Medlive Technology Co., Ltd. - Annual Report 2012

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Company Profile 2	Company Profile 2
2012 Major Events Calendar	3
Chairman’s Statement 4
Management Discussion and Analysis 6
Corporate Governance Report 17
Profiles of Directors, Supervisors & Members of the Senior Management	32
Report of the Directors	35
Report of the Supervisory Committee 61
Corporate Information 63
Financial Statements Prepared in accordance with China Accounting Standards for Business Enterprise 64

Company Profile

Hisense Kelon Electrical Holdings Company Limited (the “Company”) is at present one of the largest manufacturers of white household electrical appliances in the People’s Republic of China (the “PRC” or “China”), with three brand names, namely “Hisense”, “Kelon” and “Ronshen”, which have been appraised as “Chinese Well-known Marks” . Founded in 1984 and headquartered in Shunde District, Foshan City, Guangdong Province, the PRC, the Company is principally engaged in the production of white household electrical appliances such as refrigerators, air-conditioners, freezers and washing machines . In 1996 and 1999, the shares of the Company were listed on the main boards of The Stock Exchange of Hong Kong Limited and Shenzhen Stock Exchange respectively .

The Company adheres to its core philosophy of “relying on technology and the talents of its people to build up the Company”, and considers “technology” as the basic driving force for the Company’s development . The production and sales volume of its refrigerators and air-conditioners have been among the highest in China for consecutive years . Leveraging on the superior refrigeration technology and application of high technology in its products, the Company has won good reputation in the industry, and has been awarded many honors for its technologies and products at a national level . In 2012, Hisense intelligent refrigerators, with the theme of “Intelligent, Green, Healthy”, were awarded the Shanghai Appliance World Expo Appliance Product Prize; Hisense refrigerators and Ronshen refrigerators won the title of “Pioneer Brand in Food Preserving Technology” and “Leading Energy-saving Technology Award” respectively at the Fifth Annual Conference of Chinese Refrigerator Industry; Ronshen refrigerators won the title of the only recommended energy-saving refrigerator products of International Energy Conservation Environmental Protection Association (IEEPA); and Hisense Apple Pie A8 Ultra-thin Air-conditioner series received the Best Modern Design Award in the Seventh Appearance Design Patent Competition of China .

The Company will adhere to the operating direction of “building product advantages, reforming marketing model, improving system efficiency, developing the international market vigorously and ensuring scale and efficiency”, in the incessant pursuit for profound research and development,with a focus on product differentiation and improvement of user experience to reinforce technological innovations and boost product competitiveness, and will further perfect the high-end product line, enhance the product sales structure and reform the marketing model, paralleled by the all-round enhancement of the Company’s integrated capacity in the areas of technology level, product grade, market scale and sustainability etc ., to achieve a steady growth in scale, efficiency and market share .

2012 Major Events Calendar

MarCh

In March 2012, Hisense intelligent refrigerators, with the theme of “Intelligent, Green, Healthy”, were awarded the Shanghai Appliance World Expo Appliance Product Prize .

May

In May 2012, Hisense refrigerators and Rongshen refrigerators won the title of “Pioneer Brand in Food Preserving Technology” and “Leading Energy-saving Technology Award” respectively at the Fifth Annual Conference of the Chinese Refrigerator Industry .

JunE

In June 2012, members of the eighth session of the Board of Directors were elected at the Annual General Meeting of Hisense Kelon .

July

In July 2012, Hisense Kelon donated RMB200,000 to Ronggui Charity Federation of Shunde .

In July 2012, Hisense Apple Pie A8 Ultra-thin Air-conditioner series received the “Best Stylish Design Award” in the Seventh Appearance Design Patent Competition of China .

august

In August 2012, Hisense Kelon was named the “Demonstration Enterprise in Transformation and Upgrading of Processing Trade in Guangdong Province” by the Department of Foreign Trade and Economic Cooperation of Guangdong Province .

In August 2012, in the contest of China Household Appliance Innovative Products 2012, Hisense “BCD-558WGBPET Intelligent Refrigerator” received the Product Innovation Award, and Rongshen “316WYMB” and Hisense “11 .3CM Super Thin Healthy Inverter Air-conditioner” both received the Industrial Design Innovation Award .

sEPtEMbEr

In September 2012, International Energy Conservation Environmental Protection Association (IEEPA) held a conference in Beijing, and Rongshen refrigerators won the title of the only recommended energy-saving refrigerator products .

In September 2012, Hisense Rongsheng (Guangdong) Refrigerator Co ., Ltd . and Guangdong Kelon Air-Conditioner Co ., Ltd . won the title of “Enterprise with Excellent Quality” and “Outstanding Enterprise with Certification” at the Guangdong and Guangxi Quality Certification and Promotion Meeting held by China Quality Certification Centre .

novEMbEr

In November 2012, the project on “Development and Application of Food Management System for Refrigerators based on Users’ Health Parameters” of Hisense refrigerators was assessed by the Department of Science & Technology of Shandong Province as internationally advanced .

DECEMbEr

In December 2012, in the first results announcement of 2011-2012 China Household Appliance Industry Brand Evaluation System “CBES” and China Household Appliance Brand Trial Evaluation held by China Household Electric Appliance Research Institute, Hisense refrigerators and Rongshen refrigerators were selected as the “Top 10 Brand of Refrigerator Industry”, and Hisense air-conditioners and Kelon air-conditioners were chosen as the “Top 10 Brand of Air-conditioning Industry” .

In December 2012, the “Research and Development and Application of the Super Energy-saving Refrigerator Technology” of Rongshen refrigerators was awarded the “Third Prize of Science and Technology Award of Guangdong Province” and the “Second Prize of Technology Advancement for China Household Appliances” granted by China Household Electrical Appliances Association .

Chairman’s statement

Dear Shareholders:

I am pleased to present the annual report of the Company for the year ended 31 December 2012 (the “Reporting Period”) .

During the Reporting Period, according to the statistics of China Market Monitor Company Limited (CMM), the refrigerator and air-conditioner industries in the PRC experienced decreases in both accumulated retail sales volume and retail sales value . According to the statistics of the Customs, the overall export market also recorded significant slowdown in growth rate when compared with the same period last year . On the one hand, there were the weakening stimulation effect of the State’s household appliances subsidy policies on expenditure, and the suppression of demand on household appliances brought by the ongoing stringent real estate policies . On the other hand, after the breakout of the European sovereign debt crisis, the economic growth of developed countries continued to be weak and demand from major overseas household appliances markets shrank . Facing the above negative operating environments both domestically and overseas, negative growth was recorded for the household appliances industry during the Reporting Period, and the operating pressure of household appliances enterprises continued to aggravate .

During the Reporting Period, the Company strictly adhered to the operating strategies of “building product advantages, reforming marketing models, enhancing per capita efficiency, accelerating the progress of internationalization and realizing sound and rapid growth”, and thereby successfully achieved steadiness in the scale of operation and substantial growth in operating results amidst an unfavorable macroeconomic environment . During the Reporting Period, the Company recorded a revenue of RMB18,959 million from its operating business, representing a year-to-year increase of 2 .54% . The net profit attributable to shareholders of the listed company was RMB718 million, representing earnings per share of RMB0 .5301, representing a year-to-year increase of 216 .10% . During the Reporting Period, the Company’s principal operating businesses maintained steady growth, of which the revenue from the refrigerator business accounted for 48 .76% of the revenue from principal operating businesses, representing a year-to-year increase of 2 .61% and the revenue from the air-conditioner business accounted for 38 .41% of the revenue from principal operating businesses, representing a year-to-year increase of 2 .28%; and the operating revenue from domestic sales was RMB11,535 million, representing a year-to-year decrease of 1 .95%; whereas the operating revenue from export sales was RMB5,819 million, representing a year-to-year increase of 16 .74% . During the Reporting Period, the Company proactively adjusted its product structure with its strategy which put emphasis on high-end products and continuously enhanced product gross profit margin and profitability . The gross profit margin of domestic sales increased by 3 .35 percentage points, while the gross profit margin of export sales increased by 3 .75 percentage points .

During the Reporting Period, the Company accelerated its capital flow, strengthened control on receivables and inventory, suppressed the utilization of capital in different segments while effectively avoiding the risk of inventory depreciation, and enhanced its capital utilization efficiency . As at the end of the Reporting Period, the financial position of the Company showed a remarkable improvement . The balance of bank borrowings at the end of the period decreased by 96 .98% when compared to the beginning of the period and there was a 5 .16 percentage point decrease in the gearing ratio at the end of the period when compared to the beginning of the period .

In respect of research and development of technology, the Company has adopted “energy-saving and food preservation” as its core technological directions . It has developed the “preservation by active water” system, which solved the long existing application limitations of refrigerators in different aspects such as the drying of food and frosting . At the same time, the Company’s strategy of “intelligentization” was also extended to refrigerator products and the Bauna series and other new high-end Hisense refrigerator products were launched, in which the “food management” function was realized through the use of Intelligent Internet of Things technologies（智能物聯網技術） . Centered on “intelligentization” and “user experience”, the Company has self-developed Hi-Smart, the first generation of compressor gesture control technology, and launched the Hisense “Apple Pie A8” series of air-conditioners, and leveraging on the advantages in the core technologies for inverter airconditioners built over the years, the Company has successfully developed small-sized VRF series of multi-split inverter （小型 VRF 系列變頻多聯機）, which further broadened and enriched the product categories . The Company’s capabilities in industrial design and innovation have been further enhanced . At the Seventh Appearance Design Patent Competition of China organized by the State Intellectual Property Office, the appearance patent of the ultra-slim home-use air-conditioner of the Hisense “Apple Pie A8” series obtained the “Best Stylish Design Award”, making it the only air-conditioner product to be honored with such award in 2012 . At the 2012 IFA held in Germany, the new ultra-slim wall-mounted air-conditioner of the Hisense “Apple Pie A8” series was awarded the IFA Grand Prize of Innovative Design . The technological leadership in areas such as “preservation by active water, intelligent terminal, energy-saving by inverter technology” has also earned Hisense refrigerator Bauna series the “First Prize of the Eighth Session of China Household Appliances Product Innovation Award” . During the Reporting Period, the Company has applied for 394 patents in total, including 13 PCT (patent cooperation agreement) international patents and 102 invention patents . The Company has been granted 316 patents over the years in total, including 32 invention patents . In August 2012, the scientific results of the Company’s “Research and Development and Application of Refrigerating Ion Preservation Technology” passed the evaluation of the State Committee of Science and Technology, which affirmed that the application of the technology could successfully solve the drying problem of air cooling refrigerators and effectively enhance the preservation function of the refrigerators .

Chairman’s statement

Projecting into 2013, household appliances enterprises will continue to face a severe market environment and substantial operating pressure against slowdown of domestic economic growth, sluggish demand in the household appliances market, ongoing stringent real estate policies, and increasing operating costs (especially labor costs), in combination with a pool of factors such as uncertainty in global economic growth and continued sluggish market . However, at the same time, demand for product upgrades at level 1 and level 2 cities, promotion and actualization of new urbanization, construction of security housings and revolution of new technologies will lead to upgrades in household appliances consumption with increasing demand for intelligent, energy-saving and environmental friendly household appliances, which will help to promote technology upgrade and innovation as well as enhancements in product structures for enterprises . The Company will adhere to the operating strategy of “building product advantages, reforming marketing model, enhancing system efficiency, exploring the international markets and securing scale and results”, to strengthen the efforts in technology upgrade with an emphasis on “energy-saving by inverter technology” and “green and environmental friendliness” in order to attain leadership in the core competitiveness of products, to realize differentiation of product functions, sophistication of products, product quality improvement, as well as reasonable control of product costs, all of which will contribute to build the leading position of products; to continue the launch of new high-end products, to enrich the product line of high-end products and to enhance the market share of highend products; to increase input in the third and fourth grade markets, to further pursue channel infiltration, to accelerate the development of channel points and enhance the management and control of network points, to forcefully develop the electronic commercial business and accelerate the expansion of project channels; to continuously implement flow rationalization, integration and enhancement measures, as well as equipment automation and informatization, to reinforce capital management and to accelerate capital flow, to achieve steady increase in its scale, performance and market share .

The Company recorded substantial growth in its performance in 2012 . This is attributable to the care and strong support of all shareholders, financial institutions, partners and the government, as well as the outstanding leadership of the board of directors, the supervisory committee and the management and the continued dedication of all staff . I would like to express my gratitude to every one of them and hope to receive your continued support in the forthcoming year . With scrupulous planning and the concerted efforts and commitment of our staff and the realization of our objectives successively, we believe, and the Company is confident in, the development of the Company in 2013 . I also earnestly look forward to sharing a better future of Hisense Kelon with you all .

Management Discussion and analysis

I. InDustry ovErvIEW

II. analysIs oF thE CoMPany’s oPEratIon

overall situation

research and development of technology

During the Reporting Period, the Company has adopted “energy-saving and food preservation” as its core technological directions . It has developed the “preservation by active water” system, which solved the long existing application limitations of refrigerators in different aspects such as the drying of food and frosting . At the same time, the Company’s strategy of “intelligentization” was also extended to refrigerator products and the Bauna series and other new highend Hisense refrigerator products were launched, in which the “food management” function was realized through the use of Intelligent Internet of Things technologies （智能物聯網技術） . The technological leadership in areas such as “preservation by active water, intelligent terminal, energy-saving by inverter technology” has also earned Bauna series the “First Prize of the Eighth Session of China Household Appliances Product Innovation Award” at the International Funkausstellung (IFA) 2012 held in Germany . Riding on the leading position in energy-saving of the Company’s refrigerator products, Hisense refrigerators were named the “Pioneer Brand in Food Preserving Technology”, whereas Ronshen refrigerators obtained the “Leading Energy-saving Technology Award” at the Fifth Annual Conference of the Chinese Refrigerator Industry . The project of Ronshen refrigerators on “Research and Development and Application of the Super Energy-saving Refrigerating Technology” was awarded the “Second Prize of Technology Advancement for China Household Appliances” by the China Household Electrical Appliances Association .

Management Discussion and analysis

During the Reporting Period, centered on “intelligentization” and “user experience”, the Company has self-developed Hi-Smart, the first generation of compressor gesture control technology, and launched the Hisense “Apple Pie A8” series of air-conditioners . At the 2012 IFA held in Germany, the new ultra-slim wall-mounted air-conditioner of the Hisense “Apple Pie A8” series was awarded the IFA Grand Prize of Innovative Design for its application of novel materials, novel technologies and novel techniques . Furthermore, leveraging on the advantages in the core technologies for inverter air-conditioners built over the years, the Company has successfully developed small-sized VRF series of multi-split inverter （小型 VRF 系列變頻多聯機）, which further broadened and enriched the product categories .

During the Reporting Period, the Company’s capabilities in industrial design and innovation have been further enhanced . At the Seventh Appearance Design Patent Competition of China organized by the State Intellectual Property Office, the appearance patent of the ultra-slim home-use air-conditioner of the Hisense “Apple Pie A8” series obtained the “Best Stylish Design Award”, making it the only air-conditioner product to be honored with such award in 2012 .

During the Reporting Period, the Company has applied for 394 patents in total, including 13 PCT (patent cooperation agreement) international patents and 102 invention patents . The Company has been granted 316 patents over the years in total, including 32 invention patents . In August 2012, the scientific results of the Company’s “Research and Development and Application of Refrigerating Ion Preservation Technology” passed the evaluation of the State Committee of Science and Technology, which affirmed that the application of the technology could successfully solve the drying problem of air cooling refrigerators and effectively enhance the preservation function of the refrigerators .

refrigerator and freezer business

After the speedy growth over the past few years, there is significant excess in production capacity within the refrigerator industry . During the Reporting Period, the overall refrigerator industry recorded negative growth . According to the statistics of CMM in December 2012, accumulated retail sales volume of the refrigerator industry showed a year-toyear decrease of 15% in 2012 . Excessive production capacity coupled with generally sluggish market demand has resulted in a bleak period for the refrigerator enterprises in 2012 amidst an austere market . However, there has been a gradual increase in the consumer demand for products featuring intelligence, energy-saving and environmental friendly specifications on the other hand . The weight of large size three-door, multi-door and French-door refrigerators increased in terms of market share . It could be observed that the refrigerator industry was moving towards high-end products . The Company has strived for product technological innovation and functional upgrade, and persisted in increasing the weight of high-end products, contributing to a 1 .84 percentage point increase in the gross profit margin of refrigerator products . Meanwhile, the market size and share of the Company’s refrigerator products has also further increased . According to the statistics of CMM, refrigerators of the Company acclaimed a market share of 16 .34% in terms of retail sales volume in 2012, securing the second position in the industry and representing an increase of 2 .15 percentage points as compared to 2011 . In addition, the size of the export of the Company’s freezer products also showed rapid growth, representing a year-to-year increase of 32 .53% .

air-conditioner business

During the Reporting Period, the air-conditioner market in China was languorous . Affected by factors including stringent real estate policies, inflation and demand overdraft as a result of favorable policies for household appliances for the past few years, the air-conditioner industry experienced an overall slump . According to the statistics of CMM in December 2012, accumulated retail sales volume of the air-conditioner industry showed a year-to-year decrease of 19 .60% in 2012 . Yet on the other hand, inverter products recorded increase against the overall trend, of which fluorine-free inverter airconditioners still maintained a speedy growth in the market share . The Company focused on the promotion of inverter air-conditioners with level 2 energy-efficiency or above which are characterized by the concepts of “energy-saving, comfort and healthiness”, and continued to implement enhancement of efficiency and cost reduction . The gross profit margin of air-conditioner product has significantly increased by 4 .06 percentage points and the air-conditioner business realized a profit . In addition, with the Company vigorously developing the export business, the scale of overseas sales for air-conditioner products achieved a year-to-year growth of 31 .24% .

Management Discussion and analysis

III. analysIs to PrInCIPal FInanCIals DurIng thE rEPortIng PErIoD

(I) Major accounting Data and Financial Indicators

Did the Company make retrospective adjustment to or restatement of the accounting data of prior years due to changes in accounting policies and correction of accounting errors?

□Yes √No

			Increase
			or decrease
			as compared
			to last year
	2012	2011	(%)	2010
Operating revenue (RMB)	18,958,915,310 09	18,488,663,163 12	2 54	17,690,323,631 83
Net profits attributable to
shareholders of listed company
(RMB)	717,764,680 40	227,015,126 87	216 17	585,277,671 92
Net profits after deducting non-
recurring profit and loss
attributable to shareholders
of listed company (RMB)	597,180,784 22	196,373,292 36	204 10	184,979,084 12
Net cash flow from operating
activities (RMB)	1,098,192,778 13	366,265,192 49	199 84	637,569,588 09
Basic earnings per share
(RMB/share)	0 5301	0 1677	216 10	0 4365
Diluted earnings per share
(RMB/share)	0 5301	0 1677	216 10	0 4365
Return on net assets (%)	61 95	33 72	28 23	293 26
			Increase
			or decrease
			as compared
			to end of
			last year
	31 December 2012	31 December 2011	(%)	31 December 2010
Total assets (RMB)	9,200,334,640 73	7,635,439,578 36	20 50	8,018,968,919 84
Net assets attributable to
shareholders of listed company
(Owners’ equity attributable
to shareholders of listed
company) (RMB)	1,512,042,166 49	805,123,597 33	87 80	541,241,410 07

Management Discussion and analysis

(II) non-recurring profit and loss items and amounts

				Unit: RMB
	amount of	amount of	amount of
Items	2012	2011	2010	Description
Profits or losses from disposal of non-	97,537,681 25	16,528,938 47	302,080,075 27
current assets (including the part written
off for provision for impairment on assets)
Government grants recognized in the profits	23,057,674 18	21,704,167 78	42,198,798 89
or losses (excluding government grants
closely related to the Company’s business
and are received with fixed amounts or
with fixed percentage based on unified
standards promulgated by government)
Corporate restructuring costs (e g staff	—	—	(34,042,667 05)
relocation costs and costs during the
course of integration)
Net profit or loss of subsidiaries acquired	—	—	55,835,331 39
under common control from beginning of
year to the merger date
Other non-operating income and expenses	3,348,427 38	(3,467,732 46)	41,759,946 08
other than the aforementioned items
Effect of income tax	2,187,048 64	1,948,610 72	4,883,407 68
Effect of minority interests (after tax)	1,172,837 99	2,174,928 56	2,649,489 10
Total	120,583,896 18	30,641,834 51	400,298,587 80	—

(III) analysis of Principal business

1. Income

Is the Company’s income from sales of goods larger than its income from provision of services?

√Yes □No

				Increase
				or decrease
				as compared
	Items (ten thousand			to last year
Industry Category	units/sets)	2012	2011	(%)
Home appliances manufacturing	Sales volume	1,264	1,161	9%
industry	Production volume	1,283	1,153	11%
	Inventory volume	113	95	18%

Management Discussion and analysis

2. Costs

Unit: RMB ten thousand

				2012	2012	2011	2011
					Weight to		year-to-year Weight to
	Industry				operating		increase or operating
	Category	Item	amount		costs (%)	amount	decrease (%) costs (%)
	Home appliances	Raw materials	1,245,834	25	91 86	1,248,879 52	92 09	(0 24)
	manufacturing	Staff wages	36,017	61	2 66	37,296 45	2 75	(3 43)
	industry	Depreciation	23,805	38	1 76	23,556 59	1 74	1 06
3.	*Expense*
							Unit: RMB ten thousand
						Increase
						or decrease
						as compared
						to last year
	Expense Item		2012		2011	(%)	reason for the changes
	Sales expense		273,189 44		263,621 19	3 63	No significant changes
	Management expense		64,089 35		54,764 99	17 03	No significant changes
	Finance expense		3,899 96		5,600 40	(30 36)	Mainly due to the decrease in
							the Company’s borrowings
							which in turn led to the
							corresponding decrease	in
							interest expense during	the
							Reporting Period
	Income tax expense		1,054 84		2,125 04	(50 36)	Mainly due to make-up of
							loss for prior years with
							profit before tax during	the
							Reporting Period

Management Discussion and analysis

4. Cash Flow

			Unit: RMB ten thousand
			Increase or
			decrease as compared
			to corresponding
			period of last year
Item	2012	2011	(%)
Sub-total of cash inflows from operating activities	1,043,373 56	917,118 41	13 77
Sub-total of cash outflows from operating activities	933,554 28	880,491 90	6 03
Net cash flows from operating activities	109,819 28	36,626 52	199 84
Sub-total of cash inflows from investing activities	12,326 66	11,314 95	8 94
Sub-total of cash outflows from investing activities	16,323 81	23,005 17	(29 04)
Net cash flows from investing activities	(3,997 15)	(11,690 21)	(65 81)
Sub-total of cash inflows from financing activities	176,720 64	245,503 42	(28 02)
Sub-total of cash outflows from financing activities	270,858 12	272,796 20	(0 71)
Net cash flows from financing activities	(94,137 48)	(27,292 78)	244 92
Net increase in cash and cash equivalents	11,684 65	(2,310 66)	(605 68)

(1) Net cash flows from operating activities increased by 199 .84% year-on-year, mainly due to increase in the Company’s profit, acceleration of capital flow and enhancement of capital efficiency during the Reporting Period;

(2) Net cash flows from investing activities decreased by 65 .81% year-on-year, mainly due to decrease of investment in fixed assets during the Reporting Period;
(3) Net cash flows from financing activities increased by 244 .92% year-on-year, mainly due to significant decrease in borrowings during the Reporting Period .

5. Research and development expenses

During the Reporting Period, the Company focused on the upgrade and innovation of its “energy-saving technology” and “intelligent technology” . Through launching R&D projects on refrigerator products such as “Research and Development and Application of Super Energy-saving Refrigerating Technology”, “Research and Development and Application of Ion Hydration and Preservation Technology” and “Development and Application of Refrigerator Food Management System based on Users’ Health Parameters”, and R&D projects on air-conditioner products such as “Research and Application of Household Appliance Intelligent Technology” and “Research and Industrialization of Household Airconditioner Energy-saving and Emission-reduction Ecological Design and Manufacturing Technology”, the Company strived to enhance the energy efficiency and intelligentization of its products, in order to increase its core competitiveness and its products’ market competitiveness . Research and development provides strong technological support for the Company’s industrial advancement . During the Reporting Period, the Company continued to increase investment in R&D and improve the efficiency of R&D, and research and development expenses of RMB0 .436 billion were incurred .

Management Discussion and analysis

(Iv) Description of Principal business segments

					Unit: RMB ten thousand	Unit: RMB ten thousand	Unit: RMB ten thousand	Unit: RMB ten thousand
					Increase
				Increase	or decrease
				or decrease	in costs		Increase
				in revenue	of principal	or	decrease
				from principal	operating		in gross
				operating	businesses			profit
				businesses as	as compared	margin as
	revenue			compared to	to	compared to
	from	Costs of	gross	corresponding	corresponding	corresponding
	principal	principal	profit	period	period			period
	operating	operating	margin	last year	last year		last year
Item	businesses	businesses	(%)	(%)	(%)			(%)
By industry
Home appliances	1,735,377 67	1,356,275 25	21 85	3 61	0 01			2 82
manufacturing
industry
By product
Refrigerators	846,116 65	646,815 96	23 55	2 61	0 20			1 84
Air-conditioners	666,513 48	531,713 68	20 22	2 28	(2 68)			4 06
Others	222,747 55	177,745 61	20 20	12 19	8 20			2 94
Total	1,735,377 67	1,356,275 25	21 85	3 61	0 01			2 82
By region
Mainland	1,153,471 85	834,735 76	27 63	(1 95)	(6 28)			3 35
Overseas	581,905 82	521,539 49	10 37	16 74	12 05			3 75
Total	1,735,377 67	1,356,275 25	21 85	3 61	0 01			2 82

Management Discussion and analysis

(v) analysis of assets and liabilities position

1. Significant changes in asset items

Unit: RMB ten thousand

	31 December 2012	31 December 2012	31 December 2011	31 December 2011
		Percentage		Percentage	Increase or
		to total		to total	decrease in
		assets		assets	weight	Explanation of
Item	amount	(%)	amount	(%)	(%)	significant changes
Cash at bank and on hand	51,606 55	5 61	39,853 27	5 22	0 39	No significant changes
Notes receivable	155,876 62	16 94	50,291 93	6 59	10 35	Mainly due to the Company’s
						enhanced management
						of payment collection,
						improvement in the
						Company’s capital position,
						and decrease in endorsement
						and discounting of the
						Company’s notes receivable
						and change to collection
						at maturity resulted from
						maturity mismatch of notes
						receivable and notes payable
						in the Reporting Period
Accounts receivable	145,588 22	15 82	119,376 75	15 63	0 19	No significant changes
Inventories	173,844 11	18 90	154,727 79	20 26	(1 36)	No significant changes
Investment properties	3,644 66	0 40	3,801 99	0 50	(0 10)	No significant changes
Long-term equity	75,192 57	8 17	61,075 58	8 00	0 17	No significant changes
investments
Fixed assets	190,983 24	20 76	194,707 02	25 50	(4 74)	No significant changes
Construction in progress	6,834 43	0 74	8,070 24	1 06	(0 32)	No significant changes

Management Discussion and analysis

2. Significant changes in liability items

Unit: RMB ten thousand

	2012	2012	2011	2011
		Percentage		Percentage	Increase or
		to total		to total	decrease in
		assets		assets	weight	Explanation of
Item	amount	(%)	amount	(%)	(%)	significant changes
Short-term borrowings	3,030 95	0 33	100,499 89	13 16	(12 83)	Mainly due to improvement
						in funding situation and
						the adjustment in the
						financing structure during
						the Reporting Period
Notes payable	143,285 22	15 57	61,266 71	8 02	7 55	Mainly due to promotion of
						electronic bill payment
						during the Reporting
						Period
Taxes payable	(4,899 48)	(0 53)	(9,009 08)	(1 18)	0 65	Mainly due to decrease in
						the Company’s value-
						added tax credits at the
						end of the Reporting
						Period
Other payables	158,129 45	17 19	115,619 59	15 14	2 05	Mainly due to increase
						in expenses and funds
						payable by the Company
						during the Reporting
						Period

Management Discussion and analysis

(vI) assets and liabilities measured at fair value

Unit: RMB ten thousand

			gain or loss	accumulated
			from change	changes in	Impairment	amount
		amount at the	in fair value	fair value	provided	purchased	amount sold	amount at
		beginning of	during the	accounted in	during the	during the	during the	the end of the
Items		the period	period	equity	period	period	period	period
Financial assets
1	Financial assets	—	—	—	—	—	—	—
	measured at fair
	value where
	changes in
	fair value are
	accounted for as
	gain or loss of the
	period (excluding
	derivative
	financial assets)
2	Derivative financial	3,378 77	(2,310 94)	(2,310 94)	—	—	—	1,067 83
	assets
3	Financial assets	—	—	—	—	—	—	—
	available for sale
Subtotal of financial		3,378 77	(2,310 94)	(2,310 94)	—	—	—	1,067 83
	assets
Real estate for		—	—	—	—	—	—	—
	investment
Productive biological		—	—	—	—	—	—	—
	assets
Others		—	—	—	—	—	—	—
Total		3,378 77	(2,310 94)	(2,310 94)	—	—	—	1,067 83
Financial liabilities		(663 61)	647 19	647 19	—	—	—	(16 42)

(vII) Major subsidiaries and companies in which the Company has equity interest

					total		operating	operating
					assets	net assets	revenue	profit	net profits
name of			Major product	registered	(rMb ten	(rMb ten	(rMb ten	(rMb ten	(rMb ten
company	Company type	Industry	or service	capital	thousand)	thousand)	thousand)	thousand)	thousand)
Hisense Hitachi	A company in which	Home appliances	Production and sale	US$46 million	172,955 95	90,916 85	275,849 21	44,336 74	37,882 74
	the Company has	industry	of commercial
	equity interest		air-conditioners

(vIII) Core Competitiveness analysis

1. Technological advantages

The Company adheres to its operating philosophy of “technology orientation” and centers on “energy-saving by inverter technology” and “green and environmental friendliness” to build its core competitiveness through innovations in technologies and products . The Company has a State-recognized enterprise technology centre and a post-doctoral scientific research station . It is also a national industrial technological innovation base and an industrialization base under the 863 Plan . The Company continues to enhance its self-directed innovation capacity .

Management Discussion and analysis

2. Brand advantages

The three brand names used in the refrigerator and air-conditioner products of the Company, namely “Hisense”, “Ronshen” and “Kelon”, are Chinese Well-known Marks with good brand reputation and market base . Among these brands, the market share of “Hisense” invertor air-conditioners had ranked first in China for thirteen consecutive years, while the market share of “Ronshen” refrigerators had ranked first in China for eleven years . “High technology and high quality” reflects the Company’s core brand value . At the same time, the Company gradually accelerates the progress of internationalization, and continues to promote the internationalization of its own brands .

Iv. outlook

The Company will adhere to the operating strategy of “building product advantages, reforming marketing model, enhancing system efficiency, exploring the international markets and securing scale and results” to achieve steady increase in its scale, performance and market share, through the following:

1 . to strengthen the efforts in technology upgrade with an emphasis on “energy-saving by inverter technology” and “green and environmental friendliness” in order to attain leadership in the core competitiveness of products; to realize differentiation of product functions, sophistication of products, building up of an edge in terms of product quality, as well as reasonable control of product costs, all of which will contribute to build the leading position of products; to continue the launch of new high-end products through technological advancement, to enrich the product line of high-end products and to enhance the market share of high-end products;
2 . to revolutionize the sales channel, business model and operation model; to increase input in the third and fourth grade markets, to further pursue channel infiltration, to accelerate the development of channel points and enhance the management and control of network points, to forcefully develop the electronic commercial business and accelerate the expansion of project channels; to leverage on enhanced promotional capabilities to increase the scale and results and to shift sales business towards “driven by promotion to end customers”; to set up the operating model and capability for “on-demand supply” and “fast procurement and fast sales” for the supply chain;
3 . to continuously implement flow rationalization, integration and enhancement measures, as well as equipment automation and informatization, in order to realize all-round enhancement of the overall efficiency of the Company;
4 . to step up support for the international markets, to increase the pre-research capability for overseas markets, and to tilt towards self-owned brands in respect of export to international markets;
5 . to perfect plan management system, to reinforce market forecast capability and to increase the Company’s responsiveness to the market; and to reinforce capital management and to accelerate capital flow .

Corporate governance report

Sound corporate governance is the basic assurance to the long-term healthy and stable development of a corporation, whereas continued enhancement of the governance level is a necessary measure to maintain the healthy development of the company . During the Reporting Period, the Company has further amended the Articles of Association and the Working Rules of the Secretary to the Board . The shareholders’ general meetings, meetings of the board of directors and its various dedicated committees and the supervisory committee performed their functions, coordinated with each other and maintained effective check and balance in accordance with the laws, regulations and the relevant systems, which continuously enhanced the level of corporate governance of the Company .

I. Corporate governance structure:

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Shareholders’ General Meeting
Supervisory Committee
Board of Directors
Remuneration and Nomination Strategic Audit
Appraisal Committee Committee Committee Committee
Operational Management
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(a) shareholders’ general Meeting

As the highest authority of the Company, the shareholders’ general meeting exercises its functions and powers in accordance with the laws to make decisions on significant events of the Company . The Company has established and maintained different communication channels with its shareholders through the publication of announcements, the Company’s website, as well as by e-mail, telephone and facsimile . At the second extraordinary meeting in 2012 held on 15 August 2012, a special resolution was considered and passed to amend certain provisions of the Articles of Association of the Company, which mainly related to the revision to the profit distribution policies of the Company and the inclusion of a provision that investments in derivatives that meet certain criteria shall be examined and approved by the shareholders’ general meeting . For details, please see the announcement and the circular published by the Company on 28 June 2012 on the website of the Hong Kong Stock Exchange (http://www .hkex .com .hk) .

In accordance with Article 8 .27 of the Articles of Association of the Company, a poll may be demanded in any shareholders’ general meeting of the Company by:

(a) the chairman of the meeting; or
(b) at least two shareholders with voting rights or their proxies; or
(c) one or more shareholder(s) (including their proxies) representing, individually or in aggregate, 10% or more of all shares carrying the voting rights at the general meeting .

Corporate governance report

The chairman of the general meeting will present detailed procedures of a poll to the shareholders at the beginning of the shareholders’ general meeting, and then answer any questions of the shareholders relating to voting by poll . The voting results will be announced after the general meeting in the manner prescribed under Rule 13 .39(5) of the Listing Rules .

In 2012, one Annual General Meeting (“AGM”) and two Extraordinary General Meetings (“EGM”) have been held by the Company . The shareholding held by the shareholders attending the AGM and the EGMs represented 50 .57%, 52 .26% and 50 .36% of all issued shares of the Company respectively . The attendance records of Directors attending the general meetings are set out in the following table:

name Mr Tang Ye Guo Mr Ren Li Ren Ms Yu Shu Min Mr Lin Lan Mr Xiao Jian Lin Mr Gan Yong He Mr Zhang Sheng Ping_(Note 1) Mr Wang Xin Yu Mr Wang Ai Guo Mr Xu Xiang Yi(Note 2)_	the attendance of the general meetings by the Directors
	number of meetings which should be attended for the year number of attendance in person number of attendance by proxy attendance rate for the year 3 2 0 66 67% 3 2 0 66 67% 3 0 0 — 3 0 0 — 3 0 0 — 3 1 0 33 33% 1 1 0 100% 3 3 0 100% 3 1 0 33 33% 2 1 0 50%

Notes:

1 . Mr . Zhang Sheng Ping ceased to be an independent non-executive Director with effect from 26 June 2012 .
2 . Mr . Xu Xiang Yi was appointed an independent non-executive Director on 26 June 2012 .
3 . All directors unable to attend the general meetings in person have applied for leave in writing before the commencement of the general meetings .

rights of shareholders

Procedures for shareholders to requisition the convening of shareholders’ extraordinary general meeting or class meeting

Shareholders who requisition the convening of a shareholders’ extraordinary general meeting or a class meeting shall comply with the following procedures:

(1) two or more shareholders holding in aggregate 10% or more of the shares carrying the right to vote at the meeting sought to be held shall sign the written requisitions in one or more counterparts requiring the Board to convene a shareholders’ extraordinary general meeting or a class meeting thereof and stating the object of the meeting . The written requisition shall be deposited at the Company’s registered office in China at No .8 Ronggang Road, Ronggui, Shunde, Foshan, Guangdong Province, PRC or the Company’s place of business in Hong Kong at Room 3101-3105, Singga Commercial Centre, No .148 Connaught Road West, Hogn Kong . The Board shall proceed as soon as possible to convene the shareholders’ extraordinary general meeting or class meeting thereof after the receipt of such written requisition . The number of shares held referred to above shall be calculated as of the date of the written requisitions .

Corporate governance report

(2) if the Board fails to issue a notice of such a meeting within thirty days after the receipt of the written requisitions, the requisitionists may themselves convene such a meeting in a manner as similar as possible to the manner in which the shareholders’ meetings are convened by the Board within four months after the receipt of such requisitions by the Board . Reasonable expenses incurred by the requisitionists by reason of the Board’s failure to convene a meeting as requisitioned and the calling and convening of a meeting by themselves shall be borne by the Company .

Procedures by which enquiries may be made by shareholders

Shareholder requests for information such as the Articles of Association, register of shareholders and minutes of shareholders’ general meetings or inspect relevant information should provide written documentation to the Company to evidence the type and number of shares of the Company that he/she holds . Upon verification of the shareholder’s identities, the Company will provide the copy as per the shareholder’s request within 7 days upon receipt of reasonable charges . In addition, the shareholders can also make enquiries or suggestions by various methods such as phone, mail, site visit and internet platform . The Securities Department of the Company, whose contact details are set out below, is responsible for the day-to-day communication with shareholders .

The Securities Department, Hisense Kelon Electrical Holdings Company Limited No . 8 Ronggang Road, Ronggui Street, Shunde District, Foshan City, Guangdong Province, the People’s Republic of China .

Postal code: 528303 Fax number: 86-757-28361055 E-mail address: kelonsec@hisense .com

Shareholders have smooth channels to make enquiries and suggestions to the Company, and the Company also arranges desginated person to respond to the relevant enquiries timely .

For voting on each resolution in a general meeting, shareholders are entitled to enquire about the content of the resolution and make recommendation in respect thereof . Speaking shareholder should first introduce his/her identity as shareholder and his/her shareholdings etc ., whereas the chairman of the meeting shall in person or appoint specific staff to respond to or give explanation for such enquiry or recommendation .

Procedures for putting forward proposals at shareholders’ general meeting

Any shareholder(s) who hold(s), individually or jointly, 3% or more of the Company’s shares shall be entitled to propose and submit in writing to the convener additional motions sixteen days prior to the date of the shareholders’ general meeting . The convener shall issue a supplemental notice of the general meeting within the prescribed period to announce the contents of the additional motion(s) .

As regard the procedures for proposing a person for election as a Director, please refer to the procedures made available on the website of the Company at http://www .kelon .com .

(b) the board of Directors

The Nomination Committee has been established under the Board . The Nomination Committee will select and make suggestions on the candidates for the positions of directors and the selection criteria and procedures and the same will be submitted to the Board for consideration and approval, and Directors will be elected at the shareholders’ general meetings . The eighth session of the Board was elected and established at the annual general meeting of the Company held on 26 June 2012 with a term of office of 3 years . The Board currently comprises nine Directors, being the executive Directors Mr . Tang Ye Guo (Chairman), Mr . Ren Li Ren, Ms . Yu Shu Min, Mr . Lin Lan, Mr . Xiao Jian Lin and Mr . Gan Yong He, and the independent non-executive Directors Mr . Xu Xiang Yi, Mr . Wang Xin Yu and Mr . Wang Ai Guo .

