea Group and its subsidiaries due to this merger, (3)||||
||Housing|indemnifying and holding harmless Midea Group and its||||
||Providen|subsidiaries in time from such expenses when Midea||||
||t Fund|Group and its subsidiaries are required to pay them in||||
||involved|advance.||||
||in Midea|||||
||Group's|||||
||Overall|||||
||Listing|||||
||Issues|6. Undertakings on issues about asset alteration, asset||||
|Control|||||6. So far, the issues about asset alteration,|
||about|flaw and house leasing of Midea Group and its||||
|ling|||||asset flaw and house leasing of Midea|
||asset|subsidiaries||||
|shareh|||||Group and its subsidiaries have not|
||alteratio|Midea Holding and He Xiangjian have undertaken as||||
|older||||Long-|brought about any controversy or potential|
||n, asset|follows:|28/03/2013|||
|and||||standing|disputes. There has been no violation of|
||flaw and|(1) Midea Holding will do its utmost to assist and urge||||
|actual|||||this undertaking. And Midea Holding shall|
||house|Midea Group (including its subsidiaries) to complete||||
|controll|||||honor this undertaking before its|
||leasing|renaming procedures of related assets, such as land,||||
|er|||||expiration.|
||of Midea|housing, trademarks, patents and stock rights, declared||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|Group|in the related files of this merger. Midea Holding will be|
|and its|liable for all compensations of losses caused by issues|
|subsidia|about renaming procedures of related assets mentioned|
|ries|above to Midea Group.|
||(2) Midea Holding shall do its utmost to assist Midea|
||Group (including its subsidiaries) to apply for ownership|
||certificates of land and housing or property declared in|
||related files of this merger.|
||(3) Midea Holding shall assist Midea Group (including its|
||subsidiaries) to re-apply for corresponding construction|
||procedures and apply for their ownership certificates for|
||houses without complete procedures, as happened in the|
||past, to apply for the ownership certificate. If the|
||competent authorities requires Midea Group to dismantle|
||buildings that cannot acquire the re-application for real|
||estate registration procedures, Midea Holding shall do its|
||utmost to provide assistance and be liable for any related|
||expenses used in dismantling such buildings by Midea|
||Group (including its subsidiaries).|
||(4) Under any circumstances that Midea Group suffers|

The 2017 Annual Report of Midea Group Co., Ltd.
||
|-|
|from losses incurred from no longer using these|
|properties or presently using the land or house above due|
|to failing to obtain or collect in time the ownership|
|certificates of the land or house above or any losses|
|caused by any other reasons, Midea Holding shall|
|compensate any loss for these reasons in time and in full.|
|Midea Holding shall compensate the actual loss Midea|
|Group suffers from any circumstances above resulting in|
|penalties subjected to from competent authorities or|
|through claims from any other third party.|
|(5) Based on issues of defective house leasing declared|
|in related files of this merger, Midea Holding shall provide|
|sufficient compensations for all economic losses incurred|
|by Midea Group (including its subsidiaries) where the|
|leasehold relations above become invalid or other|
|disputes occur, which are caused by rights claims from a|
|third party or by means of an administrative authority|
|exercising a right and therefore results in any economic|
|losses due to eviction from rental houses, or any penalties|
|subjected to by competent government departments or|

The 2017 Annual Report of Midea Group Co., Ltd.
||
|-|
|any recourse from related parties.|
|(6) Based on the issues of defective land leasing declared|
|in related files of this merger, when leasehold relations|
|become invalid caused by defects of land leasing or when|
|other disputes occur, resulting in any economic losses to|
|Midea Group (including its subsidiaries) or through any|
|penalties administered by competent government|
|departments. Likewise if the lessor cannot compensate|
|for losses caused by such defective leasing, Midea|
|Holding shall compensate Midea Group for losses caused|
|by such defective land leasing.|
|Midea Holding has further undertaken that where a|
|violation of guarantees and undertakings referred to|
|previously occurs or such guarantees and undertakings|
|are not consistent with the reality and Midea Group has|
|suffered any loss therefrom, Midea Holding shall|
|compensate in cash or make up for Midea Group’s loss|
|upon Midea Group’s notice in writing within 30 days when|
|the loss occurs and the loss amount is definite.|

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||
|-|-|-|-|-|-|-|
|Underta|||||36 months||
|kings|||Xiaomi Technology has given an undertaking that it shall||from the||
|given in|Xiaomi||not transfer the shares that it had subscribed for in this||listing date of|There has been no violation of this|
|||Private|||||
|time of|Techno||private placement with Midea Group within 36 months|26/06/2015|this private|undertaking.|
|||issue|||||
|IPO or|logy||from the completion date of this offering (26 June 2015,||placement,||
|refinanci|||the listing date for this offering).||i.e. to 26 June||
|ng|||||2018||
|Whether|||||||
|the|||||||
|undertak|||||||
||Yes||||||
|ing is|||||||
|fulfilled|||||||
|on time|||||||
|Specific|||||||
|reasons|||||||
|for|||||||
||N/A||||||
|failing to|||||||
|fulfill any|||||||
|undertak|||||||

The 2017 Annual Report of Midea Group Co., Ltd.
||
|-|
|ing and|
|plan for|
|the next|
|step|

The 2017 Annual Report of Midea Group Co., Ltd. 3.2 Where any earnings forecast was made for any of theCompany’s assets or projects and the Reporting Period is still within the forecast period, the Company shall explain whether the performance of the asset or project reaches the earnings forecast and why
□ Applicable√ N/A
4. Occupation of theCompany’s Capital by the Controlling Shareholder or Its Related Parties for Non-Operating Purposes
□ Applicable√ N/A
No such cases in the Reporting Period.
5. Explanation of the Board of Directors, the Supervisory Committee and Independent Directors (If Any) Regarding the "Non-standard Audit Opinion" for the Reporting Period
□ Applicable√ N/A
6. Reason for Changes in Accounting Policies, Accounting Estimates and Accounting Methods as Compared to the Financial Report for the Prior Year
□ Applicable√ N/A
No such cases in the Reporting Period.
7. Reason for Retrospective Restatement of Major Accounting Errors during the Reporting Period
□ Applicable√ N/A
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd. 8. Reason for Changes in Scope of the Consolidated Financial Statements as Compared to the Financial Report for the Prior Year
√ Applicable□ N/A
For the main subsidiaries included in the consolidated financial statements of the current year, please refer to Note 5 and Note 6 to the Financial Statements herein. For the newly consolidated subsidiaries, see Note 5, 5.1 and 5.2, (a), and they primarily include: Guangdong Midea Electric Co., Ltd., Guangdong Midea Smart Robots Co., Ltd., Chongqing Midea Microcredit Co., Ltd., Guangdong Midea GiMAY Technology Co., Ltd., Hefei Midea Smart Technology Co., Ltd., Guangdong Midea Kafei Coffee Machine Manufacturing Co., Ltd., Midea Electric Netherlands (I) B.V., KUKA Aktiengesellschaft, SMC, Dongguan Kafei Electric Manufacturing Co., Ltd. and Fujitsu (Guangdong) Technology Service Co., Ltd. For the newly deconsolidated subsidiaries, see Note 5, 5.2, (b).
9. Engagement and Disengagement of CPAs Firm
CPA firm at present
|||
|-|-|
|Name of the domestic CPA firm|PricewaterhouseCoopers China (LLP)|
|The Company’s payment to the domestic CPA||
||RMB8.7 million|
|firm||
|Consecutive years of the audit service provided||
||Three years|
|by the domestic CPAs firm||
|Names of the certified public accountants from||
||Huang Meimei and Qiu Xiaoying|
|the domestic CPAs firm||
|Consecutive years of the audit service provided||
|by the certified public accountants from the|Three years|
|domestic CPAs firm||

Whether the CPAs firm was changed in the current period
□ Yes√ No
The 2017 Annual Report of Midea Group Co., Ltd. Engagement of any CPAs firm for internal control audit, financial advisor or sponsor
√ Applicable□ N/A
The Company appointed PricewaterhouseCoopers China as the internal control auditor for the current year. The total amount paid by the Company to PricewaterhouseCoopers China for its financial statement and internal control audit services for 2017 was RMB8.7 million. During theCompany’s acquisition of KUKA in cash through tender offer via MECCA, one of theCompany’s wholly-owned foreign subsidiaries, CITIC Securities Co., Ltd. was hired as the independent financial advisor for the said transaction. The transaction has been concluded on 6 January 2017 and a financial advising fee of RMB6 million has been paid. 10. Possibility of Listing Suspension and Termination after Disclosure of this Annual Report
□ Applicable√ N/A
11. Bankruptcy and Reorganization
□ Applicable√ N/A
No such cases in the Reporting Period.
12. Material Litigation and Arbitration
□ Applicable√ N/A
No such cases in the Reporting Period.
13. Punishments and Rectifications
□ Applicable√ N/A
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd. 14. Credit Conditions of the Company as well as Its Controlling Shareholder and Actual Controller
□ Applicable√ N/A
15. Implementation of any Equity Incentive Scheme, Employee Stock Ownership Scheme or Other Incentive Measures for Employees
√ Applicable□ N/A
A. Overview of the First Stock Option Incentive Scheme
a. The Company convened the 20th Meeting of the 2nd Board of Directors on 29 March 2017, at which the Proposal for the Adjustments to the Incentive Receivers and Their Exercisable Stock Options of the First Stock Option Incentive Scheme was reviewed and approved. As such, it was agreed to adjust the incentive receivers and their exercisable stock options for the First Stock Option Incentive Scheme due to the departure, positional changes, low performance appraisals or other factors of some incentive receivers. Upon the adjustments, the number of incentive receivers decreased from 562 to 518, and the number of locked-up stock options granted to them was also reduced from 40,957,500 to 37,518,750.
The Proposal for Matters Related to the Stock Option Exercise for the Third Exercise Period of the First Stock Option Incentive Scheme was also considered and approved. Because the exercise conditions have grown mature for the third exercise period, a total of 514 incentive receivers who have been verified for the First Stock Option Incentive Scheme have been allowed to exercise 37,518,750 stock options in the third exercise period (ended 17 February 2019).
b. On 3 May 2017, the Announcement on the 2016 Annual Profit Distribution was disclosed by the Company, with a decision to distribute a cash dividend of RMB10.00 per 10 shares to all the shareholders based on the total of 6,465,677,368 shares of the Company. The book closure date was 9 May 2017 and the ex-dividend date was 10 May 2017.
The Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017, at
The 2017 Annual Report of Midea Group Co., Ltd. which the Proposal for the Adjustments to the Exercise Price for the First Stock Option Incentive Scheme was reviewed and approved. As the 2016 Annual Profit Distribution had been carried out, the exercise price for the First Stock Option Incentive Scheme was revised from RMB11.01 to RMB10.01 per share.
c. On 24 May 2017, the exercise conditions grew mature for the third exercise period of the First Stock Option Incentive Scheme. Upon examination by the Shenzhen Stock Exchange and the Shenzhen branch of China Securities Depository and Clearing Co., Ltd., the third exercise period of the First Stock Option Incentive Scheme started on 24 May 2017. In the Reporting Period, 28,395,770 stock options have been exercised.
B. Overview of the Second Stock Option Incentive Scheme
a. The Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017, at which the Proposal for the Adjustments to the Exercise Price for the Second Stock Option Incentive Scheme was reviewed and approved. As the 2016 Annual Profit Distribution had been carried out, the exercise price for the Second Stock Option Incentive Scheme was revised from RMB19.56 to RMB18.56 per share.
b. The Company convened the 23rd Meeting of the 2nd Board of Directors on 1 June 2017, at which the Proposal for the Adjustments to the Incentive Receivers and Their Exercisable Stock Options of the Second Stock Option Incentive Scheme was reviewed and approved. As such, it was agreed to adjust the incentive receivers and their exercisable stock options for the Second Stock Option Incentive Scheme due to the departure, positional changes, low performance appraisals or other factors of some incentive receivers. Upon the adjustments, the number of incentive receivers decreased from 639 to 583, and the number of locked-up stock options granted to them was also reduced from 72,810,000 to 66,195,000. The Proposal for Matters Related to the Stock Option Exercise for the Second Exercise Period of the Second Stock Option Incentive Scheme was also considered and approved. Because the exercise conditions have grown mature for the second exercise period, a total of 577 incentive receivers who have been verified for the Second Stock Option Incentive Scheme have been allowed to exercise 32,940,000 stock options in the second exercise
The 2017 Annual Report of Midea Group Co., Ltd. period (ended 27 May 2019).
c. On 9 June 2017, the exercise conditions grew mature for the second exercise period of the Second Stock Option Incentive Scheme. Upon examination by the Shenzhen Stock Exchange and the Shenzhen branch of China Securities Depository and Clearing Co., Ltd., the second exercise period of the Second Stock Option Incentive Scheme started on 9 June 2017. In the Reporting Period, 28,342,341 stock options have been exercised.
C. Overview of the Third Stock Option Incentive Scheme
a. The Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017, at which the Proposal for the Adjustments to the Exercise Price for the Third Stock Option Incentive Scheme was reviewed and approved. As the 2016 Annual Profit Distribution had been carried out, the exercise price for the Third Stock Option Incentive Scheme was revised from RMB21.35 to RMB20.35 per share.
b. The Company convened the 24th Meeting of the 2nd Board of Directors on 29 June 2017, at which the Proposal for the Adjustments to the Incentive Receivers and Their Exercisable Stock Options of the Third Stock Option Incentive Scheme was reviewed and approved. As such, it was agreed to adjust the incentive receivers and their exercisable stock options for the Third Stock Option Incentive Scheme due to the departure, positional changes, low performance appraisals or other factors of some incentive receivers. Upon the adjustments, the number of incentive receivers decreased from 929 to 891, and the number of locked-up stock options granted to them was also reduced from 127,290,000 to 121,485,000.
The Proposal for Matters Related to the Stock Option Exercise for the First Exercise Period of the Third Stock Option Incentive Scheme was also considered and approved. Because the exercise conditions have grown mature for the first exercise period, a total of 887 incentive receivers who have been verified for the Third Stock Option Incentive Scheme have been allowed to exercise 40,395,000 stock options in the first exercise period (ended 27 June 2019).
c. On 6 July 2017, the exercise conditions grew mature for the first exercise period of the Third Stock Option Incentive Scheme. Upon examination by the Shenzhen Stock Exchange
The 2017 Annual Report of Midea Group Co., Ltd. and the Shenzhen branch of China Securities Depository and Clearing Co., Ltd., the first exercise period of the Third Stock Option Incentive Scheme started on 7 July 2017. In the Reporting Period, 22,609,862 stock options have been exercised.
D. Overview of the Fourth Stock Option Incentive Scheme
a. On 29 March 2017, the Fourth Stock Option Incentive Scheme (Draft) and its abstract were reviewed and approved at the 20th Meeting of the 2nd Board of Directors, and the incentive receiver list for the Fourth Stock Option Incentive Scheme (Draft) was examined at the 14th Meeting of the 2nd Supervisory Committee.
b. On 21 April 2017, the Company convened the 2016 Annual Meeting of Shareholders, at which the Fourth Stock Option Incentive Scheme (Draft) and its abstract, the Implementation and Appraisal Measures for the Fourth Stock Option Incentive Scheme, the Proposal for Asking the Meeting of Shareholders to Authorize the Board to Handle Mattes Related to the Fourth Stock Option Incentive Scheme and other relevant proposals were reviewed and approved.
For this Incentive Scheme, the Company intended to grant 98,982,000 stock options to 1,476 incentive receivers with the exercise price being RMB33.72 per share.
c. In light of the authorization given at the 2016 Annual Meeting of Shareholders, the Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017, at which the Proposal for the Adjustments to the Exercise Price, Incentive Receiver List and Number of Stock Options to Be Granted for the Fourth Stock Option Incentive Scheme, the Proposal for the Determination of the Grant Date for the Fourth Stock Option Incentive Scheme and the Proposal for the Grant-Related Matters for the Fourth Stock Option Incentive Scheme were reviewed and approved. As such, the Company agreed to grant 98,274,000 stock options to 1,463 incentive receivers on 12 May 2017 with the exercise price being RMB32.72 per share. The incentive receiver list and the number of stock options to be granted were revised by theCompany’s Board of Directors because 13 incentive receivers were no longer eligible due to their departure or positional changes.
The 2017 Annual Report of Midea Group Co., Ltd. E. Overview of the First Employee Stock Ownership Scheme
According to the first and second Core Management and “Midea Group Partner” Stock Ownership Schemes (draft) (“Employee Stock Ownership Schemes” for short), the number of shares for every intended incentive receiver should be determined based on how well the performance objectives of the Company, its business divisions and operating units for the appraisal year are achieved and how much an intended incentive receiver contributes to that. The shares will be vested in an intended incentive receiver by three installments(40% for the first installment and30% for the second and third respectively). The first70% shares (the first and second installments combined) vested in an incentive receiver will be locked up when these shares are until the final30% is put under the name of the incentive receiver, and the third installment will not be subject to lock-up (tradable as soon as they are put under the name of the incentive receiver).
Where an intended incentive receiver is no longer eligible during the period of such a stock ownership Scheme due to positional changes or departure, the administrative committee for the stock ownership plan will take back, with no compensation, those shares that have not yet vested in the incentive receiver.
Because two such partners (Yuan Liqun and Wu Wenxin) had left the Company before the second installment of the First Employee Stock Ownership Scheme could be vested in them, their unvested shares of 216,000 and the corresponding dividends (if any) have been taken back by the administrative committee for no compensation, and will be sold before the First Employee Stock Ownership Scheme expires. The earnings on the sale will belong to the Company.
A total of 774,900 shares(30% of the total shares to be vested for the First Employee Stock Ownership Scheme) have been vested as the second installment, of which 335,250 shares were vested in senior executives Fang Hongbo, Zhu Fengtao, Gu Yanmin and Wang Jinliang while the remaining 439,650 shares in other nine core management personnel.
F. Overview of the Second Employee Stock Ownership Scheme
a. The company performance requirement for the Second Employee Stock Ownership
The 2017 Annual Report of Midea Group Co., Ltd. Scheme is a weighted average ROE not lower than20% for 2016. According to the 2016 AnnualAuditor’s Report for Midea Group Co., Ltd. issued by PricewaterhouseCoopers China (LLP), this ROE requirement has been met at26.88%.
b. A total of 3,874,590 of theCompany’s shares have been purchased for the Second Employee Stock Ownership Scheme. As per the Second Employee Stock Ownership Scheme (Draft), the administrative committee has confirmed the number of shares to be granted to each intended incentive receiver, with the total shares to be granted being 3,248,790 shares (1,732,800 shares for senior executives Fang Hongbo, Gu Yanmin, Yin Bitong, Zhu Fengtao and Wang Jinliang and the remaining 1,515,990 shares for other eight core management personnel). The committee has also confirmed the first installment for this employee stock ownership Scheme (1,299,516 in total).
c. There were 625,800 shares left due to the departure of two Midea Group Partners (Yuan Liqun and Wu Wenxin) in the period of the Second Employee Stock Ownership Scheme. As per the Second Employee Stock Ownership Scheme (Draft), these shares and their dividends (if any) have been taken back by the administrative committee for no compensation, and will be sold before the Second Employee Stock Ownership Scheme expires. The earnings on the sale will belong to the Company.
G. Overview of the Third Employee Stock Ownership Scheme
a. The Proposal for the Third Core Management and “Midea Group Partner” Stock Ownership Plan (Draft) of Midea Group Co., Ltd.& Its Abstract was considered and approved at the 20th Meeting of the 2nd Board of Directors on 29 March 2017. As resolved by a meeting of the intended incentive receivers of the Third Employee Stock Ownership Scheme, China International Capital Corporation Limited (CICC) was entrusted to conduct the “CICC Directional Asset Management Scheme for the Third Midea Group Partner Stock Ownership Scheme” with Midea Group shares purchased from the secondary market. b. On 18 May 2017, CICC, the stock ownership Scheme administrator, purchased a total of 2,846,445 Midea Group shares at an average price of RMB34.77/share from the secondary market. The funds used for the share purchase were sourced from MideaGroup’s special
The 2017 Annual Report of Midea Group Co., Ltd. fund for the Third Employee Stock Ownership Scheme of RMB99 million. As such, the shares needed by the Third Employee Stock Ownership Scheme have been purchased, with a statutory lock-up period from 19 May 2017 to 18 May 2018.
H. Overview of the 2017 Restricted Share Incentive Scheme
a. On 29 March 2017, the 2017 Restricted Share Incentive Scheme (Draft) and its abstract were reviewed and approved at the 20th Meeting of the 2nd Board of Directors, and the incentive receiver list for the 2017 Restricted Share Incentive Scheme (Draft) was examined at the 14th Meeting of the 2nd Supervisory Committee.
b. On 21 April 2017, the Company convened the 2016 Annual Meeting of Shareholders, at which the 2017 Restricted Share Incentive Scheme (Draft) and its abstract, the Implementation and Appraisal Measures for the 2017 Restricted Share Incentive Scheme, the Proposal for Asking the Meeting of Shareholders to Authorize the Board to Handle Mattes Related to the 2017 Restricted Share Incentive Scheme and other relevant proposals were reviewed and approved.
For this restricted share incentive Scheme, the Company intended to issue, for the first phase, 24,240,000 restricted shares to 140 incentive receivers at the price of RMB16.86 per share, and issue another 5,550,000 restricted shares as reserve.
c. In light of the authorization given at the 2016 Annual Meeting of Shareholders, the Company convened the 22nd Meeting of the 2nd Board of Directors on 12 May 2017, at which the Proposal for the Adjustments to the Grant Price, Incentive Receiver List and Number of Restricted Shares to Be Granted for the First Phase of the 2017 Restricted Share Incentive Scheme, the Proposal for the Determination of the Grant Date for the First Phase of the 2017 Restricted Share Incentive Scheme and the Proposal for the Grant-Related Matters for the First Phase of the 2017 Restricted Share Incentive Scheme were reviewed and approved. As such, the Company agreed to grant 23,130,000 restricted shares to 133 incentive receivers on 12 May 2017 at the price of RMB15.86 per share. The incentive receiver list and the number of restricted shares to be granted were revised by theCompany’s Board of Directors because seven incentive receivers were no longer eligible
The 2017 Annual Report of Midea Group Co., Ltd. due to their departure or positional changes.
d. PricewaterhouseCoopers China (LLP) issued on 19 May 2017 the Capital Verification Report PwC China CV (2017) No. 542, verifying the increase in theCompany’s registered capital and the payment thereof as of 18 May 2017 due to theCompany’s issue of restricted shares of its A-stock to 133 incentive receivers in the first phase of its 2017 Restricted Share Incentive Scheme. As verified, as of 18 May 2017, the Company had received RMB366,841,800 from 133 incentive receivers for restricted share subscription, representing an increase of RMB23,130,000 in share capital and an increase of RMB343,711,800 in capital reserves.
e. As per theCSRC’s Measures for the Administration of Equity Incentives of Listed Companies, and as confirmed by the Shenzhen Stock Exchange and China Securities Depository and Clearing Co., Ltd. (Shenzhen branch), the shares in the first phase of theCompany’s 2017 Restricted Share Incentive Scheme had been registered and were to go public on 16 June 2017.
f. In light of the authorization given at the 2016 Annual Meeting of Shareholders, the Company convened the 29th Meeting of the 2nd Board of Directors on 29 December 2017, at which the Proposal on Grant of 2017 Reserved Restricted Shares to Incentive Receivers was reviewed and approved. As such, the Company agreed to grant 5,475,000 reserved restricted shares to 55 incentive receivers on 29 December 2017 at the price of RMB27.99 per share. And the incentive receiver list was examined at the 21st Meeting of the 2nd Supervisory Committee.
g. The Company had intended to grant 5,475,000 reserved restricted shares to 55 incentive receivers. However, after the date of grant, one incentive receiver left the Company and the 90,000 reserved restricted shares that had been granted to this incentive receiver were cancelled. As such, the Company actually granted 5,385,000 reserved restricted shares to 54 incentive receivers. PricewaterhouseCoopers China (LLP) issued on 26 January 2018 the Capital Verification Report PwC China CV (2018) No. 0061, verifying the corresponding increase in theCompany’s registered capital and the payment thereof as of 24 January 2018.
As verified, as of 24 January 2018, the Company had received RMB150,726,150 from 54
The 2017 Annual Report of Midea Group Co., Ltd. incentive receivers for reserved restricted share subscription, representing an increase of RMB5,385,000 in share capital and an increase of RMB145,341,150 in capital reserves. h. As per theCSRC’s Measures for the Administration of Equity Incentives of Listed Companies, and as confirmed by the Shenzhen Stock Exchange and China Securities Depository and Clearing Co., Ltd. (Shenzhen branch), the reserved shares in theCompany’s 2017 Restricted Share Incentive Scheme had been registered and were to go public on 7 February 2018.
16. Significant Related Transactions
16.1 Related transactions arising from routine operation
√ Applicable□ N/A
|||||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|-|-|
||||||||Propor|||||||
||||||||tion in||||Obtain|||
||||||||the||||able|||
|||||||||Approv|||||Index|
||||||||total||||market|||
|Relate|||Conte||Tran|Trans-||ed|||||to the|
|||Type|||||amoun|||Mode|price|||
|d|||nts of|Pricing|s-|action||transa|Over|||Disclo|disclo|
||Relatio|of the|||||ts of|||of|for the|||
|transa|||the|principl|actio|amount||ction|approv|||sure|sed|
||n|trans-|||||transa|||settle|transa|||
|ction|||trans-|e|n|(RMB’0,||line|ed line|||date|infor|
|||action|||||ction|||ment|ction|||
|party|||action||price|000)||(RMB’|||||matio|
||||||||of the||||of the|||
|||||||||0,000)|||||n|
||||||||same||||same|||
||||||||kind||||kind|||
||||||||(%)|||||||
|Infore|Contro|||||||||||||
||||Procur|||||||Payme|||www.|
|Enviro|lled by|||||||||||||
|||Procur|ement|Market||||110,00||nt after||31/03/|cninf|
|nment|family||||-|115,540|0.68%||Yes||-|||
|||ement|of|price||||0||deliver||2017|o.co|
|Techn|memb|||||||||||||
||||goods|||||||y|||m.cn|
|ology|er of|||||||||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|-|-|
|Group|Comp|||||||||||||
|Co.,|any’s|||||||||||||
|Ltd.|actual|||||||||||||
||control|||||||||||||
||ler|||||||||||||
||Contro|||||||||||||
||lled by|||||||||||||
||family|||||||||||||
|Orinko|memb||Procur|||||||Payme|||www.|
|Plastic|er of|Procur|ement|Market||||||nt after||31/03/|cninf|
||||||-|46,325|0.27%|40,000|Yes||-|||
|s|Comp|ement|of|price||||||deliver||2017|o.co|
|Group|any’s||goods|||||||y|||m.cn|
||actual|||||||||||||
||control|||||||||||||
||ler|||||||||||||
|||||||||150,00||||||
|Total||||--|--|161,865|--||--|--|--|--|--|
|||||||||0||||||
|Details of any sales return of a||||||||||||||
|||||Zero||||||||||
|large amount||||||||||||||
|Give the actual situation in the||||||||||||||
|Reporting Period (if any)||||In the year, the actual routine transaction amount between the Company and||||||||||
|where a forecast had been||||the related parties and its subsidiaries exceeded the total amount of routine||||||||||
|made for the total amounts of||||related transactions estimated by the Company by type. But it did not reach||||||||||
|routine related-party||||an amount which requires re-consideration of the Board as per the Stock||||||||||
|transactions by type to occur in||||Listing Rules.||||||||||
|the current period||||||||||||||
|Reason for any significant||||||||||||||
|difference between the||||N/A||||||||||
|transaction price and the||||||||||||||

The 2017 Annual Report of Midea Group Co., Ltd.
||
|-|
|market reference price (if|
|applicable)|

16.2 Related transactions regarding purchase or sales of assets or equity interests□ Applicable√ N/A
No such cases in the Reporting Period.
16.3 Related transitions arising from joint investments in external parties
□ Applicable√ N/A
No such cases in the Reporting Period.
16.4 Credits and liabilities with related parties
√ Applicable□ N/A
Whether there were any credits or liabilities with related parties for non-operating purposes□ Yes√ No
No such cases in the Reporting Period.
16.5 Other significant related transactions
√ Applicable□ N/A
The Proposal for Related Transactions Regarding Making Deposits in and Obtaining Loans from Shunde Rural Commercial Bank in 2017 was reviewed and approved at the 26th Meeting of the 2nd Board of Directors held on 29 August 2017 and later at the 2017 First Extraordinary General Meeting of Shareholders held on 15 September 2017.
In 2017, the deposit balance of the Company in Shunde Rural Commercial Bank did not exceed RMB5 billion and neither did the credit balance provided by the bank to the Company
exceed RMB5 billion.
Index to the announcement about the said related transactions disclosed
The 2017 Annual Report of Midea Group Co., Ltd.
||||
|-|-|-|
|Title of announcement|Disclosure date|Disclosure website|
|Announcement on Related Transactions RegardingMaking Deposits in and Obtaining Loans from ShundeRural Commercial Bank in 2017|||
||31/08/2017|www.cninfo.com.cn|

17. Significant Contracts and Their Execution
17.1 Trusteeship, contracting and leasing
17.1.1 Trusteeship
□ Applicable√ N/A
No such cases in the Reporting Period.
17.1.2 Contracting
□ Applicable√ N/A
No such cases in the Reporting Period.
17.1.3 Leasing
□ Applicable√ N/A
No such cases in the Reporting Period.
17.2 Major Guarantees
√ Applicable□ N/A
17.2.1 Guarantees provided
The 2017 Annual Report of Midea Group Co., Ltd. Unit: RMB'0,000
||||||||||
|-|-|-|-|-|-|-|-|-|
|Guarantees provided by the Company and its subsidiaries for external parties (excluding those for|||||||||
|subsidiaries)|||||||||
|||||||||Guar|
||Disclosure|||||||ante|
||||Actual||||||
||date of|||||||e for|
||||occurrenc|Actual||Term|||
||the||||||Due|a|
|Guaranteed party||Line of|e date|guarante|Type of|of|||
||guarantee||||||or|relat|
|||guarantee|(date of|e|guarantee|guar|||
||line||||||not|ed|
||||agreemen|amount||antee|||
||announce|||||||party|
||||t signing)||||||
||ment|||||||or|
|||||||||not|
|Misr Refrigeration And Air|||||Joint|One|||
||2017-3-31|3,500|2017-1-1|0|||No|No|
|Conditioning Manufacturing CO.|||||liability|year|||
||||||Joint|One|||
|Concepcion Midea INC|2017-3-31|600|2017-1-1|0|||No|No|
||||||liability|year|||
|||||Total actual external|||||
|Total external guarantee line approved during||||guarantee amount|||||
|||4,100||||0|||
|the Reporting Period (A1)||||during the Reporting|||||
|||||Period (A2)|||||
|||||Total actual external|||||
|Total approved external guarantee line at the||||guarantee balance at|||||
|||4,100||||0|||
|end of the Reporting Period (A3)||||the end of the|||||
|||||Reporting Period (A4)|||||
|Guarantees provided by the Company for its subsidiaries|||||||||
||Disclosure||Actual|Actual||Term|Due|Guar|
|||Line of|||Type of||||
|Guaranteed party|date of||occurrenc|guarante||of|or|ante|
|||guarantee|||guarantee||||
||the||e date|e||guar|not|e for|

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||||||
|-|-|-|-|-|-|-|-|-|-|
||guarantee||(date of|amount|||antee||a|
||line||agreemen||||||relat|
||announce||t signing)||||||ed|
||ment||||||||party|
||||||||||or|
||||||||||not|
||||||Joint|One||||
|Midea Group Finance Co., Ltd.|2017-3-31|1,040,000|2017-1-1|0||||No|No|
||||||liability|year||||
|Guangdong Midea Refrigeration||||||||||
||2017-3-31|1,110,000|2017-2-9|56,925|Ditto|Ditto||Ditto|Ditto|
|Equipment Co., Ltd.||||||||||
|Guangzhou Hualing Refrigeration||||||||||
||2017-3-31|150,000|2017-1-20|0|Ditto|Ditto||Ditto|Ditto|
|Equipment Co., Ltd.||||||||||
|Foshan Midea Carrier||||||||||
||2017-3-31|9,500|-|0|Ditto|Ditto||Ditto|Ditto|
|Refrigeration Equipment Co., Ltd.||||||||||
|Guangdong Midea Kitchen||||||||||
|Appliances Manufacturing Co.,|2017-3-31|547,200|2017-1-10|44,587|Ditto|Ditto||Ditto|Ditto|
|Ltd.||||||||||
|Guangdong Witt Vacuum||||||||||
|Electronics Manufacturing Co.,|2017-3-31|5,000|2017-1-1|3 ,993|Ditto|Ditto||Ditto|Ditto|
|Ltd.||||||||||
|Foshan Shunde Midea Washing||||||||||
||2017-3-31|146,200|2017-1-9|34,575|Ditto|Ditto||Ditto|Ditto|
|Appliance Manufacturing Co., Ltd.||||||||||
|Guangdong Midea Heating &||||||||||
||2017-3-31|214,400|2017-1-12|41,151|Ditto|Ditto||Ditto|Ditto|
|Ventilation Equipment Co., Ltd.||||||||||
|Midea Commercial Air||||||||||
|Conditioning Equipment Co., Ltd.,|2017-3-31|55,000|2017-5-12|0|Ditto|Ditto||Ditto|Ditto|
|Guangdong Province||||||||||
|Guangdong Midea-SIIX|2017-3-31|13,200|2017-1-1|37|Ditto|Ditto||Ditto|Ditto|

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||||
|-|-|-|-|-|-|-|-|-|
|Electronics Co., Ltd.|||||||||
|Guangdong Midea Consumer|||2017-1-1||||||
||2017-3-31|27,500||570|Ditto|Ditto|Ditto|Ditto|
|Electric Manufacturing Co., Ltd.|||||||||
|Foshan Shunde Midea Electric|||||||||
||2017-3-31|62,100|2017-1-15|12,933|Ditto|Ditto|Ditto|Ditto|
|Appliance Manufacturing Co., Ltd.|||||||||
|Guangdong Midea Kitchen &|||||||||
|Bathroom Appliances|2017-3-31|10,600|2017-3-27|5|Ditto|Ditto|Ditto|Ditto|
|Manufacturing Co., Ltd.|||||||||
|Foshan Shunde Midea Drinking|||||||||
||2017-3-31|28,100|2017-1-1|3 ,740|Ditto|Ditto|Ditto|Ditto|
|Manufacturing Co., Ltd.|||||||||
|Foshan Midea Clear Lake Water|||||||||
|Purification Equipment|2017-3-31|6,000|-|0|Ditto|Ditto|Ditto|Ditto|
|Manufacturing Co., Ltd.|||||||||
|Guangdong Midea Environment|||||||||
|Appliances Manufacturing Co.,|2017-3-31|52,200|2017-3-24|5,050|Ditto|Ditto|Ditto|Ditto|
|Ltd.|||||||||
|Guangdong GMCC Refrigeration|||||||||
||2017-3-31|45,500|2017-3-21|9,999|Ditto|Ditto|Ditto|Ditto|
|Equipment Co., Ltd.|||||||||
|Guangdong GMCC Precise|||2017-1-1||||||
||2017-3-31|34,000||3,395|Ditto|Ditto|Ditto|Ditto|
|Manufacture Co., Ltd.|||||||||
|Guangdong Welling Motor Co.,|||2017-1-1||||||
||2017-3-31|46,900||106|Ditto|Ditto|Ditto|Ditto|
|Ltd.|||||||||
|Foshan Welling Washer Motor|||||||||
||2017-3-31|78,200|2017-1-20|3,527|Ditto|Ditto|Ditto|Ditto|
|Manufacturing Co., Ltd.|||||||||
|Ningbo Midea Joint Materials|||2017-1-1||||||
||2017-3-31|66,000||0|Ditto|Ditto|Ditto|Ditto|
|Supply Co. Ltd.|||||||||
|Foshan Welling Material Co., Ltd.|2017-3-31|6,000|2017-1-1|0|Ditto|Ditto|Ditto|Ditto|

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||||
|-|-|-|-|-|-|-|-|-|
|Guangzhou Kaizhao Trading Co.,|||2017-1-1||||||
||2017-3-31|18,000||0|Ditto|Ditto|Ditto|Ditto|
|Ltd.|||||||||
|Guangdong Midea Group Wuhu|||||||||
||2017-3-31|122,300|-|0|Ditto|Ditto|Ditto|Ditto|
|Refrigeration Equipment Co., Ltd.|||||||||
|Wuhu GMCC Air Conditioning|||||||||
||2017-3-31|111,000|2017-1-12|3|Ditto|Ditto|Ditto|Ditto|
|Equipment Co., Ltd.|||||||||
|Hefei Midea Refrigerator Co., Ltd.|2017-3-31|34,000|2017-1-6|2,000|Ditto|Ditto|Ditto|Ditto|
|Hubei Midea Refrigerator Co., Ltd.|2017-3-31|10,000|2017-3-24|95|Ditto|Ditto|Ditto|Ditto|
|Hefei Hualing Co., Ltd.|2017-3-31|52,000|2017-1-10|83|Ditto|Ditto|Ditto|Ditto|
|Guangzhou Midea Hualing|||||||||
||2017-3-31|20,000|2017-1-12|0|Ditto|Ditto|Ditto|Ditto|
|Refrigerator Equipment Co., Ltd.|||||||||
|Hefei Midea Heating & Ventilation||||0|||||
||2017-3-31|24,200|-||Ditto|Ditto|Ditto|Ditto|
|Equipment Co., Ltd.|||||||||
|Hefei Midea-Bosch Air||||0|||||
||2017-3-31|5,000|-||Ditto|Ditto|Ditto|Ditto|
|Conditioning Equipment Co., Ltd.|||||||||
|Wuhu Midea Kitchen & Bathroom|||||||||
||2017-3-31|44,000|2017-5-5|4,591|Ditto|Ditto|Ditto|Ditto|
|Electric Manufacturing Co., Ltd.|||||||||
|Wuhu Midea Kitchen Appliances|||||||||
||2017-3-31|4,000|-|0|Ditto|Ditto|Ditto|Ditto|
|Manufacturing Co., Ltd.|||||||||
|Anhui GMCC Refrigeration|||||||||
||2017-3-31|10,000|2017-3-14|87|Ditto|Ditto|Ditto|Ditto|
|Equipment Co., Ltd.|||||||||
|Anhui GMCC Precise|||||||||
||2017-3-31|25,200|2017-1-12|7,720|Ditto|Ditto|Ditto|Ditto|
|Manufacture Co., Ltd.|||||||||
|Welling (Wuhu) Motor|||||||||
||2017-3-31|16,800|2017-5-18|2,702|Ditto|Ditto|Ditto|Ditto|
|Manufacturing Co., Ltd.|||||||||
|Annto Logistics Technology Co.,|2017-3-31|32,000|2017-1-1|6 10|Ditto|Ditto|Ditto|Ditto|