Corporate governance report

As at 1 January 2012, the Board was composed of the executive Directors Mr . Tang Ye Guo (Chairman), Ms . Yu Shu Min, Mr . Lin Lan, Mr . Xiao Jian Lin and Mr . Ren Li Ren and the independent non-executive Directors Mr . Zhang Sheng Ping, Mr . Wang Xin Yu and Mr . Wang Ai Guo . The following movements in the composition of the Board took place during the Reporting Period up to the date of this report:

(i) Mr . Gan Yong He was elected as a Director of the seventh session of the Board of the Company at the 2012 first extraordinary general meeting of the Company held on 16 January 2012;
(ii) Mr . Zhang Sheng Ping did not offer for re-election upon expiry of his term of office on 25 June 2012 and ceased to be an independent non-executive Director on 26 June 2012;
(iii) Mr . Xu Xiang Yi was elected as an independent non-executive Director of the eighth session of the Board of the Company at the 2011 AGM of the Company held on 26 June 2012;
(iv) Mr . Tang Ye Guo, Mr . Ren Li Ren, Ms . Yu Shu Min, Mr . Lin Lan, Mr . Xiao Jian Lin and Mr . Gan Yong He were re-elected as executive Directors of the eighth session of the Board, and Mr . Wang Xin Yu and Mr . Wang Ai Guo were re-elected as independent non-executive Directors of the eighth session of the Board of the Company at the 2011 AGM of the Company held on 26 June 2012 .

Members of the Board have different backgrounds with extensive experience in various fields such as science and technology, corporate management and finance and accounting . The biographies and roles of the Directors are set out on pages 32 to 34 of this annual report .

The primary duties of the Board include: convening shareholders’ general meetings and reporting its work at the shareholders’ general meetings, and exercising its decision-making powers as delegated by the shareholders at the general meetings with respect to matters such as the strategic development plans of the Company, establishment of the management structure, investment and financial controls, disposal of material assets, material transactions and human resources . The Board is responsible for formulating the Company’s overall strategy and annual business plans, and ensuring that its production and operation is properly planned, approved, conducted and monitored . In addition, the Board is also responsible for the appointment of the members of the Operational Management and the supervision and evaluation of their performance .

The Board is also responsible for overseeing the preparation of the accounts for each fiscal period to ensure that such accounts truly and fairly reflect the Company’s business operation, results and cash flow performance during that period . The Operational Management of the Company provides proper explanation and sufficient information to the Board so as to enable it to make an informed assessment of the financial information and other information submitted to it for approval . In preparing the accounts for the year ended 31 December 2012, the Directors:

selected appropriate accounting policies;
approved adoption of all applicable standards as set out in the China Accounting Standards for Business Enterprises; and
made prudent and reasonable judgments and estimates, and prepared the accounts on a going concern basis .

The Operational Management of the Company is responsible for implementing the decisions made by the Board and making its own decisions on matters relating to the Company’s business operation within the scope delegated by the Board, which include: overseeing the management of the Company’s production and operation, organizing and implementing the Company’s annual operation and investment plans, preparing the proposal for the establishment of the Company’s internal control structure, formulating the Company’s basic management system and setting up the Company’s basic regulations . Meanwhile, as requested by the Board, the Operational Management reports to the Board the conclusion and performance of the Company’s major contracts, the use of capital and the Company’s profit and loss conditions and ensures that such information is true and complete .

Corporate governance report

In accordance with the Listing Rules and the relevant laws and regulations the Company has formulated the relevent systems to remind the Directors of their obligations, including making disclosures to the regulatory authorities in a timely manner of their interests, potential conflicts of interests and changes in their personal information . Each Director also undertakes that he or she is able to devote sufficient efforts and time to the Company’s affairs . The Board assesses and evaluates the performance of the Directors in carrying out their duties according to their attendance rate in the Board meetings and shareholders’ general meetings as well as the opinions and suggestions put forward by them in the day-to-day work .

In 2012, the seventh session of the Board of the Company has held 8 meetings to discuss the Company’s operating results, overall strategies, investment proposals as well as operating and financial performance . The Directors attended the meetings in person or by their proxies, and their attendance records are set out in the following table:

the attendance of the meetings of the seventh session of the board

	number of
	meetings which
	should be	number of	number of
	attended	attendance in	attendance by	attendance rate
name	for the year	person	proxy	for the year
Mr Tang Ye Guo	8	8	0	100%
Mr Ren Li Ren	8	8	0	100%
Ms Yu Shu Min	8	8	0	100%
Mr Lin Lan	8	8	0	100%
Mr Xiao Jian Lin	8	8	0	100%
Mr Gan Yong He_(Note)_	7	7	0	100%
Mr Zhang Sheng Ping	8	8	0	100%
Mr Wang Xin Yu	8	8	0	100%
Mr Wang Ai Guo	8	8	0	100%

Note: Mr . Gan Yong He was appointed a Director on 16 January 2012 .

In 2012, the eighth session of the Board of the Company has held 10 meetings to discuss the Company’s operating results, overall strategies, investment proposals as well as operating and financial performance . The Directors attended the meetings in person or by their proxies, and their attendance records are set out in the following table:

the attendance of the meetings of the eighth session of the board

	number of
	meetings which
	should be	number of	number of
	attended	attendance in	attendance by	attendance rate
name	for the year	person	proxy	for the year
Mr Tang Ye Guo	10	10	0	100%
Mr Ren Li Ren	10	10	0	100%
Ms Yu Shu Min	10	10	0	100%
Mr Lin Lan	10	10	0	100%
Mr Xiao Jian Lin	10	10	0	100%
Mr Gan Yong He	10	10	0	100%
Mr Xu Xiang Yi	10	10	0	100%
Mr Wang Xin Yu	10	10	0	100%
Mr Wang Ai Guo	10	10	0	100%

Corporate governance report

As stipulated by the Articles of Association of the Company, all Directors should be given 14 days’ notice prior to the commencement of a regular Board meeting . For an extraordinary Board meeting, 3 days’ notice should be given in advance . Arrangements are also in place to ensure that all Directors are given an opportunity to include matters in the agenda for Board meetings . The secretary to the Board is responsible for providing details of a regular Board meeting (including information in relation to the meeting of each of the dedicated committees of the Board) not later than 3 days prior to the commencement of the meeting to ensure all Directors are apprised of the matters to be considered in the meeting in advance . As for extraordinary Board meetings which are held by means of telecommunication at the request of the Company’s management, information relevant to the meeting would be provided simultaneously to all Directors via email and facsimile and sufficient time would be given to the Directors to consider the matters . The secretary to the Board would respond to any questions raised by the Directors and take appropriate action in a timely manner to assist the Directors to ensure that the procedures of the meetings of the Board are in compliance with the applicable regulations, such as the Company Law of the People’s Republic of China, the Articles of Association and the Listing Rules . Sufficient resources are available to enable Directors to discharge their duties and responsibilities, including those for seeking independent professional advice . Minutes of each Board meeting and each meeting of the committees of the Board will be signed by the attending Directors and the person taking the minutes, and be kept for a term of 10 years, during which the minutes are available for Directors’ inspection from time to time upon their request .

The Board is responsible for corporate governance, supervision of the management in establishment of a compliant organization structure and system, compliance with the CG Code (as defined below) and other laws and regulations in the ordinary course of management and other functions set out in code provision D .3 .1 in the CG Code . During the Reporting Period, the Board and special committeeshave reviewed compliance of the Company’s policies and practices on corporate governance, the training and continuous professional development of the Directors and senior management and the Company’s system of internal control .

As at the date of this annual report, the Directors of the eighth session of the Board of the Company considered that the operation and development of the Company may be affected by the following significant uncertainties:

The Group has taken legal actions against Guangdong Greencool and its related companies (the “Greencool Companies”) for their misappropriation of the funds of the Group . Although judgments of the cases have all become effective, as the cases were in the process of enforcement, there is uncertainty in the enforcement results . This uncertainty may have an impact on the assets of the Company .

Independent non-Executive Directors

The Board of the Company comprises three independent non-executive Directors, accounting for one-third of the total number of Directors . The independent non-executive Directors of the Company have complied with Rules 3 .10(1) and (2) and Rule 3 .13 of the Listing Rules and all of them are independent of and are not connected with any of the connected persons (as defined in the Listing Rules) of the Company . The Company has received a confirmation of independence from each of the independent non-executive Directors . The term of office of Mr . Zhang Sheng Ping is from 26 June 2009 to 25 June 2012, the term of office of Mr . Xu Xiang Yi is from 26 June 2012 to 25 June 2015, the term of office of Mr . Wang Ai Guo is from 26 June 2012 to 25 June 2015, and the term of office of Mr . Wang Xin Yu is from 26 June 2012 to 25 June 2015 .

In compliance with the relevant laws, regulations and the requirements of the Working System of Independent Nonexecutive Directors, the independent non-executive Directors of the Company attended the meetings of the Board and the dedicated committees in a meticulous, responsible, enthusiastic and conscientious manner and brought their professionalism and expertise to a full play in the independent performance of their duties, contributing professional advice and independent judgment for significant issues under discussion for decision making .

Dedicated committees of the board of directors

The Board has established four dedicated committees, namely, the Remuneration and Appraisal Committee, the Nomination Committee, the Strategic Committee and the Audit Committee . Each committee has devised its own working rules to define its terms of reference and the procedures of performance, which have been approved by the Board .

Corporate governance report

remuneration and appraisal Committee

The eighth session of the Board has established the Remuneration and Appraisal Committee with specific written terms of reference . During the Reporting Period and up to the date hereof, the Remuneration and Appraisal Committee consisted of the Directors, namely, Mr . Lin Lan and Ms . Yu Shu Min, and the independent non-executive Directors, namely, Mr . Zhang Sheng Ping (whose term ended on 25 June 2012), Mr . Wang Ai Guo, Mr . Xu Xiang Yi (since 26 June 2012) and Mr . Wang Xin Yu . Mr . Xu Xiang Yi acts as the chairman of the committee .

The major duties and authority of the Remuneration and Appraisal Committee are:

(A) to analyze the appraisal standard of the directors and senior management and to carry out the appraisal and make recommendations based on the actual conditions of the Company;
(B) to make recommendations to the Board on the Company’s policy and structure for all directors’ and senior management’s remuneration and on the establishment of a formal and transparent procedure for developing remuneration policy;
(C) to review and approve compensation payable to executive directors and senior management for any loss or termination of office or appointment to ensure that it is consistent with contractual terms and is otherwise fair and not excessive;
(D) to review and approve compensation arrangements relating to dismissal or removal of directors for misconduct to ensure that they are consistent with contractual terms and are otherwise reasonable and appropriate;
(E) to make recommendations to the Board for the remuneration of non-executive directors;
(F) to review and approve the management’s remuneration proposals with reference to the Board’s corporate goals and objectives;
(G) to make recommendations to the Board on the remuneration packages of individual executive directors and senior management . This should include benefits in kind, pension rights and compensation payments, including any compensation payable for loss or termination of their office or appointment;
(H) to consider salaries paid by comparable companies, time commitment and responsibilities and employment conditions elsewhere in the group;
(I) to ensure that no director or any of his associates is involved in deciding his own remuneration;
(J) other duties provided under applicable regulatory rules and other matters authorized by the Board .

The Remuneration and Appraisal Committee may seek professional advice when necessary . No Director or any member of the senior management shall be involved in deciding his or her own remuneration . The main purpose of the remuneration policies formulated by the Remuneration and Appraisal Committee is to attract and retain Directors and senior management who faithfully and diligently discharge their duties, and who help the Company in its successful operation and the remuneration policies are therefore important to the Company . For details of the remuneration policies of the Company, please refer to page 55 of this annual report .

Corporate governance report

The Remuneration and Appraisal Committee under the Board of the Company held three meetings during the Reporting Period, and the attendance record of the members of the Remuneration and Appraisal Committee is set out below:

the attendance of the meetings of the remuneration and appraisal Committee under the board

	number of
	meetings which
	should be	number of	number of
	attended	attendance in	attendance by	attendance rate
name	for the year	person	proxy	for the year
Ms Yu Shu Min	3	3	0	100%
Mr Lin Lan	3	3	0	100%
Mr Zhang Sheng Ping_(Note 1)_	2	2	0	100%
Mr Wang Xin Yu	3	3	0	100%
Mr Wang Ai Guo	3	3	0	100%
Mr Xu Xiang Yi_(Note 2)_	1	1	0	100%

Note:

1 . Mr . Zhang Sheng Ping ceased to be an independent non-executive Director and the chairman of the committee with effect from 26 June 2012 .

2 . Mr . Xu Xiang Yi was appointed an independent non-executive Director and became the chairman of the committee on 26 June 2012 .

During the Reporting Period, the Remuneration and Appraisal Committee considered and approved:

(i) the disclosure of the annual remuneration of the Directors, supervisors and senior management in the 2011 annual report;
(ii) the annual remuneration of the candidates of the eighth session of the Board of the Company, namely Mr . Tang Ye Guo, Mr . Ren Li Ren and Mr . Gan Yong He as executive Directors and Mr . Xu Xiang Yi, Mr . Wang Ai Guo and Mr . Wang Xin Yu as independent non-executive Directors, and made recommendations to the Board;
(iii) the election of Mr . Xu Xiang Yi as the chairman of the Remuneration and Appraisal Committee of the eighth session of the Board of the Company;

Members of the Remuneration and Appraisal Committee confirmed that the remuneration of the Directors, supervisors and senior management during the Reporting Period are in line with the remuneration appraisal system set up by the Company and the remuneration policies have been strictly implemented . Details of the remuneration of the Directors, the supervisors and the senior management of the Company for the year ended 31 December 2012 are set out on page 54 of this annual report .

nomination Committee

The eighth session of the Board of the Company has established the Nomination Committee with specific written terms of reference . During the Reporting Period and up to the date hereof, the Nomination Committee comprised three independent non-executive Directors, namely, Mr . Zhang Sheng Ping (whose term ended on 25 June 2012), Mr . Xu Xiang Yi (since 26 June 2012), Mr . Wang Xin Yu and Mr . Wang Ai Guo, and Directors, namely, Mr . Tang Ye Guo and Mr . Ren Li Ren . Mr . Xu Xiang Yi acts as the chairman of the committee .

Corporate governance report

The major duties and authority of the Nomination Committee are:

(A) to analyze the standard and process for selection of candidates for the positions of director and senior management and make recommendations to the Board;
(B) to extensively identify individuals qualified to become directors and senior management;
(C) to examine the candidate for the positions of director and senior management and make recommendations to the Board;
(D) to review the structure, size and composition (including the skills, knowledge and experience) of the Board at least annually and make recommendations on any proposed changes to the Board to complement the Company’s corporate strategies;
(E) to assess the independence of the independent non-executive directors;
(F) to make recommendations to the Board on the appointment or re-appointment of directors and succession planning for directors, in particular the chairman and the chief executive;
(G) other matters authorized by the Board .

The Nomination Committee comprises five Directors, including three independent non-executive Directors, and the members of the Nomination Committee are nominated by the Chairman of the Board, one-half or more of the independent non-executive Directors or one-third or more of Directors, and are elected by the Board . The Nomination Committee shall have one chairman (convener) who should be an independent non-executive Director responsible for presiding over the work of the committee . The convener shall be elected among the committee members, and shall be reported to the Board for approval . The term of office of each member of the Nomination Committee is consistent with the term he or she serves in the Board . During the term of office, if any member of the committee ceases to be a Director, he or she shall be disqualified as a member of the committee accordingly, and the vacancy should be filled by the person elected by the Board in accordance with the requirements . The human resources department of the Company will assist the Nomination Committee in carrying out its daily work such as selection and nomination of suitable candidates .

The Nomination Committee of the Board of the Company held three meetings during the Reporting Period, and the attendance record of the members of the Nomination Committee is set out below:

name Mr Tang Ye Guo Mr Ren Li Ren Mr Zhang Sheng Ping_(Note 1) Mr Wang Xin Yu Mr Wang Ai Guo Mr Xu Xiang Yi(Note 2)_	the attendance of the meetings of the nomination Committee under the board
	number of meetings which should be attended for the year number of attendance in person number of attendance by proxy attendance rate for the year 3 3 0 100% 3 3 0 100% 1 1 0 100% 3 3 0 100% 3 3 0 100% 2 2 0 100%

Note:

1 . Mr . Zhang Sheng Ping ceased to be an independent non-executive Director and the chairman of the committee with effect from 26 June 2012 .
2 . Mr . Xu Xiang Yi was appointed an independent non-executive Director and became the chairman of the committee on 26 June 2012 .

Corporate governance report

During the Reporting Period, the Nomination Committee considered and approved:

(i) the resolution on the election of the new session of the Board;
(ii) the resolution on the election of Mr . Xu Xiang Yi as the chairman of the Nomination Committee of the eighth session of the Board of the Company;
(iii) the resolution on the nomination of Mr . Ren Li Ren as the President of the Company;
(iv) the resolution on the nomination of Mr . Jia Shao Qian, Mr . Zhang Yu Qing, Mr . Wang Yun Li and Mr . Gan Yong He as Vice-presidents of the Company;
(v) the resolution on the nomination of Mr . Xia Feng and Ms . Wong Tak Fong as the secretary to the Board and the company secretary respectively;
(vi) the resolution on the nomination of Ms . Li Jun as the person in charge of finance of the Company .

The Nomination Committee conducts extensive searches for candidates of Directors within the Company and in the open market, etc . after considering the Company’s requirements for new Directors . With the consent to nomination from the candidates, the Nomination Committee will convene the Nomination Committee meeting in accordance with relevant laws and regulations, the Articles of Association and the Terms of Reference for Nomination Committee in view of the Company’s actual situation, examine the qualifications of the initial nominees according to the requirements for the position of Directors and form a resolution which would be recorded and submitted to the Board for its consideration . The Nomination Committee will provide the Board with its recommendation on the candidates for directorship together with relevant information two months before the nomination . During the Reporting Period, the Nomination Committee strictly implemented the nomination procedures and recommendation criteria in accordance with the nomination policy enacted .

strategic Committee

The eighth session of the Board of the Company has established the Strategic Committee with specific written terms of reference . During the Reporting Period and up to the date hereof, the Strategic Committee of the eighth session of the Board comprised Mr . Tang Ye Guo, Mr . Ren Li Ren, Ms . Yu Shu Min, Mr . Lin Lan and Mr . Xiao Jian Lin . Mr . Tang Ye Guo is the chairman of the committee .

During the Reporting Period, the Strategic Committee convened one meeting, which was attended by all five members of the Strategic Committee . At the meeting, the resolution on the election of Mr . Tang Ye Guo as the chairman of the Strategic Committee of the eighth session of the Board of the Company was passed upon consideration .

The Strategic Committee of the Board is a specialized working organ under the Board, primarily responsible for studying and making recommendations on the long-term development strategies and the decision-making on significant investments of the Company .

The Strategic Committee comprises five Directors, who are nominated by the Chairman of the Board, one-half or more of the independent non-executive Directors or one-third or more of all the Directors, and are elected by the Board . The committee shall have one chairman (convener), who shall be the Chairman of the Board of the Company . The term of office of each member of the Strategic Committee shall be consistent with his or her term of office with the Board, and members of the committee can be re-elected upon their retirement . During the term of office, if any member of the committee ceases to be a Director of the Company, he or she shall be disqualified as a member of the committee accordingly, and the vacancy should be filled by the person elected by the committee in accordance with the requirements .

Corporate governance report

audit Committee

The Board takes ultimate responsibility for the Company’s internal control system . To achieve the best corporate governance practices, the Company has set up the Audit Committee to review the efficiency of the relevant systems . The Audit Committee is a specialized working organ under the Board with specific written terms of reference, and is responsible for the communication, supervision and inspection of the internal and external audit work of the Company . The Audit Committee reports to the Board and its proposals shall be submitted to the Board for approval .

The major duties and authority of the Audit Committee are:

(A) to be primarily responsible for making recommendations to the Board on the appointment, reappointment and removal of the external auditing body, and to approve the remuneration and terms of engagement of the external auditing body, and any questions of its resignation or dismissal;
(B) to review and monitor the independence and objectivity of the external auditing body and the effectiveness of the audit process in accordance with applicable standards . The Audit Committee should discuss with the auditing body the nature and scope of the audit and the relevant reporting obligations before the audit commences;
(C) to develop and implement policy on engaging an external auditing body to supply non-audit services . For this purpose, “external auditing body” includes any entity that is under common control, ownership or management with the auditing body or any entity that a reasonable and informed third party knowing all relevant information would reasonably conclude to be part of the audit firm nationally or internationally . The Audit Committee should report to the Board, identifying and making recommendations on any matters where action or improvement is needed;
(D) to monitor the integrity of the Company’s financial statements and annual report and accounts, half-year report and quarterly reports, and to review significant financial reporting judgments contained in them . In reviewing these reports before submission to the Board, the committee should focus particularly on:
1 . any changes in accounting policies and practices;
2 . major judgmental areas;
3 . significant adjustments resulting from the audit;
4 . the going concern assumptions and any qualifications;
5 . compliance with accounting standards; and
6 . compliance with the Listing Rules and legal requirements in relation to financial reporting;
(E) regarding item (D) above:
1 . members of the committee should liaise with the Board and senior management and the committee must meet, at least twice a year, with the Company’s auditing body; and
2 . the committee should consider any significant or unusual items that are, or may need to be, reflected in the reports and accounts, and it should give due consideration to any matters that have been raised by the Company’s staff responsible for the accounting and financial reporting function, compliance officer or auditing body .
(F) to examine and review the Company’s financial controls, internal control and risk management systems;
(G) to discuss the internal control system with management to ensure that management has performed its duty to have an effective internal control system . This discussion should include the adequacy of resources, staff qualifications and experience, training programmes and budget of the Company’s accounting and financial reporting function;

Corporate governance report

(H) to consider major investigation findings on internal control matters as delegated by the Board or on its own initiative and management’s response to these findings;
(I) where an internal audit function exists, to ensure co-ordination between the internal and external auditing bodies, and to ensure that the internal audit function is adequately resourced and has appropriate standing within the Company, and to examine, review and monitor its effectiveness;
(J) to examine and review the Group’s financial and accounting policies and practices;
(K) to review the explanatory letter on audit work provided to the management by the external auditing body, any material queries raised by the auditing body to management about the accounting records, financial accounts or systems of control and management’s response;
(L) to ensure that the Board will provide a timely response to the issues raised in the explanatory letter on audit work provided to the management by the external auditing body;
(M) to report to the Board on the matters in the terms of reference ;
(N) to audit and review arrangements which employees of the Company can use, in confidence, to raise concerns about possible improprieties in financial reporting, internal control or other matters and to ensure that proper arrangements are in place for fair and independent investigation of these matters and for appropriate follow-up action;
(O) to act as the key representative body for overseeing the Company’s relationship with the external auditing body; and
(P) to consider such other matters as the Board may authorize .

All members of the Audit Committee under the eighth session of the Board of the Company are independent nonexecutive Directors . During the Reporting Period and up to the date hereof, the Audit Committee consisted of Mr . Zhang Sheng Ping (whose term ended on 25 June 2012), Mr . Xu Xiang Yi (since 26 June 2012), Mr . Wang Xin Yu and Mr . Wang Ai Guo . Mr . Wang Ai Guo is the chairman of the committee .

The Audit Committee of the Board of the Company held four meetings during the Reporting Period, and the attendance record of the members of the Audit Committee is set out below . All matters considered and approved at such meetings were recorded in accordance with the relevant requirements and filed for record after being reviewed and signed by all members of the Audit Committee .

name Mr Zhang Sheng Ping_(Note 1) Mr Wang Xin Yu Mr Wang Ai Guo Mr Xu Xiang Yi(Note 2)_	the attendance of the meetings of the audit Committee under the board
	number of meetings which should be attended for the year number of attendance in person number of attendance by proxy attendance rate for the year 3 3 0 100% 4 4 0 100% 4 4 0 100% 1 1 0 100%

Note:

1 . Mr . Zhang Sheng Ping ceased to be an independent non-executive Director and a member of the committee with effect from 26 June 2012 .
2 . Mr . Xu Xiang Yi was appointed an independent non-executive Director and became a member of the committee on 26 June 2012 .

Corporate Governance Report

In 2012, the Audit Committee accomplished the following major tasks:
Having reviewed the annual, interim and quarterly financial reports of the Company;
Having elected Mr. Wang Ai Guo as the chairman of the Audit Committee of the eighth session of the Board;
Having reviewed the connected transactions of the Company to ensure that the connected transactions were in compliance with the principles of fairness, impartiality and transparency with sufficient protection of the medium and minority shareholders’ interests;
Having reviewed the effectiveness of the company’s internal control system; and
Having made recommendations on significant events of the Company and reminded the senior management of the Company of the relevant risks.

(c) Supervisory Committee

The Supervisory Committee was established in accordance with the PRC laws. It independently performs its supervisory duties to protect the legal interests of shareholders, the Company and its staff from infringements. It also reviews the Company’s financial positions in accordance with the relevant requirements of the Articles of Association of the Company, and oversees the discharge of duties of the Directors and the senior management of the Company.

During the Reporting Period, the term of the seventh session of the Supervisory Committee expired and Mr. Gao Zhong Xiang and Mr. Liu Zhan Cheng, being a shareholder representative supervisor and the employee representative supervisor of the seventh session of the Supervisory Committee respectively, did not offer themselves for re-election. The eighth session of the Supervisory Committee of the Company as elected at the annual general meeting held on 26 June 2012 originally comprised Mr. Guo Qing Cun and Ms. Li Jun as shareholder representative supervisor and Mr. Zhang Jian Jun as employee representative supervisor. Due to the resignation of Ms. Li Jun, Ms. Liu Jiang Yan was appointed as a shareholder representative supervisor of the eighth session of the Supervisory Committee with effect from 15 August 2012. Since then, the eighth session of the Supervisory Committee is composed of two shareholder representative supervisor, namely Mr. Guo Qing Cun and Ms. Liu Jiang Yan and one employee representative supervisor of the Company, Mr. Zhang Jian Jun, with Mr. Guo Qing Cun acting as the chairman of the Supervisory Committee. Details of the above-mentioned supervisors’ biographies are set out on pages 33 to 34 of this annual report.

II. Compliance with the CG Code

To the best knowledge and information of the Company, during the Reporting Period, the Company has complied with the code provisions in the Code on Corporate Governance Practices (effective until 31 March 2012) and the Corporate Governance Code (effective from 1 April 2012) (“CG Code”) as set out in Appendix 14 to the Listing Rules other than the following:

(A) The Articles of Association of the Company provide that the Company can purchase liability insurance for the Directors with the approval of the shareholders’ general meeting. Following the consideration and approval by the shareholders at the annual general meeting of the Company held on 26 June 2012, the Company has already purchased liability insurance for the Directors and senior management of the Company to meet the requirement in code provision A.1.8 of the CG Code.
(B) Mr. Wang Ai Guo and Mr. Xu Xiang Yi did not attend certain general meetings held by the Company despite code provision A.6.7 of the CG Code due to other commitments.

Corporate governance report

training of the Directors

In order to enhance the level of corporate management of the Directors, the secretary to the Board of the Company continuously follows the latest regulatory requirements set out by the securities regulatory institutions, and delivers such requirements and information to the Directors, supervisors and senior management of the Company in a timely manner . At the same time, the Company has also arranged training programs for the relevant Directors, supervisors and senior management, which includes a training session conducted by the Hong Kong legal advisers of the Company in relation to, inter alia, the new amendments to the CG Code and the Listing Rules and the key features of the statutory inside information disclosure regime and specific training sessions held by the Shenzhen Stock Exchange and China Securities Regulatory Commission Guangdong Bureau, with the aim to assist Directors in participating in continuous professional development .

The secretary to the Board maintains records of training attended by the Directors . The training attended by each current Director during the Reporting Period is tabulated as follows:

name	type of training
	(Note)
Mr Tang Ye Guo	a, b
Mr Ren Li Ren	a, b
Ms Yu Shu Min	a, b
Mr Lin Lan	a, b
Mr Xiao Jian Lin	a, b
Mr Gan Yong He	a, b
Mr Wang Xin Yu	a, b
Mr Wang Ai Guo	b
Mr Xu Xiang Yi	a, b

Note:

a: attending seminar(s) or training session(s)
b: reading newspapers, journals and updates relating to the Company’s business or directors’ duties and responsibilities etc .

Chairman and President

The Chairman of the Board and the President of the Company are appointed by the Board . The persons who were appointed as the Chairman and the President of the Company during the Reporting Period are as follows:

PosItIon	Chairman	President
naME	Mr Tang Ye Guo	Mr Ren Li Ren
tErM oF oFFICE	26 June 2006 to 25 June 2015	27 June 2011 to 25 June 2015

The Chairman shall be responsible for presiding over the general meetings, convening and presiding over the Board meetings, ensuring that the Board is in effective proper operation and reviews and discusses all the significant issues in a timely and effective manner, reviewing the implementation of the Board’s resolutions as well as discharging his duties as the legal representative of the Company . The President shall take charge of the management of the production and operation of the Company, and is responsible for organizing the implementation of the Board’s resolutions and the Company’s annual operational and investment plans and making decisions on other issues within the scope of delegation by the Board .

During the Reporting Period, the Chairman held a meeting with the independent non-executive Directors without the presence of the executive Directors .

Corporate governance report

Internal Control

During the Reporting Period, pursuant to the provisions and requirements of the Basic Norms for Enterprise Internal Control and its ancillary guidelines, with the objectives of enhancing the level of corporate operation and management and risk prevention ability, as well as reasonably ensuring the compliance of the Company’s operation with law and regulation, the safety of assets, the truthfulness and completeness of the financial reports and relevant information, optimizing the efficiency and efficacy of operation and promoting the implementation of strategies for sustainable development by the Company, and after taking into account the Company’s internal control system and assessment method and on the basis of daily supervision and specific supervision of internal control, the Company has determined the scope of assessment in internal control that require emphasis, including organizational structure, development strategies, human resources, social responsibility, corporate culture, funding activities, procurement operations, asset management, sales business, research and development, guarantee business, business outsourcing, financial report, comprehensive budget, contract management, internal information transfer and information systems, and has carried out self-assessment on the effectiveness of the Company’s internal control in 2012 . Conclusions were drawn in respect of the effectiveness of internal control: during the Reporting Period, the Company has established internal control for all businesses and matters included in the scope of assessment, and internal control has been effectively executed to achieve the objectives of the Company’s internal control without significant shortfalls .

The Board has reviewed the effectiveness of the internal control system during the year . During the course of the review, the Board considered that the Company had established an appropriate internal control system based on the actual situations and was not aware of any significant defect in the internal control system . In addition, the Company has engaged Crowe Horwath China Certified Public Accountants (LLP) to perform independent audit on the effectiveness of the Company’s internal control and an audit report on internal control has been issued . The auditor is of the view that as at 31 December 2012, the Company has maintained effective internal control related to financial reporting in accordance with Basic Norms for Enterprise Internal Control and the relevant requirements in all material aspects .

III. securities transactions by Directors

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (“Model Code”) as set out in Appendix 10 to the Listing Rules as its code for securities transactions by the Directors . After making specific enquiries to the Directors, they all confirmed that they had complied with the Model Code during their term of office .

Iv. auditor

In 2012, as considered and approved at the shareholders’ general meeting, the Company agreed to reappoint Crowe Horwath China Certified Public Accountants (LLP) as the auditors of the Company for the financial year of 2012, and the Board was authorized to fix their remuneration . The Company agreed to pay a remuneration of approximately RMB2,000,000 and RMB700,000 to the auditors for the provision of audit services for financial reporting and internal control respectively for the year ended 31 December 2012 and bear the corresponding travel expenses .

v. Company secretary

Ms . Wong Tak Fong was appointed as a joint company secretary with Ms . Li Lin with effect from 4 April 2011 . On 26 June 2012, the Board examined and approved the appointment of Ms . Wong Tak Fong as the company secretary to assist the Company in dealing with the Hong Kong Listing Rules compliance matters . Ms . Li Lin has resigned from the position of the joint company secretary of the Company with effect from 26 June 2012 . Ms Wong Tak Fong is the Company’s external personnel . She can contact and communicate with the secretary of the Board of the Company, Mr . Xia Feng, in her day-to-day work .

According to Rule 3 .29 of the Listing Rules, Ms . Wong Tak Fong has taken no less than 15 hours of relevant professional training during the Reporting Period .

Profiles of Directors, supervisors & Members of the senior Management

Directors:

Mr. tang ye guo , aged 50, has successively held the positions of the chief accountant, the deputy general manager, the general manager and director of 青島海信電器股份有限公司 (Hisense Electric Co ., Ltd .) (“Hisense Electric”) from 1997 . From August 2003 to September 2005, he served as an assistant to the president and the vice president of Hisense Company Limited (“Hisense Group”), and the general manager and chairman of the board of directors of Qingdao Hisense AirConditioning Company Limited (“Hisense Air-Conditioning”) . Mr . Tang was the chairman of the board of directors of Hisense Air-Conditioning and a director of Hisense Electric and the president of the Company from September 2005 to June 2006 . He has acted as the vice president of Hisense Group and chairman of the board of directors of Hisense Air-Conditioning and the chairman of the board of directors of the Company from June 2006 to April 2010 . He has been the vice president and a director of Hisense Group and chairman of the board of directors of Hisense Air-Conditioning and the chairman of the board of directors of the Company since April 2010 .

Ms. yu shu Min , aged 61, has successively served as the deputy secretary to the party committee of 青島市電子儀錶工業總公司 (Qingdao Municipal Electronics Instrument Industrial Corporation), the deputy secretary to the party committee and the vice president of Hisense Group, the general manager of Hisense Electric, the vice chair woman of the board of directors and the chief executive officer of Hisense Group . She has been the chairwoman of the board of directors of Hisense Electric since December 1999 . Ms . Yu has been the vice chair woman of the board of directors and the president of Hisense Group since July 2001 . She has been a director of the Company since June 2006 .

Mr. lin lan , aged 55, has worked as the manager of the power system software development department of 西門子諮詢公司 (Siemens, currently known as “AMEC Limited” in the UK), the senior project manager and senior engineer of GE 動力系統公司 (GE Power Systems) . Mr . Lin acted as the vice president of the Company from September 2002 to June 2006 . Since July 2006, he has served as the vice president of Hisense Group . He has been a director of Hisense Electric since May 2007 and a director of Hisense Group since December 2009 . He has been a director of the Company since June 2006 .

Mr. Xiao Jian lin , aged 45, has successively served as the deputy head of operation centre, the head of finance centre, head of finance department and assistant to president of Hisense Group . He was the head of audit department of Hisense Group from August 2007 to January 2009 . He has been a director of Hisense Group since January 2000, the vice-president of Hisense Group since January 2008, the head of finance and operation management centre of Hisense Group since January 2009, and a director of Hisense Electric since June 2008 . He has been a director of Hisense Air-Conditioning since April 2009 . He has served as a director of the Company since January 2011 .

Mr. ren li ren , aged 48, has served successively as the assistant to the general manager and the vice general manager of Hisense Electric, the assistant to the general manager of Qingdao Hisense Computer Co ., Ltd ., the general manager of Hisense (Beijing) Electrical Co ., Ltd ., the general manager of Hisense (Nanjing) Electrical Co ., Ltd ., the general manager of Hisense Ronshen (Yangzhou) Refrigerator Co ., Ltd . and the vice general manager of Hisense Ronshen (Guangdong) Refrigerator Co ., Ltd . . From June 2006 to June 2009, he acted as the assistant to the president of the Company . From June 2009 to June 2011, he acted as the vice president of the Company . He has been the president of the Company since June 2011 .He has been a director of Hisense Air-Conditioning and a director of the Company since August 2011 .

Mr. gan yong he , aged 45, was previously the head of manufacturing quality department and head of central quality department of Anhui Boxihua Household Electric Appliance Co ., Ltd ., and the quality manager and quality director of Electrolux (China) Home Appliances Co ., Ltd . He acted as the deputy general manager of Hisense Ronshen (Guangdong) Refrigerator Co ., Ltd . from June 2008 to June 2011, and has served as the vice president of the Company since June 2011 . He has served as a director of the Company since January 2012 .

Profiles of Directors, supervisors & Members of the senior Management

Mr. Xu Xiang yi , aged 57, holds a Ph . D . in Law from Shandong University . He is a professor and Ph . D . supervisor in business management . He was the Dean of the School of Management of Shandong University from January 2004 to November 2012,and is currently the head of the Department of Social Sciences of Shandong University . He was an independent director of Shandong Hi-speed Company Limited (listed on the Shanghai Stock Exchange) from April 2003 to April 2010, a supervisor of Shandong Hi-speed Company Limited since April 2010, an independent director of Hisense Electric (listed on the Shanghai Stock Exchange) from June 2003 to May 2009, an independent director of TonglingJingda Special Magnet Wire Co ., Ltd . (listed on the Shanghai Stock Exchange) from December 2006 to January 2010, and an independent director of Shandong Demian Incorporated Company (listed on the Shenzhen Stock Exchange) from April 2010 to December 2011 . He has been an independent director of Baolingbao Biology Co ., Ltd . (listed on the Shenzhen Stock Exchange) since October 2007, and an independent director of Shandong Longji Machinery Co ., Ltd . (listed on the Shenzhen Stock Exchange) since March 2008 . He has been an independent non-executive director of the Company since June 2012 .

Mr. Wang ai guo , aged 48, holds a master’s degree in accountancy from Tianjin Institute of Finance & Economics（天津財經學院）and a doctoral degree from the School of Management of Tianjin University（天津大學管理學院）, and is a postdoctoral fellow in accountancy in Tianjin University of Finance & Economics（天津財經大學） . He was an associate professor at the Faculty of Accountancy of Shandong Economics College（山東經濟學院）between 1995 and 2000, and was a professor at the Faculty of Accountancy of Shandong Economics College between 2000 and 2011 . He is currently the dean and a professor of the School of Accountancy of Shandong University of Finance and Economics（山東財經大學）, a council member of China Appraisal Society（中國資產評估協會）, a council member of Accounting Society of China, and the vice-chairman and the secretary-general of Accounting Education Committee of Accounting Society of Shandong Province（山東省會計學會會計教育專業委員會） . He was an independent director of Laiwu Steel Co ., Ltd（萊蕪鋼鐵股份有限公司）(listed on the Shanghai Stock Exchange) from June 2008 to February 2012 and an independent director of Shandong Zhangqiu Blower Co ., Ltd .（山東省章丘鼓風機股份有限公司） (listed on the Shenzhen Stock Exchange) since July 2009 and an independent non-executive director of China Corn Oil Company Limited（中國玉米油股份有限公司）(listed on The Stock Exchange of Hong Kong Limited) since November 2009 . He has been an independent director of Shandong Chenming Paper Holdings Co . Ltd（山東晨鳴紙業集團股份有限公司 ) (listed on the Shenzhen Stock Exchange and The Stock Exchange of Hong Kong Limited) since April 2010 . He has also been an independent director of Shandong Iron and Steel Company Ltd（山東鋼鐵股份有限公司）(listed on the Shanghai Stock Exchange) since April 2012 . He has served as an independent non-executive director of the Company since January 2011 .