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||||
|-|-|-|-|-|-|-|-|-|
|Ltd.|||||||||
|Hefei Midea Washing Machine|||||||||
||2017-3-31|105,000|2017-2-21|28,350|Ditto|Ditto|Ditto|Ditto|
|Co., Ltd.|||||||||
|Jiangsu Midea Cleaning|||||||||
||2017-3-31|22,000|2017-3-16|4,368|Ditto|Ditto|Ditto|Ditto|
|Appliances Co., Ltd.|||||||||
|Jiangxi Midea Guiya Lighting Co.,|||||||||
||2017-3-31|7,700|-|0|Ditto|Ditto|Ditto|Ditto|
|Ltd.|||||||||
|Chongqing Midea General|||||||||
||2017-3-31|7,700|-|0|Ditto|Ditto|Ditto|Ditto|
|Refrigeration Equipment Co., Ltd.|||||||||
|Zhejiang GMCC Compressor Co.,|||||||||
||2017-3-31|80,000|2017-3-28|0|Ditto|Ditto|Ditto|Ditto|
|Ltd.|||||||||
|Midea International Holdings Ltd.|2017-3-31|701,300|2017-1-1|197,212|Ditto|Ditto|Ditto|Ditto|
|Midea International Trading Co.,|||2017-1-5||||||
||2017-3-31|83,350||21,990|Ditto|Ditto|Ditto|Ditto|
|Ltd|||||||||
|Midea Electric Investment (BVI)|||||||||
||2017-3-31|80,780|-|0|Ditto|Ditto|Ditto|Ditto|
|Limited|||||||||
|Midea Refrigeration (Hong Kong)|||||||||
||2017-3-31|3,500|-|0|Ditto|Ditto|Ditto|Ditto|
|Ltd.|||||||||
|Calpore Macao Commercial|||||||||
||2017-3-31|22,500|-|0|Ditto|Ditto|Ditto|Ditto|
|Offshore Ltd.|||||||||
|Welling International Hong Kong|||||||||
||2017-3-31|32,190|-|0|Ditto|Ditto|Ditto|Ditto|
|Limited|||||||||
|Midea Investment and|||||||||
||2017-3-31|700,000|2017-1-1|485,436|Ditto|Ditto|Ditto|Ditto|
|Development Co., Ltd.|||||||||
|Main Power Electrical Factory Ltd|2017-3-31|48,500|2017-1-20|5,324|Ditto|Ditto|Ditto|Ditto|
|Midea Electric Trading|||||||||
||2017-3-31|439,000|2017-2-6|7,468|Ditto|Ditto|Ditto|Ditto|
|(Singapore) Co. Pte. Ltd.|||||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||||||
|-|-|-|-|-|-|-|-|-|-|
|Toshiba Lifestyle Products &||||||||||
|Services Corporation and its|2017-3-31|446,000|2017-1-1|56,544|Ditto|Ditto||Ditto|Ditto|
|subsidiaries||||||||||
|Midea Consumer Electric||||||||||
||2017-3-31|6,860|-|0|Ditto|Ditto||Ditto|Ditto|
|(Vietnam) Co., Ltd.||||||||||
|Springer Carrier Ltda.|2017-3-31||||Ditto|Ditto||Ditto|Ditto|
|||130,000|2017-3-1|70,717||||||
|Climazon Industrial Ltda.|2017-3-31||||Ditto|Ditto||Ditto|Ditto|
|Carrier(Chile) S.A.|2017-3-31|3,900|2017-6-27|2,415|Ditto|Ditto||Ditto|Ditto|
|Midea Electrics Netherlands B.V.|2017-3-31|6,860|-|0|Ditto|Ditto||Ditto|Ditto|
|Midea America Corp.|2017-3-31|17,400|-|0|Ditto|Ditto||Ditto|Ditto|
|PT.MIDEA Planet Indonesia|2017-3-31|15,100|-|0|Ditto|Ditto||Ditto|Ditto|
|Midea Scott & English Electronics||||||||||
||2017-3-31|4,510|2017-1-17|2,132|Ditto|Ditto||Ditto|Ditto|
|SDN BHD||||||||||
|Midea America (Canada) Corp.|2017-3-31|5,500|-|0|Ditto|Ditto||Ditto|Ditto|
|Midea México, S. DE R.L. DE C.V.|2017-3-31|13,810|-|0|Ditto|Ditto||Ditto|Ditto|
|Orient Household Appliances Ltd.|2017-3-31|10,290|-|0|Ditto|Ditto||Ditto|Ditto|
|Midea Electric Netherlands（Ⅰ）||||||||||
|||||2,697,55||||||
||2017-3-31|3,000,000|2017-1-1||Ditto|Ditto||Ditto|Ditto|
|||||4||||||
|B.V.||||||||||
|Midea India Private Limited|2017-3-31|6,900|-|0|Ditto|Ditto||Ditto|Ditto|
|Midea Electric Trading (Thailand)||||||||||
||2017-3-31|6,900|2017-5-24|528|Ditto|Ditto||Ditto|Ditto|
|Limited||||||||||
|||||Total actual||||||
|||||guarantee amount for||||||
|Total guarantee line for subsidiaries approved||||||||||
|||10,289,650||subsidiaries during|||6,330,614|||
|during the Reporting Period (B1)||||||||||
|||||the Reporting Period||||||
|||||(B2)||||||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|-|
|||||||||Total actual|||||
|||||||||guarantee balance|||||
|Total approved guarantee line for subsidiaries|||||||||||||
||||||10,289,650|||for subsidiaries at the|||3,818,523||
|at the end of the Reporting Period (B3)|||||||||||||
|||||||||end of the Reporting|||||
|||||||||Period (B4)|||||
|Guarantees between subsidiaries|||||||||||||
||Disclosure||||||||||||
|||||Actual|||||||||
||date of||||||||||||
|||||occurrence||||||||Guarantee|
|Guaranteed|the|||||Actual||||Due|||
|||Line of||date|||Type of||Term of|||for a|
|party|guarantee|||||guarantee||||or|||
|||guarantee||(date of|||guarantee||guarantee|||related|
||line|||||amount||||not|||
|||||agreement||||||||party or not|
||announce||||||||||||
|||||signing)|||||||||
||ment||||||||||||
|No such cases|||||||||||||
|Total guarantee amount (total of the above-mentioned three kinds of guarantees)|||||||||||||
|Total guarantee line||||||Total actual guarantee|||||||
|approved during the||||||amount during the|||||||
||||10,293,750||||||6,330,614||||
|Reporting Period||||||Reporting Period|||||||
|(A1+B1+C1)||||||(A2+B2+C2)|||||||
|Total approved guarantee||||||Total actual guarantee|||||||
|line at the end of the||||||balance at the end of the|||||||
||||10,293,750||||||3,818,523||||
|Reporting Period||||||Reporting Period|||||||
|(A3+B3+C3)||||||(A4+B4+C4)|||||||
|Proportion of the total actual guarantee amount|||||||||||||
|||||||51.79%|||||||
|(A4+B4+C4) in net assets of the Company|||||||||||||
|Of which:|||||||||||||
|Amount of guarantees provided for shareholders,|||||||||||||
|||||||0|||||||
|the actual controller and their related parties (D)|||||||||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|Amount of debt guarantees provided directly or||
|indirectly for entities with a liability-to-asset ratio|3,442,433|
|over 70% (E)||
|Portion of the total guarantee amount in excess of||
||0|
|50% of net assets (F)||
|Total amount of the three kinds of guarantees above||
||3,442,433|
|(D+E+F)||
|Joint responsibilities possibly borne or already||
|borne in the Reporting Period for undue guarantees|N/A|
|(if any)||
|Provision of external guarantees in breach of the||
||N/A|
|prescribed procedures (if any)||

17.2.2 Illegal provision of guarantees for external parties
□ Applicable√ N/A
No such cases in the Reporting Period.
17.3 Entrusted cash management
17.3.1 Entrusted asset management
√ Applicable□ N/A
Overview of wealth management entrustment
Unit: RMB'0,000
||||||
|-|-|-|-|-|
|||||Unrecovered|
|Type|Source of capital|Amount|Undue amount||
|||||overdue amount|
|Bank’s wealth|The Company’s own|2,124,300|1,917,978|0|

The 2017 Annual Report of Midea Group Co., Ltd.
||||||
|-|-|-|-|-|
|management|money||||
|products|||||
|Asset management|The Company’s own||||
|||1,046,082|0|0|
|plans|money||||
|Trust wealth|The Company’s own||||
|||696,790|288,374|0|
|management|money||||
||The Company’s own||||
|Private equity funds||370,000|0|0|
||money||||
||The Company’s own||||
|Entrusted bonds||50,000|3,120|0|
||money||||
|Total||4,287,172|2,209,472||
|||||0|

 17.3.2 Entrusted loans
□ Applicable√ N/A
No such cases in the Reporting Period.
17.4 Other significant contracts
□ Applicable√ N/A
No such cases in the Reporting Period.
18. Social Responsibility (CSR)
18.1 Measures taken to fulfill CSR commitment
The Company has voluntarily disclosed its CSR work. Attaching great importance to protecting the legal rights and interests of its shareholders, employees, consumers and
business partners, as well as the government, the community and other stakeholders, the
The 2017 Annual Report of Midea Group Co., Ltd. Company sticks to harmonious common growth with them, honors its commitments, abides by law and moral principles, and continue to contribute to the sustainable development of the society and the environment. For further information, see theCompany’s Corporate Social Responsibility Report 2017 released on www.cninfo.com.cn.
18.2 Measures taken for targeted poverty alleviation
A. Summary of the work done for targeted poverty alleviation during the year
Midea Group has been making great efforts to help alleviate poverty in the Guangdong Province. As it grows bigger and stronger, it willingly takes on social responsibility and gives back to society. In 2017, Midea donated a total of RMB20.5 million, of which RMB10 million was given for targeted poverty alleviation to the Guangdonggovernment’s office for poverty alleviation and development, and another RMB10 million was given to the Beijiao Town Charity Federation for poverty alleviation and public welfare of the town. Additionally, it supported the Foshan Municipal Government to help reduce poverty in Liangshan in the Sichuan Province by donating 1,100 sets of small domestic appliances worth RMB0.5 million to the people there in July 2017. With the donation receiving institutions knowing exactly their responsibilities and how to use the donated money properly, all the donated money has been made good use of and produced positive effects in the society.
B. Targeted poverty alleviation plans for the coming future
To follow the spirit of the 19th National Congress of the Communist Party of China, President XiJinping’s ideology of socialism with Chinese characteristics in a new era, and the decisions and plans made by the Guangdong provincial party committee and government for poverty alleviation, Midea Group will stay down to earth and seek actual results in its work done for the targeted poverty alleviation drive. It will accelerate such work and stick to the basic strategy of targeted poverty alleviation in this regard. And it will continue to work with the Guangdonggovernment’s office for poverty alleviation and development to get to know realities in the poor areas, draw up specific plans to help fight poverty and carry them
The 2017 Annual Report of Midea Group Co., Ltd. out effectively.
18.3 Environmental protection
Neither the Company nor any of its subsidiaries is declared a heavily polluting business by the environmental protection authorities.
19. Other Significant Events
√ Applicable□ N/A
The proposals for the tender offer to acquire shares of KUKA Aktiengesellschaft have been considered and approved at the 11th and 12th meetings of the Second Board as well as the Third Special Meeting of Shareholders in 2016. The Company intended to make a cash tender offer of 115 euro/share to acquire KUKA shares via its wholly-owned foreign subsidiary MECCA, with the funds needed sourced from syndicated loans and theCompany’s own funds.
The Company completed the transaction on 6 January 2017 after the fulfillment of all statutory decision-making and approval procedures prior to completion. KUKA AG's 32,233,536 shares have been transferred to MECCA and MECCA has paid the total transaction price of€ 3,706,856,640.
20. Significant Events of Subsidiaries
□ Applicable√ N/A
The 2017 Annual Report of Midea Group Co., Ltd. Section VI Changes in Shares and Information about
Shareholders
1. Changes in Shares
1.1 Changes in shares
Unit: share
|||||||||||
|-|-|-|-|-|-|-|-|-|-|
||Before||Increase/decrease in Reporting Period (+/-)|||||After||
|||||Shares||||||
|||||as||||||
|||||dividen||||||
||||||Shares as|||||
|||||d||||||
||||||dividend||||Perc|
|||Perc||conver||||||
||||New||converted||||enta|
||Shares|entag||ted||Other|Subtotal|Shares||
||||issue||from||||ge|
|||e (%)||from||||||
||||||capital||||(%)|
|||||retaine||||||
||||||reserves|||||
|||||d||||||
|||||earnin||||||
|||||gs||||||
|||||||-|-|||
||279,045,26||23,130|||||212,022,91||
|||4.32||0|0|90,152|67,022,35||3.23|
||0||,000|||||0||
|1.Restricted shares||||||,350|0|||
|1.1 Shares held by the||||||||||
||0|0|0|0|0|0|0|0|0|
|state||||||||||
|1.2 Shares held by||||||||||
|state-owned|0|0|0|0|0|0|0|0|0|
|corporations||||||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||||||
|-|-|-|-|-|-|-|-|-|-|
|1.3 Shares held by||||||-|-|||
||279,045,26||22,380|||||211,272,91||
|other domestic||4.32||0|0|90,152|67,772,35||3.22|
||0||,000|||||0||
|investors||||||,350|0|||
|Among which: Shares||||||||||
|held by domestic|82,500,000|1.28|0|0|0|0|0|82,500,000|1.26|
|corporations||||||||||
|Shares held by||||||-|-|||
||196,545,26||22,380|||||128,772,91||
|domestic||3.04||0|0|90,152|67,772,35||1.96|
||0||,000|||||0||
|individuals||||||,350|0|||
|1.4 Shares held by|||750,00|||||||
||0|0||0|0|0|750,000|750,000|0.01|
|foreign investors|||0|||||||
|Among which: Shares||||||||||
|held by foreign|0|0|0|0|0|0|0|0|0|
|corporations||||||||||
|Shares held by|||750,00|||||||
||0|0||0|0|0|750,000|750,000|0.01|
|foreign individuals|||0|||||||
|2. Non-restricted|6,179,721,5||79,156|||90,152|169,308,8|6,349,030,4|96.7|
|||95.68||0|0|||||
|shares|48||,511|||,350|61|09|7|
|2.1 RMB common|6,179,721,5||79,156|||90,152|169,308,8|6,349,030,4|96.7|
|||95.68||0|0|||||
|shares|48||,511|||,350|61|09|7|
|2.2 Domestically listed||||||||||
|shares for foreign|0|0|0|0|0|0|0|0|0|
|investors||||||||||
|2.3 Overseas listed||||||||||
|shares for foreign|0|0|0|0|0|0|0|0|0|
|investors||||||||||
|2.4 Other|0|0|0|0|0|0|0|0|0|

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||||||
|-|-|-|-|-|-|-|-|-|-|
||6,458,766,8||102,28||||102,286,5|6,561,053,3||
|3. Total shares||100||0|0|0|||100|
||08||6,511||||11|19||

Reasons for the changes in shares
√ Applicable□ N/A
a. 23,130,000 restricted shares were granted to 133 employees for the first phase of theCompany’s 2017 Restricted Share Incentive Scheme, of which 750,000 were granted to foreign employees who work in China.
b. Director& Vice President Mr. Li Feide chose to exercise, on 24 May 2017, 375,000 share options, which had been granted to him as incentives, and75% of these shares, equal to 281,250 shares, were locked up due to his senior management position.
c. Company Secretary Mr. Jiang Peng chose to exercise, in September 2017, 465,000 share options, which had been granted to him as incentives, and75% of these shares, equal to 348,750 shares, were locked up due to his senior management position.
d. Ms. Yuan Liqun, a former director, vice president and the former CFO, left the Company on 15 July 2016, and all her holdings of 90,750,000 shares in the Company were unlocked after a lockup for six months from her departure.
e. Ms. Mai Yufen, a former employee supervisor, left the Company on 30 March 2017, and all her holdings of 2,300 shares in the Company were unlocked after a lockup for six months from her departure.
Approval of share changes
□ Applicable√ N/A
Transfer of share ownership
□ Applicable√ N/A
Effects of changes in shares on the basic EPS, diluted EPS, net assets per share attributable
to common shareholders of the Company and other financial indexes over the last year and
the last Reporting Period
The 2017 Annual Report of Midea Group Co., Ltd.□ Applicable√ N/A
Other contents that the Company considers necessary or is required by the securities regulatory authorities to disclose
□ Applicable√ N/A
1.2 Changes in restricted shares
√ Applicable□ N/A
Unit: share
||||||||
|-|-|-|-|-|-|-|
||Opening|Unlocked in|Increased|Closing|||
|Name of|||||Reason for|Date of|
||restricted|current|in current|restricted|||
|shareholder|||||change|unlocking|
||shares|period|period|shares|||
|Incentive|||||||
|receivers of 2017|||||||
||||||Lockup according||
|Restricted Share|0|0|23,130,000|23,130,000||12/05/2018|
||||||to the Plan||
|Incentive Plan|||||||
|(first phase)|||||||
||||||Lockup caused by||
||||||senior executive’s||
|Jiang Peng|110,000|0|348,750|458,750||-|
||||||exercise of share||
||||||options awarded||
||||||Lockup caused by||
||||||senior executive’s||
|Li Feide|562,500|0|281,250|843,750||-|
||||||exercise of share||
||||||options awarded||
||||||Unlocking caused||
|Yuan Liqun|90,750,000|90,750,000|0|0|by expiration of a|15/01/2017|
||||||six-month lockup||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||
|-|-|-|-|-|-|-|
||||||from seniorexecutive’sdeparture||
|Total|91,422,500|90,750,000|23,760,000|24,432,500|--|--|

2. Issuance and Listing of Securities
2.1 Securities (excluding preference shares) issued in the Reporting Period
□ Applicable√ N/A
2.2 Changes in total shares of the Company and the shareholder structure, as well as the asset and liability structures
√ Applicable□ N/A
The total shares of the Company were 6,458,766,808 at the beginning of the Reporting Period. During the Reporting Period, 79,156,511 awarded stock options were exercised, and 23,130,000 restricted shares were granted in the first phase of theCompany’s 2017 Restricted Share Incentive Plan. As such, the total shares rose to 6,561,053,319 at the end of the Reporting Period.
2.3 Existing staff-held shares
□ Applicable√ N/A
3. Shareholders and Actual Controller
3.1 Total number of shareholders and their shareholdings
Unit: share
|||||||||
|-|-|-|-|-|-|-|-|
|Total||Total number||Total number of||Total number||
|number of|142,730|of common|155,890|preference|0|of preference|0|
|common||shareholders||shareholders||shareholders||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|
|shareholder||at the prior|||with resumed||||with resumed|||
|s at the end||month-end|||voting rights at||||voting rights|||
|of the||before the|||the period-end||||at the prior|||
|Reporting||disclosure|||(if any)||||month-end|||
|Period||date of the|||||||before the|||
|||annual report|||||||disclosure|||
||||||||||date of the|||
||||||||||annual report|||
||||||||||(if any)|||
|5% or greater shareholders or top 10 shareholders||||||||||||
||||Shar|||||||Pledged or||
|||||||Increase/d||||||
||||ehold|Total|||Number of|Number of||frozen shares||
||Nature of|||||ecrease||||||
||||ing|shares held|||restricted|non-||||
|Name of shareholder|sharehold|||||during the||||||
||||perce|at the|||shares|restricted||Stat||
||er|||||Reporting|||||Shares|
||||ntage|period-end|||held|shares held||us||
|||||||Period||||||
||||(%)|||||||||
|Midea Holding Co., Ltd.|Domesticnon-state-ownedcorporation||33.71|2,212,046,613||-32,328,387||2,212,046,613||||
|||||||||||Ple||
||||||||||||706,565,00|
|||||||||||dge||
||||||||||||0|
|||||||||||d||
|Hong Kong Exchangesand Clearing Limited|Foreigncorporation||9.56|626,947,495||573,763,980||626,947,495||||
|China SecuritiesFinance Co., Ltd.|State-ownedcorporation||3.39|222,677,655||42,637,775||222,677,655||||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||||
|-|-|-|-|-|-|-|-|-|
|Fang Hongbo|Domesticindividual|2.09|136,990,492|0|102,742,869|34,247,623|||
|Hillhouse CapitalManagement Limited－HCM China Fund|Foreigncorporation|1.74|113,891,138|0||113,891,138|||
|Huang Jian|Domesticindividual|1.34|87,980,000|-20,000||87,980,000|Ple||
||||||||dge|22,999,900|
||||||||d||
|Xiaomi Technology Co.,Ltd.|Domesticnon-state-ownedcorporation|1.26|82,500,000|0|82,500,000||||
|Central Huijin AssetManagement Ltd.|State-ownedcorporation|1.20|78,474,900|0||78,474,900|||
|UBS AG|Foreigncorporation|1.02|66,759,821|1,338,774||66,759,821|||
|Li Jianwei|Domesticindividual|0.98|64,144,834|-9,832,213||64,144,834|Ple||
||||||||dge|5,400,000|
||||||||d||
|Strategic investors or general|||||||||
|corporations becoming top-ten|||||||||
|||N/A|||||||
|shareholders due to placing of new|||||||||
|shares (if any)|||||||||
|Related-parties or acting-in-concert||N/A|||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||
|-|-|-|-|
|parties among the shareholders||||
|above||||
|Top 10 non-restricted shareholders||||
||Number of non-|Type of shares||
|Name of shareholder|restricted shares held|||
|||Type|Shares|
||at the period-end|||
|Midea Holding Co., Ltd.|2,212,046,613|RMB common stock|2,212,046,613|
|Hong Kong Exchanges and ClearingLimited|626,947,495|||
|||RMB common stock|626,947,495|
|China Securities Finance Co., Ltd.|222,677,655|RMB common stock|222,677,655|
|Hillhouse Capital Management Limited－HCM China Fund|113,891,138|||
|||RMB common stock|113,891,138|
|Huang Jian|87,980,000|RMB common stock|87,980,000|
|Central Huijin Asset Management Ltd.|78,474,900|RMB common stock|78,474,900|
|UBS AG|66,759,821|RMB common stock|66,759,821|
|Li Jianwei|64,144,834|RMB common stock|64,144,834|
|Yuan Liqun|62,405,900|RMB common stock|62,405,900|
|Fu Xuan|58,594,833|RMB common stock|58,594,833|
|Related-parties or acting-in-concert||||
|parties among the top ten non-restricted||||
|shareholders and between the top ten|N/A|||
|non-restricted shareholders and the top||||
|ten shareholders||||
|Explanation on the top 10 common||||
|shareholders participating in securities|N/A|||
|margin trading (if any)||||

Note: Mr. He Xiangjian, MideaGroup’s actual controller, has declared on 25 July 2017 that he would donate
The 2017 Annual Report of Midea Group Co., Ltd. 100,000,000 Midea Group shares he holds via Midea Holding to charity. Midea Holding is currently unable to transfer these shares to the charity trust it has set up because certain confirmations are needed regarding the execution of the regulations for share transfers to charitable trusts and taxes on these share transfers. Midea Holding will begin to deal with the formalities for thetrust’s registration and the saidshares’ transfer to the trust as soon as the problems are solved. Before that, these shares will remain with Midea Holding.
Did any of the top 10 common shareholders or the top 10 non-restricted common shareholders of the Company conduct any promissory repurchase during the Reporting Period
□ Yes√ No
No such cases in the Reporting Period.
3.2 Controlling shareholder
||||||
|-|-|-|-|-|
||Legal||||
||representati|Date of|||
|Name of controlling|||||
||ve /|establish|Credibility code|Main business scope|
|shareholder|||||
||company|ment|||
||principal||||
|||||Manufacture and commerce investment;|
|||||domestic commerce and materials|
|||||supply and marketing industry|
|||||(excluding state-designated monopoly);|
|||||CP software and hardware|
|Midea Holding Co.,|He|2002-08-|9144060674299897||
|||||development; industrial product design;|
|Ltd.|Xiangjian|05|33||
|||||information technology consulting|
|||||services, providing investment|
|||||consultant and consulting services;|
|||||installation, maintenance and after-sales|
|||||service of electric appliances; real estate|

The 2017 Annual Report of Midea Group Co., Ltd.
||||
|-|-|-|
|||intermediary service and forwarding|
|||agent service.|
|Shareholdings of the|||
|controlling|||
|shareholder in other|||
|controlled or non-|Apart from a direct control over the Company, Midea Holding does not directly control||
|controlled listed|or have shares in other listed companies at home or abroad.||
|companies at home|||
|or abroad during the|||
|Reporting Period|||

Change of the controlling shareholder during the Reporting Period
□ Applicable√ N/A
No such cases in the Reporting Period.
3.3 Actual controller
||||
|-|-|-|
|Name of the actual controller|Nationality|Right of residence in other countries or regions|
||The People's||
|He Xiangjian||No|
||Republic of China||
|Main occupation and duty|Incumbent board chairman of Midea Holding||
|Used-to-be-holding listed companies|Midea Group (000333.SZ), Welling Holding (00382.HK), Little Swan||
|home and abroad in the last 10 years|(A: 000418.SZ; B: 200418) and KUKA (KU2.DE)||

Change of the actual controller during the Reporting Period
□ Applicable√ N/A
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd. Ownership and control relations between the actual controller and the Company
He Xiangjian
94.55%
Midea Holding Co., Ltd. 0.69%
33.71%
Midea Group Co., Ltd.
The actual controller controls the Company via trust or other ways of asset management□ Applicable√ N/A
3.4 Other corporate shareholders with a shareholding percentage above10%
□ Applicable√ N/A
3.5 Limits on theCompany’s shares held by its controlling shareholder, actual controller, reorganizer and other commitment subjects
□ Applicable√ N/A
The 2017 Annual Report of Midea Group Co., Ltd. Section VII Preference Shares
□ Applicable√ N/A
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd. Section VIII Information about Directors, Supervisors, Senior Management and Employees
1. Changes in Shareholdings of Directors, Supervisors and Senior Management
|||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|
|||||||||Shares||||
|||||||||increas|Shares|||
|||||||Endin||||Other|Shares|
||||||Startin|||ed at|decreas|||
|||||||g date|Shares held|||increas|held at the|
|||Incumbent|Gend||g date|||the|ed at the|||
|Name|Office title|||Age||of|at the year-|||e/decre|period-|
|||/ Former|er||of|||Reporti|Reportin|||
|||||||tenur|begin (share)|||ase|end|
||||||tenure|||ng|g Period|||
|||||||e||||(share)|(share)|
|||||||||Period|(share)|||
|||||||||(share)||||
||Chairman|||||||||||
|Fang|of the||||2012-|2018-|||||136,990,4|
|||Incumbent|Male|51|||136,990,492|0|0|0||
|Hongbo|Board and||||8-25|9-18|||||92|
||President|||||||||||
|He|||||2012-|2018-||||||
||Director|Incumbent|Male|51|||0|0|0|0|0|
|Jianfeng|||||8-25|9-18||||||
||Director|||||||||||
|Yin|||||2016-|2018-||||||
||and Vice|Incumbent|Male|50|||2,109,655|0|0|0|2,109,655|
|Bitong|||||12-16|9-18||||||
||President|||||||||||
||Director|||||||||||
|Zhu|||||2014-|2018-||||||
||and Vice|Incumbent|Male|50|||1,020,400|0|0|0|1,020,400|
|Fengtao|||||4-21|9-18||||||
||President|||||||||||
|Gu|Director||||2014-|2018-||||||
|||Incumbent|Male|55|||0|0|0|0|0|
|Yanmin|and Vice||||4-21|9-18||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|
||President|||||||||||
||Director|||||||||||
||||||2012-|2018-||||585,00||
|Li Feide|and Vice|Incumbent|Male|41|||750,000|0|0||1,335,000|
||||||8-31|9-18||||0||
||President|||||||||||
||Independ|||||||||||
|Wu|||||2013-|2018-||||||
||ent|Incumbent|Male|62|||0|0|0|0|0|
|Shinong|||||3-4|9-18||||||
||Director|||||||||||
||Independ|||||||||||
|Rui|||||2015-|2018-||||||
||ent|Incumbent|Male|51|||0|0|0|0|0|
|Meng|||||9-18|9-18||||||
||Director|||||||||||
||Independ|||||||||||
|Guo|||||2013-|2018-||||||
||ent|Incumbent|Male|59|||0|0|0|0|0|
|Xuejin|||||3-4|9-18||||||
||Director|||||||||||
||Independ|||||||||||
|Li|||||2013-|2018-||||||
||ent|Incumbent|Male|39|||0|0|0|0|0|
|Wenjing|||||3-4|9-18||||||
||Director|||||||||||
||Chairman|||||||||||
||of the|||||||||||
||Superviso||Fem||2016-|2018-||||||
|Liu Min||Incumbent||41|||0|0|0|0|0|
||ry||ale||2-1|9-18||||||
||Committe|||||||||||
||e|||||||||||
|Zhao|Superviso||||2014-|2018-||||||
|||Incumbent|Male|43|||0|0|0|0|0|
|Jun|r||||4-21|9-18||||||
||Employee|||||||||||
|Liang|||Fem||2017-|2018-||||||
||Superviso|Incumbent||35|||0|0|0|0|0|
|Huiming|||ale||3-30|9-18||||||
||r|||||||||||

The 2017 Annual Report of Midea Group Co., Ltd.
|||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|-|
|Wang|Vice||||2014-|2018-||||||
|||Incumbent|Male|51|||0|0|0|0|0|
|Jinliang|President||||8-18|9-18||||||
|Wang|Vice||||2017-|2018-||||||
|||Incumbent|Male|42|||0|0|0|0|0|
|Jianguo|P resident||||12-15|9-18||||||
|Hu|Vice||||2014-|2018-||||||
|||Incumbent|Male|61|||0|0|0|0|0|
|Ziqiang|President||||8-18|9-18||||||
|Xiang|Vice||||2017-|2018-||||||
|||Incumbent|Male|52|||0|0|0|0|0|
|Weimin|President||||7-20|9-18||||||
|Xiao||||||||||||
||Director of||||2016-|2018-||||||
|Minggu||Incumbent|Male|48|||0|0|0|0|0|
||Finance||||7-16|9-18||||||
|ang||||||||||||
|Jiang|Company||||2013-|2018-||||465,00||
|||Incumbent|Male|45|||140,625|0|30,625||575,000|
|Peng|Secretary||||10-30|9-18||||0||
||Director|||||||||||
|Wu|||||2014-|2017-||||||
||and Vice|Former|Male|54|||0|0|0|0|0|
|Wenxin|||||4-21|1-6||||||
||President|||||||||||
||Employee|||||||||||
|Mai|||Fem||2016-|2017-||||||
||Superviso|Former||34|||2,300|0|2,300|0|0|
|Yufen|||ale||1-16|3-30||||||
||r|||||||||||
|Hu|||Fem||2012-|2017-||||||
||Director|Former||48|||0|0|0|0|0|
|Xiaoling|||ale||8-25|8-29||||||
|||||||||||1,050,0|142,030,5|
|Total|--|--|--|--|--|--|141,013,472|0|32,925|||
|||||||||||00|47|

 2. Changes in Directors, Supervisors and Senior Management
√ Applicable□ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
||||||
|-|-|-|-|-|
|||Type of|||
|Name|Office title||Date|Reason|
|||change|||
||Director, Vice||||
|Wu Wenxin||Left|2017-01-06|Personal reason|
||President||||
|Mai Yufen|Employee Supervisor|Left|2017-03-30|Personal reason|
|Liang Huiming|Employee Supervisor|Elected|2017-03-30|By-election|
|Yin Bitong|Director|Elected|2017-04-21|By-election|
|Zhu Fengtao|Director|Elected|2017-04-21|By-election|
|Hu Xiaoling|Director|Left|2017-08-29|Personal reason|
|||||Senior management|
|Xiang Weimin|Vice President|Appointed|2017-07-20||
|||||appointment|
|||||Senior management|
|Wang Jianguo|Vice President|Appointed|2017-12-15||
|||||appointment|

3. Brief Biographies
Professional backgrounds, main work experience and current responsibilities in the Company of the incumbent directors, supervisors and senior management
Mr. Fang Hongbo, holder of a Master's degree, is the Chairman and President of the Company. He joined Midea in 1992 and previously served as the General Manager of the Midea Air-Conditioning Business Department, the President of Midea Refrigeration Electric Appliances Group, the Chairman and President of GD Midea Holding Co., Ltd. Mr. Fang Hongbo is also the Chairman of the Company's subsidiary, Wuxi Little Swan Co., Ltd, and a member of the Supervisory Committee of KUKA.
Mr. He Jianfeng, holder of a Bachelor's degree, is a Director of Midea Group. He is also the Chairman of the Board and President of Infore Investments Holding Group Co., Ltd.
Mr. Yin Bitong, a Master's graduate, joined Midea in 1999 and served as GM Assistant and
Marketing Director of the Residential Air Conditioning Division as well as GM and Executive
The 2017 Annual Report of Midea Group Co., Ltd. Director of Wuxi Little Swan Co. Ltd. He is now an Executive Director and Vice President of Midea Group and GM of Midea Residential Air Conditioning Division.
Mr. Zhu Fengtao, holder of a Doctoral degree, joined Midea in 1993 and served as the President of Midea Microwave Appliance Manufacturing Co., Ltd. He is currently an Executive Director and Vice President of Midea Group and the General Manager of Midea Kitchen Appliances Division.
Mr. Gu Yanmin, holder of a Doctoral degree, joined Midea in 2000 and has functioned as the Head of Planning& Investment, Head of Overseas Strategy& Development, Vice President and Head of Overseas Business Development of Midea Air-Conditioning& Refrigeration Group, Head of Overseas Strategy of Midea Group. Currently he is an Executive Director, Vice President of the Company as well as the Chairman of the Supervisory Committee of KUKA.
Mr. Li Feide, holder of a Master's degree, joined Midea in 1999 and served as the Board Secretary, the Strategic Operation Head, the Operational Management Head, and thePresident’s Assistant. He is now an Executive Director and Vice President of the Company, as well as a Vice General Manager of Annto Logistics Technology Co., Ltd.
Mr. Wu Shinong, holder of a Doctoral degree, is Professor and Tutor for doctoral students at the Management School of Xiamen University. He is also involved as an Independent Director of Midea Group, and a member of the National Natural Science Foundation of China Mr. Rui Meng, holder of a Doctoral degree. He is now an independent director of the Company, a professor of finance and accounting at China Europe International Business School, a chaired professor of finance in Zhong Kun Group, a doctoral advisor, and concurrently the director of a doctoral program, the head of the CEIBS Shoushan Wealth Management Research Center, a member of the Risk Management Committee of the Shanghai Clearing House.
Mr. Guo Xuejin, a Master's degree graduate, is the director of Guangdong Kings Law Firm, a member of the Guangzhou 15th People's Congress, a member of Guangzhou Law Committee of the NPC, the arbitrator of Guangzhou Arbitrator Committee, an expert
The 2017 Annual Report of Midea Group Co., Ltd. consultant of Guangzhou Traffic Committee and is currently an independent director of Midea Group.
Mr. Li Wenjing, holder of a Doctoral degree, is the Director of the Accounting Department, professor and doctoral supervisor in the Accounting Department of the School of Management at Jinan University, and at present is an independent director of Midea Group. He also holds concurrent positions including being a member of the International Exchange Committee& a director of the Branch Society of Financial Costs under the Accounting Society of China, a director of Accounting Academy of Guangdong Province.
Ms. Liu Min, aMaster’s degree graduate, joined Midea in 1998. She used to be the General Manager of an overseas marketing company underMidea’s Household Air-Conditioning Division and the Chief Operations Officer of Midea. She is now the Chairman of the Supervisory Committee, the Chief HR Officer of Midea as well as a member ofKUKA’s Supervisory Committee.
Mr. Zhao Jun, a Master's degree graduate, joined Midea in 2000 and has functioned as the Director and the CFO of GD Midea Holding Co., Ltd. He is now a Supervisor of the Company, Vice President and CFO in Midea Holding Co., Ltd.
Ms. Liang Huiming, holder of aBachelor’s degree, is the Employee Supervisor of Midea Group. Joining Midea in 2007, she used to serve as the Chief Business Administration Commissioner in MideaGroup’s Administration and Human Resources Department. Mr. Wang Jinliang, holder of aMaster’s degree, joined Midea in 1995 and previously worked as the Vice President of China Marketing in the Company, and was GD MideaHolding’s Vice President and Marketing Head. He is now a Vice President in the Company. Mr. Wang Jianguo, aMaster’s degree holder, joined Midea in 1999. He was once the Director of the Supply Chain Management Department of MideaGroup’s Residential Air Conditioner Division, the Director of the Administration and Human Resources Department of Midea Group, and the General Manager of MideaGroup’s Refrigeration Division. Currently, he is a Vice President and the General Manager of Senior Brand of Midea Group. Mr. Hu Ziqiang, holder of a Doctoral degree, joined Midea in 2012, and has formerly worked
The 2017 Annual Report of Midea Group Co., Ltd. for GE and Samsung and as a Vice GM in Wuxi Little Swan Co., Ltd. At present he is a Vice President and the Chief of the Central Research Institute of the Company
Mr. Xiang Weimin, holder of aMaster’s degree, joined Midea in 1991. He used to serve as the General Manager of MideaGroup’s Compressor Division and the General Manager of MideaGroup’s Component Division. Currently, he is a Vice President and the Product& Supply Chain Director of Midea Group.
Mr. Xiao Mingguang, aMaster’s degree graduate, joined Midea in 2000. He once served as a vice chief financial officer and the Chief Operational Officer of Midea Group, as well as the Chief Audit Supervision Officer and a director of GD Midea Holding Co., Ltd. Currently, he is the Director of Finance of Midea Group, in addition to being the Chairman of the Board of Midea Group Finance Co., Ltd. and a Director of Wuxi Little Swan Co., Ltd.
Mr. Jiang Peng, holder of aMaster’s degree, joined Midea in 2007 and used to be the Representative for Securities Affairs and Company Secretary for GD Midea Holding Co., Ltd. He is now the Company Secretary, the Investor Relations Director of Midea Group, as well as a Director in Wuxi Little Swan Co., Ltd.
Posts held in shareholding entities
√ Applicable□ N/A
|||||||
|-|-|-|-|-|-|
||||||Allowance from|
||||Beginning|||
|||||Ending date of|the|
|Name|Shareholding entity|Position|date of office|||
|||||office term|shareholding|
||||term|||
||||||entity|
|||Vice President and||||
|Zhao Jun|Midea Holding Co., Ltd.||2013-01-01|-|Yes|
|||CFO||||
|Note|N/A|||||