Mr. Wang Xinyu , aged 42, graduated from the University of International Business and Economics with a bachelor degree in international finance and obtained a M .B .A from the University of Chicago Booth School of Business . He served as the director of MBK Partners from October 2005 to February 2010 and he has acted as the managing director of JP Capital Investment Limited since September 2010 . He was a director of Luye Pharma Group Ltd . (listed on the Singapore Stock Exchange) from August 2008 to February 2010 .He has acted as an independent non-executive director of the Company since September 2011 .

supervisors:

Mr. guo Qing Cun , aged 59, acted as a part-time lawyer in the legal advisory office in Shandong and Wenhan Law Firm （文翰律師事務所）, a lecturer, associate professor and professor of Shandong University and held various positions at the university, including the deputy president of the Institute of Science, an assistant to the head of School of Management and the chief officer of the Research Centre of Technology Law and Intellectual Property Rights from 1986 to 2002 . Mr . Guo was a visiting scholar of the faculty of law at Peking University in 1995 . In 1998, he was nominated as a Professional Technology Talent in Shandong Province . From April 2003 to January 2004, he served as an assistant to the president of Hisense Group . From January 2004 to February 2011, he served as vice president of Hisense Group . Mr . Guo is currently the secretary of the discipline inspection commission and the chairman of the trade union of Hisense Group . He has served as a supervisor of the Company since December 2006 .

Ms. liu Jiang yan , aged 37, holds a bachelor degree . She was the head of the finance department of Qingdao Hisense Import & Export Co ., Ltd . from August 2004 to March 2009, and the deputy director of the finance centre of Hisense Electric from March 2009 to June 2010 . She has been the deputy director of the finance and operation management centre of Hisense Group from June 2010 to August 2012 . She has been the deputy director of the finance and operation management centre of Hisense Group and a supervisor of the Company since August 2012 .

Profiles of Directors, supervisors & Members of the senior Management

Mr. Zhang Jian Jun , aged 39, holds a bachelor degree in law . He was a deputy director of the management promotion department of the PRC marketing company of the Company from March 2007 to March 2008, the deputy director of the integrated management department of the PRC marketing company of the Company from March 2008 to August 2009 and the legal counsel of the PRC marketing company of the Company from November 2009 to August 2010 . He has been the head of the legal affairs department of the Company from September 2010 to June 2012 .He has been a supervisor and the head of the legal affairs department of the Company since June 2012 .

senior Management Members:

Mr. Jia shao Qian , aged 40, has served as a legal adviser in the corporate legal department of Hisense Group . He was a supervisor of public relations in the president office of Hisense Group from January 2000 to January 2003, deputy manager of the president office of Hisense Group from January 2003 to July 2005 and manager of the president office of Hisense Group from July 2005 to January 2007 . He has served as the vice president of the Company since January 2007 . He served as chairman of the supervisory committee of Hisense Electric from June 2006 to March 2011 .

Mr. Zhang yu Qing , aged 49, is a senior engineer . He was the head of the freezer manufacturing department and the chief technology officer of Suzhou Samsung Electronics Co ., Ltd . from January 2003 to May 2005 . He joined Hisense Group in May 2006 and has been the vice general manager of Hisense (Beijing) Electrical Co ., Ltd ., the standing vice general manager of Hisense (Nanjing) Electrical Co ., Ltd ., the vice general manager of Hisense Ronshen (Guangdong) Refrigerator Co ., Ltd . and the general manager of Hisense Ronshen(Yangzhou) Refrigerator Co ., Ltd . . Mr . Zhang was a director and the general manager of Hisense Whirlpool (Zhejiang) Electric Appliances Co ., Ltd . from December 2008 to April 2010 . He has been the vice president of the Company since June 2009 .

Mr. Wang yun li , aged 39,was the deputy sales general manager of Qingdao Hisense Electric Co ., Ltd . from July 2006 to January 2010, deputy executive general manager of the PRC marketing company of the Company from January 2010 to October 2010, and executive general manager of the PRC marketing company of the Company from November 2010 to February 2012 . He has been the vice president of the Company since December 2010 .

Ms. li Jun , aged 38, holds a bachelor degree in Accountancy . She is a certified public accountant and has served successively as the head of financial analysis of the finance department and the deputy head of the audit department of Hisense Group . She was the deputy director of the finance and operation management centre of Hisense Group from January 2009 to August 2012 . She acted as a supervisor of the Company from June 2012 to August 2012 . She has been the person in charge of finance and the chief accountant of the Company since August 2012 .

Mr. Xia Feng , aged 36, holds a master degree in management, and was previously the head of the capital operating department of Hisense Group, deputy manager of the marketing department of Hisense Air-Conditioning, and deputy manager, representative of securities affairs, manager of securities department and secretary to the board of directors of Hisense Electric . He has been the secretary to the board of directors and the head of securities department of the Company since August 2010 .

Ms. Wong tak Fong , aged 45, holds a master degree in Business Administration from the University of Bradford, and is an associate member of the Hong Kong Institute of Chartered Secretaries and the Institute of Chartered Secretaries and Administrators in the United Kingdom, a certified tax adviser and an associate member of the Taxation Institute of Hong Kong . She has acted as the managing director of General Bright Consultants Ltd . since November 1994 . She has acted as the chief financial controller of STAR TEAM ASIA LTD .（星薈亞洲有限公司）since December 2010 . She acted as a joint company secretary from April 2011 to June 2012 and has acted as the company secretary of the Company since June 2012 .

Note: Hisense Group and Hisense Air-Conditioning mentioned in the above profiles are substantial shareholders of the company within the meaning of Part XV of the Securities and Futures Ordinance .

report of the Directors

PrInCIPal busInEssEs

The Group is principally engaged in development and manufacture of such as refrigerators, air-conditioners, and domestic and overseas sales of products and provision of after-sale services .

FInal DIvIDEnD

The Group recorded net profit attributable to equity shareholders of RMB718 million for the year ended 31 December 2012 . The Board resolved not to pay any dividend for the year ended 31 December 2012 and not to capitalize any reserve funds (no dividend was paid by the Group for the year ended 31 December 2011) .

rEsErvEs

Movements in the reserves of the Group during the Reporting Period are set out in Note 5 (32-34) to the financial statements .

DIstrIbutablE rEsErvEs

There was no distributable reserves of the Company as at 31 December 2012 .

lIQuIDIty anD sourCEs oF FunDs

For the year ended 31 December 2012, net cash generated from operating activities of the Group amounted to approximately RMB1,098 million (2011: net cash generated from operating activities amounted to approximately RMB366 million) .

As at 31 December 2012, the Group had bank deposits and cash (including pledged bank balances) amounting to approximately RMB516 million (2011: RMB398 million), and bank loans amounting to approximately RMB30 million (2011: RMB1,005 million) .

Total capital expenditures of the Group for the year ended 31 December 2012 amounted to approximately RMB163 million (2011: RMB230 million) .

huMan rEsourCEs anD EMPloyEEs’ rEMunEratIon

As at 31 December 2012, the Group had approximately 30,698 employees, mainly comprising 4,644 technical staff, 13,325 sales representatives, 622 financial staff, 1,147 administrative staff and 10,960 production staff . The Group had 4 employees with a doctorate degree, 197 with a master’s degree and 2,978 with a bachelor’s degree . For the year ended 31 December 2012, the Group’s staff payroll amounted to RMB1,541 million (corresponding period in 2011 amounting to RMB1,485 million) .

EMPloyEEs’ traInIng anD rEMunEratIon PolICy

Employees and people are the basis for corporate development . Leveraging on the platform provided by Hisense College, the Company has established a three-level training system, a well-rounded curriculum system and a training regulation system and actively promoted the building up of teacher resources internally and externally, so as to effectively support the development of the Company’s management and technical personnel and achieve value-added human resources . The Company develops training programs every year based on its annual work plan and human resources development needs .

The Company has provided 1,362 courses in total during the Reporting Period, and the number of participants reached 64,518 . The courses are mainly of enterprise management type, craftsmanship and quality type, corporate culture type, manufacturing type, or are induction courses for new staff, etc ., covering employees at different levels, ranging from ground level staff responsible for work such as front-line production and marketing to senior management .

The Company adopts a position-based remuneration policy for its staff . Staff remuneration is determined by reference to the relative importance of and responsibility assumed by the position and other performance factors .

ChargE on thE grouP’s assEts

As at 31 December 2012, the Group’s property, plant and equipment (including leasehold land held for own use), investment properties and accounts receivable of approximately RMB423 million (31 December 2011: RMB569 million) were pledged as security for the Group’s borrowings .

report of the Directors

ProPErty, Plant anD EQuIPMEnt

Details of the movements in property, plant and equipment of the Group are set out in Note 5(12) to the financial statements .

PEnsIon sChEMEs

Details of the Group’s pension schemes for the year ended 31 December 2012 are set out in note 11 to the financial statements .

EXPosurE to EXChangE ratE FluCtuatIon anD any rElatED hEDgE

Since part of the purchase and the majority of the overseas sales of the Group during the Reporting Period were denominated in foreign currency, the Group is exposed to certain risk of exchange rate fluctuation . The Group has used financial instruments such as import/export documentary bills and forward contracts for exchange rate hedging purpose .

PublIC Float

The Directors confirm that as at 28 March 2013, based on publicly available information and to the best of their knowledge, 25% or above of the total issued share capital of the Company are held by the public . Therefore, the public float of the Company satisfies the requirement stipulated under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Hong Kong Listing Rules”) .

auDIt CoMMIttEE

The eighth session of the audit committee of the Company has reviewed the final results announcement and report of the final results of the Group for the year ended 31 December 2012 .

CaPItal EXPEnDIturE

The Group expects that the capital expenditure for 2013 will be approximately RMB47 million . The Group has sufficient funds to meet the funding requirement for capital expenditure plans and daily operations .

trust DEPosIts

As at 31 December 2012, the Group did not have any trust deposits with any financial institutions in the PRC . All of the Group’s deposits have been deposited in commercial banks and other financial institution in the PRC and Hong Kong .

lIQuIDIty, FInanCIal rEsourCEs anD CaPItal struCturE

As at 31 December 2012, the Group did not have any long-term bank borrowings and its cash and cash equivalents amounted to RMB514 million (2011: RMB397 million), of which more than RMB416 million are denominated in Renminbi .

As at 31 December 2012, the Group’s current liabilities amounted to RMB6,958 million, non-current liabilities amounted to RMB369 million, and shareholders’ equity attributable to the shareholders of the Company amounted to RMB1,512 million . Details of the Group’s capital structure are set out in the financial statements which be contained in the annual report of the Company .

gEarIng ratIo

As at 31 December 2012, the Group’s gearing ratio (calculated according to the formula: total liabilities/total assets) was 79 .64% (2011: 84 .80%) .

InDEPEnDEnCE oF thE InDEPEnDEnt non-EXECutIvE DIrECtors

The eighth session of the Board has received a written confirmation from each of the independent non-executive Directors in respect of their independence in accordance with the requirements provided under Rule 3 .13 of the Hong Kong Listing Rules . The Company considers that all the independent non-executive Directors of the eighth session of the Board meet the relevant requirements under Rule 3 .13 of the Hong Kong Listing Rules and considers them to be independent .

report of the Directors

sErvICE ContraCts oF DIrECtors anD suPErvIsors

None of the Directors and the supervisors of the Company have a service contract with any member of the Group which is not determinable by the Group within one year without payment of compensation (other than statutory compensation) .

DIrECtors’ anD suPErvIsors’ IntErEsts In ContraCts

The Directors of the eighth session of the Board and the supervisors of the Company do not and did not directly or indirectly hold any material interests in any contract of significance of the Company or its subsidiaries subsisting during or at the end of the year 2012 .

rEvIEW oF ContInuIng ConnECtED transaCtIons by InDEPEnDEnt non-EXECutIvE DIrECtors

The independent non-executive Directors of the eighth session of the Board have reviewed the continuing connected transactions of the Group for the year 2012, and confirmed that these transactions were conducted in the ordinary course of business of the Group in accordance with the relevant agreements governing them and on normal commercial terms which were fair and reasonable and in the interest of the shareholders of the Company as a whole .

rEvIEW oF ContInuIng ConnECtED transaCtIons by auDItors

After auditing the continuing connected transactions of the Group, the auditors of the Company confirmed that the relevant continuing connected transactions of the Group have been approved by the Board, were carried out in accordance with the Company’s pricing policies pursuant to the terms of the agreements of the relevant transactions, and have not exceeded the caps disclosed in the previous announcements .

MoDEl CoDE For sECurItIEs transaCtIons by DIrECtors

The Company has adopted the Model Code for Securities Transactions by Directors of Listed Issuers (“Model Code”) as set out in the Hong Kong Listing Rules as its code for securities transaction by Directors . After having made specific enquiries to the Directors, all Directors of the Board confirmed that they had acted in full compliance with the Model Code during their term of office .

sharE CaPItal struCturE

As at 31 December 2012, the share capital structure of the Company was as follows:

		Percentage
		to the total
Class of shares	number of shares	issued share capital
H shares	459,589,808	33 94%
A shares	894,464,942	66 06%
Total	1,354,054,750	100 00%

report of the Directors

toP tEn sharEholDErs

As at 31 December 2012, there were 37,184 shareholders of the Company (the “Shareholders”) in total, of which the top ten Shareholders were as follows:

			Percentage	Percentage to
			to the total	the relevant	no. of shares
			issued	class of issued	held subject	no. of
		no. of	shares of the	shares of the	to trading	pledged or
name of shareholder	nature of shareholder	shares held	Company	Company	moratorium	frozen shares
Qingdao Hisense Air-conditioning Company	State-owned legal	612,316,909	45 22%	68 46%	612,316,909	0
Limited	person
HKSCC Nominees Limited Note	Foreign legal person	457,568,208	33 79%	99 56%	0	Unknown
China Huarong Asset Management	State-owned legal	30,000,000	2 22%	3 35%	0	0
Corporation	person
Zhang Shaowu	Domestic natural	6,365,415	0 47%	0 71%	0	0
	person
Industrial Bank Company Limited —	Other	5,179,033	0 38%	0 58%	0	0
Lombarda China New Trend Securities
Investment Fund (LOF)
Agricultural Bank of China — Fullgoal	Other	4,584,930	0 34%	0 51%	0	0
Tianrui Strong Area Selected Mixed
Open Securities Investment Fund
GF Securities Company Limited	Domestic non-state-	4,383,613	0 32%	0 49%	0	0
	owned legal person
Zhong Juan Wei	Domestic natural	3,661,174	0 27%	0 41%	0	0
	person
Agricultural Bank of China — Fullgoal	Other	3,000,000	0 22%	0 34%	0	0
Tiancheng Dividend Flexible Allocation
Mixed Securities Investment Fund
Industrial and Commercial Bank of China	Other	2,500,000	0 18%	0 28%	0	0
— Fullgoal Tianhui Selected Growth
Mixed Securities Investment Fund (LOF)

Note:

1 . The shares held by HKSCC Nominees Limited are held on behalf of a number of its account participants, among which, Hisense (Hong Kong) Company Limited, a party acting in concert with the controlling shareholder of the Company, has acquired 27 million H shares of the Company through the exercise of option during the Reporting Period, and became holder of 54 million H shares in total at the end of the period, representing 3 .99% of the total number of shares of the Company .
2 . At the end of the day falling 5 trading days prior to the date of disclosure of the annual report for A shares on 29 March 2013, there were 36,198 shareholders of the Company in total .

report of the Directors

sharEholDIngs oF thE toP tEn sharEholDErs oF traDablE sharEs

	number of
	tradable shares
name of shareholders	held	Class of shares
HKSCC Nominees Limited	457,568,208	Overseas listed foreign
		shares
China Huarong Asset Management Corporation	30,000,000	RMB ordinary shares
Zhang Shaowu	6,365,415	RMB ordinary shares
Industrial Bank Company Limited — Lombarda China New Trend	5,179,033	RMB ordinary shares
Securities Investment Fund (LOF)
Agricultural Bank of China — Fullgoal Tianrui Strong Area Selected	4,584,930	RMB ordinary shares
Mixed Open Securities Investment Fund
GF Securities Company Limited	4,383,613	RMB ordinary shares
Zhong Juan Wei	3,661,174	RMB ordinary shares
Agricultural Bank of China — Fullgoal Tiancheng Dividend Flexible	3,000,000	RMB ordinary shares
Allocation Mixed Securities Investment Fund
Industrial and Commercial Bank of China — Fullgoal Tianhui Selected	2,500,000	RMB ordinary shares
Growth Mixed Securities Investment Fund (LOF)
Yan Xinyao	1,885,739	RMB ordinary shares

Note: The Company is not aware whether any of the top ten holders of tradable shares is connected with each other or any of them is a party acting in concert with any of the other nine shareholders within the meaning of 《上市公司收購管理辦法》 (Administrative Measures for the Takeover of Listed Companies) .

report of the Directors

IntErEsts anD short PosItIons oF substantIal sharEholDErs In thE sharEs anD unDErlyIng sharEs

So far as is known to the Directors, supervisors and the chief executive of the Company, as at 31 December 2012, the following persons (other than the Directors, supervisors and the chief executive of the Company) had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) (“SFO”), or which were recorded in the register required to be kept under section 336 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange:

long position or short position in the shares of the Company

							Percentage
						Percentage	of the total
				type of	number of	of the respective	number of
name of shareholder			Capacity	shares	shares held	type of shares	shares in issue
Qingdao Hisense Air-conditioning			Beneficial owner	A shares	612,316,909(L)	68 46%	45 22%
Company Limited Note
Qingdao Hisense Electric Holdings			Interest of controlled	A shares	612,316,909(L)	68 46%	45 22%
Company Limited Note			corporation
Hisense Company Limited	Note		Interest of controlled	A shares	612,316,909(L)	68 46%	45 22%
			corporation
Hisense (Hong Kong) Company Limited		Note	Beneficial owner	H shares	54,000,000(L)	11 75%	3 99%
Qingdao Hisense Electric Holdings			Interest of controlled	H shares	54,000,000(L)	11 75%	3 99%
Company Limited Note			corporation
Hisense Company Limited	Note		Interest of controlled	H shares	54,000,000(L)	11 75%	3 99%
			corporation

Note: Qingdao Hisense Air-conditioning Company Limited is a company directly owned as to 93 .33% and indirectly owned as to 6 .67% by Qingdao Hisense Electric Holdings Company Limited, whereas Hisense (Hong Kong) Company Limited is a company directly owned as to 100% by Qingdao Hisense Electric Holdings Company Limited . Qingdao Hisense Electric Holdings Company Limited is in turn owned as to 47 .90% by Hisense Company Limited . By virtue of the SFO, Qingdao Hisense Electric Holdings Company Limited and Hisense Company Limited were deemed to be interested in the same parcel of A shares of which Qingdao Hisense Air-conditioning Company Limited was interested and in the same parcel of H shares of which Hisense (Hong Kong) Company Limited was interested .

Save as disclosed above, as at 31 December 2012, in so far as the Directors, supervisors and chief executive of the Company are aware, there was no other interest and/or short position held by any person in the shares and underlying shares of the Company which were recorded in the register required to be kept by the Company pursuant to section 336 of the SFO .

PartICulars oF thE ControllIng sharEholDErs oF thE CoMPany

(a) Qingdao Hisense Air-Conditioning Company Limited, the controlling shareholder of the Company, was incorporated on 17 November 1995 . Its registered address is Changsha Road, Hi-tech Industrial Zone, Qingdao, the PRC and the legal representative is Mr . Tang Ye Guo and its registered capital is RMB674 .79 million . Its business scope is the development and manufacture of air-conditioning products and injection moulds and the provision of after-sale repairing services for its products (Permit/licence shall be obtained for the operation of the businesses above if they fall into the requirements of licensure) .
(b) The beneficial controller of the Company is Hisense Company Limited, which was incorporated in August 1979 with its registered address at No . 17 Donghai West Road, Shinan, Qingdao . Mr . Zhou Houjian is the legal representative of Hisense Company Limited and its registered capital is RMB806,170,000 . The scope of business includes: the entrusted operation of state-owned assets; the manufacture and sales of TV sets, refrigerators, freezers, washing machines,

report of the Directors

small household appliances, disc players, audio sets, broadcasting appliances, air-conditioners, electronic computers, telephones, communication products, internet products and electronic products and the provision of related services; the development of software and the provision of internet services; the technological development and the provision of consultation services; the self-operated import and export business (with its operation subject to the list of projects as approved by the MOFTEC); the foreign economic and technical cooperation (with its operation subject to the list of projects as approved by the MOFTEC); operation of property rights transaction and provision of brokerage and information services; provision of industrial travel agency services; provision of relevant business trainings and property management (Permit/licence shall be obtained for the operation of the businesses above if they fall into the requirements of licensure) .

(c) The ultimate beneficial controller of the Company is the State-owned Assets Supervision and Administration Commission of Qingdao Municipal People’s Government .
(d) Relationship between the Company and its beneficial controllers:

==> picture [444 x 220] intentionally omitted <==

----- Start of picture text -----

State-owned Assets Supervision and
Administration Commission of Qingdao
Municipal People’s Government
100%
Hisense Company Limited
47 .90%
Qingdao Hisense Electric 100%
Hisense (Hong Kong) Company Limited
Holdings Company Limited
100%
Qingdao Hisense
Air-Conditioning Company Limited
45 .22%
Hisense Kelon Electrical 3 .99%
Holdings Company Limited
----- End of picture text -----

(e) During the Reporting Period, there was no change in the controlling shareholders of the Company .

IntErEsts oF DIrECtors, suPErvIsors anD ChIEF EXECutIvEs In thE sharEs, unDErlyIng sharEs anD DEbEnturEs

As at 31 December 2012, save as disclosed in sub-section “Movements of the share options during the Reporting Period” under the section headed “Summary on adoption of first share option incentive scheme and the grant thereunder” below, none of the members of the Board, supervisors and the chief executive of the Company held any interests or short positions in any shares, underlying shares and debentures of the Company and any of its associated corporations (within the meaning of Part XV of the SFO), as recorded in the register required to be maintained by the Group pursuant to section 352 of the SFO or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code .

MaJor CustoMErs anD suPPlIErs

During the year ended 31 December 2012, the aggregate amount of the Group’s purchases from the top five suppliers was RMB2,428 million, representing 17 .90% of the total purchase amount of the Group for the year and the aggregate sales amount to the top five customers was RMB4,853 million, representing 27 .96% of the total sales amount of the Group for the year . As at 31 December 2012, none of the Directors, their associates or shareholders of the Company who, to the knowledge of the Directors, held more than 5% of the shares in the Company, had any interest in the above suppliers or customers .

report of the Directors

PurChasE, salE or rEDEMPtIon oF sharEs

During the Reporting Period, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company’s listed securities .

auDItor

On 1 August 2011, as considered and approved at the 2011 second extraordinary general meeting of the Company, BDO CHINA LI XIN DA HUA Certified Public Accountants CO ., LTD . and BDO Limited were respectively removed as the domestic auditors and overseas auditors of the Company for the financial year of 2011, and Crowe Horwath China Certified Public Accountants (LLP) were appointed as the auditors of the Company for the financial year of 2011 . In 2012, as considered and approved at the shareholders’ general meeting, the Company agreed to re-appoint Crowe Horwath China Certified Public Accountants (LLP) as the auditors of the Company for the financial year of 2012 .

PrE-EMPtIvE rIghts

There is no provision for pre-emptive rights under the Articles of Association of the Company or the relevant PRC laws .

taXatIon

Pursuant to the relevant tax regulations, the Company is required to withhold and pay corporate income tax at the rate of 10% when distributing dividends to non-resident enterprise shareholders whose names appear on the H-share register of members .

suMMary on aDoPtIon oF FIrst sharE oPtIon InCEntIvE sChEME anD thE grant thErEunDEr

(1) Purpose of the scheme

The first share option incentive scheme (the “Scheme”) was adopted by the Company on 1 August 2011 . The Scheme is formulated to further refine the management structure of the Company, provide long-term rewards and retention incentives for the senior and mid-level management, key technical, sales and management personnel of the Company, fully motivate their pro-activeness and creativity, closely correlate their interests with the long-term development of the Company, and allow sustainable development of the Company .

The participants include the directors of the Company (exclusive of the independent directors and external directors who are not officers of the Hisense Group and its subsidiaries (other than the Company and its subsidiaries), senior management (including president, vice president, financial controller, secretary to the Board, company secretary and other officers which are regarded as senior management under the Articles of Association) of the Company, midlevel management staff of the Company and its subsidiaries, and such key technical personnel of the Company and its subsidiaries as determined by the Board .

report of the Directors

(2) Movements of the share options during the reporting Period

				number of
				share options
				exercised or	number of
			outstanding	cancelled	share options	outstanding
			share options	during the	lapsed during	share options		as a
			as at 1 January	reporting	the reporting	as at 31	as a	percentage of
			2012 (ten	Period (ten	Period (ten	December 2012	percentage of	share capital of
			thousand	thousand	thousand	(ten thousand	the total share	the same class
no.	name	Position	shares)	shares)	shares)	shares)	capital	(a shares)
1	Tang Ye Guo	Chairman	126	—	—	126	0 093%	0 141%
2	Xiao Jian Lin	Director	82 8	—	—	82 8	0 061%	0 093%
3	Jia Shao Qian	Vice-President	82 8	—	—	82 8	0 061%	0 093%
4	Ren Li Ren	Director, President	72	—	—	72	0 053%	0 080%
5	Zhang Yu Qing	Vice-President	82 8	—	—	82 8	0 061%	0 093%
6	Wang Yun Li	Vice-President	82 8	—	—	82 8	0 061%	0 093%
7	Gan Yong He	Director, Vice-President	18 1	—	—	18 1	0 013%	0 020%
8	Zhang Jian Jun	Supervisor	5 6	—	—	5 6	0 004%	0 006%
9	Mid level management		1398 1	—	—	1398 1	1 040%	1 563%
	staff and key
	personnel
	Total		1951	—	—	1951	1 440%	2 181%

Note: All share options available for issue under the Scheme have been granted .

Unless approved by the general meeting, the aggregate number of underlying shares which may be acquired by any participant through the Scheme or other effective share option incentive schemes of the Company (if any) at any time shall not exceed 1% of the Company’s total share capital of the same class, and the maximum entitlement which may be granted to a participant (including exercised, cancelled and outstanding share options) within any 12-month period shall not exceed 1% of the Company’s total share capital of the same class .

(3) the grant date of the share options

The grant date of the share options is 31 August 2011 .

(4) validity period of the share options

The validity period of the share options under the grant shall be a term of 5 years commencing from the grant date .

report of the Directors

(5) Exercise arrangement

The exercise of the share options under the grant is subject to a restriction period of 2 years, during which period the rights are not exercisable .

Subject to the fulfillment of the exercise conditions, the share options under the grant can be exercised in batches after the expiry of the 2-year period from the grant date according to the following exercise arrangement:

i . 33% of the share options granted to each participant shall become exercisable on the trading day immediately after the second anniversary of the grant date (2 September 2013) until the trading day falling on the fifth anniversary of the grant date (31 August 2016);
ii . another 33% of the share options granted to each participant shall become exercisable on the trading day immediately after the third anniversary of the grant date (1 September 2014) until the trading day falling on the fifth anniversary of the grant date (31 August 2016); and
iii . the remaining 34% of the share options granted to each participant shall become exercisable on the trading day immediately after the fourth anniversary of the grant date (1 September 2015) until the trading day falling on the fifth anniversary of the grant date (31 August 2016) .

Where the participant is a director or member of the senior management, share options of not less than 20% of the total share options granted to such participant can only be exercised after the participant has reached a pass grade or above in the performance appraisal for his/ her employment (or office) .

In addition, during the validity period of the share options, the maximum gain which the participants can obtain from the share option incentives shall not exceed 40% of their remuneration level (inclusive of the gain from the share option incentives) when the share options were granted . In the event that the gain from the share option incentive exceeds the above proportion, share options which have not been exercised will not be exercised .

(6) Determination method of exercise price

The exercise price of the grant is the higher of the following two prices: (i) the closing price of the A shares on the last trading day immediately preceding the date of the announcement of the summary of the Scheme (that is, 29 November 2010), which was RMB7 .65 per share; and (ii) the average closing price of the A shares during the last 30 trading days immediately preceding the date of announcement of the summary of the Scheme, which was RMB7 .37 per share . Therefore, the exercise price is RMB7 .65 per share .

(7) Effect of the Company’s share option incentive scheme on the financial position for the reporting Period

In accordance with the requirements of the First Share Option Incentive Scheme of Hisense Kelon Electrical Holdings Company Limited (Revised Draft), the Company has elected to use the Black-Scholes option pricing model to calculate the fair value of the share options granted under the Scheme . According to the calculation by such pricing model, the Company recognized an expense of RMB4 .6485 million in total in relation to this share option incentive scheme .

PartICulars oF MatErIal ConnECtED transaCtIons oF thE CoMPany DurIng thE rEPortIng PErIoD

(I) on 29 november 2011, the Company entered into the Compressors Purchase Framework agreement, the Compressors Purchase and supply Framework agreement, the business Co-operation Framework agreement, the Property services Framework agreement, the Financial services agreement, business Framework agreement 1, business Framework agreement 2 and the Purchase Financing agency Framework agreement with Embraco, huayi Compressor, hisense group and hisense Electric, snowflake, hisense Finance, hisense hitachi, hisense – Whirlpool and hisense hong kong respectively.

Embraco is held as to 30 .82% by Snowflake, a substantial shareholder which holds 45% of the equity interests in Beijing Refrigerator (being a non wholly owned subsidiary of the Company) and therefore Embraco and Snowflake are connected persons of the Company according to the Hong Kong Listing Rules .

report of the Directors

Huayi Compressor is a substantial shareholder holding 29 .95% of Ronshen Plastic and 29 .89% of Kelon Mould (both being non-wholly owned subsidiaries of the Company) and therefore Huayi Compressor is a connected person of the Company according to the Hong Kong Listing Rules .

Hisense Air-conditioning is a connected person of the Company by virtue of being a substantial shareholder of the Company, holding 45 .22% of the issued shares of the Company and Hisense Hong Kong (which held 1 .99% of the issued shares of the Company as at the date of the agreement) holds 3 .99% of the issued shares of the Company . As Hisense Group indirectly owns 47 .90% of Hisense Air-conditioning and Hisense Hong Kong (then indirectly owned 51 .01% of such companies as at the date of the agreement) and Hisense Electric is owned as to 41 .15% (then owned as to 41 .36% as at the date of the agreement) by Hisense Group, Hisense Group, Hisense Electric and their respective subsidiaries are connected persons of the Company according to the Hong Kong Listing Rules . As Hisense Finance is a subsidiary of Hisense Group, Hisense Finance is also a connected person of the Company according to the Hong Kong Listing Rules .

As certain directors of the Company are also senior management of Hisense Hitachi and Hisense-Whirlpool, Hisense Hitachi and Hisense-Whirlpool are connected persons of the Company according to the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange .

Details of the Compressors Purchase Framework Agreement with Embraco, the Compressors Purchase and Supply Framework Agreement with Huayi Compressor, the Business Co-operation Framework Agreement with Hisense Group and Hisense Electric, the Property Services Framework Agreement with Snowflake, the Financial Services Agreement with Hisense Finance, Business Framework Agreement 1 with Hisense Hitachi and Business Framework Agreement 2 with Hisense-Whirlpool can be found in the announcement and the circular published on the website of the Hong Kong Stock Exchange (http://www .hkex .com .hk) on 29 November 2011 and 28 December 2011 respectively .

As Hisense Group is the beneficial controller of both Hisense Hong Kong and the Company, Hisense Hong Kong is a connected person of the Company under the Rules Governing the Listing of Stocks on the Shenzhen Stock Exchange . Hisense Hong Kong is also a connected person of the Company pursuant to Chapter 14A of the Hong Kong Listing Rules . Since the financial assistance arrangement under the Purchase Financing Agency Framework Agreement would be for the benefit of the Company on normal commercial terms where no security over the assets of the Company was to be granted in respect of the financial assistance, such arrangement was exempt from the reporting, announcement and independent shareholders’ approval requirements pursuant to the Hong Kong Listing Rules . Details of the Purchase Financing Agency Framework Agreement can be found in the announcement published on the website of the Hong Kong Stock Exchange (http://www .hkex .com .hk) on 29 November 2011 .

The above transactions (other than the Business Framework Agreement 1 with Hisense Hitachi and the Business Framework Agreement 2 with Hisense-Whirlpool) constitute continuing connected transactions under Chapter 14A of the Hong Kong Listing Rules . The Company confirmed that it had complied with the disclosure requirements in accordance with Chapter 14A of the Hong Kong Listing Rules for the relevant connected transactions (other than the Purchase Financing Agency Framework Agreement which is exempt from the reporting, announcement and independent shareholders’ approval requirements pursuant to the Hong Kong Listing Rules) . Specific information of the Compressors Purchase Framework Agreement, the Compressors Purchase and Supply Framework Agreement, the Business Cooperation Framework Agreement, the Financial Services Agreement and the Property Services Framework Agreement is set out as follows:

1. the Compressors Purchase Framework agreement with Embraco

report of the Directors

subsidiaries with the current facilities used by and the refrigerators and freezers manufactured by the Group as well as the level of services provided by Embraco and/or its subsidiaries, the Group considers that Embraco and/ or its subsidiaries are in a good position to supply compressors to the Group . In addition, the Group can have bigger bargaining power by carrying out bulk purchase of compressors from Embraco and/or its subsidiaries, thus reducing purchase costs and increasing product competitiveness . As such, the Company entered into the Compressors Purchase Framework Agreement with Embraco, the principal terms of which are as follows:

(1) The Compressors Purchase Framework Agreement shall commence from the date of approval of the Compressors Purchase Framework Agreement by the independent shareholders (that is, 16 January 2012) until 31 December 2012, which can be terminated before its expiration by mutual agreement of the parties .
(2) Pricing for the purchase of compressors will be the market price of compressors which will be confirmed by commercial negotiation between the parties according to the principles of fairness and reasonableness from time to time . Such transactions will be conducted in the ordinary and usual course of business of the parties, on normal commercial terms and on terms not less favourable to the parties than terms available to or from (as appropriate) independent third parties .
(3) Payment term(s) for the purchase of compressors shall be in accordance with the payment term(s) as stipulated in the definitive contract(s) to be signed by the relevant parties thereto .
(4) The transactions contemplated under the Compressors Purchase Framework Agreement are subject to the annual cap of RMB250,000,000 (inclusive of value-added tax) .

2. the Compressors Purchase and supply Framework agreement with huayi Compressor

The Group is engaged in the manufacture of home electrical appliances, including but not limited to refrigerators and freezers, which requires compressors as a component for its products . After considering a range of factors including the quality, the price and the compatibility of the compressors manufactured by Huayi Compressor and/ or its subsidiaries with the current facilities used by and the refrigerators and freezers manufactured by the Group as well as the level of services provided by Huayi Compressor and/or its subsidiaries, the Company considers that Huayi Compressor and/or its subsidiaries are in a good position to supply compressors to the Group . In addition, the Group can have bigger bargaining power by carrying out bulk purchase of compressors from Huayi Compressor and/or its subsidiaries, thus reducing purchase costs and increasing product competitiveness . As such, the Company entered into the Compressors Purchase and Supply Framework Agreement with Huayi Compressor, the principal terms of which are as follows:

(1) The Compressors Purchase and Supply Framework Agreement shall commence from the date of approval of the Compressors Purchase and Supply Framework Agreement by the independent shareholders (that is, 16 January 2012) until 31 December 2012, which can be terminated before its expiration by mutual agreement of the parties .
(2) Pricing for the purchase of compressors will be the market price of compressors which will be confirmed by commercial negotiation between the parties according to the principles of fairness and reasonableness from time to time . Such transactions will be conducted in the ordinary and usual course of business of the parties, on normal commercial terms and on terms not less favourable to the parties than terms available to or from (as appropriate) independent third parties .
(3) Payment term(s) for the transactions contemplated under the Huayi Compressors Purchase Framework Agreement shall be in accordance with the payment term(s) as stipulated in the definitive contract(s) to be signed by the relevant parties thereto .
(4) The transactions contemplated under the Compressors Purchase and Supply Framework Agreement are subject to the annual cap of RMB1,380,000,000 (inclusive of value-added tax) .

report of the Directors

3. the business Co-operation Framework agreement with hisense group and hisense Electric

On the one hand, the supply of home electrical appliances and raw materials by the Group to Hisense Group, Hisense Electric and/or their respective subsidiaries can help to lower the production costs of the Group as a result of the increase in production level, which in turn enhance the market competitiveness of the Group’s products . At the same time, the Group can continue to develop overseas market and enhance brand competitiveness and awareness . The Group can also increase market share by selling products through the online platform of Hisense Group and Hisense Electric which reduces the product circulation links . Provision of services to Hisense Group, Hisense Electric and/or their respective subsidiaries will increase the income of the Group . On the other hand, taking into account the product quality, prices and services provided by Hisense Group, Hisense Electric and/or their respective subsidiaries, purchases of home electrical appliances, equipment, raw materials and parts and components from Hisense Group, Hisense Electric and/or their respective subsidiaries and engagement of their services can meet the manufacture needs of the Company and the development of related business, and can also help reduce costs at the same time . As such, the Company entered into the Business Cooperation Framework Agreement with Hisense Group and Hisense Electric, the principal terms of which are as follows:

(1) The Business Co-operation Framework Agreement shall commence from the date of approval of the Business Co-operation Framework Agreement by the independent shareholders (that is, 16 January 2012) until 31 December 2012, which can be terminated before its expiration by mutual agreement of the parties .
(2) Pricing for the purchase of home electrical appliances between the Company on the one hand and Hisense Group and Hisense Electric on the other hand is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness mainly with reference to the market price of similar home electrical appliances from time to time . Pricing for the purchase of raw materials, equipments, parts and components between the Company on the one hand and Hisense Group and Hisense Electric on the other hand is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness . Pricing for the supply of moulds by the Company to Hisense Group and Hisense Electric is the market price determined by the open bidding process . Pricing for the provision of services between the Company on the one hand and Hisense Group and Hisense Electric on the other hand (other than agency services for export) is determined by commercial negotiations according to the principles of fairness and reasonableness between the parties with reference to the market price for the provision of similar services in the industry . The fees payable by the Group for the provision of the agency services for export is calculated by multiplying the Group’s turnover from overseas sales for the relevant products with an export agency fee percentage . Such export agency fee percentage is determined by commercial negotiations according to the principles of fairness and reasonableness between the parties mainly with reference to the rate of the charges actually incurred by the Group for conducting overseas by itself in previous years, on the basis that such export agency fee percentage shall be a rate which is lower than the level of the rate of the charges actually incurred by the Group for conducting overseas sales by itself in previous years to a certain extent for the same computation of expenses and conditions .
(3) Payment term(s) for the transactions between the Company on the one hand and Hisense Group and Hisense Electric on the other hand shall be in accordance with the payment term(s) as stipulated in the definitive contract(s) to be signed by the relevant parties thereto .

report of the Directors

(4) The annual caps under the Business Co-operation Framework Agreement are shown in the table below:

	Unit: RMB (ten thousand) (including	Unit: RMB (ten thousand) (including	value-added tax)
types of transactions	Division by products or services	Connected person	annual cap
Sale of products and materials	Sale of home electrical appliances products by	Hisense Group	250,000
	the Group
		Hisense Electric	400
	Sale of equipment by the Group	Hisense Group	1,200
	Sale of moulds by the Group	Hisense Group	18,700
		Hisense Electric	8,000
	Sale of raw materials, parts and components by	Hisense Group	7,000
	the Group
		Hisense Electric	2,000
Provision of services	Provision of design, loading and unloading services,	Hisense Group	842
	equipment rental services and property services by
	the Group
		Hisense Electric	50
Purchase of products and	Purchase of home electrical appliances products by	Hisense Group	250
materials	the Group
		Hisense Electric	150
	Purchase of raw materials, parts and components by	Hisense Group	2,203
	the Group
		Hisense Electric	4,600
	Purchase of equipment by the Group	Hisense Group	1,000
Receipt of services	Receipt of property service, medical service, material	Hisense Group	12,912
	processing services, material inspection services,
	installation and maintenance, management
	consultancy, agency services for import, leasing,
	design, property construction and information
	system maintenance by the Group
	Receipt of agency services for export by the Group	Hisense Group	16,200
	Receipt of property service, material processing	Hisense Electric	2,810
	services and product design services by the Group

report of the Directors

4. the Financial services agreement with hisense Finance

The Group is expected to benefit from Hisense Finance’s better understanding of the operations of the Group which should allow the provision of more expedient and efficient services than those offered by PRC commercial banks . The primary customers of Hisense Finance are the companies within the Hisense Group . In general, as the risks exposed to Hisense Finance are less than those exposed to the financial institutions with a broad and unrestricted customer base, Hisense Finance is able to safeguard the customers’ funds more effectively . As such, the Company entered into the Financial Services Agreement with Hisense Finance, the principal terms of which are as follows:

(1) The term of the Financial Services Agreement shall commence from the date of approval of the Financial Services Agreement by the independent shareholders (that is, 16 January 2012) until 31 December 2013, which can be terminated by either party if the other party is in default and such default is not remedied within a reasonable period .
(2) The services to be provided by Hisense Finance to the Group include deposit services, loan and electronic bank acceptance bill（電子銀行承兌匯票）services, draft discount services （票據貼現服務）and settlement and sale of foreign exchange services （結售匯服務）, subject to the approval from the Administration of Foreign Exchange（外匯管理局）having been obtained by Hisense Finance for the provision of such services .
(3) The interest rate payable for the Group’s deposits with Hisense Finance shall not be lower than the rate payable by normal commercial banks in the PRC for comparable deposits . The interest rate charged for the loans provided to the Group by Hisense Finance shall not be higher than the rate charged by normal commercial banks in the PRC for comparable loans . Hisense Finance may require the Group to provide guarantee or security over assets in respect of the loan services rendered, depending on the then circumstances and business needs . The service fees charged for the provision of electronic bank acceptance bill services by Hisense Finance for the Group shall not be higher than the standard service fees charged by normal commercial banks in the PRC for comparable services . The discount rate for the provision of draft discount services by Hisense Finance to the Group shall be determined on the basis of the rediscount rate（再貼現利率）quoted by The People’s Bank of China and with reference to market level and shall not be higher than the discount rate charged by normal commercial banks in the PRC providing such services to the Group . The level of services (including the level of exchange rates) for the settlement and sale of foreign exchange at Hisense Finance shall not be worse than the level of services (including the level of exchange rates) of normal commercial banks in the PRC providing such services to the Group .
(4) The maximum daily balance of the deposits placed by the Group with Hisense Finance at any time during the term of the Financial Services Agreement shall not exceed the cap of RMB350,000,000 (inclusive of interest) on any given day . The maximum balance of loan and electronic bank acceptance bills provided by Hisense Finance for the Group during the term of the Financial Services Agreement shall not exceed the cap of RMB1 .5 billion (inclusive of interest and service fees) .