Posts held in other entities
√ Applicable□ N/A
The 2017 Annual Report of Midea Group Co., Ltd.
|||||||
|-|-|-|-|-|-|
||||Beginning|||
|||||Ending date|Allowance|
|Name|Other entity|Position||||
||||date of office|||
|||||of office term|from the entity|
||||term|||
|||Chairman of the||||
||Wuxi Little Swan Co., Ltd.||2008-05|2018-08|No|
|||Board||||
|Fang||||||
|||Member of the||||
|Hongbo||||||
||KUKA|Supervisory|2017-03|2018-06|No|
|||Committee||||
|||Chairman of the||||
|He|Infore Investments Holding|||||
|||Board and|1995|-|Yes|
|Jianfeng|Group Co., Ltd.|||||
|||President||||
|||Chairman of the||||
|Gu||||||
||KUKA|Supervisory|2017-01|2018-06|No|
|Yanmin||||||
|||Committee||||
||Fuyao Glass Industry Group|||||
|||Director|2011-04|-|Yes|
||Holding Co., Ltd.|||||
|Wu||Independent||||
||Xiamen ITG Group Co., Ltd.||2014-06|2017-06|Yes|
|Shinong||Director||||
|||Independent||||
||Industrial Securities Co., Ltd.||2017-11|-|Yes|
|||Director||||
||COSCO SHIPPING Energy|Independent||2018-06||
||||2015-06||Yes|
||Transportation Co., Ltd.|Director||||
||ShangHai Winner Networks|Independent||2019-06||
|Rui Meng|||2016-06||Yes|
||Information Technology Co., Ltd.|Director||||
|||Independent||2020-04||
||Shang Gong Group Co., Ltd.||2017-04||Yes|
|||Director||||
|Guo|Donlinks International|Independent||2018-03||
||||2014-04||Yes|
|Xuejin|Investment Co., Ltd.|Director||||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||
|-|-|-|-|-|-|-|
||Guangzhou Devotion Thermal||Independent||2019-03||
|||||2013-12||Yes|
||Technology Co., Ltd.||Director||||
||||Independent||||
||By-Heath Co., Ltd.|||2017-09||Yes|
||||Director||||
|Li Wenjing|||||||
||||Independent||||
||Zhuhai Huajin Capital Co., Ltd.|||2017-12||Yes|
||||Director||||
||Guangzhou Longse Technology||Independent||-||
|||||2015-11||Yes|
||Co., Ltd.||Director||||
||||Member of the||2018-06||
|Liu Min|KUKA||Supervisory|2017-01||No|
||||Committee||||
|Xiao|||||2018-08||
|Mingguan|Wuxi Little Swan Co., Ltd.||Director|2010-01||No|
|g|||||||
|Jiang|||||2018-08||
||Wuxi Little Swan Co., Ltd.||Director|2017-04||No|
|Peng|||||||
|Note||N/A|||||

Punishments imposed in the recent three years by the securities regulators on the incumbent directors, supervisors and senior management as well as those who left in the Reporting Period
□ Applicable√ N/A
4. Remuneration of Directors, Supervisors and Senior Executives
The following describes the decision-making procedures, grounds on which decisions are made and actual remuneration payment of directors, supervisors and senior executives.
The decision-making remuneration procedure for directors, supervisors and senior
executives: The remuneration is proposed by the Board Compensation Committee and
The 2017 Annual Report of Midea Group Co., Ltd. approved by the Board. Decisions are made finally after the deliberation of shareholders' meeting.
The remuneration of directors, supervisors and senior executives consist of basic annual payments and performance-related annual payments according to the Salary Management System for the Directors, Supervisors and Senior Executives which has been approved by the Company. Basic payment is determined based on the responsibility, risk and pressure of directors, supervisors and senior executives. The basic annual payment remains stable. Performance-related annual payment is related to the completion rate of corporate profit, the assessment result of target responsibility system and the performance evaluation structure of their own department. The remuneration system for directors, supervisors and senior executives serves the Company's strategy, and shall be adjusted with the Company's operating conditions in order to meet theCompany’s development requirements. The basis for adjusting the remuneration of directors, supervisors and senior executives are as follows: a. Wage growth in the industry
b. Inflation
c. Corporate earnings
d. Organizational structure adjustment
e. Individual adjustment due to a change in position
Remuneration of directors, supervisors and senior executives during the Reporting Period Unit: RMB'0,000
||||||||
|-|-|-|-|-|-|-|
||||||Total before-||
|||||||Remuneration|
||||||tax||
|||||Incumbent||from related|
|Name|Position|Gender|Age||remuneration||
|||||/ Former||parties of the|
||||||from the||
|||||||Company|
||||||Company||
||Chairman of the Board||||||
|Fang Hongbo||Male|51|Incumbent|719||
||and President||||||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||
|-|-|-|-|-|-|-|
|He Jianfeng|Director|Male|51|Incumbent||Yes|
||Director and Vice||||||
|Yin Bitong||Male|50|Incumbent|420||
||President||||||
||Director and Vice||||||
|Zhu Fengtao||Male|50|Incumbent|382||
||President||||||
||Director and Vice||||||
|Gu Yanmin||Male|55|Incumbent|291||
||President||||||
||Director and Vice||||||
|Li Feide||Male|41|Incumbent|196||
||President||||||
|Wu Shinong|Independent Director|Male|62|Incumbent|15||
|Rui Meng|Independent Director|Male|51|Incumbent|15||
|Guo Xuejin|Independent Director|Male|59|Incumbent|15||
|Li Wenjing|Independent Director|Male|39|Incumbent|15||
||Chairman of the||||||
|Liu Min||Female|41|Incumbent|154||
||Supervisory Committee||||||
|Zhao Jun|Supervisor|Male|43|Incumbent||Yes|
|Liang Huiming|E mployee Supervisor|Female|35|Incumbent|17||
|Wang Jinliang|Vice President|Male|51|Incumbent|175||
|Wang Jianguo|V ice President|Male|42|Incumbent|317||
|Hu Ziqiang|Vice President|Male|61|Incumbent|429||
|Xiang Weimin|Vice President|Male|52|Incumbent|324||
|Xiao|||||||
||Director of Finance|Male|48|Incumbent|196||
|Mingguang|||||||
|Jiang Peng|Company Secretary|Male|45|Incumbent|179||
||Director and Vice||||||
|Wu Wenxin||Male|54|Former|249||
||President||||||

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||
|-|-|-|-|-|-|-|
|Mai Yufen|Employee Supervisor|Female|34|Former|25||
|Hu Xiaoling|Director|Female|48|Former||No|
|Total|--|--|--|--|4,133|--|

Share incentives for directors, supervisors and senior executives in the Reporting Period√ Applicable□ N/A
Unit: share
||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|
|||||Exercise||||Restricted sharesgrantedin theReporting Period|||
||||Exercis|price for|Market|Restricte|||||
|||Exercisa|||||||Grant|Restricte|
||||ed|exercise|price at|d shares|||||
|||ble|||||Unlocke||price of|d shares|
||||share|d share|the end|held at|||||
|||share|||||d shares||the|held at|
||||options|options|of the|the|||||
|Name|Office title|options|||||in the||restricte|the end|
||||in the|in the|Reportin|beginnin|||||
|||for the|||||Reportin||d shares|of the|
||||Reporti|Reportin|g Period|g of the|||||
|||Reportin|||||g Period||(RMB/sh|Reportin|
||||ng|g Period|(RMB /|Reportin|||||
|||g Period|||||||are)|g Period|
||||Period|(RMB /|share)|g Period|||||
|||||share)|||||||
||Director and||||||||||
|Li|||||||||||
||Vice|375,000|375,000|10.01|55.43|0|0|210,000|15.86|210,000|
|Feide|||||||||||
||President||||||||||
|Hu|||||55.43||||||
||Vice||||||||||
|Ziqian||0|0|-||0|0|300,000|15.86|300,000|
||President||||||||||
|g|||||||||||
|Xiao|||||55.43||||||
||Director of||||||||||
|Mingg||105,000|0|-||0|0|150,000|27.99|150,000|
||Finance||||||||||
|uang|||||||||||
|Jiang|Company|375,000|375,000|10.01|55.43|0|0|0|0|0|
|Peng|Secretary|90,000|90,000|18.56|55.43|0|0|0|0|0|

The 2017 Annual Report of Midea Group Co., Ltd.
||||||||||||
|-|-|-|-|-|-|-|-|-|-|-|
|Total|--|945,000|840,000|--|--|0|0|660,000|--|660,000|
|||375,000 stock options of the first term of Mr. Li Feide were unlocked during the Reporting|||||||||
|||Period, leaving no such stock options in lockup. Meanwhile, during the Reporting Period,|||||||||
|||187,500 stock options of the first term of Mr. Jiang Peng were unlocked, leaving no such|||||||||
|Note (if any)|||||||||||
|||stock options in lockup; and for the second term, 90,000 stock options were unlocked,|||||||||
|||leaving another 90,000 still in lockup. And Mr. Xiao Mingguang was awarded 150,000|||||||||
|||restricted shares during the Reporting Period, which were listed on 7 February 2018.|||||||||

 5. Staff in the Company
5.1 Number, functions and educational backgrounds of the staff
|||
|-|-|
|Number of in-service staff of the Company|1,172|
|Number of in-service staff of main subsidiaries|100,654|
|Total number of in-service staff|101,826|
|Total number of staff with remuneration in the period|101,826|
|Number of retirees to whom the Company or its main||
||1,660|
|subsidiaries need to pay retirement pension||
|Functions||
|Function|Number of staff|
|Production|84,889|
|Sales|4,250|
|Technical/R&D|10,520|
|Financial|1,311|
|Administrative|856|
|Total|101,826|
|Educational backgrounds||

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|Educational background|Number of staff|
|Master and doctor|2,901|
|Bachelor|18,605|
|College, technical secondary school|44,990|
|Others|35,330|
|Total|101,826|

Note: The data above have not yet included the global staff of majority-owned subsidiaries TLSC and KUKA, which are around 35,000.
5.2 Staff remuneration policy
Staff remuneration shall be paid on time according to the Salary Management System. The Company decides the regular salary of the employees according to theposition’s value and evaluation performances and decides the variable salary according to the Company's andemployee’s performance. The remuneration distribution shows more consideration for strategic talent and ensures the market competitiveness in the salary of core talent. The Company shall make dynamic adjustments to the staff remuneration policy according to regional differences, number of employees, staff turnover, environment changes in the industry and paying ability of the Company.
5.3 Staff trainings
The attendances at internal training sessions were 620,039 in the Reporting Period, of which 45,989 were management personnel, 252,361 technical and marketing personnel and 321,689 operational personnel. The trainings included:
a. Building a pilot Leadership Development Program and a High-Potential Leaders Training system to facilitate talent management and training. 46 talent training programs were carried out and 2,627 highly skilled managerial staff were trained with 81,263 man-hours.
b. Building a professionalism promotion system. 76 such programs were carried out and
The 2017 Annual Report of Midea Group Co., Ltd. 18,767 staff were trained with 93,135 man-hours.
c. Meike, a mobile app developed by Midea for online training, has extended its trainings to all managerial personnel in Midea Group. An approximate total of 121,000 logins to this app for training was recorded throughout the year.
d. Facilitating organizational learning by developing 461 internal trainers. Their annual teaching time was 6,496 hours. And a total of 515 courses were designed in the year. e. Continuous training for mid-level and senior managers. A total of 28 lectures on leadership skills for mid-level management were given to 825 attendances, representing 10,725 teaching man-hours. Meanwhile, 6 such lectures for reserve high potential talent were given to 200 attendances during 14 days, representing 4,796 teaching man-hours. And 4 such lectures for senior management were given to 119 attendances during 6 days, which consisted of 1,400 teaching man-hours.
f. Facilitating the training of key technical staff and working team leaders. The total training time was 160,834 hours.
5.4 Labor outsourcing
□ Applicable√ N/A
The 2017 Annual Report of Midea Group Co., Ltd. Section IX Corporate Governance
1. Basic Situation of Corporate Governance
The Company is constantly improving its corporate governance in strict accordance with the Company Law, the Securities Law and the relevant regulations of the China Securities Regulatory Commission. There are four special committees under the Board, namely the Strategy Committee, the Auditing Committee, the Nomination Committee as well as the Remuneration and Appraisal Committee. They were designed to provide consultation and advice to the Board and validate the professionalization and efficiency of discussions and decision-making. The Company has established clear rules of procedure for its shareholders' general meeting, board of directors, Supervisory Committee and special committees under the board, as well as the Work Rules for Company Secretary. It has also established a set of standard documents including Information Disclosure Management System, Funds Raising Management System, Connected Transaction Management System, Wealth Management Entrustment Management System, Insider Registration System, External Guaranty Decision-making System, Foreign Investment Management System, and Management System for Finance Flow with Connected Parties, Internal Auditing System. The shareholders' meeting, the Board, Supervisory Committee and operations management departments have clear authority and responsibility. Each performs its own functions and maintains its stability effectively. Their scientific decision-making and coordinated operations have laid a firm foundation for the sustained, healthy and steady development of the Company.
The Company has also launched core management team shareholding plans and equity incentive plans for core research, quality control, technical, production and management staff, which helps to develop a sound shareholding structure for the future growth of the Company.
In 2017, the Company won the following honors for its corporate governance:
The 2017 Annual Report of Midea Group Co., Ltd. “The Best Board of Directors” at “The Golden Round Table Awards 2017” presented by the Directors& Boards magazine;“China’s Top 10 Listed Companies in 2017” by CCTV; “2018 National Brand Plan Top Brand” by CCTV; “Golden Horse Award for Social Responsibility 2018” by Securities Daily; “Global Top 2,000 Listed Companies” by the Forbes; and “Global Top 500” by the Fortune.
Any incompliance with the regulatory documents issued by the CSRC governing the governance of listed companies
□ Yes√ No
No such cases in the Reporting Period.
2. Independency of businesses, personnel, assets, organizations, and finance which are separate from the controlling shareholder
The Company is totally autonomous with respect to business, personnel, assets, organizations, and finance from Midea Holding Co., Ltd., the controlling shareholder of the Company, therefore maintaining integrity and independency in both business and operations. 2.1 Business independence:
The Company has a complete industrial chain for its manufacturing business, a completely distinct purchase and sales system, and an independent and comprehensive business operation capability.
2.2 Personnel independence:
The Company is completely autonomous from the controlling shareholder regarding its personnel. The labor, personnel and remuneration management of the company are totally unrelated. All senior management members received remuneration from the Company except those that hold only adirector’s position in the controlling shareholder.
2.3 Asset integrity:
The Company has its own independent production system as well as ancillary production systems and facilities. Intangible assets such as industrial rights, trademark ownership and
The 2017 Annual Report of Midea Group Co., Ltd. non-patent technology are held by the Company.
2.4 Organization independence:
The Company has set up an independent organizational structure which maintains its independent operation. The Company has the right to appoint or remove any personnel so there is no overlapping with the controlling shareholder.
2.5 Financial independence:
The Company's financial management is independent from the controlling shareholder. The Company has its own accounting department, accounting system, financial management system, and bank accounts and independently makes financial decisions and pays its own taxes according to relevant laws.
3. Horizontal Competition
□ Applicable√ N/A
4. Annual Meeting of Shareholders and Special Meetings of Shareholders Convened during the Reporting Period
4.1 Meetings of shareholders convened during the Reporting Period
|||||||
|-|-|-|-|-|-|
|||Investor||||
|Meeting|Type|participation|Convened date|Disclosure Date|Disclosure Index|
|||ratio||||
|2016 Annual|Annual||||Announcement No.|
|Meeting of|meeting of|45.2524%|21/04/2017|22/04/2017|2017-017, disclosed|
|Shareholders|shareholders||||on www.cninfo.com.cn|
|2017 First|Special||||Announcement No.|
|Special|meeting of|49.0821%|15/09/2017|16/09/2017|2017-053, disclosed|
|Meeting of|shareholders||||on www.cninfo.com.cn|

The 2017 Annual Report of Midea Group Co., Ltd.
||
|-|
|Shareholders|

4.2 Special meetings of shareholders convened at the request of preference shareholders with resumed voting rights
□ Applicable√ N/A
5. Performance of Independent Directors during the Reporting Period
5.1 Attendance of independent directors in Board meetings and meetings of shareholders
||||||||
|-|-|-|-|-|-|-|
|Attendance of independent directors in Board meetings|||||||
||Presence due|||||Absence for|
||||Presence by|Presence|||
|Independent|in the|Presence on|||Absence|two|
||||telecommunic|through a|||
|director|Reporting|site (times)|||(times)|consecutive|
||||ation (times)|proxy (times)|||
||Period (times)|||||times|
|Wu Shinong|10|1|9|0|0|No|
|Rui Meng|10|1|9|0|0|No|
|Guo Xuejin|10|1|9|0|0|No|
|Li Wenjing|10|1|9|0|0|No|
|Presence of independent|||||||
|directors in meetings of||1|||||
|shareholders (times)|||||||

5.2 Objections from independent directors on related issues of the Company
Were there any objections on related issues of the Company from independent directors□ Yes√ No
No such cases in the Reporting Period.
The 2017 Annual Report of Midea Group Co., Ltd. 5.3 Other details about the performance of duties by independent directors
Were there any suggestions from independent directors adopted by the Company
√ Yes□ No
Details about advice of independent directors accepted or not accepted by the Company During the Reporting Period, independent directors strictly followed related rules, regulations and the Articles of Association. They focused on the Company operation, carried out their duties independently and imparted lots of professional advice on perfecting theCompany’s systems, daily operations and decisions. They provided fair advice during the Reporting Period and played an effective role in improving the Company supervisory systems and protecting the legal rights of the Company and the shareholders as a whole. 6. Performance of Duties by Special Committees under the Board during the Reporting Period
6.1 The Audit Committee under the Board convened four meetings in the Reporting Period, at which the following proposals were considered and approved: The 2016 Final Account Report, The 2016 Annual Report& Its Abstract, The Report of the Audit Committee on Concluding and Appraising the 2016 Annual Audit Work, The Proposal for Appointing an Auditor for the 2017 Annual Result, The Proposal for Appointing an Auditor for the Internal Control in 2017, The Proposal for Writing off Asset Impairment Provisions, The Report on the First Quarter of 2017, The 2017 Semi-Annual Report and The Report on the Third Quarter of 2017.
6.2 The Strategy Committee under the Board convened one meeting in the Reporting Period, at which The Mid-Term Development Planning (2017-2019) was considered and approved. 6.3 The Remuneration and Appraisal Committee under the Board convened one meeting in the Reporting Period, at which The Proposal for the Payment of Remuneration to Senior Executives for 2016 was considered and approved.
6.4 The Nomination Committee under the Board convened three meetings in the Reporting
The 2017 Annual Report of Midea Group Co., Ltd. Period, at which the following proposals were considered and approved: The Proposal for New Director and The Proposal for Vice President Appointment (twice).
7. Performance of Duties by the Supervisory Committee
Were there any risks to the Company identified by the Supervisory Committee when performing its duties during the Reporting Period
□ Yes√ No
The Supervisory Committee of the Company had no objection to the matters of supervision during the Reporting Period.
8. Assessment and Incentive Mechanism for the Senior Management
The Company established an appraisal system on the basis of its target-oriented responsibility system and adopted an appraisal agreement for senior management members, which determines the appraisal criterion, appraisal method and measures taken based on the appraisal result. During the Reporting Period, the Company has carried out appraisals of senior management members on the basis of its target-oriented responsibility system and the appraisal result was reflected in the annual performance-based incentive rewards. Meanwhile, the Company promoted the unification of interests between managers and shareholders through high-level staff and core management teams' share holding schemes as well as multiple stock option or restricted share incentive schemes, laying a good foundation for the future growth of the Company.
9. Internal Control
9.1 Serious internal control defects found in the Reporting Period
□ Yes√ No
The 2017 Annual Report of Midea Group Co., Ltd. 9.2 Self-evaluation report on internal control
|||||
|-|-|-|-|
|Disclosure date of the internal control self-evaluation report||31 March 2018||
|||For details, please refer to the 2017 Self-||
|Index to the disclosed internal control self-evaluation report||Evaluation Report on Internal Control, which has||
|||been disclosed on www.cninfo.com.cn||
|Ratio of the total assets of the appraised entities to the||||
|||70%||
|consolidated total assets||||
|Ratio of the operating revenues of the appraised entities to||||
|||70%||
|the consolidated operating revenues||||
|Defect identification standards||||
|Type|Financial-report related||Non-financial-report related|
||For details, please refer to “(c) Basis||For details, please refer to “(c) Basis for|
||for internal control evaluation and||internal control evaluation and|
||identification standards for internal||identification standards for internal|
||control defects” under Section III of||control defects” under Section III of The|
|Nature standard||||
||The 2017 Self-Evaluation Report on||2017 Self-Evaluation Report on|
||Internal Control disclosed on||Internal Control disclosed on|
||www.cninfo.com.cn dated 31 March||www.cninfo.com.cn dated 31 March|
||2018.||2018.|
||For details, please refer to “(c) Basis||For details, please refer to “(c) Basis for|
||for internal control evaluation and||internal control evaluation and|
||identification standards for internal||identification standards for internal|
||control defects” under Section III of||control defects” under Section III of The|
|Quantitative standard||||
||The 2017 Self-Evaluation Report on||2017 Self-Evaluation Report on|
||Internal Control disclosed on||Internal Control disclosed on|
||www.cninfo.com.cn dated 31 March||www.cninfo.com.cn dated 31 March|
||2018.||2018.|

The 2017 Annual Report of Midea Group Co., Ltd.
|||
|-|-|
|Number of serious financial-||
||0|
|report-related defects||
|Number of serious non-||
|financial-report-related|0|
|defects||
|Number of important financial-||
||0|
|report-related defects||
|Number of important non-||
|financial-report-related|0|
|defects||

10.Auditor’s Report on Internal Control
√ Applicable□ N/A
|||
|-|-|
|Opinion paragraph in the auditor’s report on internal control||
|The internal control auditor holds the view that on 31 December 2017, Midea Group maintained an effective||
|internal control of a financial report in all significant aspects based on the General Specifications of Company||
|Internal Control and relevant specifications.||
|Auditor’s report on internal||
||Disclosed on www.cninfo.com.cn|
|control disclosed or not||
|Date of disclosing the full text||
|of the auditor’s report on|31 March 2018|
|internal control||
|Index to the disclosed full text||
||For details, please refer to the 2017 Auditor’s Report on Internal Control, which|
|of the auditor’s report on||
||has been disclosed on www.cninfo.com.cn|
|internal control||
|Type of the auditor’s opinion|Unmodified unqualified opinion|
|Serious non-financial-report-||
||No|
|related defects||

The 2017 Annual Report of Midea Group Co., Ltd. Whether any modified opinions are expressed by the accounting firm in itsauditor’s report on theCompany’s internal control
□ Yes√ No
Whether theauditor’s report on theCompany’s internal control issued by the accounting firm is consistent with the self-evaluation report of the Board
√ Yes□ No
Section X Financial Report
1.Auditor’s report
|||
|-|-|
|Type of auditor’s opinion|Standard & unqualified|
|Signing date of auditor’s report|29 March 2018|
|Name of auditor|PricewaterhouseCoopers China (LLP)|
|No. of auditor’s report|PwC ZT Shen Zi (2018) No. 10017|
|Names of certified public accountants|Huang Meimei, Qiu Xiaoying|

Auditor's Report
PwC ZT Shen Zi (2018) No. 10017 (Page 1 of 8) To the shareholders of Midea Group Co., Ltd.,
Opinion
What we have audited
We have audited the accompanying financial statements of Midea Group Co., Ltd. (hereinafter “Midea Group”), which comprise:
 the consolidated and company balance sheets as at 31 December 2017;
 the consolidated and company income statements for the year then ended;
 the consolidated and company cash flow statements for the year then ended;
 the consolidated and company statements of changes inshareholders’ equity for the year then ended; and
 notes to the financial statements.
Our Opinion
In our opinion, the accompanying financial statements present fairly, in all material respects, the consolidated andcompany’s financial position of Midea Group as at 31 December 2017, and their financial performance and cash flows for the year then ended in accordance with the requirements of the Accounting Standards for Business Enterprises (“CASs”).
Basis for Opinion
We conducted our audit in accordance with China Standards on Auditing (“CSAs”). Our responsibilities under those standards are further described in theAuditor’s Responsibilities for the Audit of the Financial Statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
We are independent of Midea Group in accordance with the Code of Ethics for Professional Accountants of the Chinese Institute of Certified Public Accountants (“CICPA Code”), and we have fulfilled our other ethical responsibilities in accordance with the CICPA Code.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matters identified in our audit are summarised as follows:
• Revenue recognition of sales of home appliances
• Fair value assessment of the identifiable net assets relating to the acquisition and recognition of goodwill
• Impairment testing of goodwill
PwC ZT Shen Zi (2018) No. 10017 (Page 2 of 8)
|||
|-|-|
|Key Audit MatterRevenue recognition of sales of homeappliances|How our audit addressed the Key Audit Matter|
|Refer to note 2(27) “Revenue” and note4(33) “Operating income” to theconsolidated financial statements.Revenue is recognised when it’s probablethat the economic benefits associated withthe transaction will flow to Midea Group,the related revenue can be reliablymeasured, and the specific criteria ofrevenue recognition have been met foreach type of Midea Group’s activities. In2017, operating revenue of Midea Groupwas RMB240,712,301,000, around 80% ofwhich is from sales of home appliances.We focused on revenue recognition ofsales of home appliances mainly due toMidea Group’s numerous customers andsales volume at home and abroadachieved by its varied distributionchannels.|Regarding Midea Group’s revenue from sales of homeappliances, we performed the procedures as follows:We interviewed management from operation and financialdepartments in terms of sales processes of all distributionchannels to understand and evaluate the internal controlsof processes relating to sale of home appliances designedby management and tested the operating effectiveness ofkey controls;We checked the sample sales contracts entered into byMidea Group and its customers from all distributionchannels, and analysed and evaluated Midea Group’saccounting policies on the revenue recognition of sales ofhome appliances based on the interview withmanagement, understanding of Midea Group’s businessand our audit experience.Regarding the sales of home appliances through alldistribution channels, we performed the procedures asfollows: We performed risk assessment procedures, such asanalysis of fluctuation in monthly sales of homeappliances and analysis of fluctuation in gross profitmargin, etc.; We checked supporting documents relevant to salesof home appliances on sample basis, including salescontracts, sales orders, sales invoices, shippingorders, acknowledgement of goods receipts signed bycustomers, etc.; We checked sales of home appliances recognisedaround the balance sheet date againstacknowledgement of goods receipts signed bycustomers or billing agreements with customers orother supporting documents to evaluate if the revenuewas recognised in appropriate period.We concluded that the Midea Group’s revenue recognitionof sales of home appliances complied with its applicableaccounting policies based on the audit proceduresperformed.|

PwC ZT Shen Zi (2018) No. 10017 (Page 3 of 8) Key AuditMatters(cont’d)
|||
|-|-|
|Key Audit MatterFair value assessment of theidentifiable net assets relating to theacquisition and recognition of goodwill|How our audit addressed the Key Audit Matter|
|Refer to note 2(5) (b) and note 5(1)“Business combination involvingenterprises not under common control” tothe consolidated financial statements.As at 6 January 2017 (the “AcquisitionDate”), Midea Group completed theacquisition of 81.04% equity interests ofKUKA Aktiengesellschaft (hereinafterreferred to as “KUKA”) at a cashconsideration of RMB27,001,856,000.After that, Midea Group heldapproximately 94.55% equity interests ofKUKA accounting for the 13.51% equityinterests acquired in prior years. KUKAand its subsidiaries (hereinafter referred toas “KUKA Group”) was consolidated byMidea Group from the Acquisition Date,with identifiable net assets ofRMB10,412,360,000 and goodwill (thedifference between the consideration paidfor the acquisition and the shares of thefair value of the identifiable net assets) ofRMB20,698,212,000 recognised. Theincrease of fair value of the identifiable netassets of KUKA Group from its carryingamount mainly represents the recognitionand valuation of intangible assets, such astrademark right, technology, customerrelationship and order backlog.Critical judgements were involved in thefair value assessment of identifiableassets and liabilities, particularly inidentifying and valuation of intangibleassets, which have impact on therecognition of goodwill. Externalindependent valuer was engaged bymanagement to identify the intangibleassets and perform valuation of theidentifiable assets and liabilities.|Regarding the fair value assessment of identifiable netassets relating to the acquisition and recognition ofgoodwill, we performed the procedures as follows:1. We evaluated competency, professional quality andobjectivity of the external valuer, obtained the valuationresults from the external valuer and interviewedmanagement and the external valuer;2. We performed the following procedures with theassistance of our internal valuation specialists:1) We evaluated the appropriateness of valuationmethodologies as adopted by management;2) We tested the accuracy of arithmetic applied incalculating goodwill and the fair value of the identifiableassets and liabilities;3) We evaluated the completeness of the identifiableassets and liabilities by reference to the acquisition-related announcements from the open market, externalanalyst reports on KUKA Group and financialinformation of KUKA Group;4) We read the business development plan prepared bythe management to evaluate the synergies achieved bythe Group in the acquisition and reassessed the overallreasonableness of goodwill recognised in theacquisition;|

PwC ZT Shen Zi (2018) No. 10017
(Page 4 of 8) Key AuditMatters(cont’d)
|||
|-|-|
|Key Audit MatterFair value assessment of the identifiable netassets relating to the acquisition andrecognition of goodwill (cont’d)|How our audit addressed the Key Audit Matter|
|We focused on critical estimates and judgementwith regard to valuation of identifiable assetsand liabilities, especially on the keyassumptions used to identify and valuate theintangible assets, such as revenue growthrates, EBITDA (Earnings Before Interest, Taxes,Depreciation and Amortisation) margins,contributory asset charges, royalty rates,residual useful lives of intangible assetsidentified, discount rates, etc.|5) We evaluated the reasonableness ofmanagement’s cash flows forecasts andweighted average cost of capital based on theinterview with management and by reference tothe historical operating data of KUKA Group,external analyst reports of the industrialdevelopment trend, and risk factors and marketrisk premium of comparable companies. Weevaluated the appropriateness of keyassumptions adopted in the fair valueassessment of intangible assets based on thereasonableness of the above analysis, such asrevenue growth rates, EBITDA margins,contributory asset charges, royalty rates,residual useful lives of intangible assetsidentified, discount rates, etc.We concluded that the audit evidence we haveobtained could support methodologies and keyassumptions adopted by management in the fairvalue assessment of identifiable net assets andrecognition of goodwill based on the audit proceduresperformed.|

PwC ZT Shen Zi (2018) No. 10017
(Page 5 of 8)
Key AuditMatters(cont’d)
|||
|-|-|
|Key Audit MatterImpairment testing of goodwill|How our audit addressed the Key Audit Matter|
|Refer to note 4(13) “Goodwill”.As at 31 December 2017, the goodwill recordedin the consolidated balance sheet of MideaGroup is RMB28,903,785,000, of whichRMB22,202,569,000 and RMB2,695,355,000arising from the acquisition of KUKA Group in2017 and Toshiba Lifestyle Products & ServicesCorporation (“TLSC”) in 2016, respectively.Management believed that it was not necessaryto make impairment provision for the goodwillbased on the impairment testing prepared inaccordance with the accounting policies statedin note 2(20) to the consolidated financialstatements. The impairment testing isperformed by assessing the recoverableamount of the groups of assets containing therelevant goodwill, based on the present value ofcash flows forecasts. Key assumptions adoptedin the impairment testing of goodwill includedexpected revenue growth rates, EBITDAmargins, perpetual annual growth rates,discount rates, etc. which involved criticalaccounting estimates and judgement.We focused on the impairment testing goodwillof RMB 24,897,924,000 arising from acquisitionof KUKA Group and TLSC because the amountwas significant and the impairment testing ofgoodwill involved critical accounting estimatesand judgement.|Regarding the impairment testing of goodwill arisingfrom the acquisition of KUKA Group and TLSC, weperformed the procedures as followings:1. We understood and evaluated the internalcontrols relevant to the impairment testing ofgoodwill, and tested the operating effectivenessof key controls, including the internal controls ofreview and approval of key assumptions adoptedand calculation of the recoverable amounts of thegroups of assets containing the relevantgoodwill;2. We evaluated the appropriateness ofmethodologies of impairment testing of goodwilladopted by management with the assistance ofof our internal valuation specialists, andevaluated and recalculated the discount ratesadopted in the test by comparing industry ormarket data;3. We tested the accuracy of arithmetic applied inthe calculating process of impairment testing ofgoodwill;4. We revaluated the accuracy of historicalestimates by comparing the actual financialperformance of current year with the forecasts ofprior years or at the acquisition date, so as tocheck whether there was any bias frommanagement during the impairment testing ofgoodwill;5. We evaluated the reasonableness of keyassumptions adopted in the impairment testing ofgoodwill, such as expected revenue growthrates, EBITDA margins and perpetual annualgrowth rates, by interviewing with managementand considering the market development.We concluded that the audit evidence we haveobtained could support the accounting estimates andjudgement applied by management in the impairmenttesting of goodwill based on the audit proceduresperformed.|

PwC ZT Shen Zi (2018) No. 10017 (Page 6 of 8) Other Information
Management of Midea Group is responsible for the other information. The other information comprises all of the information included in 2017 annual report of Midea Group other than the financial statements and ourauditor’s report thereon.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management of Midea Group is responsible for the preparation and fair presentation of these financial statements in accordance with the CASs, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing these financial statements, management is responsible for assessing MideaGroup’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate Midea Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing MideaGroup’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether these financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue anauditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with CSAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.
As part of an audit in accordance with CSAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:
PwC ZT Shen Zi (2018) No. 10017 (Page 7 of 8)Auditor’s Responsibilities for the Audit of the FinancialStatements(Cont’d)
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness ofmanagement’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on MideaGroup’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 these financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of ourauditor’s report. However, future events or conditions may cause Midea Group to cease to continue as a going concern.• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within Midea Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
PwC ZT Shen Zi (2018) No. 10017
(Page 8 of 8)Auditor’s Responsibilities for the Audit of the FinancialStatements(Cont’d)
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in ourauditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
PricewaterhouseCoopers Zhong Tian LLP Signing CPA Huang MeiMei
(Engagement Partner) Shanghai, thePeople’s Republic of China Signing CPA Qiu XiaoYing
29 March 2018
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY BALANCE SHEETS
AS AT 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
ASSETS Note 31 December 31 December 31 December 31 December 2017 2016 2017 2016 Consolidated Consolidated Company Company Current assets
Cash at bank and on hand 4(1) 48,274,200 27,169,118 29,349,926 17,135,480 Derivative financial assets 353,327 412,813 - - Notes receivable 4(2) 10,854,226 7,427,488 - - Accounts receivable 4(3) 17,528,717 13,454,511 - - Advances to suppliers 4(4) 1,672,248 1,587,366 23,877 8,252 Loans and advances 4(5) 12,178,953 10,273,397 - - Dividends receivable - - 897,040 285,916 Other receivables 4(3), 18(1) 2,657,568 1,140,133 8,403,564 12,644,592 Inventories 4(6) 29,444,166 15,626,897 - - Including: completed but
unsettled 4(6) 4,023,467 - - - Other current assets 4(7) 46,847,271 43,529,597 27,311,464 24,165,141 Total current assets 169,810,676 120,621,320 65,985,871 54,239,381 Non-current assets
Available-for-sale financial assets 4(8) 1,831,051 5,187,732 56,868 28,931 Long-term receivables 362,248 33,868 - - Long-term equity investments 4(9), 18(2) 2,633,698 2,211,732 24,540,601 23,058,980 Investment properties 420,802 494,122 597,200 604,881 Fixed assets 4(10) 22,600,724 21,056,791 1,245,998 984,666 Construction in progress 4(11) 879,576 580,729 36,313 467,053 Intangible assets 4(12) 15,167,036 6,868,538 231,154 236,083 Goodwill 4(13) 28,903,785 5,730,995 - - Long-term prepaid expenses 859,106 625,971 121,452 46,090 Deferred income tax assets 4(14) 4,023,334 3,030,383 152,069 62,711 Other non-current assets 614,822 4,158,530 9,700 3,342,000 Total non-current assets 78,296,182 49,979,391 26,991,355 28,831,395 TOTAL ASSETS 248,106,858 170,600,711 92,977,226 83,070,776
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY BALANCE SHEETS(CONT’D)
AS AT 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
LIABILITIES AND SHAREHOLDERS'
EQUITY Note 31 December 31 December 31 December 31 December 2017 2016 2017 2016 Consolidated Consolidated Company Company Current liabilities
Short-term borrowings 4(17) 2,584,102 3,024,426 - - Customer deposits and deposits from
108,926 36,708 - - banks and other financial institutions
Derivative financial liabilities 90,432 89,838 - - Notes payable 4(18) 25,207,785 18,484,939 - - Accounts payable 4(19) 35,144,777 25,356,960 - - Advances from customers 4(20) 17,409,063 10,252,375 - - Including: Settled but not completed 4(20) 1,670,855 - - - Employee benefits payable 4(21) 5,247,500 3,154,387 427,806 199,842 Taxes payable 4(22) 3,544,154 2,364,446 45,179 103,848 Interest payable 94,801 21,343 146,513 76,776 Dividends payable 95,317 105,641 - - Other payables 4(23) 3,170,405 1,571,422 57,867,535 54,461,578 Current portion of non-current liabilities 136,605 158,545 - - Other current liabilities 4(24) 26,257,990 24,562,970 40,830 140,264 Total current liabilities 119,091,857 89,184,000 58,527,863 54,982,308 Non-current liabilities
Long-term borrowings 4(25) 32,986,325 2,254,348 - - Debentures payable 4(26) 4,553,054 4,818,769 - - Long-term payable 248,036 366,881 - - Payables for specific projects 2,500 2,405 - - Provisions 330,736 325,217 - - Deferred revenue 536,443 502,316 - - Long-term Employee benefits payable 4(27) 2,465,854 1,449,954 - - Deferred income tax liabilities 4(14) 3,972,823 1,831,973 - - Other non-current liabilities 994,059 888,152 - - Total non-current liabilities 46,089,830 12,440,015 - - Total liabilities 165,181,687 101,624,015 58,527,863 54,982,308 Shareholders' equity
Share capital 4(28) 6,561,053 6,458,767 6,561,053 6,458,767 Capital surplus 4(29) 15,911,504 13,596,569 7,726,237 5,455,268 Less: Treasury stock 4(28) (366,842) - (366,842) - Other comprehensive income 4(30) (244,692) 13,125 33,459 (9,069) General reserve 366,947 148,602 - - Surplus reserve 4(31) 3,882,232 2,804,469 3,882,232 2,804,469 Undistributed profits 4(32) 47,627,235 38,105,391 16,613,224 13,379,033 Total equity attributable to
73,737,437 61,126,923 34,449,363 28,088,468 shareholders of the parent company
Minority interests 9,187,734 7,849,773 - - Total shareholders' equity 82,925,171 68,976,696 34,449,363 28,088,468 TOTAL LIABILITIES AND
248,106,858 170,600,711 92,977,226 83,070,776 SHAREHOLDERS' EQUITY
The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department: Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY INCOME STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2017 2016 2017 2016 Item Note Consolidated Consolidated Company Company 1. Total revenue 241,918,896 159,841,701 1,565,670 1,193,744 4(33),
Including: Operating revenue 18(3) 240,712,301 159,044,041 1,565,670 1,193,744 Interest income 4(34) 1,206,582 789,414 - - Fee and commission income 13 8,246 - - Less: Cost of sales 4(33) (180,460,552) (115,615,437) (38,819) (38,713) Interest expenses 4(34) (250,925) (439,607) - - Fee and commission expenses (2,717) (2,839) - - Taxes and surcharges 4(35) (1,416,428) (1,077,119) (26,607) (29,741) Selling and distribution expenses 4(36) (26,738,673) (17,678,451) - - General and administrative
expenses 4(37) (14,780,236) (9,620,777) (694,314) (718,487) Finance expenses-net value 4(38) (815,949) 1,005,979 (328,000) (740,586) Asset impairment loss 4(39) (269,112) (380,812) (50) (475) Add: Gains/(losses) on changes in fair
value 4(40) (25,045) 117,376 - 22,618 4(41),
Investment income 18(4) 1,830,221 1,285,961 10,214,403 9,853,358 Including: Share of profit of
associates 310,016 165,904 209,908 247,016 Gains/(losses) on disposal of
assets 4(42) 1,327,251 (111,874) (95) 9,573 Other income 4(43) 1,311,123 - 9,996 - 2. Operating profit 21,627,854 17,324,101 10,702,184 9,551,291 Add: Non-operating income 467,204 1,758,220 1,961 46,494 Less: Non-operating expenses (240,284) (167,718) (1,216) (2,139) 3. Total profit 21,854,774 18,914,603 10,702,929 9,595,646 Less: Income tax expenses 4(44) (3,243,584) (3,052,691) 74,702 (16,183) 4. Net profit 18,611,190 15,861,912 10,777,631 9,579,463 Classified by continuity of operations
Net profit from continuing operations 18,611,190 15,861,912 10,777,631 9,579,463 Net profit from discontinued operations - - - - Classified by ownership of the equity
Attributable to equity owners of the
Company 17,283,689 14,684,357 10,777,631 9,579,463 Minority interests 1,327,501 1,177,555 - -
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY INCOME STATEMENTS (CONT'D)
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
Note 2017 2016 2017 2016 Item Consolidated Consolidated Company Company 5. Other comprehensive income net of tax (310,628) 1,188,215 42,528 (30,075) Attributable to shareholders of the parent
company (257,817) 1,084,276 42,528 (30,075) (1) Other comprehensive income items which
will not be reclassified subsequently to
profit or loss (31,132) 82,223 - - 1)Remeasurements of post-employment
benefit obligations (31,132) 82,223 - - 2)Share of the other comprehensive
income of the investee accounted for
using equity method which will not be
reclassified subsequently to profit
and loss - - - - (2) Other comprehensive income items which
will be reclassified subsequently to profit
or loss (226,685) 1,002,053 42,528 (30,075) 1)Share of the other comprehensive
income of the investee accounted for
using equity method which will be (36,017) (73,811) (24,431) (30,075) 2)Crheacnlagsessi fiiend f aisr uvbaslueeq uoefn atlvya iltaob lep-rfoofri-t
asanlde lfoinsas ncial assets (240,597) 231,672 66,959 - 3)Effective portion of cash flow hedging
gains or losses 318,553 199,356 - - 4)Translation of foreign currency
financial statements (268,624) 644,836 - - Attributable to minority shareholders (52,811) 103,939 - - 6. Total comprehensive income 18,300,562 17,050,127 10,820,159 9,549,388 Attributable to shareholders of the parent
company 17,025,872 15,768,633 10,820,159 9,549,388 Attributable to minority shareholders 1,274,690 1,281,494 - - 7. Earnings per share
Basic earnings per share (RMB Yuan) 4(45) 2.66 2.29 N/A N/A Diluted earnings per share (RMB Yuan) 4(45) 2.63 2.28 N/A N/A The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department: Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
CONSOLIDATED AND COMPANY CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2017 2016 2017 2016 Item Note Consolidated Consolidated Company Company 1. Cash flows from operating activities
Cash received from sales of goods or rendering of
services 195,820,338 153,324,273 - - Net increase in customer deposits and deposits from
banks and other financial institutions 72,218 - - - Net decrease in deposits with central bank - 286,915 - - Cash received from interest, fee and commission 1,175,477 783,936 - - Refund of taxes and surcharges 5,476,543 5,124,402 - - Cash received relating to other operating activities 4(46)(a) 4,771,036 3,139,286 9,432,057 11,327,292 Sub-total of cash inflows 207,315,612 162,658,812 9,432,057 11,327,292 Cash paid for goods and services (116,508,042) (89,440,654) - - Net increase in loans and advances (1,933,348) (3,785,600) - - Net decrease in customer deposits and deposits
from banks and other financial institutions - (15,292) - - Net increase in deposits with central bank (1,158,040) - - - Cash paid for interest, fee and commission (253,650) (442,446) - - Cash paid to and on behalf of employees (22,740,541) (11,652,740) (117,436) (28,966) Payments of taxes and surcharges (11,139,448) (8,824,342) (104,073) (57,284) Cash paid relating to other operating activities 4(46)(b) (29,139,920) (21,802,729) (276,406) (5,370,055) Sub-total of cash outflows (182,872,989) (135,963,803) (497,915) (5,456,305) Net cash flows from operating activities 4(46)(c) 24,442,623 26,695,009 8,934,142 5,870,987 2. Cash flows from investing activities
Cash received from disposal of investments 85,127,382 73,905,220 49,824,940 37,846,031 Cash received from returns on investments 2,727,603 1,954,049 10,054,584 10,003,516 Net cash received from disposal of fixed assets,
intangible assets and other long-term assets 1,441,101 191,159 12,049 111 Net cash received from disposal of subsidiaries and
other business units - 272,899 - - Sub-total of cash inflows 89,296,086 76,323,327 59,891,573 47,849,658 Cash paid to acquire fixed assets, intangible assets
and other long-term assets (3,218,402) (2,323,430) (246,073) (297,767) Cash paid to acquire investments (94,967,122) (90,880,725) (45,264,526) (44,445,211) Net cash paid to acquire subsidiaries and other
business units 4(46)(d) (25,850,170) (2,900,256) - - Sub-total of cash outflows (124,035,694) (96,104,411) (45,510,599) (44,742,978) Net cash flows from investing activities (34,739,608) (19,781,084) 14,380,974 3,106,680 3. Cash flows from financing activities
Cash received from capital contributions 1,668,205 814,845 1,625,153 782,252 Including: Cash received from capital contributions
by minority shareholders of subsidiaries 43,052 32,593 - - Cash received from borrowings 62,169,886 32,422,027 1,600,000 1,800,000 Cash received from issuing short-term financing
bonds - 1,999,500 - 1,999,500 Sub-total of cash inflows 63,838,091 35,236,372 3,225,153 4,581,752 Cash repayments of borrowings (36,074,251) (26,961,143) (1,600,000) (3,090,000) Cash payments for short-term financing bonds - (1,999,500) - (1,999,500) Cash payments for interest expenses and
distribution of dividends or profits (7,908,056) (6,046,355) (7,136,641) (6,540,012) Including: Cash payments for dividends or profit to
minority shareholders of subsidiaries (815,164) (563,320) - - Cash payments relating to other financing activities (204,139) (69,462) - - Sub-total of cash outflows (44,186,446) (35,076,460) (8,736,641) (11,629,512) Net cash flows from financing activities 19,651,645 159,912 (5,511,488) (7,047,760) 4. Effect of foreign exchange rate changes on cash
and cash equivalents (36,737) 252,576 - - 5. Net decrease in cash and cash equivalents 9,317,923 7,326,413 17,803,628 1,929,907 Add: Cash and cash equivalents at beginning of year 12,513,730 5,187,317 8,174,915 6,245,008 6. Cash and cash equivalents at end of year 4(46)(e) 21,831,653 12,513,730 25,978,543 8,174,915 The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department: Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
Minority Shareholders' Attributable to shareholders of the parent company shareholders equity Other
Share Capital Less: comprehensive General Surplus Undistributed
Item capital surplus Treasury stock income reserve reserve profits Equity Total (Note4(28)(b))
Balance at 1 January 2016 4,266,839 14,511,190 - (1,071,151) 118,624 1,846,523 29,529,827 6,829,770 56,031,622 Movements for the year ended 31
December 2016
Total comprehensive income
Net profit - - - - - - 14,684,357 1,177,555 15,861,912 Other comprehensive income net
of tax - - - 1,084,276 - - - 103,939 1,188,215 Total comprehensive income - - - 1,084,276 - - 14,684,357 1,281,494 17,050,127 Capital contribution and withdrawal
by shareholders
Capital contribution form
shareholders 58,232 1,007,110 - - - - - 32,593 1,097,935 Business combinations - - - - - - - 339,543 339,543 Share-based payment included in
shareholders' equity - 228,634 - - - - - 72,957 301,591 Profit distribution
Appropriation to general reserve - - - - 29,978 - (29,978) - - Appropriation to surplus reserve - - - - - 957,946 (957,946) - - Profit distribution to shareholders - - - - - - (5,120,869) (550,321) (5,671,190) Capital addition from capital surplus 2,133,696 (2,133,696) - - - - - - - Others - (16,669) - - - - - (156,263) (172,932) Balance at 31 December 2016 6,458,767 13,596,569 - 13,125 148,602 2,804,469 38,105,391 7,849,773 68,976,696
MIDEA GROUP CO., LTD.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONT'D)
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
Minority Shareholders' Attributable to shareholders of the parent company shareholders equity Other
Share Capital Less: comprehensive General Surplus Undistributed
Item capital surplus Treasury stock income reserve reserve profits Equity Total (Note4(28)(b))
Balance at 1 January 2017 6,458,767 13,596,569 - 13,125 148,602 2,804,469 38,105,391 7,849,773 68,976,696 Movements for the year ended 31
December 2017
Total comprehensive income
Net profit - - - - - - 17,283,689 1,327,501 18,611,190 Other comprehensive income net
of tax - - - (257,817) - - - (52,811) (310,628) Total comprehensive income - - - (257,817) - - 17,283,689 1,274,690 18,300,562 Capital contribution and withdrawal
by shareholders
Capital contribution from
shareholders 102,286 1,947,025 (366,842) - - - - 43,052 1,725,521 Business combinations - - - - - - - 647,230 647,230 Share-based payment included in
shareholders' equity - 326,005 - - - - - 106,263 432,268 Profit distribution
Appropriation to general reserve - - - - 218,345 - (218,345) - - Appropriation to surplus reserve - - - - - 1,077,763 (1,077,763) - - Profit distribution to shareholders - - - - - - (6,465,677) (733,274) (7,198,951) Capital addition from capital surplus - - - - - - - - - Others - 41,905 - - - - (60) - 41,845 Balance at 31 December 2017 6,561,053 15,911,504 (366,842) (244,692) 366,947 3,882,232 47,627,235 9,187,734 82,925,171 The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department:
Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
Other Total Share Less: comprehensive Surplus Undistributed shareholders' Item Note capital Capital surplus Treasury stock income reserve profits equity Balance at 1 January 2016 4,266,839 6,370,934 - 21,006 1,846,523 9,878,385 22,383,687 Movements for the year ended 31
December 2016
Total comprehensive income
Net profit - - - - - 9,579,463 9,579,463 Other comprehensive income net of tax - - - (30,075) - - (30,075) Total comprehensive income - - - (30,075) - 9,579,463 9,549,388 Capital contribution and withdrawal by
shareholders
Capital contribution from shareholders 58,232 1,007,110 - - - - 1,065,342 Share-based payment included in
shareholders' equity - 210,663 - - - - 210,663 Profit distribution
Appropriation to surplus reserve - - - - 957,946 (957,946) - Profit distribution to shareholders - - - - - (5,120,869) (5,120,869) Capital addition from capital surplus 2,133,696 (2,133,696) - - - - - Others - 257 - - - - 257 Balance at 31 December 2016 6,458,767 5,455,268 - (9,069) 2,804,469 13,379,033 28,088,468
MIDEA GROUP CO., LTD.
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2017(cont’d)
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
Other Total Share Less: comprehensive Surplus Undistributed shareholders' Item Note capital Capital surplus Treasury stock income reserve profits equity Balance at 1 January 2017 6,458,767 5,455,268 - (9,069) 2,804,469 13,379,033 28,088,468 Movements for the year ended 31
December 2017
Total comprehensive income
Net profit - - - - - 10,777,631 10,777,631 Other comprehensive income net of
tax - - - 42,528 - - 42,528 Total comprehensive income - - - 42,528 - 10,777,631 10,820,159 Capital contribution and withdrawal by
shareholders
Capital contribution from shareholders 102,286 1,947,025 (366,842) - - - 1,682,469 Share-based payment included in
shareholders' equity - 284,329 - - - - 284,329 Profit distribution
Appropriation to surplus reserve - - - - 1,077,763 (1,077,763) - Profit distribution to shareholders - - - - - (6,465,677) (6,465,677) Capital addition from capital surplus - - - - - - - Others - 39,615 - - - - 39,615 Balance at 31 December 2017 6,561,053 7,726,237 (366,842) 33,459 3,882,232 16,613,224 34,449,363 The accompanying notes form an integral part of these financial statements.
Legal representative: Principal in charge of accounting function: Head of accounting department:
Fang Hongbo Xiao Mingguang Chen Lihong
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
1 General information
The operational activities of Midea Group Co. Ltd. (hereinafter referred to as the “Company”) and its subsidiaries (collectively referred to as the “Group”) are principally engaged in the manufacturing and sale of home appliances, design and implementation of scheme for robots and industrial automation system. Other operations include sale, wholesale and processing of raw materials of home appliances and financial business, which includes customer deposits, interbank lending, consumption credit,buyer’s credit and finance lease. The Company was promoted and set up by the Council of Trade Unions of GD Midea Group Co. Ltd., and was registered in Market Safety Supervision Bureau of Shunde District, Foshanon 7 April 2000, with its headquarters located in Shunde District, Foshan. On 30 August 2012, the Company was transformed into a limited liability company. On 29 July 2013, the Company was approved to acquire additional interests in Guangdong Midea Electric Co., Ltd., a subsidiary listed on Shenzhen Stock Exchange. On 18 September 2013, theCompany’s shares became listed on Shenzhen Stock Exchange through share issuance and share exchange.
As at 31 December 2017, the Company's registered capital is RMB6,561,053,319 and the total number of shares in issue is 6, 561,053,319, of which 212,022,910 shares are restricted tradable shares and 6,349,030,409 shares are unrestricted tradable shares.
The detailed information of major subsidiaries included in the consolidation scope in the current year is set out in Note 5 and 6. Entities newly included in the consolidation scope in the current year include Guangdong Midea Electric Co., Ltd., Guangdong Midea Intelligent Robotics Co., Ltd., Chongqing Midea Microfinance Loan Co., Ltd., Guangdong Midea Advanced Technologies Co., Ltd., Hefei Midea Advanced Technologies Co., Ltd., Guangdong Midea Kafei Coffee Machine Manufacturing Co., Ltd., Midea Electric Netherlands (I) B.V., KUKA Aktiengesellschaft (“KUKA”) and its subsidiaries (“KUKA Group”), Servotronix and its subsidiaries (“SMC”), Dongguan Alba Industries Co., Ltd., (“Dongguan Kafei”) and Fujitsu South China Technology Services Limited (“Fujitsu”). Please refer to Note 5(1) and 5(2)(a) for details. The detailed information of subsidiaries no longer included in the consolidation scope in the current year is set out in Note 5(2)(b).
These financial statements were authorised for issue by theCompany’s Board of Directors on 29 March 2018.
2 Summary of significant accounting policies and accounting estimates
The Group determines specific accounting policies and accounting estimates based on the features of production and operation, mainly including the recognition method of provision for bad debts of accounts receivable (Note 2(10)), valuation method of inventory (Note 2(12)), depreciation of fixed assets and amortisation of intangible assets (Note (15) and (18)), and recognition time of revenue (Note 2(27)).
Critical judgements applied by the Group in determining significant accounting policies are set out in Note 2(33).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates(Cont’d)
(1) Basis of preparation
The financial statements are prepared in accordance with the Accounting Standard for Business Enterprises - Basic Standard, and the specific accounting standards and other relevant regulations issued by the Ministry of Finance on 15 February 2006 and in subsequent periods (hereafter collectively referred to as “the Accounting Standards for Business Enterprises” or “CAS”) and the disclosure requirements in the Preparation Convention of Information Disclosure by Companies Offering Securities to the Public No.15– General Rules on Financial Reporting issued by the China Securities Regulatory Commission.
The financial statements are prepared on a going concern basis.
(2) Statement of compliance with the Accounting Standards for Business Enterprises The financial statements of the Company for the year ended 31 December 2017 are in compliance with the Accounting Standards for Business Enterprises, and truly and completely present the financial position of the consolidated and the Company as at 31 December 2017 and their financial performance, cash flows and other information for the year then ended.
(3) Accounting period
TheCompany’s accounting year starts on 1 January and ends on 31 December.
(4) Functional currency
The functional currency of the Company is the Renminbi (“RMB”). The Company and its subsidiaries determine their functional currency based on the primary economic environment in which the business is operated, mainly including KUKAGroup’s functional currency-EUR and Toshiba lifestyle Products& Services Corporation(“TLSC”)’s functional currency-JPY. The financial statements are presented in RMB.
(5) Business combinations
(a) Business combinations involving enterprises under common control
The consideration paid and net assets obtained by the absorbing party in a business combination are measured at the carrying amount. If the absorbing party was bought by the ultimate controller from a third party in prior years, the value of its assets and liabilities (including goodwill generated due to the combination) are based on the carrying amount in the ultimatecontroller’s consolidated financial statements. The difference between the carrying amount of the net assets obtained from the combination and the carrying amount of the consideration paid for the combination is treated as an adjustment to capital surplus (share premium). If the capital surplus (share premium) is not sufficient to absorb the difference, the remaining balance is adjusted against retained earnings. Costs directly attributable to the combination are included in profit or loss in the period in which they are incurred. Transaction costs associated with the issue of equity or debt securities for the business combination are included in the initially recognised amounts of the equity or debt securities.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates(Cont’d)
(5) Business combinations
(b) Business combinations involving enterprises not under common control
The cost of combination and identifiable net assets obtained by the acquirer in a business combination are measured at fair value at the acquisition dates. Where the cost of the combination exceeds theacquirer’s interest in the fair value of theacquiree’s identifiable net assets, the difference is recognised as goodwill; where the cost of combination is lower than theacquirer’s interest in the fair value of theacquiree’s identifiable net assets, the difference is recognised in profit or loss for the current period. Costs directly attributable to the combination are included in profit or loss in the period in which they are incurred. Transaction costs associated with the issue of equity or debt securities for the business combination are included in the initially recognised amounts of the equity or debt securities. For business combinations achieved by stages involving enterprises not under common control, previously-held equity in the acquiree is remeasured at its fair value at the acquisition dates, and the difference between its fair value and carrying amount is included in investment income for the current period in consolidated financial statements. Where the previously-held equity in the acquiree involves other comprehensive income under equity method andshareholders’ equity changes other than those arising from the net profit or loss, other comprehensive income and profit distribution, the related other comprehensive income and other shareholders' equity changes are transferred into income for the current period to which the acquisition dates belongs, excluding those arising from changes in the investee's remeasurement of net liability or net asset related to the defined benefit plan. The excess of the sum of fair value of the previously-held equity and fair value of the consideration paid at the acquisition dates over share of fair value of identifiable net assets acquired from the subsidiary is recognised as goodwill.
(6) Preparation of consolidated financial statements
The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries.
Subsidiaries are consolidated from the date on which the Group obtains control and are de- consolidated from the date that such control ceases. For a subsidiary that is acquired in a business combination involving enterprises under common control, it is included in the consolidated financial statements from the date when it, together with the Company, comes under common control of the ultimate controlling party. The portion of the net profits realised before the combination date is presented separately in the consolidated income statement. In preparing the consolidated financial statements, where the accounting policies and the accounting periods of the Company and subsidiaries are inconsistent, the financial statements of the subsidiaries are adjusted in accordance with the accounting policies and the accounting period of the Company. For subsidiaries acquired from business combinations involving enterprises not under common control, the individual financial statements of the subsidiaries are adjusted based on the fair value of the identifiable net assets at the acquisition dates.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates(Cont’d)
(6) Preparation of consolidated financial statements(Cont’d)
All significant intra-group balances, transactions and unrealised profits are eliminated in the consolidated financial statements. The portion ofsubsidiaries’ equity and the portion of asubsidiaries’ net profits and losses and comprehensive incomes for the period not attributable to Company are recognised as minority interests and presented separately in the consolidated financial statements under equity, net profits and total comprehensive income respectively. Unrealised profits and losses resulting from the sale of assets by the Company to its subsidiaries are fully eliminated against net profit attributable to shareholders of the parent company. Unrealised profits and losses resulting from the sale of assets by a subsidiary to the Company are eliminated and allocated between net profit attributable to shareholders of the parent and minority interests in accordance with the allocation proportion of the parent in the subsidiary.
Unrealised profits and losses resulting from the sale of assets by one subsidiary to another are eliminated and allocated between net profit attributable to shareholders of the parent and minority interests in accordance with the allocation proportion of the parent in the
subsidiary. If the accounting treatment of a transaction which considers the Group as an accounting entity is different from that considers the Company or its subsidiaries as an accounting entity, it is adjusted from the perspective of the Group.
(7) Recognition criteria of cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits that can be readily drawn on demand, and short-term and highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.
(8) Foreign currency translation
(a) Foreign currency transaction
Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the dates of the transactions.
At the balance sheet date, monetary items denominated in foreign currencies are translated into functional currency using the spot exchange rates on the balance sheet date. Exchange differences arising from these translations are recognised in profit or loss for the current period, except for those attributable to foreign currency borrowings that have been taken out specifically for the acquisition or construction of qualifying assets, which are capitalised as part of the cost of those assets. Non-monetary items denominated in foreign currencies that are measured at historical costs are translated at the balance sheet date using the spot exchange rates at the date of the transactions. The effect of exchange rate changes on cash is presented separately in the cash flow statement.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates(Cont’d)
(8) Foreign currency translation(Cont’d)
(b) Translation of foreign currency financial statements
The asset and liability items in the balance sheets for overseas operations are translated at the spot exchange rates on the balance sheet date. Among theshareholders’ equity items, the items other than “undistributed profits” are translated at the spot exchange rates of the transaction dates. The income and expense items in the income statements of overseas operations are translated at the spot exchange rates of the transaction dates. The differences arising from the above translation are presented in other comprehensive income. The cash flows of overseas operations are translated at the spot exchange rates on the dates of the cash flows. The effect of exchange rate changes on cash is presented separately in the cash flow statement.
(9) Financial instruments
(a) Financial assets
(i) Classification of financial assets
Financial assets are classified into the following categories at initial recognition: financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. The classification of financial assets depends on theGroup’s intention and ability to hold the financial assets.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for the purpose of selling in the short term and Derivative financial instruments.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, including cash at bank and on hand, deposits with central bank, deposits with banks and other financial institutions, loans and advances, interest receivable, dividends receivable, accounts receivable and structural deposits with banks.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any of the other categories at initial recognition. Available-for-sale financial assets are included in other current assets on the balance sheet if management intends to dispose of them within 12 months after the balance sheet date.
(ii) Derivative financial instruments
The derivative financial instruments held or issued by the Group are mainly used in controlling risk exposures. Derivative financial instruments are initially recognised at fair value on the day when derivatives transaction contract was signed, and subsequently measured at fair value. The derivative financial instruments are recorded as assets when they have a positive fair value and as liabilities when they have a negative fair value.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates(Cont’d)
(9) Financial instruments(Cont’d)
(a) Financial assets(Cont’d)
(ii) Derivative financial instruments(Cont’d)
The recognition of changes in fair value of derivative financial instruments depends on whether such derivative financial instruments are designated as hedging instruments and meet requirements for hedging instruments, and depends on the nature of hedged items in this case. For derivative financial instruments that are not designated as hedging instruments and fail to meet requirements on hedging instruments, including those held for the purpose of providing hedging against specific risks in interest rate and foreign exchange but not conforming with requirements of hedge accounting, the changes in fair value are recorded in gains or losses arising from changes in fair value in the consolidated income statement.
At the inception of the transaction, the Group officially designates the hedging relations between hedging instruments and hedged items and documents the hedging relations, risk management objectives and hedging strategies. The Group also makes written assessment of the effectiveness of hedging instruments in offsetting changes in the fair value or cash flow of hedged items. These criteria should be met before hedging accounting is determined as applicable to such hedges.
Cash flow hedge
Cash flow hedge is a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognised asset or liability (such as all or some future interest payments on variable rate debt) or a highly probable forecast transaction that could ultimately affect the profit or loss.
The effective portion of changes in the fair value of hedging instruments that are designated and qualify as cash flow hedges is recognised in other comprehensive income in current year and accumulated in equity in the “other comprehensive income”. The ineffective portion is recognised immediately in the profit or loss.
Amounts accumulated in equity are reclassified to the profit or loss in the same periods when the hedged item affects the profit or loss.
When a hedging instrument expires or is sold, or the hedge designation is revoked or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss on the hedging instrument existing in equity at that time remains in equity and is reclassified to the profit or loss when the forecast transaction ultimately occurs. When a forecast transaction is no longer expected to occur, the cumulative gain or loss existing in equity is immediately transferred to the profit or loss.
(iii) Recognition and measurement
Financial assets are recognised at fair value on the balance sheet when the Group becomes a party to the contractual provisions of the financial instrument. In the case of financial assets at fair value through profit or loss, the related transaction costs incurred at the time of acquisition are recognised in profit or loss for the current period. For other financial assets, transaction costs that are attributable to the acquisition of the financial assets are included in their initially recognised amounts.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates(Cont’d)
(9) Financial instruments(Cont’d)
(a) Financial assets(Cont’d)
(iii) Recognition and measurement(Cont’d)
Financial assets at fair value through profit or loss and available-for-sale financial assets are subsequently measured at fair value. Investments in equity instruments are measured at cost when they do not have a quoted market price in an active market and whose fair value cannot be reliably measured. Receivables and held-to-maturity investments are measured at amortised cost using the effective interest method.
Gains or losses arising from change in the fair value of financial assets at fair value through profit or loss are recognised in profit or loss. Interests and cash dividends received during the period in which such financial assets are held, as well as the gains or losses arising from disposal of these assets are recognised in profit or loss for the current period.
Gains or losses arising from change in fair value of available-for-sale financial assets are recognised directly in equity, except for impairment losses and foreign exchange gains and losses arising from translation of monetary financial assets. When such financial assets are derecognised, the cumulative gains or losses previously recognised directly into equity are recycled into profit or loss for the current period. Interests on available-for-sale investments in debt instruments calculated using the effective interest method during the period in which such investments are held and cash dividends declared by the investee on available-for- sale investments in equity instruments are recognised as investment income, which is recognised in profit or loss for the period.
(iv) Impairment of financial assets
The Group assesses the carrying amounts of financial assets other than those at fair value through profit or loss at each balance sheet date. If there is objective evidence that a financial asset is impaired, an impairment loss is provided for.
Objective evidence indicating impairment of financial assets refers to the matter that actually occurs after the initial recognition of financial assets, it will affect estimated future cash flows of financial assets, and its impact can be reliably measured.
Objective evidence indicating impairment of available-for-sale investments in equity instruments includes a significant or prolonged decline in the fair value of an investment in an equity instrument. The Group reviews available-for-sale investments in equity instruments on an individual basis at the balance sheet date. If the fair value of an equity instrument investment at the balance sheet date is lower than50% (inclusive) of its initial cost for more than 12 months (inclusive), it indicates that the impairment has occurred. If the fair value at the balance sheet date is lower than20% (inclusive) but no more than50%, the Group considers other relevant factors, such as price fluctuation rate, to determine whether an impairment of equity instrument investment occurs. The Group calculates the initial investment cost of available-for-sale equity instruments by using weighted average method.
When an impairment loss on a financial asset carried at amortised cost has occurred, the amount of loss is provided for at the difference between theasset’s carrying amount and the present value of its estimated future cash flows (excluding future credit losses that have not been incurred). If there is objective evidence that the value of the financial asset recovered and the recovery is related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is reversed and the amount of
reversal is recognised in profit or loss.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates(Cont’d)
(9) Financial instruments(Cont’d)
(a) Financial assets(Cont’d)
(iv) Impairment of financial assets(Cont’d)
If an impairment loss on available-for-sale financial assets measured at fair value incurs, the cumulative losses arising from the decline in fair value that had been recognised directly in shareholders' equity are transferred out from equity and into impairment loss. For an investment in debt instrument classified as available-for-sale on which impairment losses have been recognised, if, in a subsequent period, its fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the previously recognised impairment loss is reversed into profit or loss for the current period. For an investment in an equity instrument classified as available-for-sale on which impairment losses have been recognised, the increase in its fair value in a subsequent period is recognised directly in equity.
If an impairment loss on an available-for-sale financial asset measured at cost incurs, the amount of loss is measured at 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. The previously recognised impairment loss will not be reversed in subsequent periods.
Please refer to Note 2(10) for accounting policies related to impairment of receivables. (v) Derecognition of financial assets
A financial asset is derecognised when any of the below criteria is met: (1) the contractual rights to receive the cash flows from the financial asset expire; (2) the financial asset has been transferred and the Group transfers substantially all the risks and rewards of ownership of the financial asset to the transferee; or (3) the financial asset has been transferred and the Group has not retained control of the financial asset, although the Group neither transfers nor retains substantially all the risks and rewards of ownership of the financial asset.
On derecognition of a financial asset, the difference between the carrying amount and the sum of the consideration received and the cumulative changes in fair value that had been recognised directly in equity, is recognised in profit or loss.
(b) Financial liabilities
Financial liabilities are classified into two categories at initial recognition: financial liabilities at fair value through profit or loss and other financial liabilities. The Group's financial liabilities include derivative financial liabilities, accounts payable, notes payable, borrowings, customer deposits and deposits from banks and other financial institutions, financial assets sold under repurchase agreements and interest payable.
Payables comprise accounts payable, other payables and other current liabilities, and are recognised at fair value at initial recognition. Payables are subsequently measured at amortised cost using the effective interest method.
Borrowings and debentures payable are recognised initially at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest method.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates(Cont’d)
(9) Financial instruments(Cont’d)
(b) Financial liabilities(Cont’d)
Other financial liabilities with maturities no more than one year are classified as current liabilities. Other financial liabilities with maturities over one year but are due within one year (inclusive) since the balance sheet date are classified as the current portion of non-current liabilities. Others are classified as non-current liabilities.
A financial liability (or a part of a financial liability) is derecognised when all or part of the obligation is extinguished. The difference between the carrying amount of the financial liability or the derecognised part of the financial liability and the consideration paid is recognised in profit or loss.
(c) Determination of fair value of financial instruments
The fair value of a financial instrument that is traded in an active market is determined at the quoted price in the active market. The fair value of a financial instrument that is not traded in an active market is determined by using a valuation technique. In valuation, the Group uses a valuation technique that is applicable in the current situation and supported by adequate available data and other information, selects inputs with the same characteristics as those of assets or liabilities considered in relevant trade of assets or liabilities by market participants, and maximises the use of relevant observable inputs. The Group uses unobservable inputs when relevant observable inputs are not available or feasible.
(10) Receivables
Receivables comprise accounts receivable, other receivables and notes receivable. Accounts receivable arising from sales of goods or rendering of services are initially recognised at fair value of the contractual payments from the buyers or service recipients. (a) Receivables with amounts that are individually significant and subject to separate assessment for provision for bad debts
Receivables with amounts that are individually significant are subject to separate assessment for impairment. If there exists objective evidence that the Group will not be able to collect the amount under the original terms, a provision for impairment of that receivable is made.
The judgement standard for individually significant amount is an individual amount exceeding RMB5,000,000 for accounts receivable and RMB500,000 for other receivables. The Group makes provision for bad debts for those individually significant amounts based on the amount by which the present value of the future cash flows expected to be derived from the receivable is below its carrying amount.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(10) Provision for bad debts of receivables (Cont'd)
(b) Accounts receivable and other receivables that are subject to provision for bad debts on the grouping basis
Receivables with amounts that are not individually significant and those receivables that have been individually assessed for impairment and have not been found impaired are classified into certain groupings based on their credit risk characteristics. The provision for bad debts is determined based on the historical loss experience for the groupings of receivables with similar credit risk characteristics, taking into consideration of the current circumstances.
The Group assesses the recovery risk of receivables based on the characteristics of different regions. No provision for bad debts of notes receivables was made because the notes receivable are all bank-acceptance bills with low credit risk.
The Company's subsidiaries in Mainland China classify the credit risk groupings by taking the ageing of receivables as the risk characteristics and determine different provision ratios based on business features.
Within 6 6 months 1 to 2 2 to 3 3 to 5 Over 5 months to 1 year years years years years Heating Ventilating& Air
Conditioning (“HVAC”) 0%,5% 5% 10% 30% 50% 100% Consumer appliances 0%,5% 5% 10% 30% 50% 100% Robots and automatic
5% 5% 10% 30% 50% 100% system
Others 0%,5% 5% 10% 30% 50% 100% The Company's subsidiaries in Japan classify the credit risk groupings by taking the overdue of receivables as the risk characteristics and make bad debts provision based on the average percentage of bad debts during last three years by using percentage-of- balance method. For the receivables that are overdue, they make bad debts provision on an individual basis.
The Company's subsidiaries in Hong Kong, Macau, Singapore and Italy make bad debts provision for receivables on an individual basis.
The Company's subsidiaries in Brazil make no bad debts provision for receivables with the ageing within 1 year and adopt100% provision ratio for those with the ageing over 1 year. The Company's subsidiaries in Germany classify the credit risk groupings by taking the expiring date of receivables as the risk characteristics.
The Company's subsidiaries in Israel classify the credit risk groupings by taking the ageing of receivables as the risk characteristics.
(c) Accounts receivable and other receivables with amounts that are not individually significant but subject to separate assessment for provision for bad debts
The reason for making separate assessment for provision for bad debts is that there exists objective evidence that the Group will not be able to collect the amount under the original
terms of the receivable.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(10) Provision for bad debts of receivables (Cont'd)
(c) Accounts receivable and other receivables with amounts that are not individually significant but subject to separate assessment for provision for bad debts (Cont'd)
The provision for bad debts is determined based on the amount by which the present value of the future cash flows expected to be derived from the receivable is below its carrying amount.
(d) When the Group transfers the accounts receivable to the financial institutions without recourse, the difference between the proceeds received from the transaction and their carrying amounts and the related taxes is recognised in profit or loss for the current period. (11) Provision for bad debts of loans and advances
The provision for bad debts of loans and advances is provided by five-tier loan classification of ending balances of loans and advances as follows:
The Five-class Classification Provision ratio Pass Risk Assets 1.5% Special mention Risk Assets 3.0% Substandard Risk Assets 30.0% Doubtful Risk Assets 60.0% Loss Risk Assets 100.0% (12) Inventories
(a) Classification of inventories
Inventories, including raw materials, consigned processing materials, low value consumables, work in progress, completed but unsettled products and finished goods, etc., are measured at the lower of cost and net realisable value.
The amount of completed but unsettled works is determined on the basis of individual contract at the cost of contract incurred plus profits thereof and less losses recognised and amount settled. It is recognised as assets when the balance is positive and recognised as liabilities when the balance is negative.
(b) Costing of inventories
Other than completed but unsettled products, cost is determined using the first-in first-out method when issued. The cost of goods of finished goods and work in progress comprises raw materials, direct labour and systematically allocated production overhead based on the normal production capacity.
(c) Basis for determining net realisable values of inventories and method for making provision for decline in the value of inventories
Inventories are initially measured at cost. The cost of inventories comprises purchase cost, processing cost and other expenditures to bring the inventories to current site and condition.
On the balance sheet date, inventories are measured at the lower of cost and net realisable
value.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(12) Inventories (Cont'd)
(c) Basis for determining net realisable values of inventories and method for making provision for decline in the value of inventories (Cont'd)
Net realisable value is determined based on the estimated selling price in the ordinary course of business, less the estimated costs to completion and estimated costs necessary to make the sale and related taxes.
Provision for decline in the value of inventories is determined at the excess amount of the cost as calculated based on the classification of inventories over their net realisable value, and are recognised in profit or loss for the current period.
(d) Inventory system
The Group adopts the perpetual inventory system.
(e) Amortisation methods of low value consumables and packaging materials
Low value consumables are expensed in full when issued and recognised in cost of related assets or in profit or loss for the current period.
(13) Long-term equity investments
Long-term equity investments comprise theCompany’s long-term equity investments in its subsidiaries, and theGroup’s long-term equity investments in its associates and joint venture.
Subsidiaries are the investees over which the Company is able to exercise control. A joint venture is a joint arrangement which is structured through a separate vehicle over which the Group has joint control together with other parties and only has rights to the net assets of the arrangement based on legal forms, contractual terms and other facts and circumstances. Associates are the investees that the Group has significant influence on their financial and operating policies.
Investments in subsidiaries are presented in theCompany’s financial statements using the cost method, and are adjusted to the equity method when preparing the consolidated financial statements. Investments in a joint venture and associates are accounted for using the equity method.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(13) Long-term equity investments (Cont'd)
(a) Determination of investment cost
For long-term equity investments acquired through a business combination: for long-term equity investments acquired through a business combination involving enterprises under common control, the investment cost shall be the absorbingparty’s share of the carrying amount of equity of the party being absorbed in the consolidated financial statements of the ultimate controller at the combination date; for long-term equity investment acquired through a business combination involving enterprises not under common control, the investment cost shall be the combination cost.
For business combinations achieved by stages involving enterprises not under common control, the initial investment cost accounted for using the cost method is the sum of carrying amount of previously-held equity investment and additional investment cost. For previously- held equity accounted for using the equity method, the accounting treatment of related other comprehensive income from disposal of the equity is carried out on a same basis with the investee's direct disposal of related assets or liabilities. Shareholders' equity, which is recognised due to changes ininvestee’sshareholders’ equity other than those arising from the net profit or loss, other comprehensive income and profit distribution, is accordingly transferred into profit or loss in the period in which the investment is disposed.
For investment in previously-held equity accounted for using the recognition and measurement standards of financial instruments, the initial investment cost accounted for using the cost method is the sum of carrying amount of previously-held equity investment and additional investment cost.
For long-term equity investments acquired not through a business combination: for long- term equity investment acquired by payment in cash, the initial investment cost shall be the purchase price actually paid; for long-term equity investments acquired by issuing equity securities, the initial investment cost shall be the fair value of the equity securities issued. (b) Subsequent measurement and recognition of related profit and loss
For long-term equity investments accounted for using the cost method, they are measured at the initial investment costs, and cash dividends or profit distribution declared by the investees are recognised as investment income in profit or loss.
For long-term equity investments accounted for using the equity method, where the initial investment cost of a long-term equity investment exceeds theGroup’s share of the fair value of theinvestee’s identifiable net assets at the acquisition dates, the long-term equity investment is measured at the initial investment cost; where the initial investment cost is less than theGroup’s share of the fair value of theinvestee’s identifiable net assets at the acquisition dates, the difference is included in profit or loss and the cost of the long-term equity investment is adjusted upwards accordingly.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(13) Long-term equity investments (Cont'd)
(b) Subsequent measurement and recognition of related profit and loss (Cont'd)
For long-term equity investments accounted for using the equity method, the Group recognises the investment income according to its share of net profit or loss of the investee. The Group discontinues recognising its share of net losses of an investee after the carrying amount of the long-term equity investment together with any long-term interests that, in substance, form part of theinvestor’s net investment in the investee are reduced to zero. However, if the Group has obligations for additional losses and the criteria with respect to recognition of provisions under the accounting standards on contingencies are satisfied, the Group continues recognising the investment losses and the provisions. The changes in theshareholders’ equity of the investee other than those arising from the net profit or loss, other comprehensive income and profit distribution, are recognised in theGroup’s equity and the carrying amounts of the long-term equity investment are adjusted accordingly. The carrying amount of the investment is reduced by theGroup’s share of the profit distribution or cash dividends declared by an investee. The unrealised profits or losses arising from the intra- group transactions amongst the Group and its investees are eliminated in proportion to theGroup’s equity interest in the investees, and then based on which the investment gains or losses are recognised. For the loss on the intra-group transaction amongst the Group and its investees attributable to asset impairment, any unrealised loss is not eliminated.
(c) Basis for determining existence of control, jointly control or significant influence over investees
Control is the power to govern an investee and obtain variable returns from participating the investee's activities, and the ability to utilise the power of an investee to affect its returns. Joint control is the contractually agreed sharing of control over an arrangement, and relevant economic activity can be arranged upon the unanimous approval of the Group and other participants sharing of control rights.
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.
(d) Impairment of long-term equity investments
The carrying amounts of long-term equity investments in subsidiaries, joint venture and associates are reduced to the recoverable amounts when the recoverable amounts are below their carrying amounts (Note 2(20)).
(14) Investment properties
Investment properties, including land use rights that have already been leased out, buildings that are held for the purpose of leasing and buildings that are being constructed or developed for future use for leasing, are measured initially at cost. Subsequent expenditures incurred in relation to an investment property are included in the cost of the investment property when it is probable that the associated economic benefits will flow to the Group and their costs can be reliably measured; otherwise, the expenditures are recognised in profit or loss in the period in which they are incurred.
The Group adopts the cost model for subsequent measurement of investment properties. Buildings and land use rights are depreciated or amortised to their estimated net residual values over their estimated useful lives. The estimated useful lives, the estimated net