The annual discount interest payable by the Group to Hisense Finance for the provision of draft discount services during the term of the Financial Services Agreement shall not exceed the cap of RMB50,000,000 . Subject to the approval from the Administration of Foreign Exchange（外匯管理局）having been obtained by Hisense Finance for the provision of settlement and sale and foreign exchange services, the annual amount settled or sold by Hisense Finance for the Group shall not exceed the cap of US$50,000,000 .

5. the Property services Framework agreement with snowflake

Snowflake and its relevant subsidiaries possess the expertise and experience for the provision of property services which can enable the Company to carry out its daily operation smoothly . In addition, by leveraging on the price advantages for the provision of property services by Beijing Snowflake Group and its relevant subsidiaries, the Group is able to reduce its costs . As such, the Company entered into the Property Services Framework Agreement with Snowflake, the principal terms of which are as follows:

(1) The term of the Property Services Framework Agreement shall commence from 1 January 2012 to 31 December 2012, which can be terminated before its expiration by mutual agreement of the parties .

report of the Directors

(2) The fees payable by the Group for the provision of property services by Snowflake and/or its subsidiaries is determined by commercial negotiation between the parties according to the principles of fairness and reasonableness with reference to the market price for the provision of similar services from time to time . Such transactions will be conducted in the ordinary and usual course of business of the parties, on normal commercial terms and on terms not less favourable to the parties than terms available to or from (as appropriate) independent third parties .
(3) The fees for the provision of such services will be calculated on a monthly or quarterly basis and payment for such monthly or quarterly fee should be made by telegraphic transfer or bills by the relevant members of the Group .
(4) The transactions contemplated under the Property Services Framework Agreement are subject to the annual cap of RMB33,200,000 .
(II) During the reporting Period, certain connected transactions in relation to ordinary operation have been entered into, details of which are as follows:

				Connected	Percentage of
			Pricing	transaction	total amount
	type of	Particulars of	principle of	amount	of similar
	connected	connected	connected	(rMb	transactions
Connected parties	transaction	transaction	transaction	ten thousand)	(%)
Embraco	Purchase	Purchase of materials	Agreed price	4,183 39	0 28
Hisense Electric	Purchase	Purchase of materials	Agreed price	1,219 91	0 08
Hisense Electric	Receipt of services	Receipt of services	Agreed price	938 18	0 06
Hisense Electric	Sale	Sale of moulds	Market price	5,619 97	0 30
Hisense — Whirlpool	Purchase	Purchase of materials	Agreed price	512 78	0 03
Hisense — Whirlpool	Purchase	Purchase of finished goods	Agreed price	34,984 95	2 33
Hisense — Whirlpool	Sale	Sale of materials	Agreed price	2,213 54	0 12
Hisense Group	Purchase	Purchase of materials	Agreed price	598 23	0 04
Hisense Group	Receipt of services	Receipt of services	Agreed price	22,114 32	1 47
Hisense Group	Sale	Sale of materials	Agreed price	3,671 85	0 19
Hisense Group	Sale	Sale of finished goods	Agreed price	232,130 84	12 24
Hisense Group	Sale	Sale of moulds	Market price	16,276 58	0 86
Hisense Hitachi	Purchase	Purchase of materials	Agreed price	650 50	0 04
Hisense Hitachi	Sale	Sale of finished goods	Agreed price	4,635 20	0 24
Huayi Compressor	Purchase	Purchase of materials	Agreed price	73,868 56	4 91
Hisense Hong Kong	Purchase	Purchase financing agency	Agreed price	8,514 17	0 57
Snowflake	Receipt of services	Receipt of services	Agreed price	2,246 02	0 15

As at 31 December 2012, the Company and its subsidiaries had balances of bank deposits of approximately RMB283,962,600, bank loans of RMB0 and notes payable of approximately RMB1,162,751,300 with Hisense Finance . For the year, loan interests paid to Hisense Finance amounted to approximately RMB23,829,000, interests paid in relation to discounted notes amounted to approximately RMB4,822,500, and handling fees paid amounted to approximately RMB768,700 . Interest income received from Hisense Finance for the deposits amounted to approximately RMB1,485,600 .

report of the Directors

(III) During the reporting Period, the Company and its connected persons (within the meaning under Chapter 14a of the hong kong listing rules) have entered into the following agreements, involving transactions between the group and the relevant connected persons after the reporting Period:

		Counterparty
no.	agreement	to the agreement	Particulars of connected transactions	annual cap
1	Business Co-operation	Hisense Group and	Purchase of home electrical appliances by	RMB2,100,000
	Framework Agreement	Hisense Electric	the Group
	dated 6 December 2012
			Purchase of equipment by the Group	RMB8,550,000
			Purchase of raw materials, parts and	RMB53,830,000
			components by the Group
			Receipt of services by the Group	RMB124,840,000
			Supply of home electrical appliances by	RMB2,888,970,000
			the Group
			Supply of equipment by the Group	RMB8,550,000
			Supply of moulds by the Group	RMB358,550,000
			Supply of raw materials, parts and	RMB26,350,000
			components by the Group
			Provision of services by the Group	RMB6,900,000
2	Huayi Compressors Purchase	Huayi Compressor	Purchase of compressors by the Group	RMB1,180,000,000
	Framework Agreement
	dated 6 December 2012
3	Export Agency for White	Hisense Marketing	Receipt of agency services for export for	RMB280,000,000
	Goods Framework		the white goods products of the Group
	Agreement dated
	6 December 2012
4	Purchase Financing Agency	Hisense Hong Kong	Receipt of financing agency services by	US$36,000,000
	Framework Agreement		the Group to purchase raw materials and
	dated 6 December 2012		components from overseas suppliers
5	Compressors Purchase	Embraco	Purchase of compressors by the Group	RMB106,840,000
	Framework Agreement
	dated 6 December 2012
6	Property Services Framework	Snowflake	Receipt of property services by the Group	RMB32,000,000
	Agreement dated
	6 December 2012
7	Supplemental Agreement	Hisense Finance	Amendment to the Financial Services	The maximum balance
	to Financial Services		Agreement pursuant to which Hisense	of loan and electronic
	Agreement dated		Finance may also require the Group to	bank acceptance bills
	6 December 2012		provide guarantee, security or pledge in	provided by Hisense
			respect of the electronic bank acceptance	Finance for the Group
			bill services rendered	shall not exceed the
				cap of RMB1 5 billion
				(inclusive of interest
				and service fees)

report of the Directors

The term of the agreements in items 1 to 4 and 7 above commences from the date of approval of such agreements by the independent shareholders (that is, 25 January 2013) until 31 December 2013, whereas the term of the agreements in items 5 and 6 commences from 1 January 2013 until 31 December 2013 . Hisense Marketing is a subsidiary of Hisense Group and the relationship between the Group on the one hand and Hisense Group, Hisense Electric, Hisense Hong Kong, Hisense Finance, Huayi Compressor, Embraco and Snowflake on the other hand has been disclosed above .

Details of the agreements can be found in the announcements and the circular published on the website of the Hong Kong Stock Exchange (http://www .hkex .com .hk) on 6 December 2012 and 4 January 2013 respectively .

CroWE horWath ChIna CErtIFIED PublIC aCCountants (llP) IssuED a QualIFIED auDItor’s rEPort For thE CoMPany. thE DEtaIlED EXPlanatIon gIvEn by thE boarD on thE MattErs rElatIng to thE auDIt oPInIon Is as FolloWs:

as described in notes 5.4, 5.6, 6 and 8 to the financial statements (which be contained in the annual report of the Company), a series of related party transactions and unusual cash flows occurred between guangdong greencool Enterprise Development limited, the former substantial shareholder of hisense kelon, and its related parties (hereinafter referred to as the “greencool Companies”) and hisense kelon during the period from october 2001 to July 2005. In addition, during the period, the greencool Companies, through certain specific third party companies such as tianjin lixin Commercial trading Development Company limited, were involved in a series of unusual cash flows with hisense kelon. hisense kelon has instituted proceedings for such transactions and unusual cash flows as well as the suspected fund embezzlements. these matters are related to hisense kelon’s amounts due from or to the greencool Companies and the specific third party companies mentioned above.

as at 31 December 2012, the balance of amounts due to hisense kelon from the greencool Companies and such specific third party companies amounted to rMb651 million. hisense kelon has made a provision for bad debts of rMb365 million in respect of the amounts due from the greencool Companies and such specific third party companies. as set out in note 8 to the financial statements, apart from the withdrawal of the case at the Intermediate People’s Court of Foshan ((2006) Fo Zhong Fa Min Er Chu Zi no. 178) and the rejection of the petition to the Intermediate People’s Court of Foshan ((2006) Fo Zhong Fa Min Er Chu Zi no. 183), hisense kelon has won in all other cases mentioned above and the rulings have all come into force. however, we are unable to adopt appropriate audit procedures to obtain sufficient and appropriate audit evidence to ascertain whether or not the estimated provision for bad debts based on such amount and the assessment and calculation of the receivables are reasonable.

Explanation: A series of related party transactions and unusual cash flows occurred between the Company and Guangdong Greencool Enterprise Development Limited, the former largest shareholder of the Company, and its related parties, or through its third party companies, from 2001 to 2005 . Such transactions and unusual cash flows as well as the suspected fund embezzlements have been formally investigated by the relevant authorities . As at 31 December 2012, the balance of amounts due to Hisense Kelon from the Greencool Companies and the abovementioned specific third party companies amounted to RMB651 million .

The Company has estimated, based on the information about the cases available at present, the recoverable amount of the amounts due from the Greencool Companies and the specific third party companies, and has made a provision for bad debts of RMB365 million . The bases of the estimate include: the information regarding the properties of the Greencool Companies sealed and frozen by the court as applied by the Company, and the preliminary analysis report on the aforesaid fund embezzlements prepared by the lawyer engaged by the Company in that case . As analyzed by the lawyer, the properties of the Greencool Companies available for settlement amounted to approximately RMB1 billion, and the total claim amount against the Greencool Companies by the creditors to the court amounted to approximately RMB2 .4 billion . The amount claimed by the Company for fund embezzlements by the Greencool Companies amounted to RMB791 million . The Company sought to have the outstanding amounts settled in a pro-rata manner based on the amount of assets available and the amount of debts . Based on the estimated settlement proportion, and taking into consideration that the court has not determined the distribution arrangement for the properties sealed, the Board of the Company estimated the recoverable amount and made a provision for bad debts of RMB365 million .

Meanwhile, the law firm handling this case declared that, as the court has not determined the distribution arrangement for the properties sealed in the abovementioned cases, the law firm is unable to, and cannot, warrant on the outcome of the cases and the accurate recovery rate .

report of the Directors

The Board of the Company considers that the provision for bad debts is an accounting estimate . The accounting method applied to such receivables does not breach the relevant requirements of the Accounting Standards for Business Enterprises . While the relevant courts have given their final rulings in favour of the Company in respect of 17 cases of litigation out of 19 initiated by the Company against Greencool Companies and specific third parties and the judgments have come into effect, one case with a claim amount of RMB29 .8437 million was withdrawn by the Company and another case with a claim amount of RMB12 .2894 million was rejected . The aggregate claim amounts of these two cases accounted for a small proportion of the total claim amount of RMB725 million under the court judgments . However, as the enforcement of the rulings in respect of the abovementioned 17 cases have not yet been completed, the Board of the Company is of the view that there is no material difference in terms of the assessed recoverability of such receivables between that for 2012 and 2011 and this qualified opinion will not affect the fairness in the preparation of the Company’s income statement for 2012 .

After the determination of the abovementioned debt settlement proportion, the Company will, based on the confirmed recoverable proportion, adjust retrospectively the 2005 balance sheet and income statement, and adjust the relevant items in the balance sheets as at 31 December 2006, 31 December 2007, 31 December 2008, 31 December 2009, 31 December 2010, 31 December 2011 and 31 December 2012 respectively . The Company has taken measures to sequestrate the properties of the Greencool Companies which are available for settlement . Application has been made to the Foshan Intermediate Court for enforcement of judgments which have come into effect in respect of the abovementioned cases . To drive the enforcement of the judgments, the Company has reported to the relevant authorities such as Supreme People’s Court and General Office of the State Council for various times in order that the amount subject to the judgments can be recovered as soon as possible . On 21 December 2012, the Company received the notices of resumption of execution of the judgments which have come into force from the Foshan Intermediate Court for the cases mentioned above . The Foshan Intermediate Court has decided to resume the execution of the relevant cases based on the spirit in the notice issued by the Supreme People’s Court . The Company will also pay attention to the progress of the cases and make its best efforts to protect its rights as a creditor .

CoDE on CorPoratE govErnanCE PraCtICEs

(A) The Articles of Association of the Company provide that the Company can purchase liability insurance for the Directors with the approval of the shareholders’ general meeting . Following the consideration and approval by the shareholders at the annual general meeting of the Company held on 26 June 2012, the Company has already purchased liability insurance for the Directors and senior management of the Company to meet the requirement in code provision A .1 .8 of the CG Code .
(B) Mr . Wang Ai Guo and Mr . Xu Xiang Yi did not attend certain general meetings held by the Company despite code provision A .6 .7 of the CG Code due to other commitments .

report of the Directors

notE: suPPlEMEntary InForMatIon as rEQuIrED by thE hong kong stoCk EXChangE In rElatIon to thE CoMPany’s a sharE annual rEsults announCEMEnt

I. Particulars of the remuneration oF, Directors, supervisors and senior management of the Company

						actual
					total	remuneration
					remuneration	received at
					received from	the end of
					the Company	the reporting
					(rMb ten	Period (rMb
name	Position	gender	age	term of office	thousand)	ten thousand)
Tang Ye Guo	Chairman	Male	50	2012 06 26-2015 06 25	99 92	99 92
Yu Shu Min	Director	Female	61	2012 06 26-2015 06 25	0 00	0 00
Lin Lan	Director	Male	55	2012 06 26-2015 06 25	0 00	0 00
Xiao Jian Lin	Director	Male	45	2012 06 26-2015 06 25	0 00	0 00
Ren Li Ren	Director, President	Male	48	2012 06 26-2015 06 25	80 08	80 08
Gan Yong He	Director, Vice President	Male	45	2012 06 26-2015 06 25	98 60	98 60
Xu Xiang Yi	Independent non-executive	Male	57	2012 06 26-2015 06 25	4 50	4 50
	Director
Wang Ai Guo	Independent non-executive	Male	48	2012 06 26-2015 06 25	9 00	9 00
	Director
Wang Xin Yu	Independent non-executive	Male	42	2012 06 26-2015 06 25	24 00	24 00
	Director
Guo Qing Cun	Chairman of Supervisory	Male	59	2012 06 26-2015 06 25	0 00	0 00
	Committee
Liu Jiang Yan	Supervisor	Female	37	2012 08 15-2015 06 25	0 00	0 00
Zhang Jian Jun	Employee Representative	Male	39	2012 06 26-2015 06 25	29 84	29 84
	Supervisor
Jia Shao Qian	Vice President	Male	40	2012 06 26-2015 06 25	62 12	62 12
Zhang Yu Qing	Vice President	Male	49	2012 06 26-2015 06 25	65 95	65 95
Wang Yun Li	Vice President	Male	39	2012 06 26-2015 06 25	80 92	80 92
Li Jun	Person in charge of	Female	38	2012 08 15-2015 06 25	37 41	37 41
	finance
	Former Supervisor			2012 06 26-2012 08 14
Xia Feng	Secretary to the Board	Male	36	2012 06 26-2015 06 25	33 39	33 39
Wong Tak Fong	Company Secretary	Female	45	2012 06 26-2015 06 25	16 27	16 27
Zhang Sheng Ping	Former independent non-	Male	47	2009 06 26-2012 06 25	4 50	4 50
	executive Director
Gao Zhong Xiang	Former Supervisor	Male	45	2009 06 26-2012 06 25	0 00	0 00
Liu Zhan Cheng	Former Supervisor	Male	34	2009 06 26-2012 06 25	24 10	24 10

report of the Directors

II. the decision-making procedures and basis of determination of the remuneration of the Directors, supervisors and senior management are as follows:
the remuneration of the Directors of the Company is determined based on suggestions made to the Board by the remuneration and appraisal committee of the Board on the basis of the duties of the Directors and the remuneration level of other listed companies in the same industry, and is subject to consideration and approval by the Board and the shareholders at general meetings;
the remuneration of the supervisors is determined based on suggestions made by the supervisory committee on the basis of the duties of the supervisors and the remuneration level of other listed companies in the same industry and is subject to consideration and approval by the Board and the shareholders at general meetings;
the remuneration and appraisal committee of the Board makes remuneration suggestion to the Board based on the senior management’s experience, responsibilities undertaken for operation under his/ her management, risk, pressure and his/ her contribution to the Company, which is determined and approved by the Board . The final remuneration received by the senior management is also linked with his/her annual performance review .

The Company determines and pays the remuneration of the Directors, supervisors and senior management in accordance with the above requirements and procedures .

III. Material litigations and arbitrations of the Company

					Execution
	amount	Whether		results and	of the
	involved	a liability is		effects of	judgment of
general status of	(rMb ten	expected to		the litigation	the litigation
the litigation (arbitration)	thousand)	be caused	Progress of the litigation (arbitration)	(arbitration)	(arbitration)
Since February 2004,	9,998 41	No	In December 2008, the Foshan Intermediate	—	—
Guangdong Refrigerator			Court dismissed the claim due to
has repeatedly provided Xi’an Kelon fundings and			insufficiency of factual and legal evidence Guangdong Refrigerator
prepayments in an aggregate amount of RMB89,184,085 06 to support the latter’s production The two parties			made an appeal to the Higher People’s Court of the Guangdong Province (the “Guangdong Higher Court”) The Guangdong Higher Court has revoked
later entered into a repayment agreement, but Xi’an Kelon			the judgment of the Foshan Intermediate Court (Fo Zhong Fa Min Er Chu Zi No
has failed to perform such agreement Therefore,			88 (2007)) and the case was to be re- tried by the Foshan Intermediate Court
Guangdong Refrigerator			On 23 December 2011, the Company
initiated the proceedings in the Foshan Intermediate Court, demanding Xi’an			received the civil judgment (Fo Zhong Fa Min Er Chong Zi No 2 (2010)) from the Foshan Intermediate Court The
Kelon to refund the payment			Foshan Intermediate Court made the
for goods and the related expenses			first instance judgment for the retrial, according to which Xi’an Kelon shall
			pay to Guangdong Refrigerator for the
			debt in the amount of RMB87,314,200
			together with relevant interests During
			the Reporting Period,西安航空動力控
			制有限責任公司(Xi’an Aero-Engine
			Controls Company Ltd ) appealed to the
			Guangdong Higher Court, but did not pay an appeal fee Guangdong Higher
			Court ruled that西安航空動力控制有限
			責任公司(Xi’an Aero-Engine Controls
			Company Ltd ) was considered to have withdrawn the appeal The first instance
			judgment for the retrial made by the
			Foshan Intermediate Court entered into
			force

report of the Directors

					Execution
	amount	Whether		results and	of the
	involved	a liability is		effects of	judgment of
general status of	(rMb ten	expected to		the litigation	the litigation
the litigation (arbitration)	thousand)	be caused	Progress of the litigation (arbitration)	(arbitration)	(arbitration)
A series of related party	72541 44	No	On 21 December 2012, the Company	—	In the process
transactions and unusual			received the notices of resumption of		of execution
cash flows occurred between the Greencool Companies and the Company during			execution of (2008) Fo Zhong Fa Zhi Zi No 853, (2009) Fo Zhong Fa Zhi Zi No 113, 114, 115, 116, 118, 157,
the period from October			234, 235, 236, 237, 238, 259, 502, 852,
2001 to July 2005 In addition, during the period, the Greencool Companies,			995, 996 and (2010) Fo Zhong Fa Zhi Zi No 32 from the Foshan Intermediate Court Regarding the application by the
through certain specific third			Company and the relevant subsidiaries
party companies such as			in which it holds a controlling equity
Tianjin Lixin Commercial			interest for the execution of the cases
Trading Development			regarding the damage to their corporate
Company Limited, were			interests by Guangdong Greencool and
involved in a series of			its associated companies and Gu Chu
unusual cash flow with the			Jun, the Foshan Intermediate Court has
Company The Company			decided to resume the execution of the
has instituted proceedings			relevant cases based on the spirit in the
against Greencool Companies			notice issued by the Supreme People’s
for such transactions and			Court on the resumption of execution
unusual cash flows as well as the suspected fund embezzlements			procedures against the Greencool Companies in accordance with the law

Iv. Disposal of assets by the Company

On 12 January 2012, the seventh session of the Board convened the first extraordinary meeting in 2012, at which the Resolution in relation to the Transfer of 60% of the Equity Interests in Xi’an Kelon Refrigeration Co ., Ltd . and Relevant Debt was considered and passed . On the same day, the Company and Shaanxi Qidi Science and Technology Park Development Co ., Ltd . entered into the equity transfer contract in relation to the transfer of the 60% equity interests in Xi’an Kelon held by the Company and the relevant debt (being the debt owed by Xi’an Kelon to the Company in the sum of RMB10,580,000 and the debt owed by Xi’an Kelon to Guangdong Refrigerator in the sum of RMB87,314,216 .54, together with interests, as well as the case acceptance fee, property preservation fee and assessment costs in the sum of RMB872,733) by the Group to Shaanxi Qidi Science and Technology Park Development Co ., Ltd . for a total consideration of RMB110,580,000 . For details, please see the announcement published by the Company on 12 January 2012 on the website of the Hong Kong Stock Exchange (http://www .hkex .com .hk)) . The procedures for the transfer of equity interests have been completed, and the Company no longer holds any equity interests and debt in Xi’an Kelon .

v. status of material projects which are not funded by Capital raising activities

Unit: RMB ten thousand

			aggregate
			actual amount
	total	amount	injected at
	investment	injected	the end of	Progress of	Earnings of
name of project	amount	during the year	the period	project	project
Project in relation to	10000	10000	10000	Infrastructure stage	—
Shandong Refrigerator
production base

Explanation of material investment projects which are not funded by capital raising activities

In order to enhance the Company’s production capability of middle-to-high-end refrigerators, upon the approval of the eighth session of the Board of the Company at the fifth extraordinary meeting in 2012, the Company injected a capital of RMB100 million to construct a new refrigerator production base and establish a wholly-owned subsidiary Shandong Refrigerator .

report of the Directors

vI. shareholdings in other listed companies held by the Company

						Changes in
				Carrying	Profit and	ownership
				amount at	loss for the	interests for
			shareholding	the end of the	reporting	the reporting
		Initial investment	percentage in	period	Period	Period
		cost	the company	(rMb ten	(rMb ten	(rMb ten
stock code	stock abbreviation	(rMb ten thousand)	(%)	thousand)	thousand)	thousand)
000404	Huayi Compressor	4,168 60	6 45	5,034 49	663 42	670 71

vII. Particulars of guarantees

Unit: RMB ten thousand

External guarantees given by the Company (excluding guarantees for its subsidiaries) Date of disclosure

	Date of disclosure							Whether
	of relevant							the
	announcement							guarantee
	in relation		actual					is given
	to the limit on the	limit on	effective	actual				for any
	guaranteed	guaranteed	date (date of	guaranteed		Period of	Completed	connected
the guaranteed party	amount	amount	agreement)	amount	type of guarantee	guarantee	or not	party
Fujian Kelon	2011 11 30	3,000	2012 04 26	1,000	General guarantee	2012 04 26- 2012 08 31	Yes	No
Total limit on the amount of external guarantees approved during				12,000	Actual amount of external guarantees during			1,000
the Reporting Period (A1)					the Reporting Period (A2)
Total limit on the amount of external guarantees which		has been approved		12,000	Total balance of actual amount of external		guarantees	0
at the end of the Reporting Period (A3)					at the end of the Reporting Period (A4)

guarantees given by the Company for its subsidiaries

	Date of disclosure							Whether
	of relevant							the
	announcement							guarantee
	in relation		actual					is given
	to the limit on the		effective	actual				for any
	guaranteed	guaranteed	date (date of	guaranteed		Period of	Completed	connected
the guaranteed party	amount	amount	agreement)	amount	type of guarantee	guarantee	or not	party
Guangdong Refrigerator Guangdong Refrigerator Guangdong Air-conditioner Guangdong Air-conditioner Kelon Fittings Kelon Fittings Guangdong Freezer Ronshen Plastic Yangzhou Refrigerator Yangzhou Refrigerator Kelon International Incorporation	2011 11 30	90,000 90,000 30,000 30,000 5,000 5,000 5,000 6,000 10,000 10,000 50,000	2011 08 03 2012 10 10 2011 09 30 2012 08 21 2011 09 30 2012 10 15 2011 08 17 2011 10 31 2010 07 23 2010 07 23 2011 07 29	6,006 66 72 43 44,571 06 3,293 75 334 50 98 55 1,329 01 2,432 18 2,994 78 311 95 34,098 84	Joint liability guarantee; Mortgage Joint liability guarantee; Mortgage Joint liability guarantee Joint liability guarantee Joint liability guarantee; Mortgage Joint liability guarantee; Mortgage Joint liability guarantee; Mortgage Joint liability guarantee Joint liability guarantee Joint liability guarantee Joint liability guarantee	2011 08 03- 2012 12 14 2012 10 10- 2013 02 21 2011 09 30- 2012 12 24 2012 08 21- 2013 08 30 2011 09 30- 2012 08 30 2012 10 15- 2013 08 30 2011 08 17- 2012 12 26 2011 10 31- 2012 07 25 2010 07 23- 2012 08 23 2010 07 23- 2013 01 25 2011 07 29- 2013 08 28	Yes No Yes No Yes No Yes Yes Yes No Yes	No No No No No No No No No No No

report of the Directors

Total limit on the amount of guarantees for subsidiaries approved during	198,000	Actual amount of guarantees for subsidiaries during	95,543 71
the Reporting Period (B1)		the Reporting Period (B2)
Total limit on the amount of guarantees for subsidiaries which has been approved	198,000	Total balance of actual amount of guarantees for	3,776 68
at the end of the Reporting Period (B3)		subsidiaries at the end of the Reporting Period (B4)
total guaranteed amount of the Company (being	the sum of the previous two major items)
Total limit on the amount of guarantees approved during the	210,000	Actual amount of guarantees during the	96,543 71
Reporting Period (A1+B1)		Reporting Period (A2+B2)
Total limit on the amount of guarantees which has been approved	210,000	Total balance of actual amount of guarantees	3,776 68
at the end of the Reporting Period (A3+B3)		at the end of the Reporting Period (A4+B4)
Including:
Guaranteed amount provided for shareholders, beneficial controlling parties and their connected parties (C)			0
Guaranteed amount provided directly or indirectly for the guaranteed party with gearing ratio over 70% (D)			82,396 70
Total guaranteed amount over 50% of the net asset (E)			0
Sum of the above three guarantees (C+D+E)			82,396 70
Statement on possibility to assume joint liabilities for guarantees which have not expired			Nil
Description of provision of external guarantee in violation of prescribed procedures			Nil

vIII. Derivatives investment

(i) Situations of derivatives investment

Risk analysis of positions in derivatives during the Reporting Period and explanations of risk control measures (including but not limited to market risk, liquidity risk, credit risk, operation risk, legal risk etc .)

The derivatives business of the Company mainly represents the foreign exchange derivatives business used to avoid the risk of foreign exchange fluctuations related to the overseas sales receivables . The Company determines a reasonable range of foreign exchange rates to achieve the hedging purpose .

The Company has formulated the “Management Measures for the Foreign Exchange Capital Business” and “the Internal Control System for Forward Foreign Exchange Capital Transactions” . The measures specifically regulate the basic principles, operation rules, risk control measures and internal controls that shall be followed when engaging in the business of foreign exchange derivatives . In respect of actual business management, the Company manages the derivatives business before, during and after the operation based on the management measures for the derivatives business .

Changes in market price or product fair value of invested derivatives during the Reporting Period, where specific methods and relevant assumptions and parameters used shall be disclosed in the analysis of derivatives’ fair value

The assessment of the fair value of the derivatives carried out by the Company mainly represents the outstanding foreign exchange forward contracts entered into by the Company and banks, which are recognized as transactional financial assets or liabilities based on the difference between the quotation of the outstanding foreign exchange forward contracts and the forward exchange rate as at the end of the period . During the Reporting Period, the Company recognized a gain on change in fair value of the derivatives of RMB-16 .6375 million . Investment gain amounted to RMB42,961,800, resulting in a total profits or losses of RMB26,324,300 .

Explanations of any significant changes in the Company’s accounting policies and specific accounting and auditing principles on derivatives between the Reporting Period and the last reporting period

During the Reporting Period, there were no material changes in the accounting policy and specific accounting and auditing principles for the Company’s derivatives business as compared to last reporting period .

report of the Directors

Specific opinions of independent Directors on the derivatives investment and risk control of the Company

Opinion of independent directors: Commencement of foreign exchange derivatives business by the Company was beneficial to the Company in the prevention of exchange rate fluctuation risks . The Company has devised the Internal Control System for Forward Foreign Exchange Capital Transactions to strengthen internal control and enhance the management of foreign exchange risks by the Company, and the targeted risk control measures adopted were practicable .

(ii) Positions in derivatives investment at the end of the Reporting Period

Percentage of contract amount at the end of the period to Contract Contract gain or loss net assets of amount at the amount at during the the Company at beginning of the the end of the reporting the end of the period (rMb ten period (rMb ten Period (rMb ten reporting Period type of contract thousand) thousand) thousand) (%) Foreign exchange derivatives contracts 159,732 .21 199,816 .46 2,632 .43 132 .15

IX. Description of changes in scope of consolidation as compared to financial report last year

1. Subsidiaries that have ceased to be consolidated:

(1) Xi’an Kelon

During the Reporting Period, the Company transferred its 60% equity interest in Xi’an Kelon to Shaanxi Qidi Science and Technology Park Development Co ., Ltd . Relevant transfer procedures have been completed . Accordingly, Xi’an Kelon ceased to be consolidated .

(2) KELON USA, Inc.

During the Reporting Period, the Company deregistered its wholly-owned subsidiary KELON USA, Inc . Accordingly, KELON USA, Inc . ceased to be consolidated .

2. Subsidiaries newly consolidated:

During the Reporting Period, the Company established Shandong Refrigerator . Relevant establishment procedures have been completed . Accordingly, Shandong Refrigerator was consolidated in the period .

report of the Directors

this report is published in both English and Chinese. If there is any conflict between the English and the Chinese versions, the Chinese version shall prevail.

DEFInItIons

In this report, unless the context requires otherwise, the following terms or expressions shall have the following meanings:

“Company”, “the Company” Hisense Kelon Electrical Holdings Company Limited “Hisense Air-Conditioning” Qingdao Hisense Air-Conditioning Company Limited “Hisense Electric” Hisense Electric Co ., Ltd . “Hisense Group” Hisense Company Limited “Hisense Hitachi” Qingdao Hisense Hitachi Air-Conditioning Systems Co ., Ltd . “Hisense-Whirlpool” Hisense-Whirlpool (Zhejiang) Electric Appliances Co ., Ltd . “Hisense Finance” Hisense Finance Company Limited “Embraco” Beijing Embraco Snowflake Compressor Co ., Ltd . “Snowflake” Beijing Snowflake Electrical Appliance Group Corporation “Hisense Marketing” Qingdao Hisense International Marketing Holdings Co ., Ltd . “Beijing Refrigerator” Hisense (Beijing) Electric Company Limited “Nanjing Refrigerator” Hisense (Nanjing) Electric Company Limited “Shandong Refrigerator” Hisense (Shandong) Refrigerator Company Limited “Hisense Hong Kong” Hisense (Hong Kong) Company Limited “Guangdong Greencool” Guangdong Greencool Enterprise Development Company Limited “Greencool Companies” Guangdong Greencool and other related parties “Xi’an Kelon” Xi’an Kelon Refrigeration Co ., Ltd . “Fujian Kelon” Fujian Kelon Air-Conditioner Sales Co ., Ltd . “Guangdong Refrigerator” Hisense Ronshen (Guangdong) Refrigerator Co ., Ltd . “Guangdong Air-Conditioner” Guangdong Kelon Air-Conditioner Co ., Ltd . “Kelon Fittings” Guangdong Kelon Fittings Co ., Ltd . “Guangdong Freezer” Hisense Ronshen (Guangdong) Freezer Co ., Ltd . “Yangzhou Refrigerator” Hisense Ronshen (Yangzhou) Refrigerator Co ., Ltd . “Kelon Mould” Guangdong Kelon Mould Company Limited “Ronshen Plastic” Foshan Shunde District Ronshen Plastic Co ., Ltd . “Hisense Mould” Qingdao Hisense Mould Co ., Ltd . “Huayi Compressor” Huayi Compressor Company Limited “Foshan Intermediate Court” Intermediate People’s Court of Foshan City “RMB” Renminbi “Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited

report of the supervisory Committee

Dear Shareholders:

During the reporting period, the Supervisory Committee of Hisense Kelon Electrical Holdings Company Limited has faithfully discharged its duties to protect the lawful interests of the Company, its staff and shareholders in compliance with the relevant requirements of the Company Law of the PRC, the Listing Rules of Shenzhen Stock Exchange, the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the articles of association of the Company . We would like to report to you the work of the Supervisory Committee during 2012 in accordance with the articles of association of the Company:

1. Work oF thE suPErvIsory CoMMIttEE DurIng thE rEPortIng PErIoD

During the reporting period, the Supervisory Committee held a total of 7 meetings, summarized as follows:

(1) The first meeting of the seventh session of the Supervisory Committee in 2012 was held on 29 March 2012, at which the 2011 annual report of the Company and related issues were considered and passed;
(2) The second meeting of the seventh session of the Supervisory Committee in 2012 was held on 24 April 2012, at which the 2012 first quarterly report of the Company was considered and passed;
(3) The third meeting of the seventh session of the Supervisory Committee in 2012 was held on 10 May 2012, at which the resolution on the election of the new session of the Supervisory Committee was considered and passed;
(4) The first meeting of the eighth session of the Supervisory Committee in 2012 was held on 26 June 2012, at which the resolution on the election of Mr . Guo Qing Cun as chairman of the eighth session of the Supervisory Committee of the Company was considered and passed;
(5) The second meeting of the eighth session of the Supervisory Committee in 2012 was held on 28 June 2012, at which the resolutions on the resignation of Ms . Li Jun as shareholder representative supervisor and the nomination of Ms . Liu Jiang Yan as shareholder representative supervisor of the eighth session of the Supervisory Committee of the Company were considered and passed;
(6) The third meeting of the eighth session of the Supervisory Committee in 2012 was held on 23 August 2012, at which the 2012 interim report of the Company and related issues were considered and passed;
(7) The fourth meeting of the eighth session of the Supervisory Committee in 2012 was held on 29 October 2012, at which the 2012 third quarterly report of the Company was considered and passed .

2. InDEPEnDEnt oPInIons oF thE suPErvIsory CoMMIttEE on rElEvant MattErs oF thE CoMPany In 2012

(1) Operation of the Company in compliance with law

During the reporting period, the Company continued to perfect its various management systems, and the Company’s decision-making processes were in compliance with law . The holding procedures, the motions and the voting procedures of the Company’s shareholders’ general meetings and board meetings all complied with the laws and regulations and the requirements of the articles of association of the Company . The directors and senior management were diligent and responsible, and conscientiously implemented resolutions of the shareholders’ general meetings and board meetings, and have not acted in violation of the laws, regulations or articles of association of the Company or prejudiced the Company’s interests in the execution of their duties in the Company .

report of the supervisory Committee

(2) Examination of the Company’s financial situation

Crowe Horwath China Certified Public Accountants (LLP) has audited the Company’s financial statement for the year 2012 and issued an auditor’s report with qualified opinion . The Supervisory Committee is of the view that the opinion expressed in the auditor’s report was fair and objective and the current financial statement has truthfully reflected the state of financial condition and operating results of the Company .