residual values that are expressed as a percentage of cost and the annual depreciation
(amortisation) rates of investment properties are as follows:
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(14) Investment properties (Cont'd)
Estimated useful Estimated net Annual depreciation lives residual value (amortisation) rates Buildings 20 to 40 years 5% 2.38% to4.75% Land use rights 40 to 50 years - 2% to2.5% When an investment property is transferred to owner-occupied properties, it is reclassified as fixed asset or intangible asset at the date of the transfer. When an owner-occupied property is transferred out for earning rentals or for capital appreciation, the fixed asset or intangible asset is reclassified as investment properties at its carrying amount at the date of the transfer. At the time of transfer, the property is recognised based on the carrying amount before transfer.
The investment properties' estimated useful lives, the estimated net residual values and the depreciation (amortisation) methods applied are reviewed and adjusted as appropriate at each year-end.
An investment property is derecognised on disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposal. The net amount of proceeds from sale, transfer, retirement or damage of an investment property after deducting its carrying amount and related taxes and expenses is recognised in profit or loss for the current period.
(15) Fixed assets
(a) Recognition and initial measurement of fixed assets
Fixed assets comprise buildings, land with permanent ownership, machinery and equipment, motor vehicles, computers and electronic equipment and office equipment.
Fixed assets are recognised when it is probable that the related economic benefits will flow to the Group and the costs can be reliably measured. The initial cost of purchased fixed assets include purchase price, related taxes and expenditures that are attributable to the assets incurred before the assets are ready for their intended use. The initial cost of self- constructed fixed assets is determined based on Note 2(16).
Subsequent expenditures incurred for fixed assets are included in the cost of fixed assets when it is probable that the associated economic benefits will flow to the Group and the related cost can be reliably measured. The carrying amount of the replaced part is derecognised. All the other subsequent expenditures are recognised in profit or loss in the period in which they are incurred.
(15) Fixed assets
(b) Depreciation methods of fixed assets
Fixed assets are depreciated using the straight-line method to allocate the cost of the assets to their estimated residual values over their estimated useful lives. For the fixed assets that have been provided for impairment loss, the related depreciation charge is prospectively determined based upon the adjusted carrying amounts over their remaining useful lives.
The estimated useful lives, the estimated residual values expressed as a percentage of cost
and the annual depreciation rates of the Group's fixed assets are as follows:
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(15) Fixed assets (Cont'd)
(b) Depreciation methods of fixed assets (Cont'd)
Estimated useful Estimated net residual Annual Classes lives value depreciation rates Buildings 15 to 60 years 0% to10% 6.7% to1.5%0% to10%
Machinery and equipment 2 to 18 years 50% to5.0%0% to10%
Motor vehicles 2 to 20 years 50% to4.5% Electronic equipment and
other equipment 2 to 20 years 0% to10% 50% to4.5% Land Permanent Not applicable Not applicable The estimated useful lives and the estimated net residual values of the Group's fixed assets and the depreciation methods applied to the assets are reviewed, and adjusted as appropriate at each year-end.
(c) Basis for identification of fixed assets held under finance leases and related measurement A lease that in substance transfers substantially all the risks and rewards incidental to ownership of an asset is a finance lease. The leased asset is recognised at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The difference between the recorded amount of the leased asset and the minimum lease payments is accounted for as unrecognised finance charge.
Fixed assets held under a finance lease is depreciated on a basis consistent with the depreciation policy adopted for fixed assets that are self-owned. When a leased asset can be reasonably determined that its ownership will be transferred at the end of the lease term, it is depreciated over the period of expected use; otherwise, the leased asset is depreciated over the shorter period of the lease term and the period of expected use.
(d) The carrying amount of a fixed asset is reduced to the recoverable amount when the recoverable amount is below the carrying amount (Note 2(20)).
(e) Disposal of fixed assets
A fixed asset is derecognised on disposal or when no future economic benefits are expected from its use or disposal. The amount of proceeds from disposals on sale, transfer, retirement or damage of a fixed asset net of its carrying amount and related taxes and expenses is recognised in profit or loss for the current period.
(16) Construction in progress
Construction in progress is measured at actual cost. Actual cost comprises construction costs, installation costs, borrowing costs that are eligible for capitalisation and other costs necessary to bring the fixed assets ready for their intended use. Construction in progress is transferred to fixed assets when the assets are ready for their intended use, and depreciation begins from the following month. The carrying amount of construction in progress is reduced to the recoverable amount when the recoverable amount is below the carrying amount (Note 2(20)).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(17) Borrowing costs
The borrowing costs that are directly attributable to the acquisition and construction of a fixed asset that needs a substantially long period of time for its intended use commence to be capitalised and recorded as part of the cost of the asset when expenditures for the
asset and borrowing costs have been incurred, and the activities relating to the acquisition and construction that are necessary to prepare the asset for its intended use have
commenced. The capitalisation of borrowing costs ceases when the asset under
acquisition or construction becomes ready for its intended use and the borrowing costs incurred thereafter are recognised in profit or loss for the current period. Capitalisation of borrowing costs is suspended during periods in which the acquisition or construction of a fixed asset is interrupted abnormally and the interruption lasts for more than 3 months, until the acquisition or construction is resumed.
For the specific borrowings obtained for the acquisition or construction of a fixed asset qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is determined by deducting any interest income earned from depositing the unused specific borrowings in the banks or any investment income arising on the temporary investment of those borrowings during the capitalisation period.
For the general borrowings obtained for the acquisition or construction of a fixed asset qualifying for capitalisation, the amount of borrowing costs eligible for capitalisation is
determined by applying the weighted average effective interest rate of general borrowings, to the weighted average of the excess amount of cumulative expenditures on the asset over the amount of specific borrowings. The effective interest rate is the rate at which the estimated future cash flows during the period of expected duration of the borrowings or applicable shorter period are discounted to the initial amount of the borrowings.
(18) Intangible assets
Intangible assets include land use rights, patents and non-patent technologies, trademark rights, trademark use rights, licensing rights and others, and are measured at cost.
(a) Land use rights
Land use rights are amortised on the straight-line basis over their approved use period of 40 to 50 years. If the acquisition costs of the land use rights and the buildings located thereon cannot be reasonably allocated between the land use rights and the buildings, all of the acquisition costs are recognised as fixed assets.
(b) Patents and non-patent technologies
Patents are amortised on a straight-line basis over the statutory period of validity, the
period as stipulated by contracts or the beneficial period.
(c) Trademark rights
The trademark rights is measured at cost when acquired and is amortized over the estimated useful life of 30 years. The cost of trademark rights obtained in the business combinations involving enterprises not under common control is measured at fair value. (d) Trademark use rights
The trademark use rights is measured at cost when acquired. The cost of trademark use
rights obtained in the business combinations involving enterprises not under common
control is measured at fair value, and is amortized over the estimated useful life of 40 years.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(18) Intangible assets (Cont'd)
(e) Periodical review of useful life and amortisation method
For an intangible asset with a finite useful life, review of its useful life and amortisation method is performed at each year-end, with adjustment made as appropriate.
(f) Research and development(“R&D”)
The expenditure on an internal research and development project is classified into expenditure on the research phase and expenditure on the development phase based on its nature and whether there is material uncertainty that the research and development activities can form an intangible asset at end of the project.
Expenditure on the planned investigation, evaluation and selection for theR&D of production processes or products is expenditure on the research phase, which is recognised in profit or loss in the period in which it is incurred. Expenditure on design and test for the final application of theR&D of production processes or products before mass production is expenditure on the development phase, which is capitalised only if all of the following conditions are satisfied:
 TheR&D of production processes or products has been fully justified by technical team; The budget on theR&D of production processes or products has been approved by the management;
 It's been proved by previous market research analysis that the products produced by the production processes have marketing capabilities;
 There are sufficient technical and financial resources to support theR&D of production processes or products and subsequent mass production; and
 Expenditure attributable to theR&D of production processes or products can be
reliably measured.
Other development expenditures that do not meet the conditions above are recognised in profit or loss in the period in which they are incurred. Development costs previously recognised as expenses are not recognised as an asset in a subsequent period. Capitalised expenditure on the development phase is presented as development costs in the balance sheet and transferred to intangible assets at the date that the asset is ready for its intended use.
(g) Impairment of intangible assets
The carrying amount of intangible assets is reduced to the recoverable amount when the recoverable amount is below the carrying amount (Note 2(20)).
(19) Long-term deferred expenses
Long-term prepaid expenses include the expenditure for improvements to fixed assets held under operating leases, and other expenditures that have been incurred but should be recognised as expenses over more than one year in the current and subsequent periods. Long-term prepaid expenses are amortised on the straight-line basis over the expected beneficial period and are presented at actual expenditure net of accumulated amortisation.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(20) Impairment of long-term assets
Fixed assets, construction in progress, intangible assets with finite useful lives, investment properties measured using the cost model and long-term equity investments in subsidiaries, a joint venture and associates are tested for impairment if there is any indication that the assets may be impaired at the balance sheet date. Intangible assets not ready for their intended use and land with permanent ownership are tested at least annually for impairment, irrespective of whether there is any indication that it may be impaired. If the result of the impairment test indicates that the recoverable amount of an asset is less than its carrying amount, a provision for impairment and an impairment loss are recognised for the amount by which theasset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of anasset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. Provision for asset impairment is determined and recognised on the individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of a group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows.
Goodwill that is separately presented in the financial statements is tested at least annually for impairment, irrespective of whether there is any indication that it may be impaired. In conducting the test, the carrying value of goodwill is allocated to the related asset groups or groups of asset groups which are expected to benefit from the synergies of the business combination. If the result of the test indicates that the recoverable amount of an asset group or group of asset groups, including the allocated goodwill, is lower than its carrying amount, the corresponding impairment loss is recognised. The impairment loss is first deducted from the carrying amount of goodwill that is allocated to the asset group or group of asset groups, and then deducted from the carrying amounts of other assets within the asset groups or groups of asset groups in proportion to the carrying amounts of assets other than goodwill. Once the above asset impairment loss is recognised, it will not be reversed for the value recovered in the subsequent periods.
(21) Employee benefits
Employee benefits include short-term employee benefits, post-employment benefits,
termination benefits and other long-term employee benefits provided in various forms of consideration in exchange for service rendered by employees or compensations for the termination of employment relationship.
(a) Short-term employee benefits
Short-term employee benefits include employee wages or salaries, bonus, allowances and subsidies, staff welfare, premiums or contributions on medical insurance, work injury insurance and maternity insurance, housing funds, union running costs and employee education costs, and short-term paid absences. The employee benefit liabilities are recognised in the accounting period in which the service is rendered by the employees, with a corresponding charge to the profit or loss for the current period or the cost of relevant assets. Non-monetary benefits are measured at their fair value.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(21) Employee benefits (Cont'd)
(b) Post-employment benefits
The Group classifies post-employment benefit plans as either defined contribution plans or defined benefit plans. Defined contribution plans are post-employment benefit plans under which the Group pays fixed contributions into a separate fund and will have no obligation to pay further contributions; and defined benefit plans are post-employment benefit plans other than defined contribution plans. During the reporting period, the Group's defined contribution plans mainly include basic pensions and unemployment insurance, while the defined benefit plans are that TLSC and KUKA, theGroup’s subsidiaries, provides supplemental retirement benefits beyond the national regulatory insurance system.
Basic pensions
Employees of the Group participate in the defined basic pension insurance plan set up and administered by local labour and social protection authorities. Basic pensions are provided for monthly according to stipulated bases and proportions to local labour and social security institutions. When employees retire, the relevant local authorities are obliged to pay the basic pensions to them. The amounts based on the above calculations are recognised as liabilities in the accounting period in which the service has been rendered by the employees, with a corresponding charge to the profit or loss for the current period or the cost of relevant assets.
Supplemental retirement benefits
The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of national debt that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. The charges related to the supplemental retirement benefits (including current service costs, past-service costs and gains or losses on settlement) and net interest costs are recognised in the statement of profit or loss or included in the cost of an asset, and the changes of remeasurements in net liabilities or net assets arising from the benefit plan are charged or credited to equity in other comprehensive.
(c) Termination benefits
The Group provides compensation for terminating the employment relationship with employees before the end of the employment contracts or as an offer to encourage employees to accept voluntary redundancy before the end of the employment contracts. The Group recognises a liability arising from compensation for termination of the employment relationship with employees, with a corresponding charge to profit or loss at the earlier of the following dates: 1) when the Group cannot unilaterally withdraw the offer of termination benefits because of an employment termination plan or a curtailment proposal; 2) when the Group recognises costs or expenses related to the restructuring that involves the payment of termination benefits.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(21) Employee benefits (Cont'd)
(c) Termination benefits (Cont'd)
Early retirement benefits
The Group offers early retirement benefits to those employees who accept early retirement arrangements. The early retirement benefits refer to the salaries and social security contributions to be paid to and for the employees who accept voluntary retirement before the normal retirement date prescribed by the State, as approved by the management. The Group pays early retirement benefits to those early retired employees from the early retirement date until normal retirement date. The Group accounts for the early retirement benefits in accordance with the treatment of termination benefits, in which the salaries and social security contributions to be paid to and for the early retired employees from the off- duty date to the normal retirement date are recognised as liabilities with a corresponding charge to the profit or loss for the current period. The differences arising from the changes in the respective actuarial assumptions of the early retirement benefits and the adjustments of benefit standards are recognised in profit or loss in the period in which they occur.
The termination benefits expected to be paid within one year since the balance sheet date are classified as current liabilities.
(22) Financial assets sold under repurchase agreements
Assets sold under agreements to repurchase at a specific future date are not derecognised from the balance sheet. The corresponding proceeds are recognised on the balance sheet under “Repurchase agreements”. The difference between the sale price and the repurchase price is treated as interest expense and is accrued over the life of the agreement using the effective interest method.
(23) General reserve
General reserve is the reserve appropriated from undistributed profits to cover part of unidentified potential losses, on the basis of the estimated potential risk value of risk assets assessed by the standardised approach, which is deducted from recognised provision for impairment losses on loans. Risk assets include loans and advances, available-for-sale financial assets, long-term equity investments, deposits with banks and other financial institutions and other receivables of subsidiary engaged in financial business.
(24) Dividend distribution
Cash dividend is recognised as a liability for the period in which the dividend is approved by theshareholders’ meeting.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(25) Provisions
Provisions for product warranties, onerous contracts etc. are recognised when the Group has a present obligation, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the obligation can be measured reliably.
A provision is initially measured at the best estimate of the expenditure required to settle the related present obligation. Factors surrounding a contingency, such as the risks, uncertainties and the time value of money, are taken into account as a whole in reaching the best estimate of a provision. Where the effect of the time value of money is material, the best estimate is determined by discounting the related future cash outflows. The increase in the discounted amount of the provision arising from passage of time is recognised as interest expense.
The carrying amount of provisions is reviewed at each balance sheet date and adjusted to reflect the current best estimate.
Provisions to be paid within one year since balance sheet date shall be categorised as current liability.
(26) Share-based payment
(a) Type of share-based payment
Share-based payment is a transaction in which the entity acquires services from employees as consideration for equity instruments of the entity or by incurring liabilities for amounts based on the equity instruments. Equity instruments include equity instruments of the Company, its parent company or other accounting entities of the Group. Share-based payments are divided into equity-settled and cash-settled payments. TheGroup’s share- based payments are equity-settled payments.
Equity-settled share-based payment
TheGroup’s share option plan is the equity-settled share-based payment in exchange of employees' services and is measured at the fair value of the equity instruments at grant date. The equity instruments are exercisable after services in vesting period are completed or specified performance conditions are met. In the vesting period, the services obtained in current period are included in relevant cost and expenses at the fair value of the equity instruments at grant date based on the best estimate of the number of exercisable equity instruments, and capital surplus is increased accordingly. If the subsequent information indicates the number of exercisable equity instruments differs from the previous estimate, an adjustment is made and, on the exercise date, the estimate is revised to equal the number of actual vested equity instruments. On the exercise date, the recognised amount calculated based on the number of exercised equity instruments is transferred into share capital.
TheGroup’s restricted share plan is the equity-settled share-based payment in exchange of employees' services and is measured at the fair value of the equity instruments at grant date. The equity instruments are tradable after services in vesting period are completed or specified performance conditions are met. In the vesting period, the services obtained in current period are included in relevant cost and expenses at the fair value of the equity instruments at grant date based on the best estimate of the number of tradable equity instruments, and capital surplus is increased accordingly. If the subsequent information indicates the number of tradable equity instruments differs from the previous estimate, an
adjustment is made and, on the desterilization date, the estimate is revised to equal the
number of actual vested equity instruments.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(26) Share-based payment (Cont'd)
(b) Determination of the fair value of equity instruments
The Group determines the fair value of share options using option pricing model, which is Black - Scholes option pricing model.
The Group determine the fair value of restricted shares based on the market value of restricted shares on the grant date and the price that incentive objects pay, taking into account the effects of relevant clause of theGroup’s restricted shares plan.
(c) Basis for determining best estimate of tradable or exercisable equity instruments
At the end of each reporting period, the group revises its estimates of the number of options that are expected to vest based on the non-marketing performance and service conditions. On the exercise or desterilization date, the final number of estimated exercisable or tradable equity instruments is consistent with the number of exercised or tradable equity instruments. (d) Accounting treatment related to the exercise of shared-based payment plans
When the options are exercised, the company issues new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (and share premium). At the same time, capital surplus recognised in the vesting period are carried forward to share premium.
On the grant day of restricted shares, the Group debit bank deposit and increase equity and capital reserves (equity premium) when receiving subscription paid by the employees. In the meanwhile, recognize the debt for repurchase obligation (deem as acquisition of treasury stock), debit treasury stock and credit other payables-repurchase obligations of restricted share based on the number of restricted stocks issued and related repurchase price.
On the desterilization day of restricted shares, the Group transfer capital reserves that was confirmed during vesting period based on the desterilization condition.
(27) Revenue
The amount of revenue is determined in accordance with the fair value of the consideration received or receivable for the sales of goods and services in the ordinary course of theGroup’s activities. Revenue is shown net of discounts, rebates and returns.
Revenue is recognised when the economic benefits associated with the transaction will flow to the Group, the related revenue can be reliably measured, and the specific revenue recognition criteria have been met for each type of theGroup’s activities as described
below:
(a) Sales of goods
The Group are principally engaged in the manufacturing and sales of home appliances (mainly HVAC and Consumer appliances), robots and automation systems (mainly Robots and automatic system).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(27) Revenue (Cont'd)
(a) Sales of goods (Cont'd)
Revenue from domestic sales of home appliances is recognised when 1) the goods are delivered to buyers by the Group pursuant to contracts; 2) the amount of revenue is confirmed; 3) payments for goods are collected or receipts are acquired; and 4) the related economic benefits will flow to the Group; and the related costs can be measured reliably. Upon confirming the acceptance, the buyer has the right to sell the products at its discretion and takes the risks of any price fluctuations and obsolescence and loss of the products. Revenue from overseas sales of home appliances is recognised when 1) the goods have left the port and obtain the bill of lading pursuant to contracts; 2) the amount of revenue is confirmed; 3) payments for goods are collected or obtain related receipts; and 4) the related economic benefits will flow to the Group and the related costs can be measured reliably. For robots and automation systems, revenue is recognised when 1) the goods are delivered to buyers by the Group pursuant to contracts; 2) the amount of revenue is confirmed; 3) payments for goods are collected or receipts are acquired; and 4) the related economic benefits will flow to the Group; and the related costs can be measured reliably.
(b) Rendering of services
Revenue from transportation service, storage service, distribution service and installation service as provided by the Group is recognised when the services are completed.
Revenue from providing automation system business and intelligent logistics integration solution is recognized according to the percentage of completion.
(c) The construction contract
Where the outcome of a construction contract can be estimated reliably, revenue and costs thereof are recognised using the “percentage-of-completion” method as at the balance sheet date, the stage of completion is measured by reference to the contract costs incurred up to the end of the reporting period as a percentage of total estimated costs for each contract.
The outcome of a construction contract can be estimated reliably when all of the following conditions are concurrently met: (1) The total contract revenue can be measured reliably; (2) It is highly probable that the economic benefits associated with the contract will flow to the enterprise; (3) The contract costs incurred thus far can be clearly identified and measured reliably; (4) Both the stage of completion and the costs necessary to complete the contract can be reliably measured.
Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent that contract costs can be recovered actually. Contract costs are recognised as expenses in the period in which they are incurred. Otherwise, contract costs are recognised as expenses immediately, not as contract revenue. If the unexpected factors no longer exist which make construction contract unable to be estimated reliably, revenue and costs are recognised using the percentage-of-completion method. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(27) Revenue (Cont'd)
(c) The construction contract (Cont'd)
As at the balance sheet date, the actual total contract revenue multiply the percentage of completion less the total contract revenue recognised in previous accounting periods should be recognised as the revenue for the current period. Similarly, the total contract costs multiply the percentage of completion incurred less the total contract costs recognised in previous accounting periods should be recognised as the expenses for the current period. (d) Interest income
Interest income from financial instruments is calculated by effective interest method and recognised in profit or loss for the current period. Interest income comprises premiums or discounts, or the amortisation based on effective rates of other difference between the initial carrying amount and the due amount of interest-earning assets.
The effective interest method is a method of calculating the amortised cost of a financial asset or liability and the interest income or expense based on effective rates. Actual interest rate is the rate at which the estimated future cash flows during the period of expected duration of the financial instruments or applicable shorter period are discounted to the current carrying amount of the financial instruments. When calculating the effective interest rate, the Group estimates cash flows by considering all contractual terms of the financial instrument (e.g. early repayment options, similar options, etc.), but without considering future credit losses. The calculation includes all fees and interest paid or received that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts.
Interest income from impaired financial assets is calculated at the interest rate that is used for discounting estimated future cash flow when measuring the impairment loss.
(e) Dividend income
Dividend income is recognised when the right to receive dividend payment is established. (f) Rental income
Rental income from investment prosperities is recognised in the income statement on a straight-line basis over the lease period.
(g) Fee and commission income
Fee and commission income is recognised in profit or loss for the current period when the service is provided. The Group defers the initial charge income or commitment fee income arising from the forming or acquisition of financial assets as the adjustment to effective interest rate. If the loans are not lent when the loan commitment period is expired, related charges are recognised as fee and commission income.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(28) Government grants
Government grants are transfers of monetary or non-monetary assets from the government to the Group at nil consideration, including refund of taxes and financial subsidies, etc. A government grant is recognised when the conditions attached to it can be complied with and the government grant can be received. For a government grant in the form of transfer of monetary assets, the grant is measured at the amount received or receivable. For a government grant in the form of transfer of non-monetary assets, it is measured at fair value; if the fair value is not reliably determinable, the grant is measured at nominal amount.
Government grants related to assets are grants that are acquired by an enterprise and used for acquisition, construction or forming long-term assets in other ways. Government grants related to income are government grants other than government grants related to assets. Government grants related to assets could be offset the carrying amount of related assets, or recognised as deferred income, and reasonably and systematically amortised to profit or loss over the useful life of the related asset. For government grants related to income, where the grant is a compensation for related expenses or losses to be incurred by the Group in the subsequent periods, the grant is recognised as deferred income, and included in profit or loss or offset the related cost over the periods in which the related costs are recognised; where the grant is a compensation for related expenses or losses already incurred by the Group, the grant is recognised immediately in profit or loss or offset the related cost for the current period. The same kind of government grants are presented with the same method, that is, those related to ordinary activities are recorded into operating profit while other in non-operating income and expenses.
Loans to the Group at political preferential rate are recorded at the actual amount received, and the related loan expenses are calculated based on the principal and the political preferential rate. Finance discounts directly received offset related loans expenses.
(29) Deferred income tax assets and deferred income tax liabilities
Deferred income tax assets and deferred income tax liabilities are calculated and recognised based on the differences arising between the tax bases of assets and liabilities and their carrying amounts (temporary differences). Deferred income tax asset is recognised for the tax losses that can be carried forward to subsequent years for deduction of the taxable profit in accordance with the tax laws. No deferred income tax liability is recognised for a temporary difference arising from the initial recognition of goodwill. No deferred income tax asset or deferred income tax liability is recognised for the temporary differences resulting from the initial recognition of assets or liabilities due to a transaction other than a business combination, which affects neither accounting profit nor taxable profit (or tax loss). At the balance sheet date, deferred income tax assets and deferred income tax 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.
Deferred income tax assets are only recognised for deductible temporary differences, tax losses and tax credits to the extent that it is probable that taxable profit will be available in the future against which the deductible temporary differences, tax losses and tax credits can be utilised.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(29) Deferred income tax assets and deferred income tax liabilities (Cont'd)
Deferred income tax liabilities are recognised for temporary differences arising from investments in subsidiaries, associates and a joint venture, except where the Group is able to control the timing of reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. When it is probable that the temporary differences arising from investments in subsidiaries, associates and a joint venture will be reversed in the foreseeable future and that the taxable profit will be available in the future against which the temporary differences can be utilised, the corresponding deferred income tax assets are recognised.
Deferred income tax assets and liabilities are offset when:
 The deferred income taxes are related to the same tax payer within the Group and the same taxation authority; and,
 That tax payer within the Group has a legally enforceable right to offset current tax assets against current tax liabilities.
(30) Leases
(a) Operating lease
Rental expenses for assets held under operating leases are recognised as the cost of relevant assets or expenses on a straight-line basis over the lease period. Contingent rentals are recognised as profit and loss for the current period when incurred.
Fixed assets leased out under operating leases, other than investment prosperities (Note 2(14)), are depreciated in accordance with the depreciation policy stated in Note 2(15)(b) and provided for impairment loss in accordance with the policy stated in Note 2(20). Rental income from operating leases is recognised as revenue on a straight-line basis over the lease period. Initial direct costs in large amount arising from assets leased out under operating leases are capitalised when incurred and recognised as profit and loss for the current period over the lease period on a same basis with revenue recognition; initial direct costs in small amount are directly recognised as profit and loss for the current period. Contingent rentals are recognised as profit and loss for the current period when incurred. (b) Finance lease
The leased asset is recognised at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The difference between the recorded amount of the leased asset and the minimum lease payments is accounted for as unrecognised finance charge and is amortised using the effective interest method over the period of the lease. A long-term payable is recorded at the amount equal to the minimum lease payments less the unrecognised finance charge.
(31) Held for sale and discontinued operations
A non-current asset or a disposal group is classified as held for sale when all of the following conditions are satisfied: (1) the non-current asset or the disposal group is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such non-current asset or disposal group; (2) the Group has entered a legally enforceable sales agreement with other party and obtained relevant approval, and the sales transaction is expected to be completed within one year.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(31) Held for sale and discontinued operations (Cont'd)
Non-current assets (excluding financial assets, investment properties measured at fair value and deferred tax assets) that are stated at the lower of carrying amount and net realisable value. Any excess of the carrying amount over the net realisable value is recognised as impairment loss.
Assets and liabilities of a non-current asset or disposal group which is classified as held for sale are classified as current assets and current liabilities, which are separately presented in the balance sheet.
A discontinued operation is a component which has been disposed or classified as held for sale of thegroup’s business and the operations and financial reporting of the discontinued operation can be clearly distinguished from the rest of the group and can meet one of the following criteria: (1) This component of the business represents a separate major line of business or geographic area of operations; (2) This component of the business is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; (3) This component of the business is a subsidiary acquired exclusively with a view to resale.
The net profit from discontinued operations in the income statement includes operating profit or loss and disposal gains or losses of discontinued operations.
(32) Segment information
The Group identifies operating segments based on the internal organisation structure, management requirements and internal reporting system, and discloses segment information of reportable segments which is determined on the basis of operating segments. An operating segment is a component of the Group that satisfies all of the following conditions: (1) the component is able to earn revenue and incur expenses from its ordinary activities; (2) whose operating results are regularly reviewed by theGroup’s management to make decisions about resources to be allocated to the segment and to assess its performance, and (3) for which the information on financial position, operating results and cash flows is available to the Group. If two or more operating segments have similar economic characteristics and satisfy certain conditions, they are aggregated into one single operating segment.
(33) Critical accounting estimates and judgements
The Group continually evaluates the critical accounting estimates and key judgements applied based on historical experience and other factors, including expectations of future events that are believed to be reasonable.
Critical accounting estimates and key assumptions
The critical accounting estimates and key assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next accounting year are outlined below:
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(33) Critical accounting estimates and judgements (Cont'd)
(i) The fair value assessment of identifiable net assets and recognition of goodwill related to the acquisition
For business combinations not under common control (Note 5(1)(a)), the combination cost and the identifiable net assets acquired in the combination should be measured at fair value at the acquisition date. The Group shall allocate the cost of combination to the identifiable assets and liabilities measured at fair value at the acquisition date. The excess of the cost of combination over share of fair value of identifiable net assets acquired from the acquiree is recognised as goodwill.
The Group needs to make critical judgements in identifying the identifiable assets and liabilities, especially in identifying intangible assets and assessing their fair value, which affect the recognition of goodwill. The key assumptions adopted in assessing fair value of intangible assets include revenue growth, tax rates, EBITDA margins, contributory asset charges, royalty rates, remaining useful lives of intangible assets and discount rate, etc. (ii) Goodwill impairment provision
The Group conducts impairment testing on goodwill every year. The recoverable amount of the asset group and the combination of asset group that contain the apportioned goodwill is determined by the higher value between the use value and the net value that is calculated by the fair value less the disposal costs. Accounting estimate is required for the calculation of the recoverable amount. The impairment testing is performed by assessing the recoverable amount of the groups of assets containing the relevant goodwill, based on the present value of cash flows forecasts. Key assumptions adopted in the impairment testing of goodwill included expected revenue growth rates, EBITDA margins, perpetual annual growth rates, discount rates, etc. which involved critical accounting estimates and judgement.
.
(iii) Income taxes
The Group is subject to income taxes in numerous jurisdictions. There are many transactions and events for which the ultimate tax determination is uncertain during the ordinary course of business. Significant judgement is required from the Group in determining the provision for income taxes in each of these jurisdictions. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred income tax provisions in the period in which such determination is made.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Summary of significant accounting policies and accounting estimates (Cont'd)
(34) Significant changes in accounting policies
In 2017, the Ministry of Finance released the‘Accounting Standard for Business Enterprises No.42—Non-current Assets or Disposal Groups Held for Sale and DiscontinuedOperations’, revised‘Accounting Standard for Business Enterprises No.16—GovernmentGrants’ and the‘Circular on Amendment to Formats of Financial Statements of GeneralIndustry’ and its interpretation (Cai Kuai[2017] 30). The financial statements are prepared in accordance with the above standards and circular, and impacts are as follows:
The nature and the reasons of the changes The line items affected The amounts of 2016 in accounting policies affected The Group recorded the VAT return Not applicable Not applicable obtained in 2017 in other income. The
comparatives of 2016 were not restated.
The government grants related to income, Not applicable Not applicable obtained in 2017 by the Group, were
recorded as a deduction of related costs,
expenses or losses (Note 7(29)). The
comparatives of 2016 were not restated.
The Group recorded the gains or losses on Gains on disposals of assets Decrease 111,874,000 disposals of fixed assets and intangible Non-operating income Decrease 60,789,000 assets, occurred in 2017, in gains on Non-operating expenses Decrease 172,663,000 disposals of assets. The comparatives of
2016 were restated accordingly.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
3 Taxation
(1) Main tax category and rate
Category Tax base Tax rate
Corporate income tax (a) Levied based on taxable income 5%,14%,15%,16.5%,17%,25%,19%, 20-31.5%,32%,34% or35%
Value-added tax (VAT) (b) Taxable value-added amount (Tax 5%、6%、11%、17% payable is calculated using the or19%
taxable sales amount multiplied by the
applicable tax rate less deductible
VAT input of the current period)
City maintenance and The amount of VAT paid 5% or7%
construction tax
Educational surcharge The amount of VAT paid 3% or5%
Local education surcharge The amount of VAT paid 2%
Property tax Price-based property is subject to a 1.2% or12%
1.2% tax rate after a30% cut in the
original price of property. Rental-
based is subject to12% tax rate for
the rental income.
(a) Notes to the corporate income tax rate of the principal tax payers with different tax rates (a-1) The following subsidiaries of the Company are subject to a corporate income tax rate of15% in 2017 as they qualified as high-tech enterprises and obtained the High-tech Enterprise Certificate.
No. of the Certificate of Effective Name of tax payer the High-tech Enterprise Dates of issuance period Jiangsu Midea Cleaning Appliance Company Limited GR201732001675 11 November 2017 3 years Guangdong Midea Environmental Electric
3 years Appliance Manufacturing Co., Ltd. GR201644002286 30 November 2017
3 years Jiangxi Midea Guiya lighting Co., Ltd. GR201736000187 23 August 2017
Guangdong Midea Kitchen Appliances 3 years Manufacturing Co., Ltd. GR201544000202 30 September 2015
Guangdong Witt Vacuum Electronics Manufacturing 3 years Co., Ltd. GR201744000489 9 November 2017
Foshan Shunde Midea Washing Appliance 3 years Manufacturing Co., Ltd. GR201744002837 9 November 2017
Foshan Shunde Midea Electric Appliance 3 years Manufacturing Co., Ltd. GR201544001470 10 October 2015
Foshan Shunde century Tongchuang Technology 3 years Co., Ltd. GR201644000331 30 November 2016
3 years Foshan Shunde Midea Electric Technology Co., Ltd. GR201644000358 30 November 2017
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
3 Taxation(Cont’d)
(1) Main tax category and rate(Cont’d)
(a) Notes to the corporate income tax rate of the principal tax payers with different tax rates(Cont’d)
(a-1) The following subsidiaries of the Company are subject to a corporate income tax rate of15% in 2017 as they qualified as high-tech enterprises and obtained the High-tech Enterprise Certificate.(Cont’d)
No. of the Certificate of the High- Effective Name of tax payer tech Enterprise Dates of issuance period Guangdong Midea Heating& Ventilation
Equipment Co., Ltd. GF201544000292 20 October 2015 3 years Hefei Midea Heating& Ventilation Equipment
Co., Ltd. GR201734000207 21 October 2016 3 years Anhui GMCC Precision Manufacturing Co., Ltd. GR201534000785 15 October 2015 3 years Guangzhou Midea Hualing Refrigerator Co.,Ltd. GR201744002925 30 November 2016 3 years Guangdong Welling Motor Manufacturing Co.,
Ltd. GR201744002062 9 November 2017 3 years Foshan Welling Washer Motor Manufacturing
Co., Ltd. GR201744001025 9 November 2017 3 years Huaian Weiling Motor Manufacturing Co., Ltd. GR201632004278 3 November 2016 3 years Ander zhilian technology co. LTD. GR201534000356 19 June 2015 3 years Wuxi Little Swan Company Limited. GR201532000606 6 July 2015 3 years Wuxi Filin Electronics Co., Ltd. GR201532000917 6 July 2015 3 years Wuxi Little Swan General Appliance Co., Ltd. GR201532000557 6 July 2015 3 years Guangdong Midea Refrigeration Equipment Co.,
Ltd. GR201744000337 9 November 2017 3 years Handan Midea Refrigeration Equipment Co.,
Ltd. GR201713000957 27 October 2017 3 years Midea Wuhan Refrigeration Equipments Co.,
Ltd. GR201742002075 30 November 2017 3 years Guangzhou Hualing Refrigeration Equipment
Co., Ltd. GR201744010610 11 December 2017 3 years Wuhu Meizhi Air-Conditioning Equipment Co.,
Ltd. GR201734001246 7 November 2017 3 years Chongqing Midea General Refrigeration
Equipment Co., Ltd. GR201751100113 28 December 2017 3 years Guangdong GMCC Refrigeration Equipment
Co., Ltd. GR201744000895 9 November 2017 3 years Hubei Midea Refrigerator Co., Ltd. GR201742001255 28 November 2017 3 years Guangdong Midea Life Electric Appliance
Manufacturing Co., Ltd. GR201744006141 11 December 2017 3 years Anhui GMCC Refrigeration Equipment Co., Ltd. GR201634000994 5 December 2016 3 years
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
3 Taxation (Cont'd)
(1) Main tax category and rate (Cont'd)
(a) Notes to the corporate income tax rate of the principal tax payers with different tax rates(Cont’d)
(a-2) The application for corporate income tax preferential treatment of Chongqing Midea Refrigeration Equipment Co., Ltd., the Company's subsidiary, was approved by the State Administration of Taxation of Chongqing Economical and Technological Development Zone on 3 June 2014. The subsidiary is subject to corporate income tax at the rate of15% in 2017.
(a-3) The Company's subsidiaries in Mainland China other than those mentioned in (a-1) and (a- 2) are subject to corporate income tax at the rate of25%.
(a-4) In August 2008, Midea Electric Appliance (Singapore) Co., Ltd., the Company's subsidiary, was awarded with the Certificate of Honor for Development and Expansion (NO.587) by the Singapore Economic Development Board, which approves that qualified income exceeding a certain amount is subject to corporate income tax at the rate of5% while the unqualified income is subject to the corporate income tax at the rate of17%. Midea Electric Appliance (Singapore) Co., Ltd. and Little Swan International (Singapore) Co., Ltd., the Company's subsidiary, is subject to corporate income tax at the rate of17%.
(a-5) The Company's subsidiaries in Hong Kong are subject to Hong Kong profits tax at the rate of16.5%. Such subsidiaries include Midea International Trade Co., Ltd., Midea International Co., Ltd., Midea Appliance Investment (Hong Kong) Ltd., Gold Emperor Enterprises Ltd., Chairing Holding Ltd., Century Carrier Household Air-conditioning Co., Ltd., Midea Refrigeration (Hong Kong) Ltd., Welling Holding Limited (Hong Kong), Welling International Hong Kong Ltd. (HK), and Midea Investment (Asia) Co., Ltd..
(a-6) The Company's subsidiaries in BVI and Cayman Islands are exempted from corporate income tax. Such subsidiaries include Mecca International (BVI) Limited, Titoni Investments Development Ltd., Midea Holdings (BVI) Ltd., Midea Electric Investment (BVI) Limited, Welling Holding (BVI) Ltd., Midea Holding (Cayman Islands) Ltd. and Midea Investment Development Ltd..
(a-7) Springer Carrier Ltd., the Company's subsidiaries in Brazil, is subject to Brazil corporate income tax at the rate of34%.
(a-8) TLSC and its subsidiaries, the Company's subsidiaries in Japan, is subject to Japan corporate income tax at the rate of30.81%.
(a-9) Clivet S.P.A and ClivetEspaña S.A.U. (“Clivet”), the Company's subsidiaries in Italy, is subject to Italy corporate income tax at the rate between20% and31.4%.
(a-10) KUKA, the Company's subsidiaries in Germany, is subject to Germany corporate income tax at the rate of32%.
(a-11) SMC, the Company's subsidiaries in Israel, is subject to Israel corporate income tax at the rate of24%.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
3 Taxation (Cont'd)
(1) Main tax category and rate (Cont'd)
(b) Notes to the value-added tax rate of the principal tax payers with different tax rates
(b-1) According to The Programme for Comprehensively Implementing Transformation from business tax to value-added tax (NO.36 of 2017) and related regulations published by Ministry of Treasury and National Taxation Bureau, since 1 May 2017, revenue from rental service, real estate management service, financial service, consulting service and logistics service of the Company and its subsidiaries are subject to value-added tax, while these service are subject to business tax at the rate of5% before 1 May 2017.
(b-2) Sales of goods and provision of repairs and replacement service from part of subsidiaries of the Company are subject to value-added tax at the rate of17%.
(b-3) Rental service on real estate and distribution service provided by the Company and part of its subsidiaries are subject to value-added tax at the rate of11%.
(b-4) Financial service, consulting service and storage service provided by the Company and part of its subsidiaries are subject to value-added tax at the rate of6%.
(b-5) Rental revenue of Hefei Midea Refrigerator Co., Ltd., which is a subsidiary of the Company, is subject to easy levy of value-added tax at the rate of5%.
4 Notes to the consolidated financial statements
(1) Cash at bank and on hand
31 December 2017 31 December 2016 Cash on hand 4,589 2,315 Cash at bank (a) 21,954,206 16,151,724 Other cash balances (b) 267,259 1,042,031 Required reserves in the central bank(c) 1,835,051 677,011 Excess reserves in the central bank 305,963 58,172 Deposits in other banks(d) 23,907,132 9,237,865 48,274,200 27,169,118 Including: Cash abroad (including Hong
Kong, Macau, Singapore, Japan, Italy and
Brazil, Germany etc.) 10,685,588 4,234,153 (a) As at 31 December 2017, cash at bank includes fixed deposits with the term of over three months, amounting to RMB3,540,237,000(31 December 2016: RMB9,136,346,000).
(b) Other cash balances mainly include security deposits, bank acceptance note and letter of credit.
(c) Statutory reserves in the Central Bank represents the statutory reserve deposited inPeople’s Bank of China by the financial enterprise in accordance with relevant regulations, which are calculated at7% and5% for eligible RMB deposits and foreign currency deposits, respectively, and are not available for use in theGroup’s daily operations.
(d) As at 31 December 2017, deposits with banks and other financial institutions include time
deposits with the term of over three months, amounting to RMB20,800,000,000(31
December 2016: RMB3,800,000,000).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements
(1) Cash at bank and on hand (Cont'd)
(e) Reserves in the Central Bank and deposits with banks and other financial institutions are listed below the item of cash at bank and on hand. Comparative data of prior year are adjusted as well.
(2) Notes receivable
31 December 2017 31 December 2016 Bank acceptance notes 10,854,226 7,427,488 (a) As at 31 December 2017, the Group's notes receivable that are not mature but have been endorsed to other parties, or that have been discounted are as follows:
Derecognised Recognised Bank acceptance notes 28,725,219 - (3) Receivables
(a) Accounts receivable
31 December 2017 31 December 2016 Accounts receivable 18,410,114 14,198,320 Less: Provision for bad debts (881,397) (743,809) 17,528,717 13,454,511 The ageing of other receivables is analysed as follows:
31 December 2017 31 December 2016 Within 1 year 17,932,715 13,603,125 1 to 2 years 266,896 462,845 2 to 3 years 103,978 66,756 3 to 5 years 64,300 45,212 Over 5 years 42,225 20,382 18,410,114 14,198,320 As at 31 December 2017, the Group has no overdue accounts receivable with significant amount.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements(Cont’d)
(3) Receivables(Cont’d)
(a) Accounts receivable(Cont’d)
Accounts receivable are analysed by categories as follows:
Ending balance Opening balance
Book balance Provision for bad debts Book balance Provision for bad debts% of total % of total
Categories Amount balance Amount Ratio Amount balance Amount Ratio With amounts that are
individually
significant and that
the related provision
for bad debts is
provided on the
individual basis 32,448 0.18% 6,960 21.45% 35,363 0.25% 9,108 25.76% That the related
provision for bad
debts is provided on
the age grouping
basis 18,079,721 98.20% 867,797 4.80% 13,931,404 98.12% 729,848 5.24% With amounts that are
not individually
significant but that
the related provision
for bad debts is
provided on the
individual basis 297,945 1.62% 6,640 2.23% 231,553 1.63% 4,853 2.10% Total 18,410,114100.00% 881,397 4.79% 14,198,320 100.00% 743,809 5.24% Accounts receivable that the related provision for bad debts is provided on grouping basis using the ageing analysis method are analysed as follows:
Ending balance Opening balance
Ending balance Provision for bad debts Ending balance Provision for bad debts Ageing Amount Amount Ratio Amount Amount Ratio Within 1
year 17,693,549 673,853 3.81% 13,353,944 431,907 3.23% 1 to 2 years 191,494 59,250 30.94% 445,165 198,277 44.54% 2 to 3 years 101,994 61,313 60.11% 66,701 40,686 61.00% 3 to 5 years 57,889 38,586 66.66% 45,212 38,596 85.37% Over 5 years 34,795 34,795 100.00% 20,382 20,382 100.00% Total 18,079,721 867,797 4.80% 13,931,404 729,848 5.24% The provision for bad debts reversed in the current year is RMB160,811,000.
As at 31 December 2017, the top 5 accounts receivable assembled by debtors are analysed as follows:
Amount Provision for bad debts % of total balance Total balance of top 5 accounts
1,784,606 89,230 10% receivable
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(3) Receivables (Cont'd)
(b) Other receivables
31 December 2017 31 December 2016 Other receivables 2,706,912 1,168,005 Less: Provision for bad debts (49,344) (27,872) 2,657,568 1,140,133 Other receivables mainly include current accounts, petty cash to staff and deposits.
The ageing of other receivables is analysed as follows:
31 December 2017 31 December 2016 Within 1 year 2,596,908 1,106,995 1 to 2 years 64,118 49,445 2 to 3 years 35,284 7,263 3 to 5 years 6,907 4,302 Over 5 years 3,695 - 2,706,912 1,168,005 Other receivables are analysed by categories as follows:
Ending balance Opening balance
Book balance Provision for bad debts Book balance Provision for bad debts% of total % of total
Amount balance Amount Ratio Amount balance Amount Ratio With amounts that are
individually
significant and that
the related provision
for bad debts is
provided on the
individual basis 64,760 2.39% - - 49,922 4.27% - - That the related
provision for bad
debts is provided on
the age grouping
basis 2,642,152 97.61% 49,344 1.87% 1,112,996 95.29% 26,781 2.41% With amounts that are
not individually
significant but that
the related provision
for bad debts is
provided on the
individual basis - - - - 5,087 0.44% 1,091 21.45% Total 2,706,912100.00% 49,344 1.82% 1,168,005 100.00% 27,872 2.39%
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(3) Receivables (Cont'd)
(b) Other receivables (Cont'd)
As at 31 December 2017, other receivables with amounts that are individually significant and that the related provision for bad debts is provided on the individual basis are analysed as follows:
||||||
|-|-|-|-|-|
|Name of the Company|Ending balance|Provision forbad debts|Percentages|Reason|
|China Securities Depository andClearing Corporation LimitedShenzhen Branch|64,760|-|0%|Receivables related to shareoptions without bad debt risks|

 The provision for bad debts reversed in the current year is RMB3,505,000.
Other receivables as written off by the Group in the current year are arising from transactions with third parties and there's no written-off other receivables with amounts that are individually significant.
As at 31 December 2017, the top 5 other receivables assembled by debtors are analysed as follows:
Amount Provision for bad debts % of total balance Total balance of top 5
other receivables 122,050 2,865 5% As at 31 December 2017, the Group' has no significant government grants recognised at amounts receivable.
(4) Advances to suppliers
31 December 2017 31 December 2016 Advances paid for raw materials
and others 1,672,248 1,587,366 (a) The ageing of advances to suppliers is analysed below:
31 December 2017 31 December 2016
Amount % of total Amount % of total balance balance Within 1 year 1,620,207 96s.88% 1,492,532 94.02% 1 to 2 years 36,689 2.19% 73,736 4.65% 2 to 3 years 5,662 0.34% 14,907 0.94% Over 3 years 9,690 0.58% 6,191 0.39%
1,672,248 100.00% 1,587,366 100.00%
As at 31 December 2017, advances to suppliers over 1 year with a carrying amount of
RMB52,041,000 (31 December 2016: RMB94,834,000) are mainly unsettled advances paid
for raw materials.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(4) Advances to suppliers (Cont'd)
As at 31 December 2017, the top five balances of advances to suppliers assembled by debtors are summarised as follows:
Amount % of total balance Total balance of top 5 advances to
suppliers 625,655 37% (5) Loans and advances
(a) Financial enterprises' loans and advances analysed to individual and corporation are as follows:
31 December 2017 31 December 2016 Loans and advances to individuals 567,998 417,793 Loans and advances to corporations 11,778,609 9,995,466 Including: Loans 2,599,038 2,652,425 Discounted bills 9,179,571 7,343,041 12,346,607 10,413,259 Less: Loan impairment provision (167,654) (139,862) 12,178,953 10,273,397 (b) Financial enterprises' loans and advances analysed by type of collateral held or other
credit enhancements are as follows:
31 December 2017 31 December 2016 Unsecured loans 389,057 230,097 Guaranteed loans 256,112 524,537 Secured loans by monetary assets 11,701,438 9,658,625 12,346,607 10,413,259 Less: Loan impairment provision
(Note 4(15)) (167,654) (139,862) 12,178,953 10,273,397
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(6) Inventories
(a) Inventories are classified as follows:
31 December 2017 31 December 2016
Provision for Provision for
declines in declines in
Book value of Carrying Book value of Carrying Item balance inventories amount balance inventories amount Finished goods 17,625,714 (160,843) 17,464,871 11,943,779 (191,147) 11,752,632 Raw materials 5,680,125 (46,139) 5,633,986 2,851,998 (11,237) 2,840,761 Work in progress 2,040,630 - 2,040,630 792,664 - 792,664 Consigned
processing
materials 221,842 - 221,842 235,633 - 235,633 Low value
consumables 59,370 - 59,370 5,207 - 5,207 Completed but
unsettled(Note(d)) 4,023,467 - 4,023,467 - - - Total 29,651,148 (206,982) 29,444,166 15,829,281 (202,384) 15,626,897 (b) Provision for decline in the value of inventories is analysed as follows:
Differences on
translation of
foreign
Increase in currency
current Decrease in financial
31 December year current year statements 31 December 2016 Provision Reversal or currency 2017 write-off financial
statements
Finished goods 191,147 355,794 (390,100) 4,002 160,843 Raw materials 11,237 121,759 (87,188) 331 46,139 Work in progress - - - - - Consigned processing
materials - - - - - 202,384 477,553 (477,288) 4,333 206,982 (c) Provision for decline in the value of inventories are as follows:
Reason for the write-off of Specific determination basis of provision for decline in the value net realisable value of inventories in current year Finished goods Stated at the lower of cost and Sales Raw materials Stated at thnee lto rweaerli soaf bcloes vt aaluned Requisition for production net realisable value
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(6) Inventories (Cont'd)
(d) Contract construction
31 December 2017 Cost occurred and gross profit recognised 25,869,455 Less: Accumulated billed amount (23,516,843) Total 2,352,612 Balance at 31 December2017：
Completed but unsettled products 4,023,467 Less: Provision for decline in the value of completed
- but unsettled
4,023,467 Net book value of completed but unsettled products
(1,670,855) Settled but not completed (Note 4(20))
Total 2,352,612 (7) Other current assets
31 December 2017 31 December 2016 Wealth management products (a) 22,094,715 26,267,067 Structural deposits and
swap deposits 19,252,086 14,442,697 Deductible input VAT 2,988,800 1,876,967 Prepaid expenses 639,409 467,916 Others 1,872,261 474,950 46,847,271 43,529,597 (a) As at 31 December 2017, wealth management products with floating earnings due within one year are presented as other current assets, mainly including principal non-guaranteed products (Note 16(1)).
(b) The Companydidn’t purchase wealth management product and assets
management plan due more than one year which are presented as other non-
current assets (31 December 2016: RMB3,842,000,000).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(8) Available-for-sale financial assets
31 December 2017 31 December 2016 Measured at fair value
- Available-for-sale equity
instruments (a) 118,711 3,518,693 Measured at cost
- Available-for-sale equity
instruments (b) 1,712,340 1,669,039 1,831,051 5,187,732 (a) As at 31 December 2017, the available-for-sale financial assets measured at fair value are mainly the investments in listed company - Jiangsu Bank.
(b) The available-for-sale financial assets measured at cost mainly include the unlisted equity investments held by the Group, which do not have a quoted market price in an active
market and whose fair value cannot be reliably measured as the range of fair value
reasonable estimates is large and probabilities for determining these estimates cannot be reasonably determined. The Group has no plan to dispose these investments.
(9) Long-term equity investments
Long-term equity investments are classified as follows:
31 December 2017 31 December 2016 Investment in associates (a) 2,633,698 2,211,732 Less: Provision for impairment of
long-term equity investments - - 2,633,698 2,211,732 (a) TheGroup’s Investment in associates are mainly investments in Foshan Shunde Rural Commercial Bank Co., Ltd., Misr Refrigeration And Air Conditioning Manufacturing Co., and Hefei Royalstar Motor Co., Ltd. and other companies.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(10) Fixed assets
Electronic
Machinery and equipment and
Buildings Land equipment Motor vehicles other equipment Total Cost
31 December 2016 15,215,937 840,333 16,670,395 807,794 2,676,768 36,211,227 Increase in current year
Purchase 135,780 - 1,467,596 24,116 615,088 2,242,580 Transfers from construction in
progress 458,978 - 87,861 584 91,245 638,668 Increase in business
combinations 941,721 255,604 443,012 978 455,697 2,097,012 Transfer from investment
prosperities 49,114 - - - - 49,114 Decrease in current year
Disposal and retirement (81,252) (20,313) (786,079) (56,722) (241,362) (1,185,728) Differences on translation of
foreign currency financial
statements 39,879 14,903 10,186 2,529 37,947 105,444 31 December 2017 16,760,157 1,090,527 17,892,971 779,279 3,635,383 40,158,317 Accumulated depreciation
31 December 2016 4,854,232 - 7,894,549 364,405 2,022,483 15,135,669 Increase in current year
Depreciation charged 929,131 - 1,693,328 118,915 589,857 3,331,231 Others 14,747 - - - - 14,747 Decrease in current year
Disposal and retirement (71,058) - (659,074) (49,398) (189,700) (969,230) Differences on translation of
foreign currency financial
statements 7,227 - 4,184 593 6,910 18,914 31 December 2017 5,734,279 - 8,932,987 434,515 2,429,550 17,531,331 Provision for impairment loss
31 December 2016 3,918 - 14,706 36 107 18,767 Increase in current year
Provision - - 8,325 337 275 8,937 Decrease in current year
Disposal and retirement - - (1,318) (159) (123) (1,600) Differences on translation of
foreign currency financial
statements 7 - 133 4 14 158 31 December 2017 3,925 - 21,846 218 273 26,262 Carrying amount
31 December 2017 11,021,953 1,090,527 8,938,138 344,546 1,205,560 22,600,724 31 December 2016 10,357,787 840,333 8,761,140 443,353 654,178 21,056,791 (a) In 2017, the depreciation of fixed assets amounted to RMB3,331,231,000 (2016: RMB2,898,537,000) and was included in income statement.
(b) As at 31 December 2017, the Company is still in the course of obtaining the ownership certificate for the fixed asset with a carrying amount of RMB549,431,000.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(11) Construction in progress
(a) Movement of significant projects of construction in progress
31 December 31 December Accumulativ
Other
Transfer to e amount Including: Capitalisation 2016
fixed assets
decreases
2017
of borrowing rate o f Increase in in current capitalised costs borrowing Opening current year Ending borrowing capitalised in costs in Source of balance year balance costs current year current yea r funds Internal Meizhi Compressor
resource Project 4,060 1,811 (4,251) - 1,620 - - - Compressor (Anhui)
Internal Project 1,949 3,049 (2,085) - 2,913 - - - resource Guangdong Welling
Internal construction in progress 28,129 1,789 (17,101) - 12,817 - - - resource Innovation project 434,173 28,728 (426,588) - 36,313 - - - Internal resource Internal Other projects 112,418 951,945 (188,643) (49,807) 825,913 - - - resource 580,729 987,322 (638,668) (49,807) 879,576 - -
As at 31 December 2017, there's no provision for impairment of construction in progress with the ending balance consistent with the carrying amount; and the cost of construction in progress matches the budget amount. The projects are carried out on schedule.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(12) Intangible assets
Parents and
Land use Non-patent Trademark Trademark
rights technologies rights use rights Others Total (Note (c))
Cost
31 December 2016 3,814,516 398,059 556,022 2,561,623 397,238 7,727,458 Increase in current year
Purchase 8,748 75,387 - - 313,144 397,279 Increase in business
combinations 55,104 1,496,874 4,151,605 - 4,717,044 10,420,627 Others - - - - 49,807 49,807 Decrease in current year
Disposal (15,228) (3,820) (624) - (44,876) (64,548) Differences on translation
of foreign currency
financial statements (691) 73,458 241,964 (128,081) 220,955 407,605 31 December 2017 3,862,449 2,039,958 4,948,967 2,433,542 5,653,312 18,938,228 Accumulated
amortisation
31 December 2016 638,786 139,308 2,123 36,518 36,120 852,855 Increase in current year
Amortisation charged 115,240 281,510 35,697 63,864 2,447,634 2,943,945 Decrease in current year
Disposal (1,853) (1,480) (10) - (41,890) (45,233) Differences on translation
of foreign currency
financial statements (144) (1,078) 2,389 (422) 6,829 7,574 31 December 2017 752,029 418,260 40,199 99,960 2,448,693 3,759,141 Provision for impairment
loss
31 December 2016 - 6,065 - - - 6,065 Increase in current year
Amortisation charged - 4,542 - - 1,324 5,866 Decrease in current year
Disposal - - - - - - Differences on translation
of foreign currency
financial statements - 131 - - (11) 120 31 December 2017 - 10,738 - - 1,313 12,051 Carrying amount
31 December 2017 3,110,420 1,610,960 4,908,768 2,333,582 3,203,306 15,167,036 31 December 2016 3,175,730 252,686 553,899 2,525,105 361,118 6,868,538 (a) In 2017, the amortisation of intangible assets amounted to RMB2,943,945,000 (2016: RMB207,654,000), and is included in income statement.
(b) As at 31 December 2017, there was no land use rights without certificates (31 December 2016: there was no land use rights without certificates).
(c) As at 31 December 2017, intangible assets - others are mainly increased customer relationships and order backlog due to the combination.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(13) Goodwill
The goodwill allocated to the asset groups is summarised by operating segments as
follows:
Differences
31 December on translation 31 December of foreign
currency
Increase in financial
2016 current year statements 2017 (Note(a))
Wuxi Little Swan Company Limited 1,361,306 - - 1,361,306 Clivet Co., Ltd. 498,724 - - 498,724 Carrier S.A. Co., Ltd. 614,728 - (45,235) 569,493 TLSC 2,697,290 75,190 (77,125) 2,695,355 KUKA Group - 20,698,212 1,504,357 22,202,569 Others 558,947 1,005,715 11,676 1,576,338 5,730,995 21,779,117 1,393,673 28,903,785 (a) Increase of goodwill in the current year arose from the stock purchase of KUKA Group and other companies (Note 5(1)), and the consideration sharing arrangement to the purchase of TLSC in 2016.
(b) Impairment
On 31 December 2017, the Group carried out tests for impairment of goodwill. The recoverable amount of asset groups including goodwill is calculated using the discounted estimated future cash flows determined according to the five-year budget approved by management. The future cash flows beyond the five-year period are calculated based on the estimated perpetual annual growth rates. The perpetual annual growth rates applied by management are consistent with the industry estimates, and do not exceed the long-term average growth rates of each product. Management determines EBITDA margins based on past experience and forecast on future market development. The discount rates used by management are the pre-tax interest rates that are able to reflect the risks specific to the related asset groups. The management analysed the recoverable amount of each asset group based on such estimates and believed that no provision for impairment of goodwill was required.
Key assumptions adopted by KUKA and TLSC and other asset groups used for value-in-use calculations are as follows:
31 December 2017 Perpetual annual growth rates 1%-3% Discount rate 8.2%-15.5%
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(14) Deferred income tax assets and deferred income tax liabilities
(a) Deferred income tax assets without taking into consideration the offsetting of balances 31 December 2017 31 December 2016
Deductible Deferred income Deductible Deferred income temporary tax assets temporary tax assets d ifferences and differences and
deductible losses deductible losses
Deductible losses 1,482,569 442,219 763,015 223,187 Provision for asset
impairments 1,121,334 249,163 1,099,118 224,302 Employee benefits
payable 1,294,431 291,511 344,391 69,092 Other current
liabilities 15,398,407 3,279,340 12,548,142 2,210,590 Others 3,544,103 894,981 1,423,137 303,212 22,840,844 5,157,214 16,177,803 3,030,383 Including:
Expected to be
reversed within
one year
(inclusive) 4,442,885 2,810,571 Expected to be
reversed after
one year 714,329 219,812 5,157,214 3,030,383 (b) Deferred income tax liabilities without taking into consideration the offsetting of balances 31 December 2017 31 December 2016
Taxable Deferred Taxable Deferred temporary income tax temporary income tax differences liabilities differences liabilities Changes in fair value 482,092 46,086 7,587 1,071 Business
combinations not
under common
control 12,152,077 3,595,258 5,514,103 1,708,006 Others 4,723,128 1,465,359 423,030 122,896 17,357,297 5,106,703 5,944,720 1,831,973 Including:
Expected to be
reversed within one
year (inclusive) 1,001,770 217,645 Expected to be
reversed after one
year 4,104,933 1,614,328 5,106,703 1,831,973
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(14) Deferred income tax assets and deferred income tax liabilities (Cont'd)
(c) Net value of deferred income tax assets and deferred income tax liabilities taking into
consideration the offsetting of balances are as follows:
31 December 2017 31 December 2016 Offset balance Offset balance Deferred income tax assets 4,023,334 3,030,383 deferred income tax liabilities 3,972,823 1,831,973 (15) Details of provision for asset impairments
Differences
on translation
of foreign
currency
31 Increase in Decrease in current financial 31 December current year year statements December 2016 Reversal Write-off 2017 Provision for bad debts 911,543 374,700 (164,316) (22,505) (1,027) 1,098,395 Including: Provision for bad
debts of
accounts
receivable 743,809 315,515 (160,811) (22,455) 5,339 881,397 Loan impairment
provision 139,862 27,792 - - - 167,654 Provision for bad
debts of other
receivables 27,872 31,393 (3,505) (50) (6,366) 49,344 Provision for decline in the
value of inventories 202,384 477,553 (435,742) (41,546) 4,333 206,982 Provision for impairment of
available-for-sale
financial assets 100 2,114 - - 40 2,254 Provision for impairment of
fixed assets 18,767 8,937 - (1,600) 158 26,262 Provision for impairment of
intangible assets 6,065 5,866 - - 120 12,051 Provision for impairment of
investment properties 12,576 - - - - 12,576 1,151,435 869,170 (600,058) (65,651) 3,624 1,358,520 (16) Assets with ownership or use right restricted
As at 31 December 2017, details of assets with restricted ownership are as follows:
31 December 2017 31 December 2016 Cash at bank and on hand
Including: Bank deposit and Other
cash and cash
equivalents 3,807,496 10,178,377 Deposits with the Central Bank 1,835,051 677,011 Deposits with other banks 20,800,000 3,800,000 26,442,547 14,655,388
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(17) Short-term borrowings
31 December 2017 31 December 2016 Unsecured borrowings 2,028,265 2,498,727 Guaranteed borrowings (a) 555,837 525,699 2,584,102 3,024,426 (a) As at 31 December 2017, RMB33,436,000 (31 December 2016: RMB27,415,000) of bank guaranteed borrowings, is guaranteed by subsidiaries of the Company. RMB522,401,000 (31 December 2016: RMB498,284,000) of bank guaranteed borrowings, is guaranteed by the Company.
(b) As at 31 December 2017, the annual interest rate range of short-term borrowings is0.81% to11% (31 December 2016:1.77% to9.38%).
(18) Notes payable
31 December 2017 31 December 2016 Bank acceptance notes 25,207,785 18,484,939 (19) Accounts payable
31 December 2017 31 December 2016 Accounts payable for materials 31,009,375 21,453,740 Others 4,135,402 3,903,220 35,144,777 25,356,960 (a) As at 31 December 2017, accounts payable with ageing over 1 year with a carrying amount of RMB978,692,000 (31 December 2016: RMB849,693,000) are mainly unsettled accounts payable for materials.
(20) Advances from customers
31 December 2017 31 December 2016 Advances on sales 15,738,208 10,252,375 Settled but not completed 1,670,855 - 17,409,063 10,252,375 (a) As at 31 December 2017, accounts payable with ageing over 1 year with a carrying amount of RMB202,302,000 (31 December 2016: RMB165,010,000) are mainly unsettled advances on sales.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(21) Employee benefits payable
31 December 2017 31 December 2016 Short-term employee benefits (a) 5,063,266 3,064,520 Others 184,234 89,867 5,247,500 3,154,387 (a) Short-term employee benefits
31 December 31 December Increase in Decrease in
2016 current year current year 2017 Wages and salaries, bonus,
allowances and subsidies 2,720,179 20,887,374 (18,985,106) 4,622,447 Staff welfare 258,258 1,291,887 (1,285,871) 264,274 Social security contributions 17,741 1,688,583 (1,599,311) 107,013 Including: Medical insurance 15,866 1,628,851 (1,540,916) 103,801 Work injury insurance 1,637 33,497 (32,856) 2,278 Maternity insurance 238 26,235 (25,539) 934 Housing funds 21,317 361,233 (360,421) 22,129 Labour union funds and employee
education funds 20,030 92,491 (93,700) 18,821 Other short-term employee
benefits 26,995 82,872 (81,285) 28,582 3,064,520 24,404,440 (22,405,694) 5,063,266 (22) Taxes payable
31 December 2017 31 December 2016 Corporate income tax payable 2,277,595 1,656,482 VAT payable 664,196 348,991 Others 602,363 358,973 3,544,154 2,364,446 (23) Other payables
(a) Other payables are mainly deposit and security deposit payable, reimbursed logistics
expense, manufacturing equipment expense and refund for energy-saving and beneficial to people.
(b) As at 31 December 2017, accounts payable with ageing over 1 year with a carrying
amount of RMB405,709,000 (31 December 2016: RMB484,749,000) are mainly deposit and security deposit payable, which are unsettled for related projects that are
uncompleted.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(24) Other current liabilities
31 December 2017 31 December 2016 Accrued sales rebate 17,240,015 16,201,044 Accrued installation and
4,171,520 4,164,399 maintenance expenses
Accrued sales promotion expenses 1,288,509 985,665 Accrued transportation expenses 596,877 576,821 Others 2,961,069 2,635,041 26,257,990 24,562,970 (25) Long-term borrowings
31 December 2017 31 December 2016 Mortgage borrowings(a) 28,922,008 - Guaranteed borrowings 2,114,423 2,251,703 Unsecured borrowings 1,949,894 2,645 32,986,325 2,254,348 (a) As at 31 December 2017, mortgage borrowings of RMB 28,922,008,000 is pledged by81.04% equity of KUKA, which is acquired by the subsidiary of the Company (31
December 2016: 0). Interest is paid on a semi-annual basis and the principal should be repaid in August 2022.
(b) As at 31 December 2017, the annual interest rate range of the long-term borrowings is0.4% to6% (31 December 2016:0.4% to5.5%).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(26) Debentures payable
Amortization Repaid in
Name of the Issued in Issuance Interest accrued of discount Exchange gains current
debentures 31 December current year costs on par value and premium or loss and year 31 December Differences on
translation of
foreign currency
financial
2016 statements 2017 USD
Guaranteed
Medium
Term Note 4,818,769 - - 108,631 14,098 (279,813) - 4,553,054 The Group issued corporate debenture with total amount of USD700,000,000 and duration of 3 years on 3 June 2016. Interest of the debenture is paid on a semi-annual basis and calculated by the simple interest method. The face value of the debenture is RMB4,605,510,000 and the fixed coupon interest rate is2.375% annually. The debenture is guaranteed by the Company.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(27) Long-term Employee Benefits Payable
31 December 2017 31 December 2016 Supplemental retirement Benefit (a) 2,330,599 1,418,921 Others 135,255 31,033 2,465,854 1,449,954 (a) Supplemental retirement Benefit
As at 31 December 2017, the supplemental retirement benefit obligation of the Group is calculated using the estimated accumulated welfare unit method, and has been reviewed by the external independent actuary firm.
(i) Defined-benefit liabilities of the Group:
31 December 2017 31 December 2016 Defined-benefit obligation 3,963,809 1,716,280 Less: Fair value of planned assets (1,633,210) (297,359) Defined-benefit liabilities 2,330,599 1,418,921 (ii) The movement in the defined benefit liability is as follows:
Present Net liabilities value of (net assets) of Defined-benefit Fair value of Defined-benefit liabilities planned assets plan 1 January 2017 1,716,280 (297,359) 1,418,921 Changes due to combination 2,199,554 (1,310,109) 889,445 The charges recorded in the statement of
profit or loss
-Current service cost 127,427 - 127,427 -Past service cost (28,088) - (28,088) -Net interest 41,626 (19,508) 22,118 Remeasurements:
-Actuarial gain 78,868 - 78,868 -Return on plan assets, excluding amounts
included in interest income - (63,551) (63,551) Others
-Employer contributions - (92,119) (92,119) -Benefit payments (139,088) 120,228 (18,860) Differences on translation of foreign currency
financial statements (32,770) 29,208 (3,562)
31 December 2017 3,963,809 (1,633,210) 2,330,599
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(27) Long-term Employee Benefits Payable (Cont'd)
(a) Supplemental retirement Benefit (Cont'd)
(iii) The significant actuarial assumptions were as follows:
31 December 2017
TLSC KUKA Discount rate 0.061-1.21% 0.6%-7.6% Inflation rate 1.03% Not applicable Expected return on assets Not applicable 1.55%-7.6% Salary growth rate 1.5%-7.9% 0.5%-5.0% Pension growth rate 0.0%-6.9% 0.0-3.7% (28) Share capital
31 31 December December Current year movement
Exercise of Restricted
2016 share options shares Desterilization Subtotal 2017 RMB-denominated ordinary
shares - (Note (a)) (Note (b))
RMB-denominated ordinary
shares subject to trading
restriction 279,045 - 23,130 (90,152) (67,022) 212,023 RMB-denominated ordinary
shares not subject to
trading restriction 6,179,722 79,156 - 90,152 169,308 6,349,030 6,458,767 79,156 23,130 - 102,286 6,561,053 31 31 December Current year movement December Share capital
from capital Exercise of
2015 surplus share options Desterilization Subtotal 2016 RMB-denominated ordinary
shares -
RMB-denominated ordinary
shares subject to trading
restriction 2,026,343 1,013,172 - (2,760,470) (1,747,298) 279,045 RMB-denominated ordinary
shares not subject to
trading restriction 2,240,496 1,120,524 58,232 2,760,470 3,939,226 6,179,722 4,266,839 2,133,696 58,232 - 2,191,928 6,458,767 (a) Pursuant to the first share option incentive plan as approved at the first extraordinary
general meeting dated 17 February 2014 (the "First Options Incentive Programme"), in 2017, the total number of shares exercised by the granted employees is 28,395,000 with increase in share capital of RMB28,395,000 and increase in capital surplus (share
premium) of RMB357,200,000 (among which RMB98,549,000 is transferred from capital surplus (share option incentive plan) to capital surplus (share premium)). The weighted average price of share options exercised in current period is RMB24.48 as calculated
based on the price of exercise date.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(28) Share capital (Cont'd)
Pursuant to the second share option incentive plan as approved at the first extraordinary general meeting dated 25 May 2015 (the "Second Options Incentive Programme), in 2017, the total number of shares exercised by the granted employees is 28,483,000, with
increase in share capital of RMB28,483,000 and increase in capital surplus (share
premium) of RMB693,668,000 (among which RMB189,403,000 is transferred from capital surplus (share-based payment incentive plan) to capital surplus (share premium)). The weighted average price of share options exercised in current period is RMB29.16 as
calculated based on the price of exercise date.
Pursuant to the third share option incentive plan as approved at the 12th meeting of the board of directors dated 25 May 2016 (the “Third Options Incentive Programme”), in 2017, the total number of shares exercised by the granted employees is 22,278,000, with
increase in share capital of RMB22,278,000 and increase in capital surplus (share
premium) of RMB552,445,000 (among which RMB121,369,000 is transferred from capital surplus (share option incentive plan) to capital surplus (share premium)). The weighted average price of share options exercised in current period is RMB35.81 as calculated
based on the price of exercise date.
(b) Pursuant to the restricted share incentive plan as approved at 2016 annual general
meeting on 21 April 2017 (the "2017 Restricted Share Plan”), in 2017, the total number of shares exercised by the granted employees is 23,130,000 with subscription of
RMB366,842,000, of which RMB23,130,000 was recognised as share capital, and
RMB343,712,000 was recognised as capital surplus (share premium). The restricted
shares have not reached desterilization condition in 2017. The Company regards it as treasury stock and recognize related debt for repurchase obligations.
(29) Capital reserve
31 December 31 December Increase in Decrease in
2016 current year current year 2017 Share premium (a) 9,961,450 1,947,025 - 11,908,475 Share-based payment incentive
plan (b) 617,238 735,326 (409,321) 943,243 Others 3,017,881 41,905 - 3,059,786 13,596,569 2,724,256 (409,321) 15,911,504 31 December 31 December Increase in Decrease in
2015 current year current year 2016 Share premium 11,088,036 1,007,110 (2,133,696) 9,961,450 Share-based payment incentive
plan 388,604 473,958 (245,324) 617,238 Others 3,034,550 - (16,669) 3,017,881 14,511,190 1,481,068 (2,395,689) 13,596,569
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(29) Capital reserve (Cont'd)
(a) The increase in share premium arose from the exercise of share options with the amount of RMB1,603,313,000, (among which RMB409,321,000 was transferred from capital
surplus (Share-based payment incentive plan)(Note 4(28)(a)), and restricted shares
subscription with amount of RMB343,712,000(Note 4(28)(b)).
(b) Share-based payment incentive plan included share option incentive plan and restricted share plan. The increase of share-based payment incentive plan arose from expenses attributable to shareholders' equity of the Company in the share option incentive plan and restricted share plan with the amount of RMB735,326,000, while the decrease arose from the transfer of RMB409,321,000 to share premium due to exercise of share option (Notes 4(28)(a)).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(30) Other comprehensive income
Other comprehensive income in the balance sheet Other comprehensive income in the income statement for the year ended 31 December 2017 Less:
Attributable to Reclassifications of
31 December
the parent
31 December
previous other Attributable to Attributable to company after Amount before comprehensive the parent minority tax income tax for income to profit or Less: Income tax company after shareholders 2016 2017 year loss expenses tax after tax Other comprehensive income which will not be reclassified
subsequently to profit or loss
Remeasurement of net liabilities and net assets of
defined-benefit plan 82,223 (31,132) 51,091 (15,317) - (15,584) (31,132) 231 Other comprehensive income which will be reclassified
subsequently to profit or loss
Share of the other comprehensive income of the investee
accounted for using equity method which will be
reclassified subsequently to profit and loss (75,053) (36,017) (111,070) (36,017) - - (36,017) - Gains or losses arising from changes in fair value of
available-for-sale financial assets 392,378 (240,597) 151,781 147,634 (408,968) 6,197 (240,597) (14,540) Effective portion of cash flow hedging gains or losses 4,594 318,553 323,147 358,980 (5,086) (24,870) 318,553 10,471 Exchange differences arising from translating foreign
operations (391,017) (268,624) (659,641) (317,597) - - (268,624) (48,973) 13,125 (257,817) (244,692) 137,683 (414,054) (34,257) (257,817) (52,811) Other comprehensive income in the balance sheet Other comprehensive income in the income statement for the year ended 31 December 2016 Less:
Reclassifications of
31 December
Attributable to
31 December
previous other Attributable to Attributable to the parent Amount before comprehensive the parent minority company after income tax for income to profit or Less: Income tax company after shareholders 2015 tax 2016 year loss expenses tax after tax Other comprehensive income which will not be reclassified
subsequently to profit or loss - 82,223 82,223 82,223 - - 82,223 - Remeasurement of net liabilities and net assets of
defined-benefit plan (1,242) (73,811) (75,053) (73,811) - - (73,811) - Other comprehensive income which will be reclassified
subsequently to profit or loss 160,706 231,672 392,378 311,974 (55,676) (7,270) 231,672 17,356 Share of the other comprehensive income of the investee
accounted for using equity method which will be
reclassified subsequently to profit and loss (194,762) 199,356 4,594 5,086 202,106 (9,058) 199,356 (1,222) Gains or losses arising from changes in fair value of
available-for-sale financial assets (1,035,853) 644,836 (391,017) 732,641 - - 644,836 87,805 Effective portion of cash flow hedging gains or losses
(1,071,151) 1,084,276 13,125 1,058,113 146,430 (16,328) 1,084,276 103,939
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(31) Surplus reserve
31 December 31 December Increase in
2016 current year 2017 Statutory surplus 2,804,469 1,077,763 3,882,232 reserve
31 December
Increase in
31 December 2015 current year 2016 Statutory surplus
1,846,523 957,946 2,804,469 reserve
In accordance with the Company Law of the People's Republic of China and theCompany’s Articles of Association, the Company should appropriate10% of net profit for the year to the statutory surplus reserve, and the Company can cease appropriation when the statutory surplus reserve accumulated to more than50% of the registered capital. The statutory surplus reserve can be used to make up for the loss or increase the share capital after approval from the appropriate authorities. According to a resolution at the Board of Directors, the Company appropriated10% of net profit, amounting to approximately RMB1,077,763,000 in 2017 (2016:10% of net profit, amounting to approximately RMB957,946,000) to the statutory surplus reserve.
(32) Undistributed profits
2017 2016 Undistributed profits at the beginning of the
year 38,105,391 29,529,827 Add: Net profit attributable to the parent
company for current year 17,283,689 14,684,357 Less: Ordinary share dividends payable (a) (6,465,677) (5,120,869) Appropriation to general reserve (b) (218,345) (29,978) Others (60) - Appropriation to statutory surplus
reserve (Note 4(31)) (1,077,763) (957,946) Undistributed profits at end of year 47,627,235 38,105,391 (a) Ordinary share dividends distributed in current year
In accordance with the resolution at the Board ofShareholders’ meeting dated on 21 April 2017, based on the existing total equity of RMB6,465,677,000, the Company distributed a cash dividend to the shareholders at RMB10.00 (tax-inclusive) per ten shares, amounting to RMB6,465,677,000 calculated by 6,465,677,368 issued shares (2016: RMB1.00 per share, amounting to RMB5,120,869,000). The remaining undistributed profit will be carried forward in subsequent years.
(b) General reserve
According to the Administrative Measures for the Provisioning of Financial Enterprises issued by the Ministry of Finance (MOF), an provision for general risk amounting to
RMB218,345,000 was made in 2017 (2016: RMB29.978,000) at1.5% of the balance of
financial enterprise risk assets net of recognised loan impairment provision.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(33) Operating revenue and cost of sales
2017 2016 Revenue from main operations 223,489,906 147,173,984 Revenue from other operations 17,222,395 11,870,057 240,712,301 159,044,041 2017 2016 Cost of sales from main operations 164,794,821 105,091,458 Cost of sales from other operations 15,665,731 10,523,979 180,460,552 115,615,437 (a) Revenue and cost of sales from main operations
2017 2016
Revenue Cost of sales Revenue Cost of sales from main from main from main
operations operations operations
HVAC 95,352,449 67,664,335 68,726,349 48,010,165 Consumer appliances 98,748,018 71,722,720 76,539,889 55,236,671 Robots and automatic
system 27,037,062 23,123,363 - - Others 2,352,377 2,284,403 1,907,746 1,844,622 223,489,906 164,794,821 147,173,984 105,091,458 In 2017, cost of sales is mainly material costs and labour costs, which accounts for over80% of total cost of sales from main operations (2016: over80%).
(b) Revenue and cost of sales from other operations
2017 2016
Revenue Cost of sales Revenue Cost of from other from other from other sales from operations operations operations other Revenue from sales of