(3) Special explanation concerning matters involved in the audit opinion

The Supervisory Committee have reviewed the special explanation of the board of directors of the Company concerning matters involved in the audit opinion and agreed with the special explanation of the board of directors of the Company concerning matters involved in the audit opinion .

(4) During the reporting period, the Company had not made any investments which were funded by capital raising activities .
(5) During the reporting period, the prices for disposal of the Company’s assets were reasonable . There was neither any insider dealing nor any prejudice to the shareholders’ interests or any loss of the assets of the Company .
(6) During the reporting period, the connected transactions which the Company entered into with connected parties were fair and reasonable and the prices were fairly determined without prejudicing the interests of any nonconnected shareholders and the Company .
(7) Opinion of the Company’s Supervisory Committee on the Company’s internal control self-assessment report

After reviewing the Company’s 2012 Internal Control Self-assessment Report, the Company’s Supervisory Committee is of the view that:

With reference to the relevant requirements of Basic Norms for Enterprise Internal Control and the Guidelines of the Shenzhen Stock Exchange for the Standardized Operation of Companies Listed on the Main Board, the Company’s existing internal control systems are basically sound and cover all levels and segments of the Company’s operation, are in compliance with the requirements of the relevant laws and regulations, and suit the actual needs of the Company’s operating activities . Each of the internal control systems is able to exert relatively effective control of the different segments in the Company’s operation, and is capable of preventing, timely discovering and rectifying possible errors in the Company’s operation process, controlling the relevant risks, protecting the safety and completeness of the Company’s assets, ensuring the truthfulness, accuracy and timeliness of the accounting records and accounting information . The Company’s 2012 Internal Control Selfassessment Report has fully, objectively and truly reflected the actual internal control situation of the Company, and we agree to the issue of the 2012 Internal Control Self-assessment Report by the board of directors of the Company .

Corporate Information

rEgIstErED oFFICE In ChIna

No . 8 Ronggang Road, Ronggui, Shunde, Foshan, Guangdong Province, The People’s Republic of China .

PlaCE oF busInEss In hong kong

Room 3101-3105, Singga Commercial Centre, No 148 Connaught Road West, Hong Kong

sECrEtary For thE boarD oF DIrECtors & CoMPany sECrEtary

auDItors

Crowe Horwath China Certified Public Accountants (LLP) 4/F, Tower 2, No .16 XiSihuanZhongLu, Haidian District, Beijing

lEgal aDvIsErs

China:

Guangdong Guardian Law Firm 26/F, North Tower, Yuexiu City Plaza, 445 Dongfeng Road Central, Guangzhou

hong kong:

Secretary for the Board of Directors: Xia Feng Company Secretary: Wong Tak Fong

Sit, Fung, Kwong & Shum 9/F ., York House, The Landmark, 15 Queen’s Road Central, Hong Kong

authorIZED rEPrEsEntatIvEs

bankErs In ChIna

Tang Ye Guo Xiao Jian Lin

InvEstor CoMMunICatIon CEntrE

Hong Kong Registrars Limited 17th Floor, Hopewell Center, 183 Queen’s Road East, Wanchai, Hong Kong .

The Industrial and Commercial Bank of China Bank of China Bank of Communications Agricultural Bank of China Guangdong Development Bank Shunde Rural Commercial Bank

bankErs In hong kong

tElEPhonE

(852) 2593 5622 (86-757) 2836 2570

Australia & New Zealand Bank, Hong Kong Branch Bank of China (Hong Kong) Co ., Ltd . The Hongkong and Shanghai Banking Corporation Limited

FaX

(852) 2802 8085 (86-757) 2836 1055

EMaIl aDDrEss

kelon@gdkelon .com .hk kelonsec@hisense .com

IntErnEt WEbsItE

http://www .kelon .com

auditor’s report

Crowe horwath China Certified Public accountants (llP) tower 2, 16 XisihuanZhonglu, haidian District, beijing, P.r.C. tel: 0086-10-88219191 Fax: 0086-10-88210558

Guo Hao Shen Zi [2013] No . 407A0001

to the shareholders of hisense kelon Electrical holdings Company limited:

We have audited the accompanying financial statements of Hisense Kelon Electrical Holdings Company Limited (the “Company” or “Hisense Kelon”), which comprise the Company’s and consolidated balance sheets as at 31 December 2012, and the Company’s and consolidated income statements, the Company’s and consolidated cash flows statements and the Company’s and consolidated statements of changes in equity for 2012 and the notes to the financial statements .

I. ManagEMEnt’s rEsPonsIbIlIty For thE FInanCIal statEMEnts

Management of the Company is responsible for the preparation and fair presentation of these financial statements . This responsibility includes: (1) preparing the financial statements in accordance with Accounting Standards for Business Enterprises to achieve fair presentation of the financial statements; (2) designing, implementing and maintaining internal control that is necessary to enable that the financial statements are free from material misstatement, whether due to fraud or error .

II. auDItor’s rEsPonsIbIlIty

Our responsibility is to express an audit opinion on these financial statements based on our audit . We conducted our audit in accordance with China Standards on Auditing . China Standards on Auditing require that we comply with the Code of Ethics for Chinese Certified Public Accountants and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement .

An audit involves performing audit procedures to obtain audit evidence about the amounts and disclosures in the financial statements . The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error . In making those risk assessments, the auditor considers the internal control relevant to the entity’s preparation and fair presentation of financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control . An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements .

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion .

III. MattErs lEaDIng to QualIFIED oPInIons

As set out in notes 5(4), 5(6), 6 and 8 to the financial statements, a series of related party transactions and unusual cash flows occurred between Guangdong Greencool Enterprise Development Limited, the former substantial shareholder of the Company, and its related parties (hereinafter referred to as the “Greencool Companies”) and Hisense Kelon during the period from October 2001 to July 2005 (the “Period”) . In addition, during the Period, the Greencool Companies, through certain specific third party companies such as Tianjin Lixin Commercial Trading Development Company Limited, were involved in a series of unusual cash flows with Hisense Kelon . Hisense Kelon has instituted proceedings for such transactions and unusual cash flows as well as the suspected fund embezzlements . These matters are related to Hisense Kelon’s amounts due from or to the Greencool Companies and the specific third party companies mentioned above .

auditor’s report

As at 31 December 2012, the balance of amounts due to Hisense Kelon from the Greencool Companies and such specific third party companies amounted to RMB651 million . Hisense Kelon has made a provision for bad debts of RMB365 million in respect of the amounts due from the Greencool Companies and such specific third party companies . As set out in note 8 to the financial statements, apart from the withdrawal of the case at the Intermediate People’s Court of Foshan ((2006) Fo Zhong Fa Min Er Chu Zi No . 178) and the rejection of the petition to the Intermediate People’s Court of Foshan ((2006) Fo Zhong Fa Min Er Chu Zi No . 183), Hisense Kelon has won in all other cases mentioned above and the rulings have all come into force . However, we are unable to adopt appropriate audit procedures to obtain sufficient and appropriate audit evidence to ascertain whether or not the estimated provision for bad debts based on such amount and the assessment and calculation of the receivables are reasonable .

Iv. auDIt oPInIon

In our opinion, apart from the possible effects of the above matters, the financial statements of the Company present fairly, in all material aspects, the Company’s and consolidated financial position as at 31 December 2012 and the Company’s and consolidated results of operations and cash flows for the year then ended in accordance with Accounting Standards for Business Enterprises .

Crowe horwath China Certified Public accountants (llP) Chinese Certified Public Accountant: hu Jia Qing Beijing, the People’s Republic of China Chinese Certified Public Accountant: Ma li

28 March 2013

1. Consolidated balance sheets

Prepared by: Hisense Kelon Electrical Holdings Company Limited		Unit: RMB
Item	Closing balance	opening balance
Current assets:
Cash at bank and on hand	516,065,467 96	398,532,682 30
Balances with clearing companies
Lending capital
Financial assets held-for-trading	10,678,293 47	33,787,696 24
Notes receivable	1,558,766,192 61	502,919,307 39
Accounts receivable	1,455,882,205 49	1,193,767,494 97
Prepayments	304,301,601 58	315,474,246 14
Insurance premium receivable
Receivables from reinsurers
Reserves for reinsurance contract receivable
Interests receivable
Dividends receivable
Others receivables	342,722,165 14	439,873,135 47
Financial assets purchased under agreements to resell
Inventories	1,738,441,110 15	1,547,277,865 07
Non-current assets due within one year
Other current assets	3,309,064 74	3,568,803 11
Total current assets	5,930,166,101 14	4,435,201,230 69
Non-current assets:
Disbursement of entrusted loans and advances
Available-for-sale financial assets
Held-to-maturity investments
Long-term receivables
Long-term equity investments	751,925,728 90	610,755,845 36
Investment properties	36,446,602 09	38,019,850 43
Fixed assets	1,909,832,448 93	1,947,070,154 12
Construction in progress	68,344,253 58	80,702,425 28
Construction materials
Disposal of fixed assets
Productive biological assets
Oil and gas assets
Intangible assets	495,496,878 49	520,066,256 26
Development costs
Goodwill
Long-term prepaid expenses	827,939 58
Deferred tax assets	7,294,688 02	3,623,816 22
Other non-current assets
Total non-current assets	3,270,168,539 59	3,200,238,347 67
Total assets	9,200,334,640 73	7,635,439,578 36

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

1. Consolidated balance sheets

Prepared by: Hisense Kelon Electrical Holdings Company Limited		Unit: RMB
Item	Closing balance	opening balance
Current liabilities:
Short-term borrowings	30,309,453 94	1,004,998,894 20
Borrowings from central bank
Receipt of deposits and deposits from other banks
Loans from other banks
Financial liabilities held-for-trading Notes payable Accounts payable Advances from customers	164,231 22 1,432,852,210 08 2,335,425,936 47 837,065,771 59	6,636,121 77 612,667,073 33 2,054,610,132 81 758,206,285 15
Proceeds from disposal of financial assets under agreements to
repurchase
Handling fees and commission payable Employee remunerations payable Taxes payable Interests payable Dividends payable Other payables	223,662,684 56 (48,994,818 36) 202,930 49 2,067 02 1,581,294,492 81	190,026,739 08 (90,090,833 72) 1,447,530 16 2,067 02 1,156,195,947 88
Reinsured accounts payable
Reserves for reinsurance contract
Customer brokerage deposits
Securities underwriting brokerage deposits
Non-current liabilities due within one year Other current liabilities	566,406,795 92	467,458,815 86
Total current liabilities	6,958,391,755 74	6,162,158,773 54
Non-current liabilities:
Long-term borrowings
Bonds payable
Long-term payables
Specific payables Provisions	311,862,482 54	271,488,354 42
Deferred tax liabilities
Other non-current liabilities Total non-current liabilities	56,872,390 49 368,734,873 03	40,977,575 97 312,465,930 39
Total liabilities	7,327,126,628 77	6,474,624,703 93
Owners’ equity (or shareholders’ equity): Paid in capital (or share capital) Capital reserve	1,354,054,750 00 2,101,650,386 96	1,354,054,750 00 2,096,929,058 26
Less: Treasury shares
Special reserves
Surplus reserves	145,189,526 48	145,189,526 48
General risk provisions
Retained profits Difference on translation of foreign currency financial statements	(2,099,392,002 85) 10,539,505 90	(2,817,156,683 25) 26,106,945 84
Total equity attributable to owners of the Company Minority interests	1,512,042,166 49 361,165,845 47	805,123,597 33 355,691,277 10
Total owners’ equity (or shareholders’ equity)	1,873,208,011 96	1,160,814,874 43
Total liabilities and owners’ equity (or shareholders’ equity)	9,200,334,640 73	7,635,439,578 36

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

2. Company balance sheet

Prepared by: Hisense Kelon Electrical Holdings Company Limited		Unit: RMB
Item	Closing balance	opening balance
Current assets:
Cash at bank and on hand	342,912,430 57	98,869,779 84
Financial assets held-for-trading
Notes receivable	1,488,240,456 12	437,663,532 61
Accounts receivable	654,198,358 60	808,512,974 99
Prepayments	119,788,776 75	756,622,872 10
Interests receivable
Dividends receivable
Other receivables	1,020,581,138 05	934,852,209 18
Inventories	1,101,946,998 54	984,923,528 87
Non-current assets due within one year
Other current assets	2,787,913 86	3,082,829 08
Total current assets	4,730,456,072 49	4,024,527,726 67
Non-current assets:
Available-for-sale financial assets
Held-to-maturity investments
Long-term receivables
Long-term equity investments	3,114,944,543 47	2,981,504,280 39
Investment properties	15,218,337 00	16,605,766 00
Fixed assets	184,855,845 67	211,015,835 20
Construction in progress	6,298,205 16
Construction materials
Disposal of fixed assets
Productive biological assets
Oil and gas assets
Intangible assets	227,144,140 00	235,490,945 00
Development expenses
Goodwill
Long-term prepaid expenses
Deferred tax assets
Other non-current assets
Total non-current assets	3,548,461,071 30	3,444,616,826 59
Total assets	8,278,917,143 79	7,469,144,553 26

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

2. Company balance sheet

Prepared by: Hisense Kelon Electrical Holdings Company Limited		Unit: RMB
Item	Closing balance	opening balance
Current liabilities:
Short-term borrowings		350,000,000 00
Financial liabilities held-for-trading
Notes payable	1,393,993,081 39	641,592,857 89
Accounts payable	1,454,062,384 08	2,078,189,683 49
Advance receipts	757,121,873 57	609,092,217 78
Staff remuneration payables	110,455,624 85	90,224,591 92
Taxes payable	6,815,013 66	6,431,126 07
Interests payable		258,875 78
Dividends payable
Other payables	1,488,361,520 58	1,084,806,857 61
Non-current liabilities due within one year
Other current liabilities	462,020,126 95	366,496,222 69
Total current liabilities	5,672,829,625 08	5,227,092,433 23
Non-current liabilities:
Long-term borrowings
Bonds payable
Long-term payables
Special payables
Provisions	307,754,994 01	267,088,764 47
Deferred tax liabilities
Other non-current liabilities	38,150,435 08	26,427,298 90
Total non-current liabilities	345,905,429 09	293,516,063 37
Total liabilities	6,018,735,054 17	5,520,608,496 60
Owners’ equity (or shareholders’ equity):
Paid in capital (or share capital)	1,354,054,750 00	1,354,054,750 00
Capital reserve	2,226,146,119 35	2,251,104,411 10
Less: Treasury shares
Special reserves
Surplus reserves	114,580,901 49	114,580,901 49
General risk provisions
Retained profits	(1,434,599,681 22)	(1,771,204,005 93)
Differences on translation of foreign currency financial statements
Total owners’ equity (or shareholders’ equity)	2,260,182,089 62	1,948,536,056 66
Total liabilities and owners’ equity (or shareholders’ equity)	8,278,917,143 79	7,469,144,553 26

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

3. Consolidated Income statement

Prepared by: Hisense Kelon Electrical Holdings Company Limited	Prepared by: Hisense Kelon Electrical Holdings Company Limited		Unit: RMB
		amount for	amount for
Item		current period	previous period
I	Total operating revenue Including: Operating revenue	18,958,915,310 09 18,958,915,310 09	18,488,663,163 12 18,488,663,163 12
	Interest incomes
	Insurance premium earned
	Income from handling fees and commission
II	Total operating costs Including: Operating costs	18,591,936,414 70 15,034,033,516 68	18,530,787,771 28 15,202,894,118 35
	Interest expenses
	Handling fees and commission expenses
	Refunded premiums
	Net amount of compensation payout
	Net amount of insurance contract reserves provided
	Policyholder dividend expense
	Reinsurance premium income
	Business taxes and surcharges Selling and distribution expenses General and administrative expenses Financial expenses Impairment losses on assets	105,218,703 08 2,731,894,401 50 640,893,526 75 38,999,591 86 40,896,674 83	63,151,069 49 2,636,211,941 70 547,649,947 84 56,004,041 79 24,876,652 11
	Add: Gain from changes in fair value (Loss denoted by “–”) Investment income (Loss denoted by “–”)	(16,637,512 22) 335,254,433 67	4,961,913 35 138,560,585 23
	Including: Share of profit of associates and jointly controlled entities	190,097,006 83	94,337,603 16
	Foreign exchange gains (Loss denoted by “–”)
III	Operating profits (Loss denoted by “–”) Add: Non-operating income Less: Non-operating expenses Including: Loss on disposal of non-current assets	685,595,816 84 64,651,884 85 7,393,693 62 2,711,055 26	101,397,890 42 158,721,726 61 13,420,036 77 7,324,104 26
IV	Total profit (Total loss denoted by “–”) Less: Income tax expenses	742,854,008 07 10,548,434 72	246,699,580 26 21,250,352 26
V	Net profits (Net loss denoted by “–”)	732,305,573 35	225,449,228 00
	Including: Net profits of consolidated parties prior to
	consolidation
	Net profits attributable to shareholders of the parent Profit and loss of minority interests	717,764,680 40 14,540,892 95	227,015,126 87 (1,565,898 87)
VI	Earnings per share: (1) Basic earnings per share (2) Diluted earnings per share	— 0 5301 0 5301	— 0 1677 0 1677
VII	Other comprehensive income	(15,494,563 24)	(9,365,044 24)
VIII	Total comprehensive income	716,811,010 11	216,084,183 76
	Total comprehensive income attributable to shareholders of
	the parent Total comprehensive income attributable to minority interests	702,270,117 16 14,540,892 95	217,650,082 63 (1,565,898 87)

For acquisitions through business combination under common control during the period, the net profit of the acquirees realized prior to business combination was: RMB0 .

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

4. Company Income statement

Prepared by: Hisense Kelon Electrical Holdings Company Limited	Prepared by: Hisense Kelon Electrical Holdings Company Limited		Unit: RMB
		amount for	amount for
Item		current period	previous period
I	Total operating revenue	13,406,348,502 57	11,847,731,695 62
	Less: Operating costs	10,778,043,429 66	9,503,853,713 77
	Business taxes and surcharges	48,003,078 26	42,618,391 80
	Selling and distribution expenses	2,312,048,959 91	2,232,312,327 06
	General and administrative expenses	52,155,934 46	32,096,123 53
	Financial expenses	8,572,096 98	45,015,094 49
	Impairment losses on assets	33,546,203 90	13,381,932 10
	Add: Gain from changes in fair value (Loss denoted by “–”)
	Investment income (Loss denoted by “–”)	127,802,268 55	141,512,781 42
	Including: Share of profit of associates and jointly
	controlled entities	190,097,006 83	94,337,603 16
II	Operating profits (Loss denoted by “–”)	301,781,067 95	119,966,894 29
	Add: Non-operating income	37,041,171 92	131,138,218 79
	Less: Non-operating expenses	2,217,915 16	5,084,246 50
	Including: Loss on disposal of non-current assets	145,147 14	443,418 68
III	Total profit (Total loss denoted by “–”)	336,604,324 71	246,020,866 58
	Less: Income tax expenses
IV	Net profits (Net loss denoted by “–”)	336,604,324 71	246,020,866 58
V	Earnings per share:	—	—
	(1) Basic earnings per share
	(2) Diluted earnings per share
VI	Other comprehensive income	72,876 70	(2,986,537 67)
VII	Total comprehensive income	336,677,201 41	243,034,328 91

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

5. Consolidated Cash Flows statement

Prepared by: Hisense Kelon Electrical Holdings Company Limited	Prepared by: Hisense Kelon Electrical Holdings Company Limited		Unit: RMB
		amount for	amount for
Item		current period	previous period
I	Cash flows from operating activities:
	Cash received from sales of goods and rendering of services	9,072,544,890 41	8,217,879,262 84
	Net increase in customer deposits and interbank deposits
	Net increase in borrowings from central bank
	Net increase in placements from other financial institutions
	Cash received from original insurance contracts
	Net cash received from reinsurance business
	Net increase in deposits from policyholders
	Net increase from disposal of financial assets held-for-trading
	Cash received from interests, fees and commissions
	Net increase in placements from banks and other financial
	institutions
	Net increase in repurchase business capital
	Tax rebates received	684,127,212 61	588,434,666 49
	Other cash received concerning operating activities	677,063,467 75	364,870,216 30
Subtotal of cash inflows from operating activities		10,433,735,570 77	9,171,184,145 63
	Cash paid for purchases of commodities and receipt of
	services	5,062,047,166 06	4,805,387,039 52
	Net increase in loans and advances to customers
	Net increase in deposits with central bank and other financial
	institutions
	Cash paid for indemnity of original insurance contract
	Cash paid for interests, fees and commissions
	Policyholder dividend paid
	Cash paid to and for employees	1,540,550,623 47	1,485,346,868 11
	Cash paid for taxes and surcharges	669,911,064 46	590,690,046 54
	Cash paid for other operating activities	2,063,033,938 65	1,923,494,998 97
Subtotal of cash outflows from operating activities		9,335,542,792 64	8,804,918,953 14
Net cash flows from operating activities		1,098,192,778 13	366,265,192 49
II	Cash flows from investing activities:
	Cash received from returns on investments	49,000,000 00	96,405,748 87
	Cash received from investment income	3,800,000 00	3,534,000 00
	Net cash received from disposals of fixed assets, intangible
	assets and other long-term assets	1,432,470 09	4,559,784 59
	Net cash received from disposals of subsidiaries and other
	operation units	69,034,178 70	8,650,000 00
	Cash received relating to other investing activities
Subtotal of cash inflows from investing activities		123,266,648 79	113,149,533 46
	Cash paid for acquisition of fixed assets, intangible assets and
	other long-term assets	163,238,148 25	230,051,652 60
	Cash paid for investments
	Net increase in pledge loans
	Cash paid for acquiring subsidiaries and other operation units
	Cash paid relating to other investing activities
Subtotal of cash outflows from investing activities		163,238,148 25	230,051,652 60
Net cash flows from investing activities		(39,971,499 46)	(116,902,119 14)

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

5. Consolidated Cash Flows statement

Prepared by: Hisense Kelon Electrical Holdings Company Limited	Prepared by: Hisense Kelon Electrical Holdings Company Limited		Unit: RMB
		amount for	amount for
Item		current period	previous period
III	Cash flows from financing activities:
	Cash received from disposal of investments
	Including: Cash contribution from minority shareholders’
	investment by subsidiaries
	Cash received from borrowings	1,767,206,418 19	2,447,491,015 73
	Cash received from issue of bonds
	Cash received relating to other financing activities		7,543,201 56
Subtotal of cash inflows from financing activities		1,767,206,418 19	2,455,034,217 29
	Cash paid for repayment of borrowings	2,671,252,062 37	2,676,809,232 85
	Cash paid for distribution of dividends, profit or interest
	expenses	37,329,177 94	51,152,753 63
	Including: Dividend and profit paid to minority shareholders
	by subsidiaries
	Cash paid relating to other financing activities
Subtotal of cash outflows from financing activities		2,708,581,240 31	2,727,961,986 48
Net cash flows from financing activities		(941,374,822 12)	(272,927,769 19)
IV	Effects of foreign exchange rate changes on cash and cash
	equivalents		458,101 89
V	Net increase in cash and cash equivalents	116,846,456 55	(23,106,593 95)
	Add: Balance of cash and cash equivalents at the beginning of
	the period	396,814,919 98	419,921,513 93
VI	Balance of cash and cash equivalents at the end of the period	513,661,376 53	396,814,919 98

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

6. Company Cash Flows statement

Prepared by: Hisense Kelon Electrical Holdings Company Limited	Prepared by: Hisense Kelon Electrical Holdings Company Limited		Unit: RMB
		amount for	amount for
Item		current period	previous period
I	Cash flows from operating activities: Cash received from sales of goods and rendering of services	2,620,167,621 02	1,736,188,330 75
	Tax rebates received
Other cash received concerning operating activities Subtotal of cash inflows from operating activities		1,962,021,636 97 4,582,189,257 99	1,571,577,525 29 3,307,765,856 04
	Cash paid for purchases of commodities and receipt of
services Cash paid to and for employees Cash paid for taxes and surcharges Cash paid for other operating activities Subtotal of cash outflows from operating activities Net cash flows from operating activities		2,358,939,977 91 611,506,622 07 439,157,935 98 555,972,068 25 3,965,576,604 21 616,612,653 78	2,219,639,628 15 554,122,792 77 375,343,054 97 356,245,253 23 3,505,350,729 12 (197,584,873 08)
II	Cash flows from investing activities: Cash received from returns on investments Cash received from investment income	49,000,000 00 15,826,368 60	96,405,748 87 22,743,029 91
	Net cash received from disposals of fixed assets, intangible assets and other long-term assets	344,159 29	51,554 00
	Net cash received from disposals of subsidiaries and other
	operation units	26,784,178 70	8,650,000 00
Cash received relating to other investing activities Subtotal of cash inflows from investing activities		91,954,706 59	127,850,332 78
	Cash paid for acquisition of fixed assets, intangible assets and other long-term assets Cash paid for investments	6,315,137 14 100,000,000 00	2,088,638 91
	Cash paid for acquiring subsidiaries and other operation units
Cash paid relating to other investing activities Subtotal of cash outflows from investing activities Net cash flows from investing activities		106,315,137 14 (14,360,430 55)	2,088,638 91 125,761,693 87
III	Cash flows from financing activities:
	Cash received from disposal of investments	70,000,000 00	620,000,000 00
	Cash received from borrowings
	Cash received from issue of bonds
	Cash received relating to other financing activities
Subtotal of cash inflows from financing activities		70,000,000 00	620,000,000 00
	Cash paid for repayment of borrowings	420,000,000 00	592,844,737 40
	Cash paid for distribution of dividends, profit or interest
	expenses	8,209,572 50	19,869,991 16
	Cash paid relating to other financing activities
Subtotal of cash outflows from financing activities		428,209,572 50	612,714,728 56
Net cash flows from financing activities		(358,209,572 50)	7,285,271 44
IV	Effects of foreign exchange rate changes on cash and cash
	equivalents
V	Net increase in cash and cash equivalents	244,042,650 73	(64,537,907 77)
	Add: Balance of cash and cash equivalents at the beginning of the period	98,869,779 84	163,407,687 61
VI	Balance of cash and cash equivalents at the end of the period	342,912,430 57	98,869,779 84

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

7. Consolidated statement of Changes in owners’ Equity

Prepared by: Hisense Kelon Electrical Holdings Company Limited

Prepared by:	Hisense K	elon Electr	ical Holdi	ngs Compa	ny Limited				Unit: RMB	Unit: RMB
					amount for current	period
				attributable to the owners of the Company
	Paid in capital		less:			general risk				total
Item	(or share capital)	Capital reserve	treasury shares	special reserves	surplus reserves	provisions	retained profits	other	Minority interests	owners’ equity
I Closing balance of previous year	1,354,054,750 00	2,096,929,058 26			145,189,526 48		(2,817,156,683 25)	26,106,945 84	355,691,277 10	1,160,814,874 43
Add: Changes in
accounting
policies
Correction
for error in
previous period
Other
II Opening balance of the year III Movements in	1,354,054,750 00	2,096,929,058 26			145,189,526 48		(2,817,156,683 25)	26,106,945 84	355,691,277 10	1,160,814,874 43
the current year
(Decreases denoted in “–”) (1) Net Profit		4,721,328 70					717,764,680 40 717,764,680 40	(15,567,439 94)	5,474,568 37 14,540,892 95	712,393,137 53 732,305,573 35
(2) Other
comprehensive income		72,876 70						(15,567,439 94)		(15,494,563 24)
Subtotal of (1) and (2) above		72,876 70					717,764,680 40	(15,567,439 94)	14,540,892 95	716,811,010 11
(3) Owner contributions
and capital reductions 1 Owner contributions 2 Amount of share-		4,648,452 00								4,648,452 00
based payment
included in
owners’ equity 3 Other (4) Profit Distribution 1 Appropriations to		4,648,452 00							(9,066,324 58)	4,648,452 00 (9,066,324 58)
surplus reserve 2 Appropriations
to general risk
provisions 3 Distribution to
owners
(or shareholders) 4 Other									(9,066,324 58)	(9,066,324 58)
(5) Transfer of owners’
equity 1 Transfer to capital
(or share capital)
from capital
reserve
2 Transfer to capital
(or share capital)
from surplus
reserve
3 Surplus reserves for
making up losses 4 Other
(6) Special reserves 1 Provided during
the period 2 Used during the
period
(7) Other
IV Closing balance for the period	1,354,054,750 00	2,101,650,386 96			145,189,526 48		(2,099,392,002 85)	10,539,505 90	361,165,845 47	1,873,208,011 96

Legal representative: tang ye guo

Person in charge of accounting matters and accounting department: li Jun

7. Consolidated statement of Changes in owners’ Equity

Prepared by: Hisense Kelon Electrical Holdings Company Limited

Unit: RMB

					amount for previous	year
				attributable to the owners of the Company
	Paid in capital		less:			general risk				total
Item	(or share capital)	Capital reserve	treasury shares	special reserves	surplus reserves	provisions	retained profits	other	Minority interests	owners’ equity
I Closing balance of previous year	1,354,054,750 00	2,053,683,491 30			145,189,526 48		(3,044,171,810 12)	32,485,452 41	369,706,458 86	910,947,868 93
Add: Retrospective
adjustments
arising from
business
combination
under common
control and other
matters
Add: Changes in
accounting
policies
Correction for
error in previous
period
Other
II Opening balance of the year	1,354,054,750 00	2,053,683,491 30			145,189,526 48		(3,044,171,810 12)	32,485,452 41	369,706,458 86	910,947,868 93
III Movements in
the current year
(Decreases denoted in “–”) (1) Net Profit		43,245,566 96					227,015,126 87 227,015,126 87	(6,378,506 57)	(14,015,181 76) (1,565,898 87)	249,867,005 50 225,449,228 00
(2) Other comprehensive income		(2,986,537 67)						(6,378,506 57)		(9,365,044 24)
Subtotal of (1) and (2) above		(2,986,537 67)					227,015,126 87	(6,378,506 57)	(1,565,898 87)	216,084,183 76
(3) Owner contributions
and capital reductions 1 Owner contributions 2 Amount of share-based		1,560,000 00								1,560,000 00
payment included in owners’ equity 3 Other (4) Profit Distribution 1 Appropriations to		1,560,000 00							(12,449,282 89)	1,560,000 00 (12,449,282 89)
surplus reserve 2 Appropriations
to general risk
provisions 3 Distribution to owners (or shareholders) 4 Other									(12,449,282 89)	(12,449,282 89)
(5) Transfer of owners’
equity 1 Transfer to capital (or
share capital) from
capital reserve 2 Transfer to capital (or
share capital) from
surplus reserve 3 Surplus reserves for
making up losses 4 Other
(6) Special reserves 1 Provided during
the period 2 Used during the period (7) Other		44,672,104 63								44,672,104 603
IV Closing balance for the period	1,354,054,750 00	2,096,929,058 26			145,189,526 48		(2,817,156,683 25)	26,106,945 84	355,691,277 10	1,160,814,874 43

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

8. Company statement of Changes in owners’ Equity

Prepared by: Hisense Kelon Electrical Holdings Company Limited

Unit: RMB

				amount for	current period
	Paid in capital		less:			general risk
Item	(or share capital)	Capital reserve	treasury shares	special reserves	surplus reserves	provisions	retained profits	total owners’equity
I Closing balance of
previous year	1,354,054,750 00	2,251,104,411 10			114,580,901 49		(1,771,204,005 93)	1,948,536,056 66
Add: Changes in
accounting policies
Correction for error
in previous period
Other
II Opening balance of the
year	1,354,054,750 00	2,251,104,411 10			114,580,901 49		(1,771,204,005 93)	1,948,536,056 66
III Movements in the current
year (Decreases denoted
in “–”)		(24,958,291 75)					336,604,324 71	311,646,032 96
(1) Net Profit							336,604,324 71	336,604,324 71
(2) Other comprehensive
income		72,876 70						72,876 70
Subtotal of (1) and (2) above		72,876 70					336,604,324 71	336,677,201 41
(3) Owner contributions and
capital reductions		4,648,452 00						4,648,452 00
1 Owner contributions
2 Amount of share-based
payment included in
owners’ equity		4,648,452 00						4,648,452 00
3 Other
(4) Profit Distribution
1 Appropriations to surplus
reserve
2 Appropriations to general
risk provisions
3 Distribution to owners
(or shareholders)
4 Other
(5) Transfer of owners’
equity
1 Transfer to capital
(or share capital) from
capital reserve
2 Transfer to capital (or
share capital) from
surplus reserve
3 Surplus reserves for
making up losses
4 Other
(6) Special reserves
1 Provided during the period
2 Used during the period
(7) Other		(29,679,620 45)						(29,679,620 45)
IV Closing balance for the
period	1,354,054,750 00	2,226,146,119 35			114,580,901 49		(1,434,599,681 22)	2,260,182,089 62

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

8. Company statement of Changes in owners’ Equity

Prepared by: Hisense Kelon Electrical Holdings Company Limited

Unit: RMB

				amount for	previous year
	Paid in capital		less:			general risk
Item	(or share capital)	Capital reserve	treasury shares	special reserves	surplus reserves	provisions	retained profits	total owners’ equity
I Closing balance of
previous year	1,354,054,750 00	2,252,530,948 77			114,580,901 49		(2,017,224,872 51)	1,703,941,727 75
Add: Changes in
accounting policies
Correction for error
in previous period
Other
II Opening balance of the
year	1,354,054,750 00	2,252,530,948 77			114,580,901 49		(2,017,224,872 51)	1,703,941,727 75
III Movements in the current
year (Decreases denoted
in “—”)		(1,426,537 67)					246,020,866 58	244,594,328 91
(1) Net Profit							246,020,866 58	246,020,866 58
(2) Other comprehensive
income		(2,986,537 67)						(2,986,537 67)
Subtotal of (1) and (2) above		(2,986,537 67)					246,020,866 58	243,034,328 91
(3) Owner contributions and
capital reductions		1,560,000 00						1,560,000 00
1 Owner contributions
2 Amount of share-based
payment included in
owners’ equity		1,560,000 00						1,560,000 00
3 Other
(4) Profit Distribution
1 Appropriations to surplus
reserve
2 Appropriations to general
risk provisions
3 Distribution to owners (or
shareholders)
4 Other
(5) Transfer of owners’
equity
1 Transfer to capital (or
share capital) from
capital reserve
2 Transfer to capital (or
share capital) from
surplus reserve
3 Surplus reserves for
making up losses
4 Other
(6) Special reserves
1 Provided during the period
2 Used during the period
(7) Other
IV Closing balance for the
period	1,354,054,750 00	2,251,104,411 10			114,580,901 49		(1,771,204,005 93)	1,948,536,056 66

Legal representative: tang ye guo Person in charge of accounting matters and accounting department: li Jun

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

1. CoMPany ProFIlE

Hisense Kelon Electrical Holdings Company Limited (hereinafter referred to as the “Company”) was formerly known as Guangdong Shunde Pearl River factory （廣東順德珠江冰箱廠） established in 1984 . After the restructuring into a joint stock limited company in December 1992, the Company was renamed as Guangdong Kelon Electrical Holdings Company Limited . The Company’s 459,589,808 overseas listed public shares (the “H Shares”) were listed on The Stock Exchange of Hong Kong Limited on 23 July 1996 . In 1998, the Company obtained approval to issue 110,000,000 domestic shares (the “A Shares”), which were listed on the Shenzhen Stock Exchange on 13 July 1999 .

In October 2001 and March 2002, the former single largest shareholder of the Company, Guangdong Kelon (Rongsheng) Group Company Limited (hereinafter referred to as “Rongsheng Group”, previously held 34 .06% interest in the Company) entered into a share transfer agreement and a supplementary agreement with Shunde Greencool Enterprise Development Company Limited (it was renamed as “Guangdong Greencool Enterprises Development Company Limited in 2004, hereinafter referred to as “Guangdong Greencool”), in connection with the transfer of 20 .64% of the total share capital of the Company to Guangdong Greencool by Rongsheng Group . In April 2002, Rongsheng Group transferred its shareholding of 6 .92%, 0 .71% and 5 .79% of the total share capital of the Company to Shunde Economic Consultancy Company, Shunde Dong Heng Development Company Limited and Shunde Xin Hong Enterprise Company Limited, respectively . After the abovementioned share transfers, Rongsheng Group, the former single largest shareholder of the Company, no longer held shares of the Company .

On 14 October 2004, 5 .79% of the total share capital of the Company held by Shunde Xin Hong Enterprise Company was transferred to Guangdong Greencool . Upon completion of the share transfer, the percentage of total share capital of the Company held by Guangdong Greencool increased to 26 .43% .

On 13 December 2006, 26 .43% of the total share capital of the Company held by Guangdong Greencool Enterprises Development Company Limited were transferred to Qingdao Hisense Air-Conditioning Company Limited (“Qingdao Hisense Air-Conditioning”) . Upon completion of the share transfer, Guangdong Greencool, the former single largest shareholder of the Company, no long held shares of the Company .

The Company’s share reform scheme was approved on the A shareholders’ meeting on 29 January 2007 and approved by the Ministry of Commerce PRC on 22 March 2007 . The shareholding of Qingdao Hisense AirConditioning, the largest shareholder of the Company, was changed to 23 .63% after the scheme . Since 2008, Qingdao Hisense Air Conditioning has successively increased the shareholding of the Company through secondary market . At the end of 2009, Qingdao Hisense Air Conditioning held 25 .22% of the total share capital of the Company .

On 20 June 2007, the name of the Company was changed from “Guangdong Kelon Electrical Holdings Company Limited” to “Hisense Kelon Electrical Holdings Company Limited” .

In accordance with the resolutions of the fourth interim meeting of the Company held on 31 August 2009, and as approved by the approval of China Securities Regulatory Commission dated 23 March 2010 “Letter of Reply Concerning the Approval for the Major Asset Restructuring of Hisense Kelon Electrical Holdings Company Limited and the Acquisition of Assets through Issuance of Shares to Qingdao Hisense AirConditioning Company Limited (Zheng Jian Xu Ke [2010] No . 329)”, and the Letter of Reply Concerning the Approval for the Announcement by Qingdao Hisense Air-Conditioning Company Limited of the Acquisition Report of Hisense Kelon Electrical Holdings Company Limited and the Waiver of its General Offer Obligation (Zheng Jian Xu Ke [2010] No . 330), it was approved that the Company was to issue 362,048,187 Renminbi ordinary shares (A shares) to Qingdao Hisense Air-conditioning (as a specific object), as consideration for the acquisition of 100% equity interests in Hisense (Shandong) Air-Conditioner Co ., Ltd ., 51% equity interests in Hisense (Zhejiang) Air-Conditioner Co ., Ltd ., 49% equity interests in Qingdao Hisense Hitachi AirConditioning Systems Co ., Ltd . (“Hisense Hitachi”), 55% equity interests in Hisense (Beijing) Air-Conditioner Co ., Ltd ., 78 .70% equity interests in Qingdao Hisense Mould Co ., Ltd . and the white goods marketing businesses and assets including refrigerators and airconditioners of Qingdao Hisense Marketing Co ., Ltd . (“Hisense Marketing”);

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

1. CoMPany ProFIlE (continued)

In 2010, the connected transaction in relation to the acquisition of assets by way of share (A share) issue by the Company to a specific party was completed, and the Company issued an additional of 362,048,187 A shares to Qingdao Hisense Air-conditioning under seasoned offering . The new shares were listed on 10 June 2010 . On 30 June 2010, the registered capital of the Company changed from RMB992,006,563 .00 to RMB1,354,054,750 .00 .