operations materials 15,446,559 15,065,383 10,601,700 10,130,655 Others 1,775,836 600,348 1,268,357 393,324 17,222,395 15,665,731 11,870,057 10,523,979 In 2017, cost of sales from other operations is mainly material costs, which accounts for over80% of total cost of sales from other operations (2016: over80%).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(34) Interest income/(expenses)
Interest income and expenses arising from financial business of the Group are presented as follows:
2017 2016 Interest income from loans and advances 788,262 734,109 Including: Interest income from loans and
advances to corporations and
individuals 301,819 367,454 Interest income from note discounting 486,443 366,655 Interest income from deposits with banks, other
financial institutions and central bank 418,320 55,305 Interest income 1,206,582 789,414 Interest expenses (250,925) (439,607) 955,657 349,807 (35) Business taxes and surcharges
2017 2016 City maintenance and construction tax 588,019 470,582 Educational surcharge 427,182 342,740 Others 401,227 263,797 1,416,428 1,077,119 (36) Selling and distribution expenses
2017 2016 Selling and distribution expenses 26,738,673 17,678,451 In 2017, selling and distribution expenses are mainly maintenance and installation expenses, advertisement and promotion fee, transportation and storage fee, employee benefits and rental expenses, which account for over80% of total selling and distribution expenses (2016: over80%).
(37) General and administrative expenses
2017 2016 General and administrative expenses 14,780,236 9,620,777 In 2017, general and administrative expenses are mainly employee benefits,R&D expenditures, expenses of depreciation and amortisation, technical maintenance expenses and administrative office expenses, which account for over80% of total general and administrative expenses (2016: over80%).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(38) Finance (expenses )/income
The Group's Finance (expenses)/income, other than those arising from financial business (Note 4(34)), are presented as follows:
2017 2016 Interest expenses 967,208 370,940 Less: Interest income (1,143,837) (1,005,495) Exchange gains or losses 863,185 (557,689) Others 129,393 186,265 815,949 (1,005,979) (39) Asset impairment loss
2017 2016 loss of bad debts (Note 4(3)) 182,592 140,950 Loss on decline in the value of inventories
(Note 4(6)) 41,811 108,235 Impairment loss on fixed assets (Note 4(10)) 8,937 4,654 Impairment loss on intangible assets (Note 4(12)) 5,866 6,065 Impairment loss on available-for-sale financial
assets 2,114 - Loss of impairment of loans (Note 4(5)) 27,792 120,908 269,112 380,812 (40) Losses/(gains) on changes in fair value
2017 2016 Financial instruments at fair value through profit
or loss - derivative financial instruments (25,045) 117,376 (41) Investment income
2017 2016 Investment income from wealth management
products 977,648 1,270,941 Investment (loss)/income from disposal of
financial assets at fair value through profit or
loss 102,530 (142,784) Income from long-term equity investment under
equity method 310,016 165,904 Others 440,027 (8,100) 1,830,221 1,285,961
There is no restriction on recovery of investment income.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(42) Gains on disposals of assets
2017 2016 Gains on disposal of non-current assets 1,472,191 60,789 Losses on disposal of non-current assets (144,940) (172,663) 1,327,251 (111,874) (43) Other income
2017 2016 Relevant to assets/profit Specific grant 1,283,160 - Relevant to profit Specific grant 27,963 - Relevant to assets 1,311,123 -
(44) Income tax expenses
2017 2016 Current income tax calculated based on tax law
and related regulations 5,077,050 3,811,731 Deferred income tax (1,833,466) (759,040) 3,243,584 3,052,691 The reconciliation from income tax calculated based on the applicable tax rates and total profit presented in the consolidated financial statements to the income tax expenses is listed below:
2017 2016 Total profit 21,854,774 18,914,603 Income tax calculated at tax rate of25% 5,463,694 4,728,651 Effect of different tax rates applicable to
subsidiaries (1,448,532) (1,575,087) Effect of income tax annual filing for prior
periods (119,749) (35,060) Income not subject to tax (208,481) (173,717) Costs, expenses and losses not deductible for
tax purposes 200,729 234,535 Temporary differences for which no deferred
income tax asset was recognised in prior
years (31,620) (190,827) Others (612,457) 64,196 Income tax expenses 3,243,584 3,052,691
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(45) Calculation of basic and diluted earnings per share
(a) Basic earnings per share
Basic earnings per share are calculated by dividing consolidated net profit attributable to ordinary shareholders of the parent company by the weighted average number of outstanding ordinary shares:
Unit 2017 2016 Consolidated net profit attributable to
ordinary shareholders of the parent
company RMB'000 17,283,689 14,684,357 Weighted average number of Thousand
outstanding ordinary shares shares 6,492,259 6,423,317 RMB per
Basic earnings per share share 2.66 2.29 Including:
—Basic earnings per share from
continuing operations 2.66 2.29—Basic earnings per share from
discontinued operations - - (b) Basic earnings per share (Cont'd)
Diluted earnings per share are calculated by dividing consolidated net profit attributable to ordinary shareholders of the parent company by the diluted weighted average number of outstanding ordinary shares:
Currency
unit 2017 2016 Consolidated net profit attributable to
ordinary shareholders of the parent
company RMB'000 17,283,689 14,684,357 Weighted average number of Thousand
outstanding ordinary shares shares 6,492,259 6,423,317 Weighted average number of ordinary Thousand
shares increased due to share options shares 73,658 21,439 Weighted average number of diluted Thousand
outstanding ordinary shares shares 6,565,917 6,444,756 RMB per
Diluted earnings per share share 2.63 2.28
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(46) Notes to the consolidated cash flow statement
(a) Cash received relating to other operating activities
2017 2016 Other income 1,224,953 - Other operating income 1,666,452 1,096,030 Non-operating income 497,376 1,745,403 Financial interest income 252,002 234,516 Others 1,130,253 63,337 4,771,036 3,139,286 (b) Cash paid relating to other operating activities
2017 2016 Selling and distribution expenses
(excluding employee benefits and taxes
and surcharges) 21,351,785 14,375,156 General and administrative expenses
(excluding employee benefits and taxes
and surcharges) 7,204,414 4,413,704 Others 583,721 3,013,869 29,139,920 21,802,729
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(46) Notes to the consolidated cash flow statement (Cont'd)
(c) Supplementary information to the consolidated cash flow statement
Reconciliation of net profit to cash flow from operating activities is as follows:
2017 2016 Net profit 18,611,190 15,861,912 Add: Provision for assets impairment 269,112 380,812 Depreciation and amortisation 6,695,877 3,578,000 Net (profit)/loss on disposal of non-current assets (1,327,251) 111,874 Gains on changes in fair value 25,045 (117,376) Finance income 32,845 (648,949) Investment income (1,830,221) (1,285,961) Share options expenses 841,566 546,914 Increase deferred income tax assets (635,894) (760,228) Increase in deferred income tax liabilities (1,055,005) (61,501) Increase in inventories (7,730,304) (3,741,683) Increase in operating receivables (10,314,517) (841,862) Increase in operating payables 20,860,180 13,673,057 Net cash flows from operating activities 24,442,623 26,695,009 Movement in cash and cash equivalents
Cash and cash equivalents at end of year 21,831,653 12,513,730 Less: Cash and cash equivalents at beginning of year (12,513,730) (5,187,317) Net decrease in cash and cash equivalents 9,317,923 7,326,413 (d) Acquisition of subsidiaries
2017 Cash and cash equivalents paid in current year for business
28,579,683 combinations occurred in current year
Including: KUKA Group 27,001,856 Other acquired companies 1,577,827 Less: Cash and cash equivalents held by the subsidiaries at
(2,729,513) the acquisition dates
Including: KUKA Group (2,653,544) Other acquired companies (75,969) Net cash payment for acquisition of subsidiary 25,850,170
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(46) Notes to the consolidated cash flow statement (Cont'd)
(d) Acquisition of subsidiaries (Cont'd)
Net assets of the subsidiaries acquired
As at the acquisition As at the acquisition dates in 2017 dates in 2016 Current assets 12,823,815 5,741,514 Non-current assets 13,767,216 6,524,130 Current liabilities (9,322,960) (4,430,467) Non-current liabilities (6,026,374) (5,656,951) Less: Minority interests 2,248 (221,651) 11,243,945 1,956,575 (e) Composition of cash and cash equivalents
31 December 2017 31 December 2016 Cash on hand 4,589 2,315 Cash at bank that can be readily drawn on
demand 18,413,969 7,015,378 Deposit with central bank that can be
readily drawn on demand 305,963 58,172 Deposits with banks and other financial
institutions that can be readily drawn on
demand 3,107,132 5,437,865 Cash and cash equivalents at end of year 21,831,653 12,513,730
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(47) Monetary items denominated in foreign currencies
31 December 2017
Foreign currency
balance Exchange rate RMB balance Cash at bank and on
hand
USD 1,601,324 6.5342 10,463,372 JPY 2,292,090 0.0579 132,712 HKD 167,138 0.8359 139,711 EUR 181,609 7.8023 1,416,970 BRL 173,113 1.9755 341,985 VND 329,843,333 0.0003 98,953 Other currencies N/A N/A 789,665 Subtotal 13,383,368 Accounts receivable
USD 969,755 6.5342 6,336,575 JPY 26,231,623 0.0579 1,518,811 HKD 52,543 0.8359 43,921 EUR 283,715 7.8023 2,213,627 BRL 480,808 1.9755 949,836 VND 1,441,706,667 0.0003 432,512 Other currencies N/A N/A 1,452,927 Subtotal 12,948,209 Other receivables
USD 48,777 6.5342 318,717 JPY 2,234,111 0.0579 129,355 HKD 723 0.8359 604 EUR 50,804 7.8023 396,390 BRL 44,134 1.9755 87,187 Other currencies N/A N/A 208,022 Subtotal 1,140,275 Total 27,471,852
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(47) Monetary items denominated in foreign currencies (Cont'd)
31 December 2017
Foreign currency
balance Exchange rate RMB balance Short-term
borrowings
USD 258,328 6.5342 1,687,965 HKD 59,554 0.8359 49,781 EUR 30,233 7.8023 235,885 BRL 135,206 1.9755 267,100 Other currencies N/A N/A 343,371 Subtotal 2,584,102 Accounts payable
USD 350,735 6.5342 2,291,771 JPY 18,175,112 0.0579 1,052,339 HKD 53,468 0.8359 44,694 EUR 259,337 7.8023 2,023,424 BRL 208,088 1.9755 411,078 Other currencies N/A N/A 1,013,751 Subtotal N/A N/A 6,837,057 Other payables
USD 54,810 6.5342 358,138 JPY 8,281,744 0.0579 479,513 HKD 96,625 0.8359 80,769 EUR 33,701 7.8023 262,945 Other currencies N/A N/A 51,418 Subtotal 1,232,783 Long-term
borrowings
EUR 4,227,267 7.8023 32,982,403 BRL 933 1.9755 1,843 Other currencies N/A N/A 2,079 Subtotal 32,986,325 Debentures
payables
USD 696,804 6.5342 4,553,054 Total
48,193,321 Monetary items denominated in foreign currencies present significant foreign currencies except RMB.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(47) Monetary items denominated in foreign currencies (Cont'd)
31 December 2016
Foreign currency
balance Exchange rate RMB balance Cash at bank and on
hand
USD 1,723,130 6.9370 11,953,353 JPY 14,192,651 0.0596 845,882 HKD 92,921 0.8945 83,118 EUR 133,422 7.3068 974,887 VND 191,400,000 0.0003 57,420 Other currencies N/A N/A 324,572 Subtotal 14,239,232 Accounts receivable
USD 825,815 6.9370 5,728,679 JPY 17,178,725 0.0596 1,023,852 HKD 22,988 0.8945 20,563 EUR 92,007 7.3068 672,277 VND 1,103,126,667 0.0003 330,938 Other currencies N/A N/A 996,425 Subtotal 8,772,734 Other receivables
USD 8,594 6.9370 59,617 JPY 1,644,379 0.0596 98,005 HKD 97,452 0.8945 87,171 EUR 10,544 7.3068 77,043 BRL 42,504 2.1324 90,636 Other currencies N/A N/A 78,974 Subtotal 491,446 Total 23,503,412
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
4 Notes to the consolidated financial statements (Cont'd)
(47) Monetary items denominated in foreign currencies (Cont'd)
31 December 2016
Foreign currency
balance Exchange rate RMB balance Short-term
borrowings
USD 76,497 6.9370 530,660 BRL 228,773 2.1324 487,836 Other currencies N/A N/A 119,976 Subtotal 1,138,472 Accounts payable
USD 184,444 6.9370 1,279,488 JPY 18,234,245 0.0596 1,086,761 HKD 2,932 0.8945 2,623 EUR 22,909 7.3068 167,391 BRL 122,421 2.1324 261,051 Other currencies N/A N/A 803,947 Subtotal 3,601,261 Other payables
USD 17,275 6.9370 119,837 JPY 5,795,805 0.0596 345,430 HKD 104,876 0.8945 93,812 EUR 1,438 7.3068 10,507 Other currencies N/A N/A 69,267 Subtotal 638,853 Long-term
borrowings
HKD 80,001 0.8945 71,561 EUR 271,000 7.3068 1,980,143 BRL 1,138 2.1324 2,427 Other currencies N/A N/A 218 Subtotal 2,054,349 Bonds payable
USD 694,647 6.9370 4,818,769 Total 12,251,703
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
5 Changes in consolidation scope
(1) Business combinations involving enterprises not under common control
(a) Business combinations involving enterprises not under common control incurred in current year.
As at 6 January 2017 (the “Acquisition Date”), Midea Group completed the acquisition of81.04% equity interests of KUKA at a cash consideration of RMB27,001,856,000. After that, Midea Group held approximately94.55% equity interests of KUKA accounting for the13.51% equity interests acquired in prior years. KUKA Group was consolidated by the Group from the acquisition date on which control was transferred to the Group. KUKA Group is mainly engaged in robot and automatic system business.
Except for the acquisition above, the group acquired Servotronix and its subsidiaries (“SMC”), Dongguan Alba Industries co. Ltd. (“Dongguan Kafei”) and Fujitsu South China Technology Services Limited (“Fujitsu”), Easy Conveyors B.V., Talyst Systems LLC, Device Insight GmbH, Visual Components Oy in 2017, with total consideration of RMB1,744,430,000. Such acquisitions do not have significant impact on the financial statement of the Group.
(b) Details of costs of combination and good will are as follows:
Other
Acquired
KUKA Companies Total Costs of combination -
Cash consideration 27,001,856 1,457,473 28,459,329 Fair value of13.51% equity
previously held at acquisition
date 3,540,726 N/A 3,540,726 Future payment of consideration N/A 286,957 286,957 Total costs of combination 30,542,582 1,744,430 32,287,012 Less: Share of fair value of the
identifiable net assets
obtained (9,844,370) (738,715) (10,583,085) Goodwill 20,698,212 1,005,715 21,703,927 The Group mainly uses valuation techniques such as market approach, income approach and cost approach to determine the fair value of non-cash assets transferred and liabilities incurred.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
5 Changes in consolidation scope(Cont’d)
(1) Business combinations involving enterprises not under common control
(c) Assets and liabilities of important acquire(KUKA) at acquisition dates are as follows:
Carrying
Fair value at amount at
acquisition acquisition Carrying amount at
dates dates 31 December 2016
Current assets 12,468,388 12,468,388 12,468,388 Non-current assets 12,925,644 6,119,034 6,119,034 Current liabilities (9,092,126) (9,092,126) (9,092,126) Non-current
liabilities (5,891,794) (3,355,987) (3,355,987) Less: minority
interest
2,248 2,248 2,248 Acquired net asset 10,412,360 6,141,557 6,141,557 The appreciation of evaluation mainly represents intangible asset, including trademark right, technology, customer relationship and order backlog. External independent valuer was engaged by management to identify the intangible assets and perform valuation of the identifiable assets and liabilities. The valuation method and critical assumptions applied to the major assets are as follows:
The fair value of land was estimated by applying the market value approach. To evaluate the fair value of the assets, it compares the transaction price and desired selling price of similar assets in the active market and adjusts the actual difference between the evaluated assets and similar assets.
The fair value of building and machine was estimated by applying cost approach, which considers the current replacement cost of fixed assets after deduction of the loss value. The current replacement cost is calculated at full price multiplied by the newness rate.
The fair value of trademarks and technologies was estimated by applying Relief-from- Royalty method, which considers present value of royalty fees discounted at a proper rate that are saved annually by using the relevant assets during the remaining useful life of trademarks and technologies.
The fair value of customer relationship and order backlog was estimated by applying Multi Period Excess Earnings Method, which considers present value of the excess returns after the annual tax economic benefit deducted in accordance with the customer relationship or order backlog in the future, and discounted at a proper rate.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
5 Changes in consolidation scope(Cont’d)
(1) Business combinations involving enterprises not under common control
(d) Financial data from purchase date to 31 December 2017 are as follows:
KUKA Operating income 26,722,910 Cashflow
-Net cash flows from operating activities 693,536 -Net cash flows from investing activities (1,704,285) -Net cash flows from financing activities (65,141) (1,075,890) 5 Changes in consolidation scope(Cont’d)
(2) Changes in consolidation scope due to other reasons
(a) Increase of consolidation scope
In January 2017, the Company invested RMB50,000,000 by cash in the establishment of Guangdong Midea Advanced Technologies Co., Ltd., a fully-owned subsidiary.
In February 2017, the Company subscribed contributions of RMB150,000,000 by cash in the establishment of Guangdong Midea Intelligent Robotics Co., Ltd., a fully-owned subsidiary.
In February 2017, Hefei Hualing Co., Ltd. (subsidiary of the Company) invested RMB42,500,000 by cash in the establishment of Hefei Midea Advanced Technologies Co., Ltd., a fully-owned subsidiary.
In March 2017, the Company invested RMB1,000,000 by cash in the establishment of Guangdong Midea Electric Co., Ltd., a fully-owned subsidiary.
In March 2017, Guangdong Midea Electric Co., Ltd. (subsidiary of the Company) established Midea Electric Netherlands (I) B.V, a fully-owned subsidiary.
In April 2017, Midea Electric Trading (Singapore) Co. Pte. Ltd. (subsidiary of the Company) established Midea Home Appliances Australia Pty Ltd., a fully-owned subsidiary.
In May 2017, Guangdong Midea Life Electric Appliance Manufacturing Co., Ltd. (subsidiary of the Company) established the subsidiary Guangdong Midea Kafei Coffee Machine Manufacturing Co., Ltd. jointly with ALBA Investment Limited, with shareholding of70% and30%, respectively.
In June 2017, Midea Electrics Netherlands B.V. (subsidiary of the Company), established
Midea Austria GmbH, a fully-owned subsidiary.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
5 Changes in consolidation scope(Cont’d)
(2) Changes in consolidation scope due to other reasons(Cont’d)
(a) Increase of consolidation scope
In June 2017, Midea Electrics Netherlands B.V. (subsidiary of the Company), established Midea Emerging Technology Co., Ltd., a fully-owned subsidiary.
In June 2017, Shunde Home Appliance Industrial Co., Ltd. (subsidiary of the Company) invested of RMB300,000,000 by cash in the establishment of Chongqing Midea Microfinance Loan Co., Ltd..
In June 2017, Midea Electric Appliance (Singapore) Co., Ltd. (subsidiary of the Company), established Midea India Private Limited.
In July 2017, Midea Innovation Investment Co., Ltd. (subsidiary of the Company), established Shenzhen Shuzhi Scene Positioning Technology Co., Ltd..
In October 2017, Guangdong Midea Heating& Ventilation Equipment Co., Ltd. (subsidiary of the Company), invested RMB60,000,000 by cash in the establishment of Hefei Midea Hicks electronics Co., Ltd., a subsidiary.
In November 2017, the Company invested RMB47,500,000 in the establishment of Guangdong Midea environmental technology Co., Ltd..
In December 2017, Guangdong Midea Electric Co., Ltd. (subsidiary of the Company), established Midea Electric Netherlands (II) B.V., a fully-owned subsidiary.
In December 2017, the Company established Foshan Midea Zhihui Real Estate Development Co., Ltd., a fully-owned subsidiary.
In December 2017, Guangdong Midea Microwave Electric Manufacturing Co., Ltd. (subsidiary of the Company), established Guangdong Deyijie electric appliance Co., Ltd.. (b) Decrease of consolidation scope
Decrease of consolidation scope mainly includes deregistration of subsidiaries. Details are as follows:
Disposal time- Disposal method of the point Name of entity equity of the equity Wuhu BaiNian Technology Development
Co., Ltd. Deregistration February 2017 Midea France S.A.R.L. Deregistration June 2017 Calpore Macao Commercial Offshore
Limited Deregistration December 2017 Harbin Ande logistics Co. Ltd. Deregistration December 2017
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
6 Interests in other entities
(1) Interests in subsidiaries
(a) Information of significant subsidiaries
Name of Subsidiaries Major business location Place of registration Nature of business Shareholding(%) Acquisition method Direct Indirect
Manufacture and sale of air Business combinations involving Guangdong Midea Refrigeration Equipment Co., Ltd. Foshan, China Foshan, China conditioner 73% 7% enterprises not under common control Manufacture and sale of air Business combinations involving Guangdong Midea Wuhu Refrigeration Equipment Co., Ltd. Wuhu, China Wuhu, China conditioner 73% 7% enterprises not under common control Midea Wuhan Refrigeration Equipments Co., Ltd. Wuhan, China Wuhan, China Manufacture of air conditioner 73% 7% Establishment Wuhu Meizhi Air-Conditioning Equipment Co., Ltd. Wuhu, China Wuhu, China Manufacture of air conditioner 88% 12% Establishment Business combinations involving Guangzhou Hualing Refrigeration Equipment Co., Ltd. Guangzhou, China Guangzhou, China Manufacture of air conditioner 90% 10% enterprises not under common control Foshan, China Foshan, China
Guangdong Midea Heating& Ventilation Equipment Co., Ltd. Manufacture of air conditioner 90% 10% Establishment Foshan, China Foshan, China Business combinations involving Guangdong GMCC Refrigeration Equipment Co., Ltd. Manufacture of air compressor 60% - enterprises not under common control Zhejiang GMCC Compressor Co., Ltd. Ningbo, China Ningbo, China Manufacture of air conditioner 100% - Establishment Business combinations involving Hefei Midea Refrigerator Co., Ltd. Hefei, China Hefei, China Manufacture of refrigerator 75% 25% enterprises not under common control Ningbo, China Ningbo, China Business combinations involving Ningbo Midea United Material Supply Co., Ltd. Manufacture of air conditioner 100% - enterprises under common control Foshan, China Foshan, China
Guangdong midea kitchen appliance manufacturing Co., Ltd. Manufacture of small appliances - 100% Establishment Foshan, China Foshan, China
Foshan Shunde midea electric appliance manufacturing Co., Ltd. Manufacture of small appliances - 100% Establishment Business combinations involving Wuxi Little Swan Company Limited. Wuxi, China Wuxi, China Manufacture of washing machine 38% 15% enterprises not under common control Wuhu Welling Motor Sales Co., Ltd. Wuhu, China Wuhu, China Sale of motors - 100% Establishment Midea Electric Appliance (Singapore) Co., Ltd. Singapore Singapore Export trading - 100% Establishment
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
6 Interests in other entities(Cont’d)
(1) Interests in subsidiaries(Cont’d)
(a) Information of significant subsidiaries(Cont’d)
Name of Subsidiaries Major business location Place of registration Nature of business Shareholding(%) Acquisition method Direct Indirect
Midea Group Finance Co., Ltd. Foshan, China Foshan, China Financial industry 95% 5% Establishment Business combinations involving Midea Petty Loan Co., Ltd. Wuhu, China Wuhu, China Petty loan - 100% enterprises not under common control Shenzhen Qianhai Midea Assets Management Co., Ltd. Shenzhen, China Shenzhen, China Asset management - 100% Establishment Mecca International (BVI) Limited British Virgin islands British Virgin islands Holding Investment - 100% Establishment Midea International Holding Co., Ltd. Hongkong Hongkong Holding Investment 100% - Establishment Midea Investment& Development Corporation British Virgin island British Virgin island Holding Investment - 100% Establishment Midea Electric Netherlands (I) B.V. Netherlands Netherlands Holding Investment - 100% Establishment Business combinations involving Springer Carrier Ltda. Brazil Brazil Sale of appliances - 49% enterprises not under common control Business combinations involving Toshiba Consumer Marketing Corporation Japan Japan Manufacture of appliances - 100% enterprises not under common control Business combinations involving TLSC Japan Japan Manufacture of appliances - 100% enterprises not under common control Business combinations involving KUKA Germany Germany Manufacture and sale of robot - 94.55% enterprises not under common control
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
6 Interests in other entities(Cont’d)
(1) Interests in subsidiaries(Cont’d)
(b) Subsidiaries that have significant minority interests
Total profit or loss Dividends distributed to
attributable to minority minority interests for the
Shareholding of minority shareholders for the year year ended 31 December Minority interests as at 31 Name of Subsidiaries shareholders ended 31 December 2017 2017 December 2017 Wuxi Little Swan Company Limited 47% 712,247 224,501 3,226,929 (2) Information of enterprise group
The major financial information of the subsidiaries that have significant minority interests is listed below:
31 December 2017 31 December 2016
Current Non-current Total Current Non-current Total Current Non-current Total Current Non-current Total assets assets assets liabilities liabilities liabilities assets assets assets liabilities liabilities liabilities Wuxi Little Swan
Company Limited 19,564,974 1,773,447 21,338,421 13,103,359 16,764 13,120,123 17,327,867 1,558,120 18,885,987 11,906,121 20,771 11,926,892 2017 2016
Total Total
comprehensive Cash flows from operating comprehensive Cash flows from Revenue Net profit income activities Revenue Net profit income operating activities Wuxi Little Swan
Company Limited 21,384,699 1,708,420 1,669,074 2,015,754 16,334,915 1,342,775 1,383,992 3,896,073
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
6 Interests in other entities(Cont’d)
(3) Interests in associates and a joint venture
The impact of theGroup’s associates on the Group is not significant. Summarised information is as follows:
2017 2016 Aggregated carrying amount of investments 2,633,698 2,211,732 Aggregate of the following items calculated in
proportion to shareholding
Net profit (i) 310,016 165,904 Other comprehensive income (i) (36,017) (73,811) Total comprehensive income 273,999 92,093 (i) The net profit and other comprehensive income have taken into account the impacts of both the fair value of the identifiable assets and liabilities upon the acquisition of investment and accounting policies unifying.
7 Segment information
The reportable segments of the Group are the business units that provide different products or service, or operate in different areas. Different businesses or areas require different technologies and marketing strategies, the Group, therefore, separately manages the production and operation of each reportable segment and evaluates their operating results respectively, in order to make decisions about resources to be allocated to these segments and to assess their performance.
In 2016 and early of 2017, the Group finished a series of overseas merges, such as TLSC and KUKA Group, and carried out integration on the existing business and newly acquired business. On the basis of new management mode, the segment reporting was adjusted accordingly, and the comparative figures were presented in the same way accordingly too. The Group identified four reportable segments as follows:
- Heating& ventilation, as well as air-conditioner
- Consumer appliances
- Robots and automatic system
- Others
Inter-segment transfer prices are measured by reference to selling prices to third parties. The assets are allocated based on the operations of the segment and the physical location of the asset. The liabilities are allocated based on the operations of the segment. Expenses indirectly attributable to each segment are allocated to the segments based on the proportion of eachsegment’s revenue.
Operating expenses include cost of sales, interest expenses, fee and commission expenses, taxes and surcharges, selling and distribution expenses, general and administrative expenses, financial expenses and asset impairment losses.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
8 Segment reporting
(a) Information on the profit or loss, assets and liabilities of reported segment
Segment information as at and for the year ended 31 December 2017 is as follows:
Heating& ventilation,
as well as Robots and automatic Other segments and
air-conditioner Consumer appliances system unallocated Elimination Total Revenue from external customers 107,940,343 102,986,131 27,150,059 3,842,363 - 241,918,896 Inter-segment revenue 1,869,629 416,770 31,254 5,340,194 (7,657,847) - Operating expenses (101,012,749) (94,204,422) (28,891,893) (8,204,099) 7,578,571 (224,734,592) Segment profit 8,797,223 9,198,479 (1,710,580) 978,458 (79,276) 17,184,304 Other profit or loss 4,670,470 Total profit 21,854,774 Total assets 94,875,871 93,312,430 27,285,063 82,745,760 (50,112,266) 248,106,858 Total liabilities 63,251,582 67,792,173 17,308,941 89,409,279 (72,580,288) 165,181,687 Long-term equity investments in associates 289,324 73,785 125,213 2,145,376 - 2,633,698 Investment income from associates 59,498 1,730 (17,649) 266,437 - 310,016 Increase in non-current assets (excluding
available-for-sale financial assets, long-term
equity investments and deferred income tax
assets) 1,376,838 1,852,293 13,551,833 224,150 - 17,005,114 Asset impairment losses/(reversal) 106,267 2,690 33,293 33,940 92,922 269,112 Depreciation and amortisation expenses 1,580,020 1,859,972 2,832,389 423,496 - 6,695,877
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
8 Segment reporting (Cont'd)
(a) Information on the profit or loss, assets and liabilities of reported segment(Cont’d)
Segment information as at and for the year ended 31 December 2016 is as follows:
Heating& ventilation,
as well as Robots and automatic Other segments and
air-conditioner Consumer appliances system unallocated Elimination Total Revenue from external customers 76,659,831 80,425,707 - 2,756,163 - 159,841,701 Inter-segment revenue 661,401 189,413 - 4,364,030 (5,214,844) - Operating expenses (70,217,834) (71,971,037) - (6,737,538) 5,117,346 (143,809,063) Segment profit 7,103,398 8,644,083 - 382,655 (97,498) 16,032,638 Other profit or loss - 2,881,965 Total profit - 18,914,603 -
Total assets 80,023,060 92,300,133 - 70,422,846 (72,145,328) 170,600,711 Total liabilities 53,237,744 65,926,093 - 58,354,393 (75,894,215) 101,624,015 -
Long-term equity investments in associates 163,145 70,567 - 1,978,020 - 2,211,732 Investment income from associates (136,721) (2,068) - 304,693 - 165,904 -
Increase in non-current assets (excluding
available-for-sale financial assets, long-term
equity investments and deferred income tax
assets) 2,352,250 6,784,253 - 1,188,620 - 10,325,123 -
Asset impairment losses/(reversal) 162,468 115,953 - 43,750 58,641 380,812 Depreciation and amortisation expenses 1,621,338 1,637,746 - 318,916 - 3,578,000
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
8 Segment reporting (Cont'd)
(b) Geographical area information
TheGroup’s revenue from external customers domestically and in foreign countries or geographical areas, and the total non-current assets other than available-for-sale financial assets, long-term equity investments, goodwill and deferred income tax assets located domestically and in foreign countries or geographical areas (including Germany, Hong Kong, Macau, Singapore, Japan, Italy and Brazil, etc.) are as follows:
Revenue from external customers 2017 2016 Domestic 137,962,864 95,741,436 Other countries/geographical 103,956,032 64,100,265 a reas
241,918,896 159,841,701 Total non-current assets 31 December 2017 31 December 2016 Domestic 22,684,099 26,982,944 Other countries/geographical 18,181,111 6,835,605 a reas
40,865,210 33,818,549 9 Related parties and significant related party transactions
(1) Information of the parent company
(a) General information of the parent company
Name of the parent Place of Nature of company Relationship registration business Controlling Shunde District,
Midea Holding Co., Ltd. shareholder Foshan Commercial TheCompany’s ultimate controlling person is Mr. He Xiangjian.
(b) Registered capital and changes in registered capital of the parent company
31 December 2017 and 31 December 2016 Midea Holding Co., Ltd. 330,000
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
9 Related parties and significant related party transactions(Cont’d)
(1) Information of the parent company(Cont’d)
(c) The percentages of shareholding and voting rights in the Company held by the parent company
31 December 2017 31 December 2016
Voting
Shareholding(%) rights Shareholding(%) Voting rights Direct Indirect (%) Direct Indirect (%) Midea Holding Co., Ltd. 33.71% - 33.71% 34.75% - 34.75% (2) Information of the Company's subsidiaries
Please refer to Note 6(1) for the information of theCompany’s main subsidiaries
(3) Information of other related parties
Name of other related parties Relationship Under common control of the direct relatives of the Guangzhou Wellkey Electrician Material Co., Ltd. Company's ultimate controlling shareholders Under common control of the direct relatives of the Anhui Wellkey Electrician Material Co., Ltd. Company's ultimate controlling shareholders Under common control of the direct relatives of the Guangdong Infore Electronics Co., Ltd. Company's ultimate controlling shareholders Under common control of the direct relatives of the Hefei Orinko Plastics Group. Company's ultimate controlling shareholders Foshan Micro Midea Filter MFG Co., Ltd. Associates of the Company Foshan Shunde Rural Commercial Bank Co., Ltd. Associates of the Company (4) Information of related party transactions
The following related party transactions are conducted in accordance with normal commercial terms or relevant agreements.
(a) Purchase of goods:
Content of Pricing
related policies of
party related
Related party transaction party 2017 2016 s transaction
s
Purchase Agreed
Guangzhou Wellkey Electrician Material Co., Ltd. of goods price 864,886 586,391 Purchase Agreed
Foshan Micro Midea Filter MFG Co., Ltd. of goods price 198,499 175,112 Purchase Agreed
Anhui Wellkey Electrician Material Co., Ltd. of goods price 290,512 272,476 Purchase Agreed
Orinko Plastics Group. of goods price 463,245 240,082 Purchase Agreed
Guangdong Infore Electronics Co., Ltd. of goods price 1,538 1,592 1,818,680 1,275,653
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
9 Related parties and significant related party transactions(Cont’d)
(4) Information of related party transactions(Cont’d)
(b) Investment income
Content 2017 2016 Wealth
Foshan Shunde Rural Commercial management
Bank Co., Ltd. product 36,067 20,841 (c) Remuneration of key management
31 December 2017 31 December 2016 Remuneration of key management 41,330 35,130 (5) Receivables from and payables to related parties
Receivables from related parties:
31 December 31 December Items Related party 2017 2016 Cash at bank Foshan Shunde Rural
and on hand Commercial Bank Co., Ltd. 459,297 1,201,929 Payables to related parties:
31 December 31 December Items Related party 2017 2016 Accounts Guangzhou Wellkey Electrician
payable Material Co., Ltd. 195,860 43,132 Foshan Micro Midea Filter MFG
Co., Ltd. 27,554 15,985 Huitong New Material Co., Ltd. 16,152 12,269 Anhui Wellkey Electrician Material
Co., Ltd. 73,897 55,962 313,463 127,348
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
10 Share-based payment
(1) Share option incentive scheme
(a) Pursuant to the forth share option incentive plan (the “Forth Share Option Incentive Plan”) approved at the general meeting dated 21 April 2017, the Company granted 98,274 share options with exercise price of RMB32.72 to 1463 employees. Under the circumstance that the Company meets expected performance, 1/3 of the total share options granted will become effective after 1 year, 2 years and 3 years respectively since 12 May 2017.
Determination method for fair value of share options at the grant date
Exercise price of options: RMB32.72 Effective period of options: 4 years Current price of underlying shares: RMB35.75 Estimated fluctuation rate of share price: 38.13% Estimated dividend rate: 4.40% Risk-free interest rate within effective period of options: 2.83% The fair value of the Forth Share Option Incentive Plan calculated pursuant to the above parameters is RMB835,743,000.
(b) Movements of share options during the year
2017 2016 (share options in (share options in thousands) thousands) Share options issued at beginning of
year 250,797 203,595 Share options granted during the
current year 98,274 127,290 Share options exercised during the
current year (79,156) (58,508) Share options lapsed during the
current year (16,374) (21,580) Share options issued at end of year 253,541 250,797 As at 31 December 2017, the maturity date of the First Option Incentive Plan is on 17 February 2019. The residual contractual maturity date of the Second Share Option Incentive Plan is on 27 May 2020. The residual contractual maturity date of the Third Share Option Incentive Plan is on 28 June 2021. The residual contractual maturity date of the Forth Share Option Incentive Plan is on 12 May 2021.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
10 Share-based payment(Cont’d)
(1) Share option incentive scheme(Cont’d)
(c) Impact of share-based payment transactions on financial position and financial performance.
The total share option expenses recognised in 2017 were RMB677,565,000 (2016: RMB546,914,000). As at 31 December 2017, the balance relating to the option incentive plan and provided for in capital surplus was RMB800,424,000 (31 December 2016: RMB617,238,000).
(2) Restricted share plan
(a) Pursuant to the restricted share incentive plan (the “ 2017 Restricted Share Plan”) approved by 2016 general meeting on 21 April 2017, the Company granted 23,130,000 restricted shares to 133 employees with exercise price of RMB15.86 and fair value of RMB19.89 per share at the grant date. Under the circumstance that the Company meets expected performance, 1/3 of the total restricted share granted will become tradable after 1 year, 2 years and 3 years respectively since 12 May 2017.
Pursuant to the restricted share incentive plan (the “2017 Restricted Share Plan”) approved by twenty-ninth meeting of the second session of the board meeting on 29 December 2017. The Company granted 5,475,000 restricted shares to 55 employees with exercise price of RMB27.99 and fair value of RMB27.44 per share at the grant date. Under the circumstance that the Company meets expected performance, 1/3 of the total restricted share granted will become tradable after 1 year, 2 years and 3 years respectively since 29 December 2017. (b) Movement of restricted shares in 2017
2017 (movement in thousands) Restricted shares at the beginning of the year - Restricted shares granted this year 28,605 Restricted shares desterilized this year - Restricted shares lose efficiency this year - Restricted shares at the end of the year 28,605 (c) Influence of restricted share plan on the financial situation and operation results of the Company
In 2017, total expenses confirmed due to restricted share plan is RMB164,001,000. As at 31 December 2017, the balance in share capital in relation to this plan is RMB142,819,000 (31 December 2016: 0).
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
11 Contingencies
The amount in tax disputes involving Brazilian subsidiary with51% interests held by the Company is about BRL672 million (equivalent to RMB1,328 million) (some cases have lasted for more than 10 years and the above amount includes the principal and interest). As at 31 December 2017, relevant cases are still at court. Original shareholders of Brazilian subsidiary have agreed to compensate the Company according to verdict results of the above tax disputes. The maximum compensation amount is about BRL157 million (equivalent to RMB310 million). With reference to judgements of third-party attorneys, management believes that the probability of losing lawsuits and making compensation is small, and expects no significant risk of debt default, therefore, no provisions are made and appropriate disclosures are made in the financial statements.
12 Commitments
(1) Capital commitments
Capital expenditures contracted for by the Group at the balance sheet date but are not yet necessary to be recognised on the balance sheet are as follows:
31 December 2017 31 December 2016 Buildings, machinery and
equipment 735,928 1,372,700 (2) Operating lease commitments
The Group has no significant operating lease commitments at the balance sheet date. 13 Subsequent events
(1) Significant non-adjusting events
According to the project documentation on 11 January 2018, Welling Holding Limited and Midea international holdings inc. had arranged the plan that Midea international holdings inc. would privatize Welling Holding Limited and repeal the listing status of Welling Holding Limited according to the No. 673 of Companies Ordinance. The plan will come into effect on 15 February 2018, and listed shares of Welling Holding Limited at SEHK have been repealed officially at 9 a.m. on 20 February 2018.
(2) Profit distribution
On 29 March 2018, on the basis of the 6,584,022,574 shares of the Company, the Board of Directors proposed a distribution of cash dividends of approximately RMB7,900,827,089 at RMB1.2 per share (including tax). The distribution of cash dividends proposed subsequent to the balance sheet date is not recognised as liabilities at the balance sheet date.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
14 Finance lease
The future lease payments of fixed assets held under finance leases are as follows:
31 December 2017 Within one year 135,972 Over one year 250,493 386,465 As at 31 December 2017, the unrecognised financing charge amounts to RMB10,459,000. 15 Financial risk
The Group is exposed to various financial risks in the ordinary course of business, mainly including:
 Foreign exchange risk
 Interest rate risk
 Credit risk
 Liquidity risk
The following mainly relates to the above risk exposures and relevant causes, objectives, policies and process of risk management and method of risk measurement, etc..
The objective of the Group's risk management is to seek balance between risk and income, minimising the adverse impact of financial risks on the Group's financial performance. Pursuant to the risk management objective, the Group has made risk management policies to identify and analyse the risks it is exposed to and set appropriate risk resistant level and design relevant internal control procedures to monitor theGroup’s risk level. The Group reviews regularly these risk management policies and relevant internal control systems to adapt to changes in market condition or its operating activities.
(1) Market risk
(a) Foreign currency risk
The Group mainly operates in Mainland China, Europe, America, Asia and Africa for the manufacturing, sales, investments and financing activities. Any foreign currency denominated monetary assets and liabilities other than in RMB would subject the Group to foreign exchange exposure.
TheGroup’s finance department at its headquarters has a professional team to manage foreign exchange risk, with approach of the natural hedge for settling currencies, signing forward foreign exchange hedging contracts and controll the scale of foreign currency assets and liabilities, to minimize foreign exchange risk, and to reduce the impact of exchange rate fluctuations on business performance.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
15 Financial risk(Cont’d)
(1) Market risk(Cont’d)
(b) Interest rate risk
The Group's interest rate risk arises from interest bearing borrowings including long-term borrowings and debentures payable. Financial liabilities issued at floating rates expose the Group to cash flow interest rate risk. Financial liabilities issued at fixed rates expose the Group to fair value interest rate risk. The Group determines the relative proportions of its fixed rate and floating rate contracts depending on the prevailing market conditions. As at 31 December 2017, the Group does not have long-term interest bearing borrowings at floating rates (31 December 2016: RMB71,560,000) (Note 4(25)).
TheGroup’s finance department at its headquarters continuously monitors the interest rate position of the Group. Increases in interest rates will increase the cost of new borrowing and the interest expenses with respect to theGroup’s outstanding floating rate borrowings, and therefore could have a material adverse effect on theGroup’s financial position. The Group makes adjustments timely with reference to the latest market conditions and may enter into interest rate swap agreements to mitigate its exposure to interest rate risk.
(2) Credit risk
Credit risk is managed on the grouping basis. Credit risk mainly arise from cash at bank, deposits with central bank, deposits with banks and other financial institutions, notes receivable, accounts receivable, interest receivable, loans and advances, other receivables and other structural deposits in current assets.
The Group expects that there is no significant credit risk associated with cash at bank, deposits with central bank and deposits with banks and other financial institutions since they are deposited at state-owned banks and other medium or large size listed banks. Management does not expect that there will be any significant losses from non-performance by these counterparties.
In addition, the Group has policies to limit the credit exposure on notes receivable, accounts receivable, interest receivable, loans and advances, other receivables and other structural deposits in current assets. The Group assesses the credit quality of and sets credit limits on its customers by taking into account their financial position, the availability of guarantee from third parties, their credit history and other factors such as current market conditions. The credit history of the customers is regularly monitored by the Group. In respect of customers with a poor credit history, the Group will use written payment reminders, or shorten or cancel credit periods, to ensure the overall credit risk of the Group is limited to a controllable extent.
(3) Liquidity risk
Cash flow forecasting is performed by each subsidiary of the Group and aggregated by theGroup’s finance department in its headquarters. TheGroup’s finance department at its headquarters monitors rolling forecasts of the Group's short-term and long-term liquidity requirements to ensure it has sufficient cash and securities that are readily convertible to cash to meet operational needs, while maintaining sufficient headroom on its undrawn committed borrowing facilities from major financial institutions so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities to meet the short-term and long-term liquidity requirements. On the balance sheet date, the sum amount of cash and cash equivalents, paper assets, deposit of capital discounted, financial funds recorded in other current assets as well as available-for-sale financial assets and other monetary
assets was RMB 109,654,798,000.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
15 Financial risk(Cont’d)
(3) Liquidity risk(Cont’d)
The financial liabilities of the Group at the balance sheet date are analysed by their maturity date below at their undiscounted contractual cash follows:
31 December 2017
Within 1 year 1 to 2 years 2 to 5 years Over 5 years Total Short-term borrowings
(including interest) 2,602,067 - - - 2,602,067 Notes payable 25,207,785 - - - 25,207,785 Accounts payable 35,144,777 - - - 35,144,777 Interest payable 94,801 - - - 94,801 Dividends payable 95,317 - - - 95,317 Other payables 3,170,405 - - - 3,170,405 Customer deposits and
deposits from banks and
other financial
institutions 108,926 - - - 108,926 Derivative financial liabilities 90,432 - - - 90,432 Other current liabilities 9,017,975 - - - 9,017,975 Debentures payables
(including interest) 108,631 4,682,571 - - 4,791,202 Long-term borrowings
(including interest) 306,723 2,415,508 31,643,935 2,087 34,368,253 Other non-current liabilities - 189,404 138,643 666,012 994,059 75,947,839 7,287,483 31,782,578 668,099 115,685,999 31 December 2016
Within 1 year 1 to 2 years 2 to 5 years Over 5 years Total Short-term borrowings
(including interest) 3,104,224 - - - 3,104,224 Notes payable 18,484,939 - - - 18,484,939 Accounts payable 25,356,960 - - - 25,356,960 Interest payable 21,343 - - - 21,343 Dividends payable 105,641 - - - 105,641 Other payables 1,571,422 - - - 1,571,422 Customer deposits and
deposits from banks and
other financial
institutions 36,708 - - - 36,708 Derivative financial liabilities 89,838 - - - 89,838 Other current liabilities 8,342,926 - - - 8,342,926 Debentures payables
(including interest) 115,328 115,328 4,913,564 - 5,144,220 Long-term borrowings
(including interest) 60,648 55,613 2,187,389 584 2,304,234 Other non-current liabilities - - 222,140 666,012 888,152 57,289,977 170,941 7,323,093 666,596 65,450,607
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
16 Fair value estimates
The level in which fair value measurement is categorised is determined by the level of the fair value hierarchy of the lowest level input that is significant to the entire fair value measurement:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3: Unobservable inputs for the asset or liability.
(1) Assets and liabilities measured at fair value on a recurring basis
As at 31 December 2017, the assets and liabilities measured at fair value on a recurring basis by the above three levels are analysed below:
Level 1 Level 2 Level 3 Total Financial assets at fair value through
profit or loss -
Derivative financial assets - 353,327 - 353,327 Other current assets– hedging
instrument - 360,858 - 360,858 Available-for-sale financial assets -
Other current assets– wealth
management products - - 22,094,715 22,094,715 Available-for-sale financial
assets 38,460 - 80,251 118,711 Total assets 38,460 714,185 22,174,966 22,927,611 Financial liabilities at fair value
through profit or loss -
Derivative financial liabilities - 90,432 - 90,432 Other current liabilities– Hedging
instrument - 1,877 - 1,877 Total liabilities - 92,309 - 92,309
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
16 Fair value estimates(Cont’d)
(1) Assets and liabilities measured at fair value on a recurring basis(Cont’d)
As at 31 December 2016, the assets and liabilities measured at fair value on a recurring basis by the above three levels are analysed below:
Level 1 Level 2 Level 3 Total Financial assets at fair value through
profit or loss -
Derivative financial assets - 412,813 - 412,813 Other current assets– hedging
instrument - 11,350 - 11,350 Available-for-sale financial assets -
Other current assets– wealth
management products
- - 26,267,067 26,267,067 Other non-current assets - wealth
management products and asset
management plans 3,842,000 3,842,000 Available-for-sale financial assets
3,518,693 - - 3,518,693 Total assets 3,518,693 424,163 30,109,067 34,051,923 Financial liabilities at fair value
through profit or loss -
Derivative financial liabilities - 89,838 - 89,838 Other current liabilities– Hedging
instrument - 6,264 - 6,264 Total liabilities - 96,102 - 96,102 The Group takes the date on which events causing the transfers between the levels take place as the timing specific for recognising the transfers. There was no significant transfer of fair value measurement level of the above financial instruments.
The fair value of financial instruments traded in an active market is determined at the quoted market price; and the fair value of those not traded in an active market is determined by the Group using valuation technique. The valuation models used mainly primarily comprise discounted cash flow model and market comparable corporate model. Inputs of valuation technique mainly comprise risk-free interest rate, estimated interest rate and estimated annual yield.
There was no change in the valuation technique for the fair value of theGroup’s financial instruments in current year.
The changes in Level 3 financial assets are analysed below:
Available-for-sale financial assets -Available-for-sale equity instruments 1 January 2017
30,109,067 Increase
26,513,177 Decrease
(35,571,427) Total gains of current period
Investment income recognised in the income statement
975,534
Gains recognised in other comprehensive income
148,615
31 December 2017
22,174,966
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
16 Fair value estimates(Cont’d)
(1) Assets and liabilities measured at fair value on a recurring basis(Cont’d)
Available-for-sale financial assets -Available-for-sale equity instruments 1 January 2016 18,136,831 Increase 36,358,900 Decrease (25,706,072) Total gains of current period
Investment income recognised in the income statement 1,270,941 Gains recognised in other comprehensive income 48,467 31 December 2016 30,109,067 Information about the Level 3 fair value measurement is as follows:
Inputs
Fair value at Relationship
31 December Valuation with fair Observable/ 2017 technique Name Range value unobservable Available-for-sale
financial assets -
Available-for-sale Discounted cash Estimated
financial assets 80,251 flows annual yield 2.2%~7.2% Positive Unobservable Other current Discounted cash Estimated
assets 22,094,715 flows annual yield 2.2%~7.2% Positive Unobservable Total 22.174,966
Assets and liabilities subject to level 2 fair value measurement are mainly forward exchange contracts and are evaluated by income approach.
(2) Assets and liabilities not measured at fair value but disclosed
The Group's financial assets and financial liabilities measured at amortised cost mainly include: cash at bank and on hand, deposits with central bank, deposits with banks and other financial institutions, notes receivable, accounts receivable, loans and advances, other receivables, other current assets (excluding those mentioned in Note 16(1)), accounts payable, notes payable, short-term borrowings, long-term borrowings, customer deposits and deposits from banks and other financial institutions, financial assets sold under repurchase agreements, interest payable and other current liabilities, etc..
Carrying amounts of theGroup’s financial assets and financial liabilities as at 31 December 2017 and 31 December 2016 approximated their fair value.
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
17 Capital management
TheGroup’s capital management policies aim to safeguard theGroup’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, refund capital to shareholders, issue new shares or sell assets to reduce debts.
The Group is not subject to external mandatory capital requirements, and monitors capital structure on the basis of gearing ratio (total assets total liabilities).
As at 31 December 2017 and 31 December 2016, the Group's gearing ratio is as follows: 31 December 2017 31 December 2016 Total liabilities 165,181,687 101,624,015 Total assets 248,106,858 170,600,711 Gearing ratio 66.58% 59.57% 18 Notes to the parentcompany’s financial statements
(1) Other receivables
31 December 2017 31 December 2016 Current accounts 8,316,708 12,584,623 Other 87,645 60,707 8,404,353 12,645,330 Less: Provision for bad debts (789) (738) 8,403,564 12,644,592 (a) Other receivables are analysed by ageing as follows:
31 December 2017 31 December 2016 Within 1 year (inclusive) 5,150,753 6,088,475 1 to 2 years (inclusive) 3,253,600 6,556,855 8,404,353 12,645,330 Less: Provision for bad debts (789) (738) 8,403,564 12,644,592 (b) Other receivables are analysed by categories as follows:
31 December 2017 31 December 2016
Provision for Provision for Carrying amount bad debts Carrying amount bad debts% of total % of total
Amount balance Amount Ratio Amount balance Amount Ratio Provision for bad
debts provided on
the individual
basis 8,392,449 99.86% - - 12,633,325 99.91% - - Provision for bad debts
provided on the
grouping basis 11,904 0.14% 7896.63% 12,005 0.09% 7386.15%
8,404,353100.00% 7890.01% 12,645,330100.00% 7380.01%
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
18 Notes to the parentcompany’s financial statements(Cont’d)
(1) Other receivables(Cont’d)
(c) Other receivables that the related provision for bad debts is provided on grouping basis using the ageing analysis method are analysed as follows:
31 December 2017 31 December 2016
Carrying Provision for Carrying Provision for amount bad debts amount bad debts
Amount Amount Ratio Amount Amount Ratio Within 1 year 8,020 401 5.00% 9,245 462 5.00% 1 to 2 years 3,884 388 10.00% 2,760 276 10.00% 11,904 789 6.63% 12,005 738 6.15% (d) As at 31 December 2017, other receivables from the top five debtors are analysed as below: Provision% of total other for bad Nature Balance Aging receivables debts Foshan Shunde Home Appliance Current
4,530,000
Within 1
54% - Industrial Co., Ltd. accounts year
Midea International Holding Co., Ltd. Current 3,248,660 1-2 years 39% - Shenzhen Qianhai Midea Assets
ac Cc uo ru ren nts
t
320,000
Within 1
4% - Management Co., Ltd. accounts year
Guangdong Midea Refrigeration Current
131,168
Within 1
2% - Equipment Co., Ltd. accounts year
China Securities Depository and
Clearing Corporation Limited Current 64,760 Within 1 - - Shenzhen Branch accounts year
8,294,588 99% - (2) Long-term equity investments
Long-term equity investments are classified as below:
31 December 2017 31 December 2016 Subsidiaries (a) 23,099,672 21,716,662 Associates (b) 1,440,929 1,342,318 24,540,601 23,058,980 Less: Provision for impairment - - 24,540,601 23,058,980
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
18 Notes to the parentcompany’s financial statements(Cont’d)
(2) Long-term equity investments(Cont’d)
(a) Subsidiaries
Movements for the current year
31 Movements 31 Cash dividends December Additional due to share Reduced Provision for December Provision for declared in current 2016 investment option investment impairment Others 2017 impairment year Wuxi Little Swan Company Limited 2,699,321 - 54,919 - - - 2,754,240 - 179,211 Midea Group Finance Co., Ltd. 1,431,886 - 10,593 - - - 1,442,479 - 312,545 Hefei Midea Heating& Ventilation Equipment
Co., Ltd. 1,052,268 - 6,619 - - - 1,058,887 - 872,573 Hubei Midea Refrigerator Co., Ltd. 835,994 - 3,755 - - - 839,749 - 218,934 Anhui GMCC Precision Manufacturing Co.,
Ltd. 808,032 - 9,234 - - - 817,266 - 336,128 Foshan Shunde Home Appliance Industrial
Co., Ltd. 2,449,000 500,000 - - - - 2,949,000 - - Wuhu Meizhi Air-Conditioning Equipment
Co., Ltd. 736,448 - 9,393 - - - 745,841 - 1,182,501 Guangdong Midea Refrigeration Equipment
Co., Ltd. 955,245 - 225,418 - - - 1,180,664 - 446,123 Ander Zhilian technology Co., Ltd. 474,391 - 4,637 - - - 479,028 - 168,513 Guangdong Midea Commercial Air
Conditioning Equipment Co., Ltd. 569,430 - - - - - 569,430 - 22,162 Ningbo Midea United Material Supply Co.,
Ltd. 484,506 - 2,232 - - - 486,738 - 486,961 Guangzhou Hualing Refrigeration Equipment
Co., Ltd. 496,014 - 7,748 - - - 503,762 - 133,550 Guangzhou Midea Hualing Refrigerator Co.,
Ltd. 423,948 - 2,290 - - - 426,238 - 90,069 Hefei Midea Refrigerator Co., Ltd. 453,337 - 30,975 - - - 484,312 - - Guangdong Midea Wuhu Refrigeration
Equipment Co., Ltd. 350,092 - 1,949 - - - 352,041 - 88,740 Anhui GMCC Refrigeration Equipment Co.,
Ltd. 316,871 - 5,201 - - - 322,072 - - Guangdong Midea Heating& Ventilation
Equipment Co., Ltd. 344,730 - 58,099 - - - 402,829 - 736,698 Midea Electric Investment (BVI) Limited 236,543 - - - - - 236,543 - - Midea International Holding Co., Ltd. 176,974 - - - - - 176,974 - -
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
18 Notes to the parentcompany’s financial statements(Cont’d)
(2) Long-term equity investments(Cont’d)
(a) Subsidiaries(Cont’d)
Movements for the current year
Movements Cash 31 due to 31 Provision for dividends December Additional share Reduced Provision for December impairment declared in 2016 investment option investment impairment Others 2017 current year Guangzhou Hualing Refrigeration
Equipment Co., Ltd. 136,745 - - - - - 136,745 - - Foshan Midea Carrier Refrigeration
Equipment Co., Ltd. 128,733 - 4,074 - - - 132,807 - 113,373 Hefei Midea Material Supplies Co., Ltd. 117,000 - - - - - 117,000 - 58 Midea Group E-commerce Co., Ltd. 115,984 - 15,372 - - - 131,356 - - Guangdong GMCC Refrigeration
Equipment Co., Ltd. 135,332 - 29,308 - - - 164,640 - 73,057 Hefei Hualing Co., Ltd. 107,996 - 18,290 - - - 126,286 - 212,513 Midea Wuhan Refrigeration Equipments
Co., Ltd. 79,331 - 9,944 - - - 89,275 - 189,989 Foshan City Midea Material Supplies Co.,
Ltd. 54,000 - - - - - 54,000 - 5,204 Zhejiang GMCC Compressor Co., Ltd. 52,820 - 3,482 - - - 56,302 - 380,457 Chongqing Midea Refrigeration Equipment
Co., Ltd. 59,614 - 6,114 - - - 65,728 - 93,914 Wuhu Little Swan Refrigeration Equipment
Co., Ltd. 47,500 - - - - - 47,500 - - Guangdong GMCC Precision
Manufacturing Co., Ltd. 38,438 - 276 - - - 38,714 - 34,928 Foshan City Midea Air-conditioners
Industrial Investment Co., Ltd. 36,062 - - - - - 36,062 - - Chongqing Midea General Refrigeration
Equipment Co., Ltd. 40,588 - 6,518 - - - 47,106 - - Ningbo Meimei Jiayuan Electric Service
Co., Ltd. - - - - - - - - - Foshan City Shunde District Midea
Electronic Technology Co., Ltd. 16,303 - 3,224 - - - 19,527 - 55,336 Midea Holdings (BVI) Ltd. 82 - - - - - 82 - - Handan Midea Refrigeration Equipment
Co., Ltd. 131,079 - 6,107 - - - 137,186 - 167,541 Midea network information service
(shenzhen) Co., Ltd. 100,213 - 106 (100,319) - - - - 41
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
18 Notes to the parentcompany’s financial statements(Cont’d)
(2) Long-term equity investments(Cont’d)
(a) Subsidiaries(Cont’d)
Movements for the current year
31 Movements 31 Provision Cash dividends December Additional due to Reduced Provision for December for declared in 2016 investment share investment impairment Others 2017 impairme current year option nt
Midea Innovation Investment Co., Ltd. 35,000 - - - - - 35,000 - - Guangdong Midea Microwave Electric
Manufacturing Co., Ltd. 1,880,041 - - - - - 1,880,041 - 921,936 Wuhu Midea Kitchen Appliances
Manufacturing Co., Ltd. 20,000 - 1,706 - - - 21,706 - 5,098 Jiangsu Midea Cleaning Appliance Company
Limited 96,900 - 6,514 - - - 103,414 - 104,829 Guangdong Witt Vacuum Electronics
Manufacturing Co., Ltd. 196,427 - 1,720 - - - 198,147 - 104,603 Guangdong Midea Life Electric Appliance
Manufacturing Co., Ltd. 1,003,673 - 30,747 - - - 1,034,420 - - Wuhu Midea Electric Appliance Manufacturing
Co., Ltd. 56,223 - - - - - 56,223 - 89,832 Foshan Shunde Water machine manufacturing
Co., Ltd. 36,658 - 6,807 - - - 43,465 - - Foshan Midea Qinghu purification equipment
Co., Ltd. 59,386 - 6,266 - - - 65,652 - 12,000 Wuhan Midea electric appliance
manufacturing Co., Ltd. 80,000 - - - - - 80,000 - - Guangdong Midea Environmental Electric
Appliance Manufacturing Co., Ltd. 307,689 - 34,544 - - - 342,233 - 222,846 Foshan Shunde Midea Washing Appliance
Manufacturing Co., Ltd. 414,887 - 12,485 - - - 427,372 - 297,734 Guangdong Midea Kitchen& Bathroom
Electric Manufacturing 80,664 - 7,596 - - - 88,260 - 34,295 Wuhu Midea Kitchen& Bathroom Electric
Manufacturing 79,319 - 24,324 - - - 103,643 - 611,481 Jiangxi Midea Guiya lighting Co., Ltd. 164,830 - 5,634 - - - 170,464 - - Guangdong Midea Household Appliances
Import and Export Trade Co., Ltd. 53,207 - - - - - 53,207 - - JVMIDEA–HORIZONT Co., Ltd. 41,357 - - - - - 41,357 - 853
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
18 Notes to the parentcompany’s financial statements(Cont’d)
(2) Long-term equity investments(Cont’d)
(a) Subsidiaries(Cont’d)
Movements for the current year
Cash 31 Movements Provision 31 Provision dividends December Additional due to share Reduced for December for declared in 2016 investment option investment impairment Others 2017 impairment current year Guangdong MIDEA-YASKAWA Service
Robotics Ltd. 12,020 12,020 - - - - 24,040 - - Foshan Shunde District Midea Petty Loan Co.,
Ltd. 68,344 - 1,422 - - - 69,766 - - Midea Petty Loan Co., Ltd. 55,173 - 208 - - - 55,381 - - Midea Robotics Industry Development Co., Ltd. 7,000 - - - - - 7,000 - - Wuhu Midea Household Consultation Service
Co., Ltd. 101,542 - 106 - - - 101,648 - - Hefei Midea Washing Machine Co., Ltd. 78,042 - 6,853 - - - 84,895 - - Chinese Refrigerator Industry Co., Ltd. 2,430 - - - - - 2,430 - 16,241 Guangdong Midea Advanced Technologies
Co., Ltd. 10,000 40,000 - - - - 50,000 - - Foshan Shunde Meiying Enterprise
Management Services Co., Ltd. 13,000 - - - - - 13,000 - - Midea Smart Home Technology Co., Ltd. 20,000 - - - - - 20,000 - - Midea Finance Holding (Shenzhen) Co., Ltd. 50,000 - - - - - 50,000 - - Guangdong Midea Electric Co., Ltd. - 1,000 - - - - 1,000 - - Guangdong Midea Intelligent Robotics Co., Ltd. - 150,000 - - - - 150,000 - - Guangdong Midea Advanced Technologies
Co., Ltd. - 50,000 - - - - 50,000 - - Guangdong Midea environmental technology
Co., Ltd. - 47,500 - - - - 47,500 - - Total 21,716,662 800,520 682,809 (100,319) - - 23,099,672 - 9,022,867
MIDEA GROUP CO., LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2017
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
18 Notes to the parentcompany’s financial statements(Cont’d)
(2) Long-term equity investments(Cont’d)
(b) Associates
Investments in associates are mainly the investments in Foshan Shunde Rural
Commercial bank Co., Ltd., Misr Refrigeration And Air Conditioning Manufacturing Co. and Hefei Royalstar Motor Co., Ltd. and other companies.
(3) Revenue
Revenue mainly comprises other operating income including the brand royalty income, rental income and management fee income, etc. obtained by the parent company form the subsidiaries.
(4) Investment income
2017 2016 Income from long-term equity investment
under cost method 9,022,867 8,586,229 Investment income from wealth management
products purchased from financial
institutions 980,845 1,031,257 Income from long-term equity investment
under equity method 209,908 247,016 Losses on disposal of long-term equity
investment 783 (11,144) 10,214,403 9,853,358 There is no significant restriction on repatriation of the Company's investment income.
MIDEA GROUP CO., LTD.
SUPPLEMENTARY INFORMATION
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
1 Details of non-recurring profit or loss
2017 2016 Profit or loss on disposal of non-current assets 1,363,041 (134,258) Government grants recognised in profit or loss for the
current period 1,332,301 1,330,065 Profit or loss on entrusted investments or assets under
entrusted management - - Enterprise restructuring expenses including staff
resettlement expenses and integration expenses - - Income arising from investment cost ofenterprises’
acquisition of subsidiaries, associates and joint
venture which is less than the share of the fair value
of theinvestee’s identifiable net assets at the time of
acquisition of investment (negative goodwill) - - Gains or losses on changes in fair value of financial
assets and liabilities held for trading and investment
income arising from disposal of financial assets and
liabilities held for trading and available-for-sale
financial assets other than effective hedging
businesses relevant to normal course of business of
the company 77,484 (25,408) Reversal of impairment provision for receivables
individually assessed for impairment - - Others (238,243) 246,361 2,534,583 1,416,760 Less: Income tax effect (702,139) (272,925) Minority interests effect (after tax) (162,858) 47,656 1,669,586 1,191,491 Basis of preparation of details of non-recurring profit or loss:
Pursuant to the requirements of the “Explanatory Announcement for Information Disclosure of Companies Offering Securities to the Public No.1 - Non-recurring Profit or Loss (2008)”
issued by China Securities Regulatory Commission (“CSRC”), non-recurring profit or loss refers to profit or loss arising from transactions and events that are not directly related to theCompany’s normal course of business and that are related to theCompany’s normal course of business but have impact on the right judgement of theCompany’s operation performance and profitability of users of the financial statements due to special nature and occasional
occurrence.
MIDEA GROUP CO., LTD.
SUPPLEMENTARY INFORMATION
(All amounts in RMB'000 Yuan unless otherwise stated)
[English translation for referenceonly]
2 Return on net asset and earnings per share
The Group's return on net asset and earnings per share calculated pursuant to the “Compilation Rules for Information Disclosure of Companies Offering Securities to the Public No.9 - Calculation and Disclosure of Return on Net Asset and Earnings per Share (revised in 2010)” issued by CSRC and relevant requirements of accounting standards are as follows:
Weighted average Earnings per share (RMB/share)
Return on net asset Basic earnings per Diluted earnings(%) share per share 2017 2016 2017 2016 2017 2016 Net profit attributable to
shareholders of the
parent company 25.88% 26.88% 2.66 2.29 2.63 2.28 Net profit attributable to
shareholders of the
parent company net of
non-recurring profit or
loss 23.38% 24.70% 2.41 2.1 2.38 2.09
The 2016 Annual Report of Midea Group Co., Ltd. Section XI Documents Available for Reference
1. The original of The 2017 Annual Report of Midea Group Co., Ltd. signed by the legal representative;
2. The financial statements signed and stamped by the legal representative, the Chief Financial Officer and the accounting supervisor;
3. The original of theauditor’s report with the seal of the accounting firm, and signed and stamped by CPAs;
4. The originals of all company documents and announcements that are disclosed to the public via newspaper designated for information disclosure during the Reporting Period; and
5. The electronic version of The 2017 Annual Report that is released on http://www.cninfo.com.cn.
Midea Group Co., Ltd. Legal Representative: Fang Hongbo 31 March 2018