As at 31 December 2012, the total number of shares of the Company was 1,354,054,750 .00 and the registered share capital of the Company was RMB1,354,054,750 .00, of which, the shareholding of the Company held by Qingdao Hisense Air-Conditioning was 45 .22% .

Scope of operations of the Company: Manufacture and sales businesses of refrigerators, air-conditioners and home appliances . Place of registration of the Company: No . 8 Ronggang Road, Ronggui, Shunde, Foshan, Guangdong Province . Address of headquarters: No . 8 Ronggang Road, Ronggui, Shunde, Foshan, Guangdong Province .

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors

1. basis of preparation

These financial statements were prepared in accordance with the Basic Standards and 38 specific standards of the Accounting Standards for Business Enterprises issued by the Ministry of Finance on 15 February 2006, and Application Guidance for the Accounting Standards for Business Enterprises, Interpretations of Accounting Standards for Business Enterprises and other relevant regulations issued thereafter, (hereafter referred to as “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 Provisions on Financial Reporting (revised 2010) issued by the China Securities Regulatory Commission .

As the Company is listed on both Mainland and Hong Kong stock exchanges, apart from the relevant regulations mentioned above, the financial statements also comply with applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and the disclosure requirements of the Hong Kong Companies Ordinance .

2. statement of compliance with the accounting standards for business Enterprises

The financial statements prepared by the Company comply with the requirements of the Accounting Standards for Business Enterprises and truly and completely reflects the financial state, operating results, changes in shareholders’ equity, cash flows and other related information of the Company .

3. accounting period

The accounting period is based on the calendar year, starts on 1 January and ends on 31 December .

4. reporting currency

Renminbi (RMB) was adopted by the Company as the reporting currency .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

5. accounting treatments for business combinations involving entities under common and not under common control

(1) Business combinations involving entities under common control

Business combination under common control is accounted for by the Polling of Interest method by the Company . Apart from adjustments necessary due to differences in accounting policies, the assets and liabilities acquired by the acquirer in business combination shall be measured at the carrying value of the acquiree on the date of combination . The difference between the carrying value of the net assets acquired by the acquirer and the carrying value of the consideration paid for combination (or total nominal value of the issued shares) shall be adjusted in the capital reserve . If the capital reserve is not sufficient to absorb the difference, the excess balance is adjusted against retained earnings .

For business combinations in which the Company is the acquirer, the incurred auditing, legal, appraisal and consulting and other agency fees and related management fees are charged to the profit or loss during the period in which they are incurred . Handling fees, commissions and other expenses paid for issuance of bonds or other liabilities committed in relation to business combination shall be charged to the initial measuring value of the bonds and other liabilities issued . Handling fees, commissions and other expenses paid for issuance of equity securities in relation to business combination shall be offset against the premium from equity securities and whereas such amount cannot be offset by premium, the excess balance shall be adjusted against retained earnings .

(2) Business combination involving entities not under common control

Business combination not under common control is accounted for by the acquisition method by the Company . The cost of acquisition represents the fair value of the cash or non-cash assets paid, liabilities issued or committed and equity securities issued by the Company as at the date of acquisition in consideration for acquiring the controlling power in the acquiree . For business combinations in which the Company is the acquirer, the incurred auditing, legal, appraisal and consulting and other agency fees and related management fees are charged to the profit or loss during the period in which they are incurred; the transaction fees related to the issuance of equity shares or bond securities as the consideration of business combination are charged to the initial measuring value of equity shares or bond securities issued .

The cost of combination and identifiable net assets obtained by the acquirer in a business combination are measured at fair value at the acquisition date . Where the cost of the combination exceeds the acquirer’s identifiable net assets, the difference is recognized as goodwill; where the cost of combination is lower than the acquirer’s interest in the fair value of the acquiree’s identifiable net assets, the difference is recognized in profit or loss for the current year .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

6. Preparation of consolidated financial statements

(1) Criteria for the recognition of scope of consolidation

Based on the concept of control, the consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries .

For a subsidiary acquired through business combination under common control during the reporting period, the Company consolidates the subsidiary from the beginning of the year of consolidation to the end of this reporting year; for a subsidiary acquired through business combination not under common control, the Company consolidates the subsidiary from the date of acquisition to the end of this reporting year . For a subsidiary disposed during the reporting period, the Company ceases to consolidate the subsidiary from the date of disposal .

(2) Preparation of consolidated financial statements

The consolidated financial statements are prepared by the Company based on the separate financial statements of the Company and its subsidiaries and in accordance with other information after adjustments to the long-term equity investment in the subsidiaries under the equity method; where the accounting policies and accounting period adopted by the subsidiaries differ from those of the Company, necessary adjustments are made based on the Company’s own accounting policies, and transactions or matters between companies within the scope of consolidation and internal liabilities are offset in the preparation of the consolidated financial statements; The portion of a subsidiary’s equity not attributable to the Company are recognised as minority interests and presented separately under the shareholders’ equity of the consolidated financial statements; in case the loss for the current period attributable to minority shareholders of a subsidiary exceeds the minority interest portion’s of owners’ equity in the subsidiary at the beginning of the period, the difference shall be offset against the minority interests .

7. Criteria for the recognition of cash equivalents

For the purpose of the cash flows statement, cash and cash equivalents comprise cash on hand, deposits held at call with bank and short-term (maturing within 3 months from the date of acquisition) and highly liquid investments that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value .

8. Foreign currency transactions and translation of financial statements in foreign currency

(1) Foreign currency transactions

Foreign currency transactions are translated into the functional currency using the spot exchange rate prevailing at the date of the transaction .

As at the balance sheet date, foreign currency monetary items are translated into the functional currency using the spot exchange rate prevailing at the balance sheet date, translation difference arising from a difference between the spot exchange rate prevailing at the balance sheet date and the spot exchange rate prevailing at initial recognition or the previous balance sheet date is charged to finance costs; foreign currency non-monetary items at fair value are translated using the spot exchange rate at the date of fair value determined, and the resulting difference is charged to the profit or loss for the period as changes in fair value, except that the relevant translation difference arising from foreign currency available for sale financial assets which is charged to the capital reserve .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

8. Foreign currency transactions and translation of financial statements in foreign currency (continued)

(2) Translation of financial statements in foreign currency

For the translation of financial statements of a subsidiary denominated in foreign currency, all the assets and liabilities items in the balance sheet are translated at the spot exchange rates on the balance sheet date . Among the shareholders’ 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 statement are translated using the spot exchange rate prevailing at the transaction date; all items in the cash flows statement are translated using the spot exchange rate prevailing at the date on which the relevant cash flow is incurred or a rate approximating the spot exchange rate . The effect of changes in the exchange rate on cash is separately presented as “Effect of foreign exchanges rate changes on cash and cash equivalents” in the cash flows statement .

Differences arising from the translation of foreign currency financial statements are separately set out as “Difference on translation of foreign currency financial statements” under “Shareholders’ equity” in the consolidated balance sheet .

On disposal of overseas operations, the corresponding difference of foreign currency translation related to the overseas operations shall be transferred from shareholders’ equity to the profit or loss for the current period . For partially disposed overseas operations, the translation difference of the financial statements are calculated on pro-rata basis and recognized in the profit or loss for the current period .

9. Financial instruments

Financial instrument represents contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity . Financial instruments consist of financial assets, financial liabilities and equity instruments .

(1) Recognition and derecognition of financial assets and financial liabilities

The Group recognizes a financial asset or a financial liability when it becomes a party to the contractual provisions of a financial instrument .

The Group derecognizes a financial asset when the following conditions are met:

1 The contractual rights to receive cash flows from the financial asset have expired;
2 The financial asset has been transferred and the following conditions for the derecognition of financial assets are met .

A financial liability or part of it is derecognized when the existing obligations of the financial liability are fully or partially discharged .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

9. Financial instruments (continued)

(2) Classification and measurement of financial assets and financial liabilities

Based on its own business characteristics and requirements of risk management, the management of the Company classifies the financial assets or financial liabilities borne are, at initial recognition, classified into the following five categories: financial assets or financial liabilities at fair value through profit or loss (including held-for-trading financial assets and financial liabilities and those designated upon initial recognition as financial assets and financial liabilities at fair value through profit or loss); held-to-maturity investments, loans and receivables, available-for-sale financial assets and other financial liabilities . A financial asset or financial liability is recognized initially at fair value . In the case of financial assets or financial liabilities at fair value through profit or loss, the relevant transaction costs are directly recognized in the profit or loss for the current period; transaction costs relating to financial assets or financial liabilities of other categories are included in their initial recognized amount .

1 Financial assets or financial liabilities at fair value through profit or loss for the current period

Financial assets at fair value through profit or loss include financial assets held-fortrading and those designated upon initial recognition as financial assets at fair value through profit or loss . Financial assets held-for-trading mainly refer to shares, bonds, funds and non-hedging derivatives held for disposal in the short-term or financial liabilities assumed for re-purchase in the short-term; financial assets or financial liabilities designated as ones at fair value through the profit or loss for the current period mainly refer to those so designated by the Company for risk management, strategic investment and other purposes .

Such kind of financial assets or financial liabilities are measured at fair value . Except when they are used as effective derivatives, all realized and unrealized gains or losses on these financial assets and financial liabilities are recognized in the profit or loss for the current period .

2 Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets such as sovereignty bonds at fixed rate and company bonds at floating rates that has fixed or determinable payments and fixed maturity and for which the Company has the positive intention and ability to hold to maturity .

Held-to-maturity investments are initially recognized at the sum of the fair value (after deduction of bond interests whose period has matured but not charged yet) and the related transactions fees by the Company .

During the holding period, held-to-maturity investments are measured using the effective interest rate method on the basis of amoritized cost . Gains or losses arising from amortization, impairment or derecognition are recognized in the profit or loss for the current period .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

9. Financial instruments (continued)

(2) Classification and measurement of financial assets and financial liabilities (continued)

3 Loans and Receivables

Receivables refer to the right to receive cash or another financial assets caused by the sale of goods and the provision of labor services to external customers by the Company, and receivables in other companies except debt instruments quoted in active markets, including accounts receivables, other receivables and long-term receivables . Receivables are initially recognized at the contract price charged to the buyers or the agreed consideration . During the holding period, receivables are measured at amortized cost using the effective interest rate method . Upon disposal, the difference between the sale value and the book value of the receivables shall be accounted into profit or loss of the current period on its recovery or disposal .

4 Available-for-sale financial assets

Available-for-sale financial assets refer to non-derivative financial assets that are designated as available for sale upon initial recognition and financial assets not classified as the other three categories of financial assets as described above .

Available-for-sale financial assets are initially recognized at the sum of the fair value (after deduction of cash dividends which has been declared but not distributed or bond interests which were due but not received yet) and the related transactions fees by the Company .

Available-for-sale financial assets are subsequently measured at fair value . The premium or discount is amortized using effective interest rate method and recognized as interest income or expense . A gain or loss arising from a change in the fair value of an availablefor-sale financial asset is recognized as other comprehensive income in capital reserve, except for impairment losses and foreign exchange gains or losses resulted from monetary financial assets, until the financial asset is derecognized or determined to be impaired, at which time the cumulative gain or loss previously recognized is transferred to the profit or loss for the current period . Interests and dividends relating to an available-for-sale financial asset are recognized in the profit or loss for the current period .

Upon disposal, the difference between acquisition consideration and the carrying value of financial assets shall be recognized as investment profits and losses, and the accumulated changes in fair value from the disposal shall be at the same time transferred from the shareholders’ equity to investment profits and losses .

5 Other financial liabilities

Other financial liabilities refer to financial liabilities not measured at their fair values and the variation of which is not accounted into the profit or loss of the current period .

Other financial liabilities are initially recognized at the sum of the fair value and relevant transaction expenses . During the holding period, other financial liabilities are measured at amortized cost using the effective interest rate method . Gains or losses upon amortization or derecognition are accounted into profit or loss of the current period .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

9. Financial instruments (continued)

(3) Transfer of financial assets

1 Financial assets are derecognized when the Group has transferred substantially all the risks and rewards of their ownership to the transferee or when the substantial risks and rewards of their ownership are neither transferred nor retained but the Group ceases the control over the financial assets .
2 The principle of “Substance over Form” is adopted in judging the termination or not of recognizing financial assets . The transfer of financial assets is also divided into entire transfer and partial transfer . If the transfer of an entire financial asset satisfies the conditions for derecognition, the difference between the amounts of the following 2 items shall be recorded in the profits and losses of the current period:
A . The carrying amount of the transferred financial asset;
B . The aggregate consideration received from the transfer, and the cumulative amount of the changes of the fair value originally recorded in the shareholders’ equity (in the event that the financial asset involved in the transfer is an availablefor-sale financial asset) .
3 If the transfer of partial financial asset satisfies the conditions for derecognition, the carrying amount of the entire transferred financial asset shall be allocated between the portion that has been derecognized and the portion that has not been derecognized, according to their respective relative fair values, and the difference between the amounts of the following 2 items shall be recorded in the profits and losses of the current period:
A . The carrying amount of the portion that has been derecognized;
B . The aggregate consideration of the portion that has been derecognized, and the portion of the cumulative amount of the changes in the fair value originally recorded in the shareholders’ equity which is corresponding to the portion that has been derecognized (in the event that the financial asset involved in the transfer is an available-for-sale financial asset) .
4 Financial assets continue to be recognized when their transfer does not fulfill the derecognition conditions, and considerations received are recognized as financial liabilities .
5 For a financial asset being transferred with continued involvement, the Company continues to recognize the financial asset being transferred to the extent of its continued involvement, and recognizes a financial liability at the same time .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

9. Financial instruments (continued)

(4) Conditions for derecognizing financial liabilities

If the current obligations of financial liabilities has been discharged or partially discharged, then the Company shall derecognize the financial liabilities in whole or in part thereof; if the Company signs an agreement with creditors in order to raise new financial liabilities to replace the existing financial liabilities, and the terms of the new financial liabilities are substantially different from the terms of the existing financial liabilities, the Company shall derecognize the existing financial liabilities, and begin to recognize the new financial liabilities at the same time .

If the terms of the existing financial liabilities have been substantially modified in whole or in part, the Company shall derecognize the existing financial liabilities in whole or in part, and at the same time, recognize the modified financial liabilities as a new one .

On derecognizing the financial liabilities in whole or in part, the difference between the book value of the existing financial liabilities and the payment (including the transfer-out of non-cash assets and new financial liabilities to be recognized) shall be accounted into the profit or loss for the current period .

If the Company repurchases part of the financial liabilities, the Company shall allocate the entire financial liabilities between the part to be continuously recognized and the part to be derecognized in accordance with their fair values on the date of repurchasing . The difference between the derecognized book value and the payment (including the transfer-out of non-cash assets or new financial liabilities to be recognized) shall be included into profit and loss for the current period .

(5) Determination of fair value of financial assets and liabilities

1 If there is an active market for a financial asset or financial liability, the quoted price in the active market is used to establish the fair value of the financial asset or financial liability .
2 If no active market exists for a financial instrument, its fair value is determined using appropriate valuation techniques .

(6) Impairment of financial assets (excluding accounts receivable)

The Group assesses the carrying amount of every financial asset (excluding accounts receivable) at the balance sheet date . If there is objective evidence indicating a financial asset may be impaired, a provision is made for the impairment .

1 Impairment provision of held-to-maturity investments:

Impairment provisions are measured at the difference between the carrying amount and the present value of the estimated future cash flows . Detailed reference to methods of measurement for impairment provision of receivables is carried out .

If there is objective evidence that the value of the financial assets recovered and the recovery can be related to an event occurring after the impairment was recognized (such as an increase in the credit rating of the debtor), the previously recognized impairment loss is reversed and recognized in profit or loss . However, the reversal shall not result in a carrying amount of the financial asset exceeds what the amortized cost would have been had the impairment loss not been recognized at the date of reversal .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

9. Financial instruments (continued)

(6) Impairment of financial assets (excluding receivables) (continued)
2 Impairment provision of available-for-sale financial assets:

If there is objective evidence of a significant prolonged decrease in the fair value of an available-for-sale financial asset, it can be ascertained that the available-for-sale financial assets has impaired and impairment provision shall be made . Upon impairment provision is made in respect of impaired available-for-sale financial assets, the cumulative loss from the decline in fair value originally recognized directly in shareholder’s equity is removed . The cumulative loss removed equals the difference of the initial acquisition cost of the available-for-sale financial asset (net of principal payment and amortization) and current fair value less impairment losses previously recognized in the profit or loss .

If after an impairment loss has been recognized on an available-for-sale debt instrument, the fair value of the debt instrument increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed and recognized in profit or loss . For the impairment loss recognized on an equity instrument classified as available-for-sale, any increase in fair value that occurs after the impairment is reversed in shareholder’s equity, not in profit or loss .

10. accounts receivables

(1) Accounts receivables that are individually significant and subject to separate provision:

1 The criteria and amount for individually significant receivables .

Accounts for 10% or above (10% inclusive) of the total accounts receivables, except the Greencool receivables .

2 Method of provision for bad debt in individually significant receivables:

Individually significant receivables are subject to separate impairment assessment, where there is objective evidence of impairment, the amount of the present value of the future cash flows expected to be derived from the receivables is less than the carrying amount shall be treated as impairment loss and accounted for as provision for bad debts . Where there is no impairment in according to the separate impairment assessment, accounts receivables shall be combined into certain groups with similar credit risk characteristics and subject to impairment assessment by groups .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

10. accounts receivables (continued)

(2) Receivables that are combined into certain groups and subject to provision by groups:

Basis for determination of groups is as follows

Group 1 Groups of accounts receivables based on ageing characteristics Group 2 Greencool receivables .

Method for provision for bad debts by groups

Group 1 Based on ageing analysis method . Group 2 Individual impairment assessment, where the amount of the present value of the future cash flows expected to be derived from the receivables is less than the carrying amount shall be treated as impairment loss and accounted for as provision for bad debts .

For Group 1, receivables which are provided for bad debts using age analysis:

	ratio for provision for
ageing	bad debts (%)
Within 3 months (including 3 months)	0
Over 3 months but within 6 months (including 6 months)	10
Over 6 months but within 1 year (including 1 year)	50
Over 1 year	100

(3) Receivables which are individually insignificant but subject to separate provision:

Reason	for	individual provision:	Receivables which are individually insignificant
			in one year or above
Method	for	provision for bad debts	Receivables which shall be separated from
			groups for individual assessment, where there is
			objective evidence of impairment The amount
			of the present value of the future cash flows
			expected to be derived from the receivables is
			less than the carrying amount shall be treated as
			impairment loss and accounted for as provision
			for bad debts

11. Inventories

(1) Classification of inventories

Inventories are classified into: raw materials, goods in processing contract, low-value consumables, packaging materials, self-manufactured semi-finished goods, work in progress, goods in transit, finished goods and etc .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

11. Inventory (continued)

(2) Cost of inventories

Raw materials are measured in accordance with the standard cost upon delivery, and amortized at the end of each month according to cost differences in order to adjust the standard cost to actual cost .

Work in progress and finished goods are measured in accordance with the actual cost upon delivery, whereas the actual cost is determined using the weighted average method .

(3) Basis for the determination of net realizable value and the method of provision for declines in value of inventories

The net realizable value of finished goods, commodity stocks, materials ready for sale, and commodity inventories on immediate sales, is determined based on the estimated selling price in the ordinary course of business, less the estimated selling and distribution costs and related taxes .

The net realizable value of raw material is determined based on the estimated selling price of finished goods in the ordinary course of business less the estimated costs to completion and estimated costs necessary to make the sale, and related taxes;

For inventories held for fulfilling sales contract or labor contract, the net realizable value is based on the contract price; if the amounts of inventories held exceed the amounts of sales order specified in the contract, the excess amount is determined based on the market price .

The Company takes inventory checkup at end of each accounting period, and states or adjusts impairment loss on inventories at the lower of cost or net realizable value . The provision for impairment loss on inventories is made on an individual basis in principle; for inventories in large quantity and with relatively low unit prices, provision for impairment loss on inventories shall be determined on an aggregated basis . The Company consolidates the provision for impairment loss on inventories related to the production and sales of products in the same region, with the same or similar utilization and purpose, and difficult to calculate separately . In case the factors causing the write-down of the inventories’ value disappear, the write-down amount shall be reversed and the provision of impairment shall be charged to the profit or loss for the current period .

(4) Inventories system

The group adopts the perpetual inventories system .

(5) Amortization of low-value consumables and packaging materials

Low-value consumables are expensed upon issuance .

Packaging materials are expensed upon issuance .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

12. long-term equity investments

(1) Initial recognition

1 Long-term equity investments acquired from business combination involving entities under common control

For long-term equity investments acquired from business combination involving entities under common control, the share of the book value of the shareholders’ equity of the merged enterprise as at the date of combination after adjustments in accordance with the Company’s accounting policies shall be taken as the initial investment cost .

2 Long-term equity investments acquired from business combination involving entities not under common control

For long-term equity investments acquired from business combination involving entities not under common control, the cost of combination as at the date of acquisition shall be taken as the initial investment cost .

For long-term equity investments acquired from business combination not involving entities under common control and achieved in stages, the initial cost comprises the carrying amount of previously held equity instrument in the acquiree immediately before the acquisition date, and the additional investment cost at the acquisition date .

3 Long-term equity investment acquired by other methods

The initial investment cost of a long-term equity investment obtained by making payment in cash shall be accounted for its actual cash paid .

The initial investment cost of a long-term equity investment obtained on the basis of issuing equity securities shall be the fair value of the equity securities issued (excluding declared but not yet paid cash dividends or profits received from the investee) .

The initial investment cost of a long-term equity investment of an investor shall be the value stipulated in the investment contract or agreement except the unfair value stipulated in the contract or agreement .

Under the conditions that the exchange of non-monetary assets is characterized with business essence, and the fair value of the assets received or surrendered can be measured in a reliable way, the book value of assets received is determined on basis of the fair value of assets surrendered, except there are objective evidences for the higher reliability of the fair value of assets received . For the exchange of non-monetary assets not meeting the above criteria, the book value of assets surrendered and related taxes shall be accounted as cost of assets received .

The initial investment cost of long-term equity investment obtained by debt restructuring shall be measured at fair value .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

12. long-term equity investments (continued)

(2) Subsequent measurement and recognition of profits and losses

The cost method is used when the Company does not jointly control or has significant influence over the investee, and the long-term equity investments are not quoted in active markets, and no reliably measurable fair value . The cost method is also used for long-term equity investments over the subsidiaries . Long-term equity investments under common control or significant influence shall be accounted by equity method .

Upon accounting of long-term equity investments by the cost method:

Apart from the actual consideration paid or cash dividends or profits already declared but not yet paid which are included in the consideration, the Company recognizes investment returns according to cash dividends or profits declared by the investee .

Upon accounting of long-term equity investments by the equity method:

1 If the initial cost of a long-term equity investment exceeds the investor’s share of the fair value of the investee’s identifiable net assets at the date of acquisition, the initial cost of the long-term equity investment may not be adjusted; if the initial cost of a long-term equity investment is lower than the investor’s share of the fair value of the investee’s identifiable net assets at the date of acquisition, the difference shall be included in the profit or loss for the current period and the cost of the long-term equity investment shall be adjusted at the same time .
2 The Group recognizes its share of the net profit or loss made by the investee as investment income or losses, and adjusts the carrying amount of the investment accordingly . The Group recognizes its share of the investee’s net profit or loss after making appropriate adjustments to the investee’s net profit or loss based on the fair value of the investee’s identifiable assets at the acquisition date, and the Group’s accounting policies and periods, and eliminating the portion of the profit or loss arising from intergroup transactions with joint ventures and associates according to its share ratio (but impairment losses for assets arising from inter-group transactions shall be recognized in full) .
3 The Group’s share of net losses of the investee is recognized to the extent that the carrying amount of the long-term equity investment, together with any long-term interests that in substance form part of its net investment in the investee is reduced to zero, except that the Group has incurred obligations to assume additional losses . Subsequent net profits realized by the investee are recognized as share of profits after setting off its share of un-recognized losses .
4 Entitlements to profits or cash dividends declared by the investee reduce the carrying value of the long-term investments .
5 For the changes in the shareholders’ equity other than those arising from its profit and loss of the investee, the Company records directly in capital reserve, provided that the Group’s proportion of shareholding in investee remains unchanged .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

12. long-term equity investments (continued)

(3) Definition of joint control and significant influence over the investees

1 Evidences for common control:

Joint control is the contractually agreed sharing of control over an economic activity . Generally upon the establishment of a joint venture, significant financial and production, operating and decision-making procedures of the joint venture require the unanimous consent of the parties sharing control . Common control is evidenced by the following three bases:

A . None of the parties shall control the production and operating activities of the joint venture on a sole basis .
B . Decision-making related to the fundamental operation of the joint venture requires the unanimous consent of the joint venture parties .
C . The joint venture parties may by way of contract or agreement appoint one of the joint venture parties to carry out management of the ordinary activities of the joint venture, given that the management power shall be exercised within the financial, operating and policy-making scope already unanimously agreed by the joint venture parties .
2 Evidences for significant influence:

Significant influence refers to the power to participate in making decisions on the financial and operating policies of an entity, but not the power to control or jointly control over the formulation of such policies with other parties . When the Company directly or indirectly through a subsidiary owns more than 20% (including 20%) but less than 50% of the voting rights of an investee, significant influence over the investee is established unless there is clear evidence that the situation constitutes no significant influence as the Company is unable to participate in making decisions on the financial and operating policies of the investee . When the Company owns less than 20% of the voting rights of an investee, significant influence over the investee is generally not established unless there is clear evidence that the situation constitutes significant influence as the Company is able to participate in making decisions on the financial and operating policies of the investee .

(4) Test of impairment and recognition of provision for impairment

Please see note 2 .25 for the test for impairment and recognition of provision for impairment for long-term equity investments in subsidiaries, joint ventures and associates .

For a long-term investment which investee is not under common control or significant influence, no quoted price in an active market and no reliable fair value measurement, please see note 2 .9(6) for the test for impairment and recognition of provision for impairment .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

13. Investment properties

Investment properties are the properties held to earn rental or capital appreciation or both, and represents buildings which have been leased out by the Company .

Investment properties are initially recognized at the cost, and are depreciated or amortized on a basis consistent with the depreciation and amortization policies which the Group adopts for fixed assets and intangible assets .

Please see note 2 .25 for recognition of impairment for investment properties using cost model for subsequent measurement .

14. Fixed assets

(1) Recognition of fixed assets

Fixed assets are tangible assets that are held for producing goods, rendering of services, leasing out to other parties or administrative purposes, with useful life more than one accounting year . Fixed assets are recognized when they meet the following conditions:

1 When it is probable that the economic benefits associated with the fixed asset will flow into the Company, and
2 The cost of the fixed asset can be reliably measured .

(2) Depreciation of fixed assets

Fixed assets are depreciated by categories using the straight-line method over their useful life . Depreciations are started when the fixed assets are available for intended use, and are terminated when the fixed assets are derecognized or classified as non-current assets heldfor-sale (except fixed assets that are fully depreciated and are still in use, and lands that are accounted separately) . When no impairment provision is made, the annual depreciation rates for different fixed assets which are determined by residual value, asset category, and estimated useful life are as follows:

			annual
		rate of residual	depreciation rates
Category	useful life (year)	value (%)	(%)
Buildings	20-50	0-10	1 8-5
Machinery and equipment	5-20	5-10	4 5-19
Electronic equipment, appliances
and furniture	5-10	5-10	9-19
Motor vehicles	5-10	5-10	9-19
Moulds	3	0	33 33

(3) Test of impairment and provision for impairment loss of fixed assets

Please see note 2 .25 for recognition of impairment of fixed assets .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

15. Construction in progress

(1) Categories of construction in progress

Constructions in progress are measured at actual cost and are accounted for by individual projects .

(2) Time-point of transfer from construction in progress to fixed assets

Constructions in progress are transferred to fixed assets when all the actual expenses incurred and are ready for their intended use . When construction in progress is ready for its intended use but has not completed the final accounts, it is transferred to fixed assets using an estimated cost on the day when it is ready for intended use and depreciation is made accordingly pursuant to the Company’s depreciation policy , the estimated cost can be based on project budget, project price or actual construction cost . The estimated cost is adjusted by the actual cost after the completion of the final accounts without adjustments to the depreciation already provided .

(3) Impairment loss of construction in progress

Please see note 2 .25 for recognition of impairment of construction in progress .

16. borrowing costs

(1) Principles of recognition for capitalization of the borrowing costs

Assets eligible for capitalization refer to the fixed assets, investment properties, inventories and other assets that require a substantially long period of time of acquisition and construction or producing activity for its intended use or for sale . Borrowing costs include interest on borrowings, amortization of discounts or premiums, ancillary costs, and exchange differences arising from foreign currency borrowings .

Where the borrowing costs incurred by the Company can be directly attributable to the acquisition and construction or producing activities of assets eligible for capitalization, it shall be capitalized and recorded as part of the costs of relevant assets . Other borrowing costs shall be recognized as expenses on the basis of the actual amount incurred, and shall be recorded into the profit or loss for the current period .

The borrowing costs shall not be capitalized unless they meet the following requirements at the same time:

1 The expenditures for asset are already incurred, which shall include expenditures in form of cash, transfer of non-cash assets or interest bearing debts paid for the acquisition and construction or producing activities of assets eligible for capitalization;
2 The borrowing costs have been incurred;
3 The acquisition and construction or producing activities necessary to prepare the asset for its intended use or sale have already commenced .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

16. borrowing costs (continued)

(2) Period of capitalization of the borrowing costs

Borrowing costs are capitalized as a cost of the qualifying assets being acquired, constructed or produced until they become ready for its intended use or sale; and the capitalization of borrowing costs ceases when the asset under acquisition or construction becomes ready for its intended use, the borrowing costs incurred thereafter are recognized in profit or loss for the current year .

Where the acquisition and construction or producing activities of a qualified asset is interrupted abnormally and the interruption period lasts for more than 3 months, the capitalization of the borrowing costs shall be suspended . Should the interruption be a necessary step for the asset qualified for capitalization under construction or production to become ready for its intended use or sale, the borrowing cost shall continue to be capitalised . Borrowing costs arising during the interruption period shall be recognised in the profit or loss for the period until the construction or production of the asset is resumed, and by then capitalisation of the borrowing costs shall also be resumed . Where part of the acquisition and construction or producing activities of asset qualified for capitalization is completed and available for separate use, the capitalization of borrowing cost for that part of asset shall be ceased .

(3) Calculation of capitalized borrowing costs

For the specific borrowings obtained for the acquisition or construction of a qualifying fixed asset, the amount of interest which is eligible for capitalization (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 borrowing) and the ancillary expense incurred in relation to the specific borrowings shall be capitalized until the qualified asset is ready for the intended use or sale .

For the general borrowings obtained for the acquisition or construction of a qualifying fixed asset, the amount of interest which is eligible for capitalization is determined by applying the weighted average effective interest rate of general borrowings used, to the weighted average of the excess amount of cumulative expenditures on the asset over the amount of specific borrowings . The capitalization rate shall be calculated and determined in light of the weighted average interest rate of the general borrowing .

Where there is any discount or premium, the amount of discounts or premiums shall be amortized in each accounting period by real interest rate method, and an adjustment shall be made to the amount of interests in each period .

During the capitalization period, exchange differences related to principal and interest on a specific purpose borrowings denominated in foreign currencies are capitalized as part of the cost of the qualifying assets .

17. Intangible asset

(1) Initial recognition of intangible assets

Intangible assets are initially recognized based on the actual cost . Where the payment of purchase price for intangible assets is delayed beyond the normal credit terms, which is of financing nature, the cost of intangible assets shall be determined based on the current value of the purchase price .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

17. Intangible asset (continued)

(1) Initial recognition of intangible assets (continued)

The intangible assets acquired through the debt restructuring shall be accounted at the fair value of the intangible assets; under the conditions that the exchange of non-monetary assets is characterized with business essence, and the fair value of the assets received or surrendered can be measured in a reliable way, the book value of assets received is recognized on basis of the fair value of assets surrendered, except there are objective evidences for the higher reliability of the fair value of assets received . For the exchange of those non-monetary assets not meeting the above criteria, the book value of assets surrendered and related taxes shall be accounted as cost of assets received and not recognized in the profit and loss .

(2) Subsequent measurement of intangible assets

1 Useful life of intangible assets

The useful life of the acquired intangible assets is determined upon acquisition . For intangible asset with a finite useful life, the useful life or similar measurement unit for usage is estimated . Intangible assets with unforeseeable economic benefits to the Company are deemed to be intangible assets with indefinite useful life .

2 Amortization of intangible assets

Intangible asset with a finite useful life are amortized over the estimated useful life from the month of acquisition using the straight-line method . Intangible assets with indefinite useful life are not amortized but a test for impairment is carried out at the end of the year .

The useful life and method of amortization for intangible assets are reviewed and adjusted at least annually at the end of each year .

3 When an intangible asset is expected to no longer generate any future economic benefits to the Company, the carrying value of the intangible asset is entirely transferred into the profit or loss for the period .
4 Impairment of intangible assets

Please see note 2 .25 for the recognition of impairment of intangible assets .

18. Development costs

(1) The Group classifies the costs of an internal research and development project into expenditure on the research phase and expenditure on the development phase .
(2) Specific criteria for the classification of research phase and development phase for internal research and development projects:

Research phase: the phase which the planned investigation and research are carried out with purpose of obtaining and understanding new scientific or technical knowledge .

Development phase: before commercial production and utilization, the phase which the research achievement or other knowledge is applied to a particular project or design in order to produce new or substantially improved materials, devices, products, etc .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

18. Development costs (continued)

(3) Expenditure on the research phase of internal research and development projects are recognized in profit or loss for the current period .
(4) Expenditure on the development phase of internal research and development projects is capitalized only if all of the following conditions are satisfied at the same time:
1 It is technically feasible to complete the intangible asset so that it will be available for use or sale;
2 Management intends to complete the intangible asset, and to use or sell;
3 It can be demonstrated how the intangible assets will generate economic benefits or the intangible assets has its own market, or that they can be used in case of internal utilization;
4 There are adequate technical, financial and other resources to complete the development and the ability to use or sell the intangible assets;
5 The expenditure attributable to intangible assets during its development phase can be reliably measured .

19. long-term prepaid expenses

(1) Long-term prepayments include expenditures incurred but should be recognized as expenses over more than one year in the current and subsequent periods . Long-term prepayments are amortized on a straight-line basis over the expected beneficial period .
(2) Pre-operating expenses should be recognized in profit or loss in the month as incurred .

20. Provisions

(1) Provision for pending litigation, product warranties, onerous contracts etc, are recognized when the Company has a present obligation, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of obligation can be measured reliably .
(2) 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 .

21. share-based payments and equity instruments

(1) Share-based payments

Equity-settled share incentives granted to senior management by the Company . Equity instruments used for share incentives are measured by their fair value as at the date of grant .

(2) Accounting treatment of share-based payments

Equity-settled share payments to employees are charged to costs and capital reserve (other capital reserve) at fair value, and subsequent changes in fair value are not accounted . Cashsettled share payments to employees are re-valuated at the fair value of the equity instruments as at each balance sheet date and are recognized as costs and staff remuneration payables .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

21. share-based payments and equity instruments (continued)

(3) Determination of fair value of equity instruments

If there is an active market for an equity instrument granted such as share option, the quoted price in the active market is used to establish the fair value of the equity instrument . If there is no active market for the equity instrument granted such as share option, the option pricing model is used to determine the fair value .

(4) Recognition basis for the best estimate of fair value of exercisable equity instruments

On each balance sheet date within the vesting period, the estimated number of exercisable equity instruments is amended based on the latest subsequent information as to changes in the number of employees with exercisable rights . As at the exercise date, the final number of exercisable equity instruments should equal the actual number of exercisable equity instruments .

(5) Accounting treatment for implementation, amendment and termination of share-based payments

The accumulated cost recognizable for the period is calculated based on the above fair value of equity instruments and estimated number of exercisable equity instruments, after deducting the recognized amount for the previous period, as the cost recognizable for the period .

22. revenue

(1) Sale of goods

Revenue from the sale of goods is recognized when the following conditions are satisfied: the Company has transferred to the buyer the significant risks and rewards of ownership of the goods; the Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; it is probable that the associated economic benefits will flow to the Company; the relevant revenue and costs can be measured reliably .

(2) Rendering of services

On the balance sheet date, outcome of a transaction on rendering of services that could be reliably estimated shall be recognized using percentage-of-completion method . The Company determines the total revenue from rendering of services in accordance with the received or receivable purchase price fixed by contract or agreement, except when the price is unfair .

On the balance sheet date, where the outcome of rendering of services cannot be reliably estimated, accounting treatment is carried out as follows:

1 If the cost incurred is expected to be recoverable, the revenue shall be recognized to the extent that the cost incurred that are expected to be recoverable, and an equivalent amount is charged to profit or loss as service cost .
2 If the cost incurred is not expected to be recoverable, the cost incurred shall be recognized in the profit or loss for the current period, and no revenue from such services is recognized .

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

22. revenue (continued)

(3) Transfer of asset use rights

When it is probable that the economic benefits related to the transaction will flow to the Company and the relevant income can be reliably measured, the treatment will be carried out as follows:

1 The interest income is determined on basis of the length of time and effective interest rate of the Company’s cash funds which is used by the others .
2 The royalties income is determined on basis of the agreed chargeable time and method under relevant agreement or contract .

23. government grants

Government grants are divided into asset-related government grants and income related government grants .

(1) Recognition and measurement of government grants

Government grants are recognized when all attaching conditions can be complied with and the grants can be received .

If a government grant is in the form of a transfer of a monetary asset, it is measured at the amount received or receivable . If a government grants is in the form of a transfer of a nonmonetary asset, it is measured at fair value; if fair value is not reliably determinable, it is measured at a nominal amount .

(2) Accounting treatment of government grants

A government grant related to an asset shall be recognized as deferred income, and evenly amortized to profit or loss over the useful life of the related asset .

A government grant measured at a nominal amount is recognized immediately in profit or loss for the current period .

A government grant related to income, where the grant is a compensation for related expenses or losses to be incurred by the enterprise in subsequent periods, the grant shall be recognized as deferred income; where the grant is a compensation for related expenses or losses already incurred by the enterprise, the grant shall be recognized immediately in profit or loss in the current period .

100

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

24. Deferred tax assets/deferred tax liabilities

Deferred tax assets and deferred tax liabilities are calculated and recognized based on the temporary difference between the carrying value and the tax base of the assets and liabilities as at the balance sheet date . Deferred tax are recognized in current period’s profit or loss as income tax expense or income tax credits, except for the adjustment made for goodwill in a business combination and deferred tax from transactions or items that are directly related to equity .

(1) A deferred tax liability is recognized for all taxable temporary differences, except where the taxable temporary differences arise from the following transactions:
1 The initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of the transaction, it affects neither accounting profit nor taxable profit or loss;
2 Recognition of assets or liabilities arising from transactions with the following characteristics: a transaction that is not a business combination and, at the time of the transaction, neither affects the accounting profit nor taxable profit or loss;
3 In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not be reversed in the foreseeable future .
(2) Deferred tax assets are only recognized 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 utilized, except where the deferred tax asset arises from the following transactions:
1 A transaction that is not a business combination and, at the time of the transaction, neither affects the accounting profit nor taxable profit or loss; or
2 In respect of the deductible temporary differences associated with investments in subsidiaries, jointly controlled entities and associates, a deferred tax asset is only recognized to the extent that it is probable that the temporary differences will be reversed in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized in the future .

At the balance sheet date, deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, meanwhile reflects the tax consequences that would follow from the manner in which the Company expects, at the balance sheet date, to recover the assets or settle the liabilities .

(3) The carrying amount of deferred tax assets shall be reviewed at the balance sheet date . If it is unlikely to obtain sufficient taxable income to offset against the benefit of the deferred tax assets, the carrying amount of the deferred tax assets shall be written down, the amount of writing down shall be accounted for income tax expense in the current period, and the amount of writing down shall be accounted in shareholder’s equity if the deferred tax is originally recognized in shareholder’s equity . Any such write-down should be subsequently reversed where it becomes probable that sufficient taxable income will be available .

101

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

25. Impairment of assets

Impairment of long-term equity investments in subsidiaries, associates and jointly controlled entities, investment properties subsequently measured by the cost method, fixed assets, construction in progress, intangible assets, goodwill (except inventories, investment properties measured by the fair value method, deferred tax assets, financial assets) are determined as follows:

(1) Fixed assets are tested for impairment if there is any indication that an asset may be impaired at the balance date . If any indication exists that an asset may be impaired, the recoverable amount of this asset is estimated . Goodwill arising from a business combination, an intangible asset with an indefinite useful life and intangible assets that have not been ready for intended use are tested for impairment at least once a year, irrespective of whether or not there is any indication that those assets may be impaired .
(2) The recoverable amount of an asset is the higher of its fair value less costs to sell and its present value of the expected future cash flows estimated to be derived from the asset . Provision for asset impairment is determined and recognized on individual asset basis . If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of a group of assets to which the asset belongs is determined .
(3) Identification of an asset group is based on whether major cash inflows generated by the asset group are largely independent of the cash inflows from other assets or asset groups . When the recoverable amount of an asset or an asset group is less than its carrying amount, the carrying amount is reduced to the recoverable amount . The reduction in carrying amount is treated as impairment loss and recognized in profit or loss for the current period .
(4) Once the impairment loss of the above assets is recognized, it cannot be reversed in subsequent periods .

26. Employee benefits

Employee benefits include wages or salaries, bonuses, allowances, subsidies, welfare fund, social security contributions, housing funds and other expenditures incurred in exchange for service rendered by employees and are recognized for the period during which they are rendered .

27. segment information

The Group identifies operating segments based on the internal organization structure, management requirements and internal reporting system, and discloses segment information of reportable segments on the basis of operating segments .

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

(1) The component is able to earn revenues and incur expenses from its ordinary activities;
(2) Whose operating results are regularly reviewed by the Group’s management to make decisions about resources to be allocated to the segment and to assess its performance; and
(3) Information on financial position, operating results and cash flows statement is available to the Group . The accounting policies of operating segments are the same with the significant accounting policies of the Company .

An operating segment’s revenue, expenses, operating results, assets and liabilities include those directly attributable to a segment and those allocated to the segment on a reasonable basis . Revenue, expenses, assets and liabilities of operating segment are determined at the amounts before the elimination of inter-group transactions and inter-group current account balances . Transfer price between operating segments is calculated on terms similar to those of arm’s length transactions .

102

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

2. suMMary oF sIgnIFICant aCCountIng PolICIEs, aCCountIng EstIMatEs anD CorrECtIons oF PrIor PErIoD Errors (continued)

28. operating leases

The Company recognises the rentals of operating leases in profit or loss over the leasing period on a straight line basis . Initial direct costs incurred are accounted for in the profit or loss for the period .

29. Changes in significant accounting policies and accounting estimates

There are no changes in significant accounting policies and accounting estimates of the Company in the current year .

30. Correction of prior period’s accounting errors

There is no prior period’s accounting errors in the current year .

3. taXatIon

1. the types and rates of taxes applicable to the group

type of taxes	tax basis	tax rate
Value-added tax	Taxable value added amount	17%
Business tax	Taxable business turnover	5%
City maintenance and construction tax	Amounts of value-added tax and	1%-7%
	business tax
Education surcharges	Amounts of value-added tax and	3%
	business tax
Corporate income tax	Taxable income	25%

2. tax preferences and approvals

Hisense Ronshen (Guangdong) Refrigerator Co ., Ltd ., a subsidiary of the Company, received Certificate of High/New Technology Enterprise (Number: GF201144000198) dated 23 August 2011 which was jointly issued by the Guangdong Science and Technology Department, Guangdong Provincial Finance Department, Guangdong Provincial State Tax Bureau and Guangdong Provincial Local Taxation Bureau, with an effective period of three years (2011, 2012 and 2013) . Pursuant to the tax preference regulation on High/New Technology Enterprises, this subsidiary is entitled to the preferential enterprise income tax rate of 15% in 2011, 2012 and 2013 .

Guangdong Kelon Mould Co ., Ltd ., a subsidiary of the Company, received Certificate of High/New Technology Enterprise (Number: GF201144000843) dated 13 October 2011 which was jointly issued by the Guangdong Science and Technology Department, Guangdong Provincial Finance Department, Guangdong Provincial State Tax Bureau and Guangdong Provincial Local Taxation Bureau, with an effective period of three years (2011, 2012 and 2013) . Pursuant to the tax preference regulation on High/New Technology Enterprises, this subsidiary is entitled to the preferential enterprise income tax rate of 15% in 2011, 2012 and 2013 .

According to the Notice of the Second Tentative List of Recognised High/New Technology Enterprises in Guangdong Province in 2012 (Yuekehangaozi [2012] No . 1645), Hisense Ronshen (Guangdong) Freezer Co ., Ltd ., a subsidiary of the Company, with an income tax rate of 15% in 2011, was certified as a High/New Technology Enterprise, with an effective period of three years (2012, 2013 and 2014) . According to the relevant tax preference regulation on High/New Technology Enterprises, the applicable enterprise income tax rate for this subsidiary in 2012, 2013 and 2014 is 15% .

103

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

3. taXatIon (continued)

2. tax preferences and approvals (continued)

Guangdong Kelon Fittings Co ., Ltd ., a subsidiary of the Company, received the Certificate of High/ New Technology Enterprise (Number: GR201044000174) dated 26 September 2010 which was jointly issued by the Guangdong Science and Technology Department, Guangdong Provincial Finance Department, Guangdong Provincial State Tax Bureau and Guangdong Provincial Local Taxation Bureau, with an effective period of three years (2010, 2011 and 2012) . According to the relevant tax preference regulation on High/New Technology Enterprises, the applicable enterprise income tax rate for this subsidiary in 2010, 2011 and 2012 is 15% .

According to the Notice of the Second Tentative List of Recognised High/New Technology Enterprises in Sichuan Province in 2012 (Chuangaoqirenzi [2012] No . 7), Hisense (Chengdu) Refrigerator Co ., Ltd ., a subsidiary of the Company, with an income tax rate of 15% in 2011, was certificated as a High/ New Technology Enterprise, with an effective period of three years (2012, 2013 and 2014) . According to the relevant tax preference regulation on High/New Technology Enterprises, the applicable enterprise income tax rate for this subsidiary in 2012, 2013 and 2014 is 15% .

Hisense (Beijing) Electric Co ., Ltd . a subsidiary of the Company with an income tax rate of 15% in 2010, received Certificate of High/New Technology Enterprise (Number: GF201111002104) dated 28 October 2011 which was jointly issued by the Beijing Science and Technology Department, Beijing Finance Department, Beijing State Taxation Bureau and Beijing Local Taxation Bureau, with an effective period of three years (2011, 2012 and 2013) . According to the relevant tax preference regulation on High/New Technology Enterprises, the applicable enterprise income tax rate for this subsidiary in 2011, 2012 and 2013 is 15% .

Hisense (Nanjing) Electric Co ., Ltd ., a subsidiary of the Company, received the Certificate of High/ New Technology Enterprise (Number: GR201032000380) dated 13 December 2010 which was jointly issued by the Jiangsu Science and Technology Department, Jiangsu Provincial Finance Department, Jiangsu Provincial State Taxation Bureau and Jiangsu Provincial Local Taxation Bureau, with an effective period of three years (2010, 2011 and 2012) . According to the relevant tax preference regulation on High/New Technology Enterprises, income applicable enterprise tax rate for this subsidiary in 2010, 2011 and 2012 is 15% .

Hisense (Shandong) Air-conditioning Co ., Ltd ., a subsidiary of the Company with an income tax rate of 15% in 2010, received the Certificate of High/New Technology Enterprise (Number: GF201137100040) dated 6 September 2011 which was jointly issued by the Qingdao Science and Technology Department, Qingdao Finance Department, Shandong Provincial State Taxation Bureau and Qingdao Local Taxation Bureau, with an effective period of three years (2011, 2012 and 2013) . According to the relevant tax preference regulation on High/New Technology Enterprises, the applicable enterprise income tax rate for this subsidiary in 2011, 2012 and 2013 is 15% .

Qingdao Hisense Mould Co ., Ltd ., a subsidiary of the Company with an income tax rate of 15% in 2010, received the Certificate of High/New Technology Enterprise (Number: GF201137100073) dated 6 September 2011 which was jointly issued by the Qingdao Science and Technology Department, Qingdao Finance Department, Shandong Provincial State Taxation Bureau and Qingdao Local Taxation Bureau, with an effective period of three years (2011, 2012 and 2013) . According to the relevant tax preference regulation on High/New Technology Enterprises, the applicable enterprise income tax rate for this subsidiary in 2011, 2012 and 2013 is 15% .

Hisense Ronshen (Yangzhou) Refrigerator Co ., Ltd ., a subsidiary of the Company with an income tax rate of 12 .5% in 2011, are entitled to the preferential tax policy of “two-year holiday and three-year 50% reduction” at an applicable tax rate of 12 .5% .

The subsidiaries of the Company which were incorporated in Hong Kong are taxed on the assessable profits arising in Hong Kong at a rate of 16 .5% (2011: 16 .5%) .

104

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

3. taXatIon (continued)

3. other illustrations

(1) Other taxes, including real estate tax, land use tax, local education surcharges, vehicle and vessel tax, stamp duty, withholding individual income tax etc ., are calculated and payable in accordance with the relevant regulations of the State tax laws .
(2) Kelon (Japan) Ltd, a subsidiary of the Company, is a legal representative in Japan and is involved in all major categories of taxations (including corporate tax, corporate inhabitant tax and corporate business tax), consumption tax and fixed asset tax . The bases and rate of each type of taxes are as follows:

type of taxes	tax basis	tax rate
Corporation tax	Based on the audited profits for the period	In accordance with the
		applicable local tax rate
Corporate inhabitant	A fixed tax rate on the legal representative	In accordance with the
tax (local tax)	itself and proportional tax rate on it’s	applicable local tax rate
	earned income
Corporate business tax	The total amount of income, value	In accordance with the
(local tax)	surcharge and capital for the period	applicable local tax rate
Consumption tax	The difference between the total sales	In accordance with the
	amount and the total purchase amount of	applicable local tax rate
	the tax payer
Fixed asset tax	Value of lands, buildings and depreciable	In accordance with the
	assets	applicable local tax rate

4. busInEss CoMbInatIon anD ConsolIDatED FInanCIal statEMEnts

Unless otherwise expressly stated, all amounts in the following table are denominated in RMB’0000 .

(1) Major subsidiaries

1. Subsidiaries acquired from establishment or investment

															Excess of loss of the period
														amount of	attributable to minority
														minority	share of the subsidiary
														interest used	offset by ownership of the
								actual						to set off loss	parent company over share
								investment						attributable to	of ownership by minority
		type of	Place of	nature of				at the end of	shareholding (%)		% of voting	Consolidated	Minority	minority	interest in the subsidiary as
name of subsidiary		subsidiary	registration	business	registered capital	Entity type	scope of business	the Period	Direct	Indirectly	rights held	or not	interest	interest	at the beginning of the year
Hisense Ronshen (Guangdong) Refrigerator Co , Ltd (“Guangdong		Wholly-owned subsidiary	Foshan	Industrial	US$26,800,000	Limited liability company	Manufacture and sale of refrigerators	20,600 82	70%	30%	100%	Yes
Refrigerator”)
Guangdong Kelon Air-conditioner Co , Ltd (“Guangdong Air-conditioner”)*	1	Subsidiary	Foshan	Industrial	US$36,150,000	Limited liability company	Manufacture and sale of air-conditioners	28,100 00	60%		100%	Yes
Hisense Ronshen (“Guangdong) Freezer Co , Ltd (“Guangdong Freezer”)		Wholly-owned subsidiary	Foshan	Industrial	23,700 00	Limited liability company	Manufacture and sale of freezers	3,585 10	44%	56%	100%	Yes
Shunde Kelon Household Electrical Appliance Co , Ltd (“Kelon HEA”)		Wholly-owned subsidiary	Foshan	Industrial	1,000 00	Limited liability company	Manufacture and sale of household appliances	250 00	25%	75%	100%	Yes
Guangdong Kelon Fittings Co , Ltd		Wholly-owned	Foshan	Industrial	US$5,620,000	Limited liability	Manufacture and sale of spare parts for	4,321 29	70%	30%	100%	Yes
(“Kelon Fittings”)		subsidiary				company	refrigerators and air-conditioners
Foshan Shunde Rongsheng Plastic Co , Ltd (“Rongsheng Plastic”)		Subsidiary	Foshan	Industrial	US$15,827,400	Limited liability company	Manufacture of plastic parts	8,263 91	44 92%	25 13%	70 05%	Yes	8,072 21
Guangdong Kelon Mould Co , Ltd		Subsidiary	Foshan	Industrial	US$15,056,100	Limited liability	Manufacture of mould	7,856 36	40 22%	29 89%	70 11%	Yes	4,550 33
(“Kelon Mould”)						company
Guangdong Huaao Electronics Co , Ltd (“Huaao Electronics”)* 1		Subsidiary	Foshan	Industrial	1,000 00	Limited liability company	Research and development, production and sale of electronic products	700 00		70%	100%	Yes
Guangdong Foshan Shunde Kelon Property Service Co , Ltd (“Kelon		Wholly-owned subsidiary	Foshan	Service	500 00	Limited liability company	Corporate consultancy management, catering, household decoration design	492 78		100%	100%	Yes
Property”)

105

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

4. busInEss CoMbInatIon anD ConsolIDatED FInanCIal statEMEnts (continued)

Unless otherwise expressly stated, all amounts in the following table are denominated in RMB’0000 .

(1) Major subsidiaries (continued)

1. Subsidiaries acquired from establishment or investment (continued)

														Excess of loss of the period
													amount of	attributable to minority
													minority	share of the subsidiary
													interest used	offset by ownership of the
							actual						to set off loss	parent company over share
							investment						attributable to	of ownership by minority
	type of	Place of	nature of				at the end of	shareholding (%)		% of voting	Consolidated	Minority	minority	interest in the subsidiary as
name of subsidiary	subsidiary	registration	business	registered capital	Entity type	scope of business	the Period	Direct	Indirectly	rights held	or not	interest	interest	at the beginning of the year
Foshan Shunde Wangao Import & Export Co , Ltd (“Wangao I&E”)	Wholly-owned subsidiary	Foshan	Commercial	300 00	Limited liability company	Import and export	300 00	20%	80%	100%	Yes
Foshan Shunde Kelon Jiake Electronics Co , Ltd (“Kelon Jiake”)	Wholly-owned subsidiary	Foshan	Industrial	6,000 00	Limited liability company	IT and communication technology, and micro-electronics technology	6,000 00	70%	30%	100%	Yes
						development
Guangdong Kelon Weili Electrical Appliances Co , Ltd (“Kelon Weili”)	Subsidiary	Zhongshan	Industrial	20,000 00	Limited liability company	Production of intelligent washing machines, intelligent air-conditioners and		55%	25%	80%	Yes	(436 50)
						after-sale maintenance services and
						technology consultation for other
						products, 70% products for domestic
						sale
Hisense Ronshen (“Yingkou) Refrigerator Co , Ltd (“Yingkou Refrigerator”)	Subsidiary	Yingkou	Industrial	20,000 00	Limited liability company	Manufacture and sale of refrigerators	14,316 61	42%	36 79%	78 79%	Yes	1,486 46
Jiangxi Kelon Industrial Development Co , Ltd (“Jiangxi Kelon”)	Wholly-owned subsidiary	Nanchang	Industrial	US$29,800,000	Limited liability company	Manufacture and sale of household and commercial air-conditioners,	24,196 28	60%	40%	100%	Yes
						refrigerators, freezers and small
						household appliances
Jiangxi Kelon Combine Electrical Appliances Co , Ltd (“Jiangxi Combine”)* 2	Subsidiary	Nanchang	Industrial	2,000 00	Limited liability company	Research and development, production and sale of household and commercial air- conditioners, refrigerators, freezers and	1,100 00		55%	55%	No
						small household appliances
Hangzhou Kelon Electrical Co , Ltd	Wholly-owned	Hangzhou	Industrial	2,400 00	Limited liability	Research and development and production	2,400 00	100%		100%	Yes
(“Hangzhou Kelon”)	subsidiary				company	of high efficiency, energy saving and
						environmental friendly refrigerators,
						technology for environmental friendly
						refrigerators, information consultation,
						warehousing, and sale of the Company’s
						products
Hisense Ronshen (“Yangzhou) Refrigerator Co , Ltd	Wholly-owned subsidiary	Yangzhou	Industrial	US$44,447,900	Limited liability company	Production and sale of energy saving, environmental friendly refrigerators and	32,449 22	74 33%	25 67%	100%	Yes
(“Yangzhou Refrigerator”)						other energy saving cooling electrical
						appliances
Shangqiu Kelon Electrical Co , Ltd	Wholly-owned	Shangqiu	Industrial	15,000 00	Limited liability	Research and development, manufacture	15,000 00		100%	100%	Yes
(“Shangqiu Kelon”)	subsidiary				company	and sale of household and commercial
						air-conditioners, refrigerators, freezers
						and small household appliances and
						parts and accessories, and provision
						of relevant information and technical
						consultancy services
Zhuhai Kelon Electrical Industrial Development Co , Ltd	Wholly-owned subsidiary	Zhuhai	Industrial	US$29,980,000	Limited liability company	Research and development and manufacture of refrigerators, air-conditioners,	23,711 31	75%	25%	100%	Yes
(“Zhuhai Kelon”)						freezers, small household appliances
						and related accessories
Shenzhen Kelon Purchase Co , Ltd	Wholly-owned	Shenzhen	Commercial	10,000 00	Limited liability	Domestic business, material supply and	10,000 00	95%	5%	100%	Yes
(“Shenzhen Kelon”)	subsidiary				company	marketing (excluding franchise, control
						and monopoly of goods); import and
						export; provision of warehousing,
						information consultation
Pearl River Electric Refrigerator Co , Ltd	Wholly-owned	Hong Kong	Commercial	HK$400,000	Limited liability	Sale of raw materials and accessories	32 43		100%	100%	Yes
(“Pearl River Refrigerator”)	subsidiary				company
Kelon Development Co , Ltd (“Kelon	Wholly-owned	Hong Kong	Investment	HK$5,000,000	Limited liability	Investment holding	1,120 00	100%		100%	Yes
Development”)	subsidiary				company
Kelon (Japan) Limited (“Kelon Japan”)	Wholly-owned	Japan	Commercial	JPY1,100,000,000	Limited liability	Technical research and trading in electrical	2,471 97		100%	100%	Yes
	subsidiary				company	household appliances
Kelon International Incorporation (“KII”)	Wholly-owned	British Virgin	Commercial	US$50,000	Limited liability	Investment holding and sale of household	0 0006		100%	100%	Yes
	subsidiary	Islands			company	appliances
Hisense (Chengdu) Refrigerator Co , Ltd	Wholly-owned	Chengdu	Industrial	5,000 00	Limited liability	Manufacture of household appliances and	5,000 00	100%		100%	Yes
(“Chengdu Refrigerator”)	subsidiary				company	refrigeration equipment, sale of the
						Company’s products, and provision of
						related after-sale services
Hisense (Shandong) Refrigerator Co , Ltd	Wholly-owned	Qingdao	Industrial	10,000 00	Limited liability	Manufacture of energy saving and	10,000 00	100%		100%	Yes
(“Shandong Refrigerator”)	subsidiary				company	environmental friendly refrigerators,
						freezers and other household energy
						saving cooling appliances; sale of
						self-manufactured products of the
						Company; design and development
						of new products in the area of energy
						saving and environmental friendly
						refrigerators, freezers and energy saving
						cooling appliances

106

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

4. busInEss CoMbInatIon anD ConsolIDatED FInanCIal statEMEnts (continued)

(1) Major subsidiaries (continued)

2. Subsidiaries acquired from business combination involving entities under common control

														Excess of loss of the period
														attributable to minority
													amount of	share of the subsidiary
													minority interest	offset by ownership of the
							actual						used to set off	parent company over share
							investment						loss attributable	of ownership by minority
	type of	registered	nature of				at the end of	shareholding (%)		% of voting	Consolidated	Minority	to minority	interest in the subsidiary as
name of subsidiary	subsidiary	place	business	registered capital	Entity type	scope of business	the Period	Direct	Indirectly	rights held	or not	interest	interest	at the beginning of the year
Hisense (Beijing) Electric Co , Ltd	Subsidiary	Beijing	Industrial	8,571 00	Limited	Manufacture of refrigerator products and	9,210 12	55%		55%	Yes	7,990 91
(“Beijing Refrigerator”)					liability	other household appliances; sale of self-
					company	produced products; import and export of
						goods and technologies, and provision
						of import and export agency services
Hisense (Shandong) Air-conditioning Co , Ltd (“Shandong Air-conditioning”)	Wholly-owned subsidiary	Qingdao	Industrial	50,000 00	Limited liability	Research and development, manufacture and sale of air-conditioning products	56,717 55	100%		100%	Yes
					company	and injection moulds, and provision of
						after-sale maintenance services
Hisense (Zhejiang) Air-conditioning Co , Ltd (“Zhejiang Air-conditioning”)	Subsidiary	Huzhou	Industrial	11,000 00	Limited liability	Production of air-conditioners, manufacture and sale of other household appliances,	5,452 36	51%		51%	Yes	2,995 45
					company	provision of related technical services,
						and import and export of goods and
						technologies
Qingdao Hisense Mould Co , Ltd	Subsidiary	Qingdao	Industrial	2,764 20	Limited	Design and manufacture of moulds, machine	12,162 80	78 70%		78 70%	Yes	4,940 67
(“Hisense Mould”)					liability	processing, design and manufacture of
					company	jigs, plastic injection, painting/brushing
						and processing etc
Hisense (Nanjing) Electric Co , Ltd	Subsidiary	Nanjing	Industrial	12,869 15	Limited	Research and development, manufacture	7,721 49		60%	60%	Yes	6,517 05
(“Nanjing Refrigerator”)					liability	and sale of fluorine-free refrigeration
					company	products and other household
						appliances Import and export of
						various goods and technologies self-
						manufactured and distributed

*1 The Company holds 60% equity interests in Guangdong Air-conditioner and 70% equity interests in Huaao Electronics, however as the Company has committed to provide financial support to these companies and bear 100% of their losses, therefore the long-term equity investment was accounted for 100% shareholding .

*2 The Company holds 55% equity interests in Jiangxi Combine . As Jiangxi Combine has declared in liquidation and reorganization, therefore it has not been consolidated in the financial statements .

107

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

4. busInEss CoMbInatIon anD ConsolIDatED FInanCIal statEMEnts (continued)

(1) Major subsidiaries (continued)

3. Changes in scope of business combination

Subsidiaries newly consolidated for the period

	net assets as at
	the end of	net profit
name	the period	for the period
Shandong Refrigerator	99,802,857 07	(197,142 93)

Subsidiaries that have ceased to be consolidated for the period

		net profits from
	net assets as at	the beginning of the year
name	the date of disposal	to the date of disposal	remark
Xi’an Kelon Cooling Co , Ltd	(107,564,468 04)	(14,281,705 56)	Disposed
(“Xi’an Kelon”)*
Kelon USA, Inc	(67,380,290 77)	6,227,539 69	Deregistered
(“USA Kelon”)

In 2012, the Company transferred 60% of the equity interests in Xi’an Kelon to a third party .

4. Exchange rate for major items in the financial statements of overseas operating entities

Major items in
the financial		balances in
statements	Currency	foreign exchange	Exchange rate	balances in rMb
Cash at bank and
on hand	HKD	13,217,374 51	0 8108	10,716,647 25
Net accounts
receivable	HKD	458,916,819 25	0 8108	372,089,757 05
Other payables	HKD	729,559,035 18	0 8108	591,526,465 72
Total operating
revenue	HKD	3,260,432,431 85	0 8108	2,643,558,615 74
General and
Administrative
expenses	HKD	4,883,721 88	0 8108	3,959,721 70

Note to the exchange rate:

Within the scope of consolidation, overseas operating entities that are accounted in foreign currency include Pearl River Refrigerator, Kelon Development, KII and Japan Kelon . On the date of consolidation, the Company has translated the items using spot exchange rate for assets and liabilities on the balance sheet date, whereas items under equity (except unallocated profits) were translated using historic exchange rate, and items under profit and loss were translated using average exchange rate . The difference between assets and liabilities and net assets was reflected in “Difference on translation of foreign currency financial statement” and was stated separately under shareholder’s equity in the balance sheet .

108

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts

(Opening balances refer to balances as at 1 January 2012, whereas closing balances refer to balances as at 31 December 2012, and the current period refers to 2012, whereas the previous period refers to 2011)

1. Cash at bank and on hand

Item Cash: RMB USD JPY Others Subtotal: Bank deposits: RMB HKD USD JPY EUR Others Subtotal of bank deposits: Other cash at bank and on hand: RMB USD EUR Subtotal of other cash at bank and on hand:	Closing balance Foreign currency Exchange rate rMb 6,818 62 1 0000 6,818 62 0 75 6 2855 4 72 1200 0 0730 87 66 0 06 6,911.06 415,593,988 42 1 0000 415,593,988 42 699,256 80 0 8108 566,957 73 14,650,362 17 6 2855 92,084,851 41 145,261 00 0 0730 10,611 17 526,331 88 8 3176 4,377,817 96 156,024 90 1,020,238 78 513,654,465.47 2,404,091 43 1 0000 2,404,091 43 2,404,091.43	opening balance
		Foreign currency Exchange rate rMb 166,089 31 1 0000 166,089 31 0 75 6 3009 4 73 779 65 0 0811 63 23 0 06 166,157.33 260,094,504 27 1 0000 260,094,504 27 2,905,900 88 0 8107 2,355,813 84 18,696,226 35 6 3009 117,803,052 63 96,487 92 0 0811 7,825 17 1,453,843 52 8 1625 11,866,997 70 4,520,569 04 396,648,762.65 371,433 45 1 0000 371,433 45 45,332 13 6 3009 285,633 22 129,947 40 8 1625 1,060,695 65 1,717,762.32
total	516,065,467.96	398,532,682.30

Particulars of cash at bank and on hand: Other cash at bank and on hand mainly represented guarantee deposits for letter of credit .

109

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

1. Cash at bank and on hand (continued)

Details of restricted cash are listed as follows:

2.

Item		Closing balance	opening balance
Guarantee deposits for letter of credit		2,404,091 43	1,717,762 32
total		2,404,091.43	1,717,762.32
Financial assets held-for-trading
*(1)*	*Financial assets held-for-trading*
	Item	Closing balance	opening balance
	Derivative financial assets	10,678,293 47	33,787,696 24
	total	10,678,293.47	33,787,696.24

(2) Particulars of financial assets held-for-trading
1 . There was no material restriction for realizing the financial assets held-for-trading as at the end of the period .
2 . It mainly represented the undue foreign exchange forward contracts entered into by the Company and banks, which was recognized as the financial assets or liabilities based on the difference between the quotation of the undue foreign exchange contracts and the future foreign exchange rate as at 31 December 2012 .

3. notes receivable

(1) Classification of notes receivable

Category	Closing balance	opening balance
Bank acceptance notes	1,529,113,685 60	468,377,887 77
Trade acceptance notes	29,652,507 01	34,541,419 62
total	1,558,766,192.61	502,919,307.39

(2) As at the end of the period, there was no pledged notes receivable .
(3)
As at the end of the period, there was no discounted notes receivable .
(4) As at the end of the period, there were no notes receivable that are reclassified to trade receivable due to inability of the issuers .

110

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

3. notes receivable (continued)

(5) As at the end of the period, notes endorsed to other parties but not matured amounted to RMB3,809,337,554 .60 (31 December 2011: RMB2,887,110,721 .24), with the particulars of the top five amounts as follows:

Issuer	Date of issuance	Due date	amount
Nanjing procurement center of	9 July 2012	7 January 2013	10,000,000 00
Suning Appliance Co , Ltd
Nanjing procurement center of	9 July 2012	6 January 2013	10,000,000 00
Suning Appliance Co , Ltd
Nanjing procurement center of	27 July 2012	27 January 2013	10,000,000 00
Suning Appliance Co , Ltd
Nanjing procurement center of	27 July 2012	27 January 2013	10,000,000 00
Suning Appliance Co , Ltd
Nanjing procurement center of	27 July 2012	27 January 2013	10,000,000 00
Suning Appliance Co , Ltd

(6) Please see note 6 for details of notes receivables from related parties as at the end of the period .

4. accounts receivable

(1) Accounts receivable by category:

Category Individually significant and subject to separate provision Ageing analysis Greencool Companies Subtotal Individually insignificant but subject to separate provision	Closing balance	Closing balance
	Carrying amount amount % of total balance 1,607,402,974 16 97 65 38,689,983 28 2 35 1,646,092,957.44 100.00	Provision for bad debts
		amount % of total balance 167,483,810 31 10 43 22,726,941 64 58 74 190,210,751.95 11.56
total	1,646,092,957.44 100.00	190,210,751.95 11.56

111

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

(4) accounts receivable (continued)

(1) Accounts receivable by category: (continued)

Continued from above table

Category Individually significant and subject to separate provision Aging analysis Greencool Companies Subtotal of the category Individually insignificant but subject to separate provision	opening	balance Provision for bad debts amount % of total balance 165,542,927 85 12 32 22,726,941 64 58 74 188,269,869.49 13.62 188,269,869.49 13.62
	Carrying amount amount % of total balance 1,343,347,381 18 97 20 38,689,983 28 2 80 1,382,037,364.46 100.00
total	1,382,037,364.46 100.00

Accounts receivable in the category provided bad debts by using ageing method:

age Within three months Over three months but within six months Over six months but within one year Over one year	Closing balance Carrying amount amount % of total balance Provision for bad debts 1,432,725,055 88 87 04 1,612,142 13 0 10 161,214 21 11,486,360 10 0 70 5,743,180 05 161,579,416 05 9 82 161,579,416 05	opening balance Carrying amount amount % of total balance Provision for bad debts 1,174,482,507 39 84 98 3,594,295 40 0 26 359,429 54 174,160 16 0 01 87,080 08 165,096,418 23 11 95 165,096,418 23 1,343,347,381.18 97.20 165,542,927.85
total	1,607,402,974.16 97.66 167,483,810.31

Accounts receivable in the category provided bad debts as for Greencool Companies:

Company name Hefei Weixi Electrical Appliance Co , Ltd (“Hefei Weixi”) Wuhan Changrong Electrical Appliance Co , Ltd (“Wuhan Changrong”)	Closing balance amount Provision for bad debts 18,229,589 24 7,805,094 62 20,460,394 04 14,921,847 02	opening balance amount Provision for bad debts 18,229,589 24 7,805,094 62 20,460,394 04 14,921,847 02 38,689,983.28 22,726,941.64
total	38,689,983.28 22,726,941.64

112

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

4. accounts receivable (continued)

(2) Movements in provision for accounts receivable

year opening balance Provision for the year 2012 188,269,869 49 4,352,850 28	Decrease for the year reversal Write-off Closing balance 119,305 39 2,292,662 43 190,210,751 95

(3) Accounts receivable that are written off

				arising from
	nature of			related party
	accounts	amount		transactions
Company	receivable	written off	reason for write off	or not
Unrelated parties	Loans	2,292,662 43	Not recoverable due	No
			to long outstanding
total			—	—

(4) As at 31 December 2012, there was no accounts receivable from shareholder who holds 5% or more (including 5%) shares of the voting rights of the Company . As at 31 December 2011, there was no accounts receivable from shareholder who holds 5% or more (including 5%) shares of the voting rights of the Company .
(5) Top five accounts receivable

2012

				Percentage of the	Percentage of the
	relationship			total accounts
	with the			receivable amount
no.	Company	amount	ageing		(%)
Top 1	Unrelated party	238,358,502 63	Within three months		14 48
Top 2	Unrelated party	201,274,092 16	Within three months		12 23
Top 3	Related party	151,758,526 68	Within three months		9 22
Top 4	Related party	103,756,948 62	Within three months		6 30
Top 5	Related party	86,931,073 83	Within three months		5 28
total		782,079,143.92	—		47.51

113

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

4. accounts receivable (continued)

(5) Top five accounts receivable (continued)

2011

				Percentage of the	Percentage of the
	relationship			total accounts
	with the			receivable amount
no.	Company	amount	ageing		(%)
Top 1	Related party	251,595,071 56	Within three months		18 20
Top 2	Unrelated party	178,737,705 00	Within three months		12 93
Top 3	Unrelated party	162,914,960 00	Within three months		11 79
Top 4	Unrelated party	58,579,061 81	Within three months		4 24
Top 5	Unrelated party	26,022,947 44	Within three months		1 88
total		677,849,745.81	—		49.04

(6) Please see note 6 for details of accounts receivable from related parties at the end of the period .
(7) As at the end of the period, accounts receivable amounted to RMB35,541,669 .96 were used for factoring and securing borrowings amounted to RMB30,309,453 .94 .

5. Prepayments

(1) The ageing of prepayments is analyzed as follows

age Within one year One to two years Two to three years Over three years	Closing balance amount Percentage (%) 303,832,959 24 99 85 3,429 34 465,213 00 0 15	opening balance amount Percentage (%) 314,927,960 62 99 83 39,080 91 0 01 41,991 61 0 01 465,213 00 0 15 315,474,246.14 100.00
total	304,301,601.58 100.00

114

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

5. Prepayments (continued)

(2) Top five prepayments

2012
	relationship
	with the			reason of
no.	Company	amount	ageing	unsettlement
Top 1	Unrelated party	110,605,760 12	Within one year	Normal settlement
Top 2	Unrelated party	50,595,506 27	Within one year	Normal settlement
Top 3	Unrelated party	36,624,182 25	Within one year	Normal settlement
Top 4	Unrelated party	21,092,306 73	Within one year	Normal settlement
Top 5	Unrelated party	10,558,637 05	Within one year	Normal settlement
total		229,476,392.42	—
2011
	relationship
	with the			reason of
no.	Company	amount	ageing	unsettlement
Top 1	Unrelated party	127,530,771 74	Within one year	Normal settlement
Top 2	Unrelated party	43,421,698 60	Within one year	Normal settlement
Top 3	Unrelated party	43,080,130 39	Within one year	Normal settlement
Top 4	Unrelated party	24,021,300 04	Within one year	Normal settlement
Top 5	Unrelated party	10,748,569 33	Within one year	Normal settlement
total		248,802,470.10	—

(3) As at 31 December 2012, there was no prepayments due from shareholder who holds 5% or more (including 5%) shares of the voting rights of the Company . As at 31 December 2011, there was no prepayments due from shareholder who holds 5% or more (including 5%) shares of the voting rights of the Company .

115

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

6. other receivables

(1) Other receivables by category:

Category Individually significant and subject to separate provision Ageing analysis Greencool Companies Subtotal Individually insignificant but subject to separate provision	Closing balance Carrying amount Provision for bad debts amount % of total balance amount % of total balance 114,494,489 83 15 77 40,794,652 88 35 63 611,538,997 88 84 23 342,516,669 69 56 01 726,033,487.71 100.00 383,311,322.57 52.80 726,033,487.71 100.00 383,311,322.57 52.80 opening balance Carrying amount Provision for bad debts amount % of total balance amount % of total balance 199,609,592 89 24 61 28,758,785 61 14 41 611,538,997 88 75 39 342,516,669 69 56 01 811,148,590.77 100.00 371,275,455.30 45.77 811,148,590.77 100.00 371,275,455.30 45.77
	Carrying amount amount % of total balance 114,494,489 83 15 77 611,538,997 88 84 23 726,033,487.71 100.00
total	726,033,487.71 100.00
Continued from above table Category Individually significant and subject to separate provision Ageing analysis Greencool Companies Subtotal Individually insignificant but subject to separate provision
	Carrying amount amount % of total balance 199,609,592 89 24 61 611,538,997 88 75 39 811,148,590.77 100.00
total	811,148,590.77 100.00

116

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

6. other receivables (continued)

(1) Other receivables by category: (continued)

Other receivables in the category provided bad debts by using ageing analysis:

Closing balance Carrying amount age amount % of total balance Provision for bad debts Within three months 72,331,742 43 9 96 Over three months but within six months 621,139 95 0 09 62,114 00 Over six months but within one year 1,618,137 15 0 22 809,068 58 Over one year 39,923,470 30 5 50 39,923,470 30	opening balance
	Carrying amount amount % of total balance Provision for bad debts 159,597,609 34 19 68 11,668,759 58 1 44 1,166,875 96 1,502,628 64 0 18 751,314 32 26,840,595 33 3 31 26,840,595 33
total 114,494,489.83 15.77 40,794,652.88	199,609,592.89 24.61 28,758,785.61

117

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

6. other receivables (continued)

(1) Other receivables by category: (continued)

Other receivables in the category provided bad debts as for Greencool Companies:

Closing balance
Company name
amount
Provision for
bad debts
Guangdong Greencool
13,754,600 00
7,962,961 47
Hainan Greencool Environmental
Protection Engineering Co , Ltd
(“Hainan Greencool”)
12,289,357 71
11,313,119 16
Jiangxi Kesheng Trading Co , Ltd
(“Jiangxi Kesheng”)
27,462,676 72
21,390,370 86
Jinan San Ai Fu Chemical Co , Ltd
(“Jinan San Ai Fu”)
121,496,535 45
64,813,858 20
Tianjin Xiangrun Trading
Development Co , Ltd (“Tianjin
Xiangrun”)
96,905,328 00
48,706,110 00
Tianjin Lixin
89,600,300 00
44,800,150 00
Greencool Technology Development
(Shenzhen) Co , Ltd (“Shenzhen
Greencool Technology”)
32,000,000 00
Greencool Environmental Engineering
Shenzhen Co , Ltd (“Shenzhen
Greencool Environmental”)
33,000,000 00
Jiangxi Keda Plastic Technology Co ,
Ltd (“Jiangxi Keda”)
13,000,200 00
6,500,100 00
Zhuhai Longjia Refrigerating Plant
Co , Ltd (“Zhuhai Longjia”)
28,600,000 00
14,300,000 00
Zhuhai Defa Air-conditioner Fittings
Co , Ltd (“Zhuhai Defa”)
21,400,000 00
10,700,000 00
Wuhan ChangrongElectrical
Appliance Co , Ltd
(“Wuhan Changrong”)
20,000,000 00
10,000,000 00
Beijing Deheng Solicitors (“Deheng
Solicitors”)
4,000,000 00
4,000,000 00
Finance Bureau of Yangzhou
Economic Development Zone
40,000,000 00
40,000,000 00
Shangqiu Bingxiong Freezing
Facilities Co , Ltd
(“Shangqiu Bingxiong”)
58,030,000 00
58,030,000 00

opening balance
amount
Provision for
bad debts
13,754,600 00
7,962,961 47
12,289,357 71
11,313,119 16
27,462,676 72
21,390,370 86
121,496,535 45
64,813,858 20
96,905,328 00
48,706,110 00
89,600,300 00
44,800,150 00
32,000,000 00
33,000,000 00
13,000,200 00
6,500,100 00
28,600,000 00
14,300,000 00
21,400,000 00
10,700,000 00
20,000,000 00
10,000,000 00
4,000,000 00
4,000,000 00
40,000,000 00
40,000,000 00
58,030,000 00
58,030,000 00
611,538,997.88
342,516,669.69

total
611,538,997.88
342,516,669.69

118

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

6. other receivables (continued)

(2) Movements in provision for other receivables

				Decrease for	the year
	opening	Provision				Ending
year	balance	for the year		reversal	Write-off	balance
2012	371,275,455.30	18,080,468.51	3,697,461.17		2,347,140.07	383,311,322.57
*Other receivables that are written*		*off*
						arising
						from related
	nature of	amount		reason for		transactions
Company	receivable	written	off	write off		or not
Unrelated party	Debt	2,347,140	07	Not recoverable due		No
				to long outstanding
total				—		—

(3) Other receivables that are written off
(4) As at 31 December 2012, there was no other receivables from shareholder that holds 5% or more (including 5%) shares of the voting rights of the Company . As at 31 December 2011, there was no other receivable from shareholder that holds 5% or more (including 5%) shares of the voting rights of the Company .
(5) Top five other receivables (no changes from the end of 2011)

				Percentage of
	relationship			the total other
	with the			receivables
no.	Company	amount	ageing	amount (%)
Top 1	“Specific third party”	121,496,535 45	Over three years	16 73
Top 2	“Specific third party”	96,905,328 00	Over three years	13 35
Top 3	“Specific third party”	89,600,300 00	Over three years	12 34
Top 4	“Specific third party”	58,030,000 00	Over three years	7 99
Top 5	“Specific third party”	40,000,000 00	Over three years	5 51
total		406,032,163.45	—	55.92

The term “specific third party” is the abbreviation of the Greencool Companies controlled by the former beneficiary controller through the above companies, with whom the Company had a series of unusual cash flows .

(6) Please see note 6 for details of other receivables from related parties as at the end of the period .

119

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

7. Inventories

(1) Classification of inventories

Item Raw materials Work in progress Finished goods	Closing balance Carrying amount Provision for declines in value of inventories Carrying value 311,880,441 53 30,368,703 52 281,511,738 01 133,492,738 57 8,643,831 77 124,848,906 80 1,379,352,498 90 47,272,033 56 1,332,080,465 34	opening balance
		Carrying amount Provision for declines in value of inventories Carrying amount 267,061,592 26 34,094,906 33 232,966,685 93 107,356,608 71 8,643,831 77 98,712,776 94 1,254,821,071 36 39,222,669 16 1,215,598,402 20
total	1,824,725,679.00 86,284,568.85 1,738,441,110.15	1,629,239,272.33 81,961,407.26 1,547,277,865.07

(2) Provision for declines in value of inventories

Inventory Category opening balance Current year addition Raw materials 34,094,906 33 1,719,163 10 Work in progress 8,643,831 77 Finished goods 39,222,669 16 22,638,665 21	Decrease for the period Ending balance reversal Write-off 683,548 90 4,761,817 01 30,368,703 52 8,643,831 77 14,063,944 42 525,356 39 47,272,033 56
total 81,961,407.26 24,357,828.31	14,747,493.32 5,287,173.40 86,284,568.85

8. other current assets

Item	Closing balance	opening balance
Others	3,309,064 74	3,568,803 11
total	3,309,064.74	3,568,803.11

Particulars of other current assets: other current assets mainly represented prepaid rent and others .

120

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

9. Investments in jointly controlled entities and associates

  - _**(1) Investments in jointly controlled entities**_

Unit: RMB’0000

								total assets	total liabilities	total net assets	total operating
		registered	legal		registered	% of	% of voting	at end of the	at end of the	at end of the	revenue for the	net profit for
name of investee	Entity type	place	representative	business nature	capital	shareholding	rights	period	period	period	current year	the current year
Hisense Whirlpool (Zhejiang) Electric	Limited company	Zhejiang	BORRA	Industrial	45,000 00	50 00	50 00	86,048 04	43,833 80	42,214 24	116,045 35	521 50
Appliances Co , Ltd (“Hisense			BARBARA
Whirlpool”)
Hisense Hitachi	Limited company	Shandong	Qing Shan Gong	Industrial	USD46 00 million	49 00	49 00	172,955 95	82,039 10	90,916 85	275,849 21	37,882 74

(2) Investments in associates

Unit: RMB’0000

									total assets	total liabilities	total net assets	total operating
			registered	legal		registered	% of	% of voting	at end of the	at end of the	at end of the	revenue for	net profit for
name of investee		Entity type	place	representative	business nature	capital	shareholding	rights	period	period	period	current year	current year
Huayi Compressor Holdings Co , Ltd		Joint stock	Jiangxi	Liu Ti Bin	Industrial	32,458 12	6 45	6 45	474,355 98	362,662 38	111,693 60	560,143 25	17,308 19
(“Huayi Compressor”)	3	company
Attend Logistics Co , Ltd		Limited company	Guangzhou	Ye Wei Long	Logistics	1,000 00	20 00	20 00	2,057 68	414 76	1,642 92	881 97	(71 50)
(“Attend”)

Particulars of investments in jointly controlled entities and associates:

1 . There was no significant difference between the significant accounting policies and accounting estimates of the jointly controlled entities and associates and the significant accounting policies and accounting estimations of the Company .
2 . Evidence for joint control in jointly controlled entities: as required in the articles of associations of the joint venture, the production and operation of the enterprise shall be under joint management by the parties .
3 . The Company has assigned representatives in the board of directors of Huayi Compressor to participate in its decision making processes and has major transactions with Huayi Compressor . Accordingly, the Board of the Company is of the opinion that the Company has significant influence over Huayi Compressor and continued to recognize Huayi Compressor as an associate .

121

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

10. long-term equity investment

											Impairment
		accounting	Investment	opening	Increase for	Decrease for	Closing	% Equity	% voting	Provision for	provided in the	Cash dividend
Investee		treatment	cost	balance	the period	the period	balance	interest held	rights held	impairment	current year	in current year
1	Investment in jointly controlled
	entities
2 3	Hisense Whirlpool Hisense Hitachi Investment in associates Huayi Compressor Attend Other long-term equity investment Combine *1	Equity method Equity method Equity method Equity method Cost method	225,000,000 00 332,821,597 45 41,686,088 96 2,000,000 00 11,000,000 00	206,388,118 32 353,301,093 20 43,637,782 08 3,428,851 76 11,000,000 00	3,430,870 26 180,174,917 89 6,707,096 34	49,000,000 00 143,000 95	209,818,988 58 484,476,011 09 50,344,878 42 3,285,850 81 11,000,000 00	50 00 49 00 6 45 20 00 55 00	50 00 49 00 6 45 20 00 55 00	11,000,000 00		49,000,000 00
	Xinjiang Hisense Kelon Electrical	Cost method
	Sales Co , Ltd (“Xinjiang Kelon”) Fujian Kelon Air-condition Sales Co , Ltd (“Fujian Kelon”)	Cost method	100,000 00 100,000 00	100,000 00 100,000 00			100,000 00 100,000 00	2 00 2 00	2 00 2 00
	Qingdao Hisense International	Cost method
	Marketing Co , Ltd (“Hisense International Marketing”)		3,800,000 00	3,800,000 00			3,800,000 00	12 67	12 67			3,800,000 00
total			616,507,686.41	621,755,845.36	190,312,884.49	49,143,000.95	762,925,728.90			11,000,000.00		52,800,000.00

*1 As Jiangxi Combine, a subsidiary of the Company, has declared in liquidation and reorganization, it has not been consolidated in the financial statements and the investment cost in it has been fully impaired .

Apart from Huayi Compressor, associates and joint ventures of the Company are unlisted companies .

122

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

11. Investment properties

(1) Investment properties by cost-method

				additions	reductions
			opening	in the	in the	Closing
Item			balance	current year	current year	balance
1	Total cost		67,801,787 18	874,341 84		68,676,129 02
	1	Buildings	67,801,787 18	874,341 84		68,676,129 02
2	Total accumulated
		depreciation and
		amortization	29,781,936 75	2,447,590 18		32,229,526 93
	1	Buildings	29,781,936 75	2,447,590 18		32,229,526 93
3	Total net book value		38,019,850 43			36,446,602 09
	1	Buildings	38,019,850 43			36,446,602 09
4	Total accumulated
		provision for
		impairment
	1	Buildings
5	Total carrying amount		38,019,850 43			36,446,602 09
	1	Buildings	38,019,850 43			36,446,602 09

(2) Particulars of investment properties

1 The depreciation expense charged for 2012 was RMB2,447,590 .18, and the depreciation expense charged for 2011 was RMB2,610,671 .34 .
2 As at 31 December 2012, the investment properties with cost of RMB33,102,500 .00 and carrying amount of RMB14,967,500 .00 were pledged . Please see note 9 for details .
3 As at 31 December 2012, investment properties with cost of RMB13,794,500 .00, accumulated depreciation of RMB6,623,700 .00 and net carrying amount of RMB7,170,800 .00 have not obtained ownership certificate .
4 As at 31 December 2012, the Company has not identified any investment properties with the recoverable amount lower than its carrying amount and therefore has not made any provision for impairment .
5 Amongst the investment properties, all buildings were located in the Mainland China with useful lives between 20 to 50 years .

123

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

12. Fixed assets

(1) Particulars of fixed assets

				additions	reductions
				in the	in the
Item			opening balance	current year	current year	Closing balance
1.	total cost:		4,856,870,826.19	389,865,027.08	354,455,703.96	4,892,280,149.31
	Including:	Buildings	1,569,669,176 50	41,728,343 83	52,190,771 51	1,559,206,748 82
		Machinery and equipment	2,395,158,791 23	129,027,771 80	201,987,076 35	2,322,199,486 68
		Furniture, fixtures and
		office equipment	300,192,398 48	33,127,952 14	14,239,278 24	319,081,072 38
		Motor vehicles	23,870,012 37	2,066,048 18	3,382,390 52	22,553,670 03
		Moulds	567,980,447 61	183,914,911 13	82,656,187 34	669,239,171 40
2.	total accumulated depreciation:		2,743,855,204.62	350,982,461.94	239,787,687.42	2,855,049,979.14
	Including:	Buildings	700,498,696 18	52,685,175 76	25,792,338 15	727,391,533 79
		Machinery and equipment	1,412,605,891 65	135,892,404 16	138,966,751 47	1,409,531,544 34
		Furniture, fixtures and
		office equipment	206,209,304 31	28,519,558 21	10,279,154 70	224,449,707 82
		Motor vehicles	12,704,811 05	2,910,271 43	3,092,484 44	12,522,598 04
		Moulds	411,836,501 43	130,975,052 38	61,656,958 66	481,154,595 15
3.	total net amount of fixed assets		2,113,015,621.57			2,037,230,170.17
	Including:	Buildings	869,170,480 32			831,815,215 03
		Machinery and equipment	982,552,899 58			912,667,942 34
		Furniture, fixtures and
		office equipment	93,983,094 17			94,631,364 56
		Motor vehicles	11,165,201 32			10,031,071 99
		Moulds	156,143,946 18			188,084,576 25
4.	total provision for impairment		165,945,467.45	12,669,787.61	51,217,533.82	127,397,721.24
	Including:	Buildings	34,175,618 43	40,631 17		34,216,249 60
		Machinery and equipment	122,098,540 91	12,271,977 88	46,959,583 75	87,410,935 04
		Furniture, fixtures and
		office equipment	1,394,140 34	127,950 98	62,312 77	1,459,778 55
		Motor vehicles	1,061,125 06		8,433 43	1,052,691 63
		Moulds	7,216,042 71	229,227 58	4,187,203 87	3,258,066 42
5.	total carrying amount of fixed assets		1,947,070,154.12			1,909,832,448.93
	Including:	Buildings	834,994,861 89			797,598,965 43
		Machinery and equipment	860,454,358 67			825,257,007 30
		Furniture, fixtures and
		office equipment	92,588,953 83			93,171,586 01
		Motor vehicles	10,104,076 26			8,978,380 36
		Moulds	148,927,903 47			184,826,509 83

For 2012, the fixed asset transferred from construction in progress amounted to RMB199,999,014 .31 (2011: RMB259,793,869 .60) .

(2) Depreciation expenses for the year ended 31 December 2012 amounted to RMB350,982,461 .94, and RMB328,822,121 .78 in 2011 .
(3)
As at the end of the period, no fixed asset was idle transitorily .
(4) As at the end of the period, no fixed asset was held under finance lease .

124

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

12. Fixed assets (continued)

(5) As at the end of the period, no fixed asset was rent out under operating lease .
(6) As at the end of the period, no fixed asset was held for sale .
(7) As at the end of the period, no fixed asset has not obtained the ownership certificate .
(8) As at the end of the period, the buildings with cost of RMB595,724,700 .00 and net carrying amount of RMB236,917,300 .00 were pledged (please see note 9 for details) .

13. Constructions in progress

(1) Summary of constructions in progress

Item Yangzhou Refrigerator Chengdu Refrigerator Xi’an Kelon Others	Closing balance Carrying amount Provision for Impairment net carrying amount 20,227,599 56 20,227,599 56 4,079,463 99 4,079,463 99 55,363,025 70 11,325,835 67 44,037,190 03	opening balance Carrying amount Provision for Impairment net carrying amount 57,594,245 52 57,594,245 52 9,044,256 34 9,044,256 34 34,434,015 43 11,325,835 67 23,108,179 76 101,072,517.29 20,370,092.01 80,702,425.28
total	79,670,089.25 11,325,835.67 68,344,253.58

125

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

13. Constructions in progress (continued)

(2) Movements in significant construction in progress

		opening	additions in	transferred to	other	% contribution		source of	Closing
name of project	budget	balance	the current year	fixed assets	reductions	in budget	Progress	fund	balance
Utility works for production	25,355,000 00	24,711,427 58	1,408,372 42	26,119,800 00		103 02	Completed	Self-funding
and training building, canteen
and factory D of Yangzhou
Refrigerator
Installation of addition capacity at	1,920,000 00	1,872,848 00		1,872,848 00		97 54	Completed	Self-funding
electricity room of factory D of
Yangzhou Refrigerator
Steel platform of expansion project	3,704,605 67	3,357,340 71		3,357,340 71		90 63	Completed	Self-funding
of factory D of Yangzhou
Refrigerator
30-worker, door foaming production	4,972,500 00	3,547,591 00		3,547,591 00		71 34	Completed	Self-funding
line of Yangzhou Refrigerator
Low voltage switchgear of	2,365,252 00	1,609,138 46		1,609,138 46		68 03	Completed	Self-funding
Yangzhou Refrigerator
High voltage foaming machine of	1,113,576 18	1,184,407 00		1,184,407 00		106 3	Completed	Self-funding
Yangzhou Refrigerator
Hydraulic machine and punch press	3,870,000 00	3,307,692 30		3,307,692 30		85 47	Completed	Self-funding
of Yangzhou Refrigerator
Refrigerator foaming production line	EUR900,000 00	1,043,427 70	6,103,593 10	7,147,020 80			Completed	Self-funding
of Yangzhou Refrigerator
Flow line of D production line of	5,250,000 00	1,346,153 85	3,148,941 05	4,495,094 90		85 62	Completed	Self-funding
Yangzhou Refrigerator
New south entrance and dormitory	1,600,000 00	1,600,000 00					Not yet	Self-funding	1,600,000 00
reconstruction of Yangzhou							completed
Refrigerator
Spray painting line and natural gas		3,647,228 00					To be	Self-funding	3,647,228 00
pipeline works of Rongsheng							scrapped
Plastic
Production line of Shangqiu Kelon		7,770,917 67					To be	Self-funding	7,770,917 67
							scrapped
Production line of Xi’an Kelon		9,044,256 34			9,044,256 34		To be	Self-funding
							scrapped
Additional sheet decoiler/ flattener	1,800,000 00	1,040,000 00		1,040,000 00		57 78	Completed	Self-funding
of Hisense Chengdu
Others		35,990,088 68	180,043,991 01	146,318,081 14	3,064,054 97				66,651,943 58
total		101,072,517.29	190,704,897.58	199,999,014.31	12,108,311.31				79,670,089.25

Particulars of movements in constructions in progress:

1 During the period, movements in constructions in progress mainly represented increase and decrease in the production lines of the Company’s subsidiaries .
2 During the period, there was no capitalization of interests for constructions in progress .

126

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

13. Constructions in progress (continued)

(3) Provision for impairment of constructions in progress

		additions	reductions
	opening	in the	in the	Closing	reasons for
Item	balance	current year	current year	balance	provision
Spray painting line and natural
gas pipeline works of Rongsheng Plastic	3,554,918 00			3,554,918 00
Production line of Shangqiu Kelon Project of Xi’an Kelon	7,770,917 67 9,044,256 34		9,044,256 34	7,770,917 67
total	20,370,092.01		9,044,256.34	11,325,835.67

During the period, decreases in provision for impairment of constructions in progress were attributable to disposal of subsidiaries by the Company .

14. Intangible assets

(1) Particulars of intangible assets

		additions	reductions
	opening	in the	in the
Item	balance	current year	current year	Closing balance
1. total cost (1) Land use rights (2) Trademarks (3) Know-how (4) Others	1,270,866,297.90 619,385,483 07 524,409,198 95 76,207,763 30 50,863,852 58	3,322,084.15 266,057 95 3,056,026 20	35,875,257.15 12,225,608 67 6,840,698 62 16,808,949 86	1,238,313,124.90 607,159,874 40 524,409,198 95 69,633,122 63 37,110,928 92
2. total accumulated amortization (1) Land use rights (2) Trademarks (3) Know-how (4) Others	410,127,492.20 191,994,780 52 134,130,255 55 43,826,542 37 40,175,913 76	24,248,227.22 12,724,810 06 7,419,224 93 4,104,192 23	28,152,879.81 9,291,173 70 6,741,614 89 12,120,091 22	406,222,839.61 195,428,416 88 134,130,255 55 44,504,152 41 32,160,014 77
3. total net amount of intangible assets (1) Land use rights (2) Trademarks (3) Know-how (4) Others	860,738,805.70 427,390,702 55 390,278,943 40 32,381,220 93 10,687,938 82			832,090,285.29 411,731,457 52 390,278,943 40 25,128,970 22 4,950,914 15
4. total provision for impairment	340,672,549.44		4,079,142.64	336,593,406.80
(1) Land use rights	50,012,843 19			50,012,843 19
(2) Trademarks	286,061,116 40			286,061,116 40
(3) Know-how
(4) Others	4,598,589 85		4,079,142 64	519,447 21
5. total carrying amount of
intangible assets (1) Land use rights (2) Trademarks (3) Know-how (4) Others	520,066,256.26 377,377,859 36 104,217,827 00 32,381,220 93 6,089,348 97			495,496,878.49 361,718,614 33 104,217,827 00 25,128,970 22 4,431,466 94

127

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

14. Intangible assets (continued)

(2) Particulars of intangible assets:

1 For 2012, amortization of intangible assets amounted to RMB24,248,227 .22 . For 2011, amortization of intangible assets amounted to RMB27,264,417 .59 .
2 As at the end of the period, the land use rights with cost of RMB244,527,000 .00 and net carrying amount of RMB140,731,800 .00 were pledged (please see note 9 for details) .
3 Owing to uncertainty of the useful lives of the trademarks, they were not amortized and no provision for impairment was provided for trademarks after an impairment test .

15. long-term prepaid expenses

		additions	amortization			reasons
	opening	in the	in the	other	Closing	of other
Item	balance	current year	current year	reductions	balance	reductions
Other		903,206 81	75,267 23		827,939 58
total		903,206.81	75,267.23		827,939.58

16. Deferred tax assets and deferred tax liabilities

Net amount of deferred tax assets and deferred tax liabilities after offsetting:

(1) Deferred tax assets or tax liabilities after offsetting and corresponding deductible or taxable temporary differences after offsetting

				Deductible
		Deductible	Deferred	or taxable
	Deferred	or taxable	tax assets	temporary
	tax assets or	temporary	or liabilities	differences
	liabilities after	differences	after offsetting	after offsetting
	offsetting at	after offsetting	at the	at the
	the end of	at the end of	beginning of	beginning of
	the reporting	the reporting	the reporting	the reporting
Item	period	period	period	period
Deferred tax assets:
Provision for assets
impairment	5,009,313 49	31,958,489 21	5,009,705 46	33,398,036 43
Financial assets held-for-
trading	20,853 33	139,022 22	(2,810,784 05)	(18,738,560 35)
Others	2,264,521 20	15,096,808 06	1,424,894 81	9,499,298 76
subtotal	7,294,688.02	47,194,319.49	3,623,816.22	24,158,774.84

128

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

16. Deferred tax assets and deferred tax liabilities (continued)

(2) Summary for offsetting of deferred tax assets and deferred tax liabilities

	amount	amount
	set off	set off
	for current	for previous
Item	period	period
Financial assets held-for-trading	20,853 33	(2,810,784 05)

(3) Deductible tax losses that are not recognized as of deferred tax assets will expire in the following years

year	Closing balance	opening balance
2013	61,251,326 07	245,359,766 32
2014	117,640,611 32	111,696,812 16
2015	15,226,563 21	90,062,311 18
2016	129,600,742 65	103,304,565 54
2017	61,275,995 35
Infinite	51,806,891 39	99,012,458 23
total	436,802,129.99	649,435,913.43

(4) Summary of taxable temporary differences and deductible temporary differences

Item	amount
Financial assets held-for-trading	139,022 22
Provision for bad debts on accounts receivable	1,773,016 76
Provision for bad debts on other receivables	38,853 00
Provision for declines in values of inventories	311,770 65
Impairment provision for fixed assets	29,834,848 80
Others	15,096,808 06
total	47,194,319.49

129

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

17. Provision for asset impairment

opening
balance
Item
addition in
the current year
1 Provision for bad debts
559,545,324 79
22,433,318 79
2 Provision for decline
in value of inventory
81,961,407 26
24,357,828 31
3 Provision for
impairment of
long-term equity
investments
11,000,000 00
4 Provision for
impairment of fixed
assets
165,945,467 45
12,669,787 61
5 Provision for
impairment of
construction in
progress
20,370,092 01
6 Provision for
impairment of
intangible assets
340,672,549 44

Current year reduction
reversal
Write-off
Closing balance
3,816,766 56
4,639,802 50
573,522,074 52
14,747,493 32
5,287,173 40
86,284,568 85
11,000,000 00
51,217,533 82
127,397,721 24
9,044,256 34
11,325,835 67
4,079,142 64
336,593,406 80

total
1,179,494,840.95
59,460,934.71

18,564,259.88
74,267,908.70
1,146,123,607.08

18. short-term borrowings

(1) Classification of short-term borrowings:

Item		Closing balance	opening balance
Guaranteed borrowings			876,208,329 78
Secured borrowings	*1	30,309,453 94	128,790,564 42
total		30,309,453.94	1,004,998,894.20

Particulars of classification of short-term borrowings

*1 The secured borrowings represented secured borrowings from the factoring accounts receivable of the Company’s subsidiaries, and were all in US dollars .

As at the end of the period, the Company had no short-term borrowings that are due but have not been repaid .

130

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

19. held-for-trading financial liabilities

Item	Closing balance	opening balance
Derivative financial liabilities	164,231 22	6,636,121 77
total	164,231.22	6,636,121.77

Particulars of held-for-trading financial liabilities:

This mainly represented undue foreign exchange forward contracts entered into by the Company with banks that were recognized as financial assets or liabilities held-for-trading based on the difference between the quotation of the undue foreign exchange contracts and the future foreign exchange rate as at 31 December 2012 .

20. notes payable

Category	Closing balance	opening balance
Bank acceptance notes	1,270,078,312 63	574,089,894 79
Trade acceptance notes	162,773,897 45	38,577,178 54
total	1,432,852,210.08	612,667,073.33

Particulars of notes payable:

1 As at 31 December 2012, there was no amount due to shareholders holding 5% or more (including 5%) of the voting shares of the Company in the balance of notes payable . As at 31 December 2011, there was no amount due to shareholders holding 5% or more (including 5%) of the voting shares of the Company in the balance of notes payable .
2 Please see note 6 for details of amount due to related parties in the balance of notes payable as at the end of the period .

21. accounts payable

(1) Ageing analysis of accounts payable

ageing	Closing balance	opening balance
Within one year	2,197,488,131 14	1,896,440,466 81
Over one year	137,937,805 33	158,169,666 00
total	2,335,425,936.47	2,054,610,132.81

131

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

21. accounts payable (continued)

(2) As at 31 December 2012, there was no amount due to shareholders holding 5% (including 5%) or more of the voting shares of the Company in the balance of accounts payable . As at 31 December 2011, there was no amount due to shareholders holding 5% (including 5%) or more of the voting shares of the Company in the balance of accounts payable .
(3) Please see note 6 for details of amount due to related parties in the balance of accounts payable as at the end of the period .

22. advances from customers

(1) Age analysis of advances from customers

ageing	Closing balance	opening balance
Within one year	780,456,731 80	724,328,844 60
Over one year	56,609,039 79	33,877,440 55
total	837,065,771.59	758,206,285.15

(2) As at 31 December 2012, there was no amount due to shareholders holding 5% (including 5%) or more of the voting shares of the Company in the balance of advance from customers . As at 31 December 2011, there was no amount due to shareholders holding 5% (including 5%) or more of the voting shares of the Company in the balance of advances from customers .
(3) Please see note 6 for details of amount due to related parties in the balance of advances from customers as at the end of the period .

23. Employee benefits payables

		additions in the	reductions in the
Item	opening balance	current year	current year	Closing balance
1 Wages and salaries, bonuses,
allowances and subsidies	179,201,340 94	1,269,225,978 46	1,233,577,139 04	214,850,180 36
2 Staff welfare	2,879,380 23	76,348,082 88	74,341,474 67	4,885,988 44
3 Social insurance	5,379,004 34	169,680,182 16	173,102,425 57	1,956,760 93
4 Housing provident funds	434,209 56	38,963,433 14	39,259,737 85	137,904 85
5 Labor union funds and employee
education funds	2,132,804 01	14,549,342 20	14,903,997 25	1,778,148 96
6 Others		5,419,550 11	5,365,849 09	53,701 02
total	190,026,739.08	1,574,186,568.95	1,540,550,623.47	223,662,684.56

Particulars of employee benefits payables:

(1) There were no defaulted payables included in employee benefits payables .
(2) Arrangements in respect of expected payout time and amount for employee benefits: calculated in the current month and paid in the following month .

132

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

24. taxes payable

25. 26. 27.	tax item Closing balance opening balance Value-added tax (87,895,577 02) (123,225,211 20) Business tax 401,621 41 495,763 32 Enterprise income tax 2,021,491 04 9,465,576 15 Individual income tax 2,237,608 84 2,435,405 10 City maintenance and construction tax 4,218,708 41 3,316,311 19 Real estate tax 8,637,222 75 7,763,959 35 Land use tax 4,443,808 55 3,869,787 80 Education surcharges 2,844,675 81 1,707,928 35 Urban area embankment maintenance fee 2,194,774 55 3,118,821 60 Others 11,900,847 30 960,824 62	tax item Closing balance opening balance Value-added tax (87,895,577 02) (123,225,211 20) Business tax 401,621 41 495,763 32 Enterprise income tax 2,021,491 04 9,465,576 15 Individual income tax 2,237,608 84 2,435,405 10 City maintenance and construction tax 4,218,708 41 3,316,311 19 Real estate tax 8,637,222 75 7,763,959 35 Land use tax 4,443,808 55 3,869,787 80 Education surcharges 2,844,675 81 1,707,928 35 Urban area embankment maintenance fee 2,194,774 55 3,118,821 60 Others 11,900,847 30 960,824 62
	total (48,994,818.36) (90,090,833.72)
	Interests payable Item Closing balance opening balance Interests payable for short-term borrowings 202,930 49 1,447,530 16
	total 202,930.49 1,447,530.16
	Dividends payable name Closing balance opening balance Yingleng (Group) Co , Ltd 2,067 02 2,067 02
	total	2,067.02 2,067.02
	other *(1)*	payables *Ageing analysis of other payables* ageing Closing balance opening balance Within one year 1,336,620,886 45 880,233,889 90 Over one year 244,673,606 36 275,962,057 98
		total 1,581,294,492.81 1,156,195,947.88

133

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

27. other payables (continued)

(2) As at 31 December 2012, there was no amount due to shareholders holding 5% (including 5%) or more of the voting shares of the Company in the balance of other payables . As at 31 December 2011, there was no amount due to shareholders holding 5% (including 5%) or more of the voting shares of the Company in the balance of other payables .
(3) Please see note 6 for details of amount due to related parties in the balance of other payables as at the end of the period .
(4) Particulars of significant other payables with age of over one year

		reasons
		for being
name	amount	outstanding	remark
Tianjin Taijin Yunye Company	65,000,000 00	Current	Specific third party
Limited (“Tianjin Taijin”)		account	Company amount
Zhuhai Longjia	28,316,425 03	Current	Specific third party
		account	Company amount
Zhuhai Defa	21,400,000 00	Current	Specific third party
		account	Company amount
Jiangxi Greencool	13,000,000 00	Current	Greencool Companies
		account

28. other current liabilities

Item	Closing balance	opening balance	reasons for the balance
Installation fees	161,354,404 01	81,761,415 36	Installation fee provided for but not yet
			paid in relation to goods sold
Sales discounts	255,481,161 65	237,048,057 80	Incurred but not yet settled
Transportation fees	2,907,099 51	6,434,368 43	Incurred but not yet settled
Audit fees	3,392,034 86	1,245,067 00	Annual audit fee
Marketing fees	47,851,709 13	33,105,041 92	Incurred but not yet settled
Amounts payable	23,177,516 32	11,013,977 35	Incurred but not yet settled
Power fees	7,835,376 59	7,858,495 82	Incurred but not yet settled
Agency fees	8,730,560 08	4,082,785 25	Incurred but not yet settled
Others	55,676,933 77	84,909,606 93	Incurred but not yet settled
total	566,406,795.92	467,458,815.86

134

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

29. Provisions

		additions	reductions
	opening	in the	in the	Closing
Item	balance	current year	current year	balance
Pending litigation	5,985,197 71		1,320,888 15	4,664,309 56
Provision for warranties*	265,503,156 71	41,695,016 27		307,198,172 98
total	271,488,354.42	41,695,016.27	1,320,888.15	311,862,482.54

Provision for warranties represented the estimated product quality guarantee fund . During the warranty period, the Company will offer a free warranty service to the customers concerned . According to the industry’s experience and past data, the warranty costs were calculated and provided based on the remaining years of offered warranty and the average repair fee per unit .

30. other non-current liabilities

Item	Closing balance	opening balance
Deferred income	56,872,390 49	40,977,575 97
total	56,872,390.49	40,977,575.97
Particulars of deferred income are as follows:
Item	Closing balance	opening balance
State debenture projects for technical advancement and
industry upgrade	21,450,000 00	21,450,000 00
Production technology reform project for energy-saving
household SBS large-size refrigerator	2,375,000 00	2,825,000 00
Acceptance of equipment donation from the United Nations
in December 2006	2,022,041 66	2,527,552 07
Others	31,025,348 83	12,705,023 90
total	56,872,390.49	40,977,575.97

For particulars of other non-current liabilities, please see note 5 .41 for details .

135

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

31. share capital

2012

		additions	reductions
		in the	in the
Categories of shares	opening balance	current year	current year	Closing balance
Shares with restriction of trading	612,316,909 00			612,316,909 00
Including: State-owned legal person
shares	612,316,909 00			612,316,909 00
Shares without restriction of trading	741,737,841 00			741,737,841 00
Including: RMB Ordinary shares	282,148,033 00			282,148,033 00
Foreign shares listed
out of PRC	459,589,808 00			459,589,808 00
total number of shares	1,354,054,750.00			1,354,054,750.00
2011
		additions	reductions
		in the	in the
Categories of shares	opening balance	current year	current year	Closing balance
Shares with restriction of trading	612,316,909 00			612,316,909 00
Including: State-owned legal person
shares	612,316,909 00			612,316,909 00
Shares without restriction of trading	741,737,841 00			741,737,841 00
Including: RMB Ordinary shares	282,148,033 00			282,148,033 00
Foreign shares listed
out of PRC	459,589,808 00			459,589,808 00
total number of shares	1,354,054,750.00			1,354,054,750.00

136

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

32. Capital reserve

(1) Changes in capital reserve

2012
		additions	reductions
		in the	in the
Item	opening balance	current year	current year	Closing balance
Share premium	1,968,114,175 93			1,968,114,175 93
Other capital reserve	128,814,882 33	4,721,328 70		133,536,211 03
total	2,096,929,058.26	4,721,328.70		2,101,650,386.96
2011
		additions	reductions
		in the	in the
Item	opening balance	current year	current year	Closing balance
Share premium	1,968,114,175 93			1,968,114,175 93
Other capital reserve	85,569,315 37	46,232,104 63	2,986,537 67	128,814,882 33
total	2,053,683,491.30	46,232,104.63	2,986,537.67	2,096,929,058.26

(2) Particulars of capital reserve:

Additions in the current year represented the transfer of equity incentive of RMB4,648,452 .00 into the capital reserve; and the increase in capital reserve of RMB72,876 .70 due to change in other equity of Huayi Compressor .

137

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

33. surplus reserve

34.

2012
Item
opening
balance
additions
in the
current year
reductions
in the
current year
Closing
balance
Statutory surplus reserve
145,189,526 48
145,189,526 48
total
145,189,526.48
145,189,526.48
2011
Item
opening
balance
additions
in the
current year
reductions
in the
current year
Closing
balance
Statutory surplus reserve
145,189,526 48
145,189,526 48
total
145,189,526.48
145,189,526.48
undistributed profits
2012
Item
ratio for
appropriation or
distribution
amount for
current period
amount for
previous period
Undistributed profits at the end of
previous period
(2,817,156,683 25)
(3,044,171,810 12)
Add: Adjustment of undistributed
profits at the beginning of the
year
Undistributed profits at the beginning
of the period
(2,817,156,683 25)
(3,044,171,810 12)
Add: Net profits for the period
attributable to the shareholders
of Company
717,764,680 40
227,015,126 87
Less: Appropriation of statutory surplus
reserve
Ordinary shares dividends
payable
Undistributed profits at the end of the
period
(2,099,392,002 85)
(2,817,156,683 25)

138

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

34. undistributed profits (continued)

35.

2011
Item
ratio for
appropriation or
distribution
amount for
current period
amount for
previous period
Undistributed profits at the end of
previous period
(3,044,171,810 12)
(3,524,065,439 85)
Add: Adjustment of undistributed
profits at the beginning of the
year
(105,384,042 19)
Undistributed profits at the beginning
of the period
(3,044,171,810 12)
(3,629,449,482 04)
Add: Net profits for the period
attributable to the shareholders
of Company
227,015,126 87
585,277,671 92
Less: Appropriation of statutory surplus
reserve
Ordinary shares dividends
payable
Undistributed profits at the end
of the period
(2,817,156,683 25)
(3,044,171,810 12)
operating revenue and operating costs
(1)
Operating revenue and operating costs
Item
amount for
current period
amount for
previous period
Revenue from principal operations
17,353,776,682 71
16,748,449,276 13
Revenue from other operations
1,605,138,627 38
1,740,213,886 99
total operating revenue
18,958,915,310.09
18,488,663,163.12
Costs of principal operations
13,562,752,511 56
13,561,364,782 89
Costs of other operations
1,471,281,005 12
1,641,529,335 46
total operating costs
15,034,033,516.68
15,202,894,118.35
(2)
Principal operations (by products)
amount for current period
amount for previous period
Products
operating revenue
operating costs
operating revenue
operating costs
1 Refrigerators
8,461,166,469 00
6,468,159,644 37
8,246,154,462 25
6,455,383,210 76
2 Air-conditioners
6,665,134,751 43
5,317,136,777 28
6,516,774,558 25
5,463,286,512 79
3 Others
2,227,475,462 28
1,777,456,089 91
1,985,520,255 63
1,642,695,059 34
total
17,353,776,682.71
13,562,752,511.56
16,748,449,276.13
13,561,364,782.89

139

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

35. Operating revenue and operating costs (continued)

(3) Principal operations (by regions)

	amount for	current period	amount for previous period	amount for previous period
region	operating revenue	operating costs	operating revenue	operating costs
Domestic	11,534,718,459 71	8,347,357,581 94	11,763,768,033 18	8,906,846,167 76
Overseas	5,819,058,223 00	5,215,394,929 62	4,984,681,242 95	4,654,518,615 13
total	17,353,776,682.71	13,562,752,511.56	16,748,449,276.13	13,561,364,782.89

(4) Operating revenue from the top five customers of the Company

2012

2012
		Percentage of the
		total revenue
		from principal
	amount for	operations of the
no.	current period	Company (%)
Top 1	1,601,984,128 66	9 23
Top 2	1,360,330,549 34	7 84
Top 3	986,464,145 61	5 68
Top 4	535,475,018 23	3 09
Top 5	368,338,598 27	2 12
total	4,852,592,440.11	27.96
2011

		Percentage of the
		total revenue
		from principal
	amount for	operations of the
no.	current period	Company (%)
Top 1	1,344,174,672 35	8 03
Top 2	1,207,391,797 41	7 21
Top 3	1,200,296,700 51	7 17
Top 4	249,870,141 88	1 49
Top 5	247,332,627 65	1 48
total	4,249,065,939.80	25.38

140

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

36. business tax and surcharges

	basis of	amount for	amount for
Item	calculation	current period	previous period
Business tax	5%	3,118,073 06	5,626,810 69
City maintenance and construction tax	1%-7%	39,636,367 21	32,552,458 64
Education surcharges	3%	27,185,066 18	17,530,082 85
Others		35,279,196 63	7,441,717 31
total		105,218,703.08	63,151,069.49

37. Financial expenses

		amount for	amount for
Item		current period	previous period
Interest expenses	*	29,818,343 17	39,264,507 45
Less: Interest incomes		3,051,399 68	1,941,417 40
Discounted notes		12,359,540 38	4,718,744 46
Loss on foreign exchange		8,723,293 92	7,363,879 23
Others		(8,850,185 93)	6,598,328 05
total		38,999,591.86	56,004,041.79

Interest expenses for 2012 and 2011 were interests on bank borrowings wholly repayable within five years .

38. asset impairment losses

	amount for	amount for
Item	current period	previous period
1 Bad debt loss	18,616,552 23	9,769,243 58
2 Decline in value of inventories	9,610,334 99	15,107,408 53
3 Impairment loss on fixed assets	12,669,787 61
total	40,896,674.83	24,876,652.11
gain/(loss) arising from changes in fair value
	amount for	amount for
sources of gain/(loss)	current period	previous period
Financial assets held-for-trading	(23,109,402 77)	5,637,307 68
Including: Gain from changes in fair value of derivative
financial instruments	(23,109,402 77)	5,637,307 68
Held-for-trading financial liabilities	6,471,890 55	(675,394 33)
total	(16,637,512.22)	4,961,913.35

39. gain/(loss) arising from changes in fair value

Particulars of gain/(loss) arising from changes in fair value:

This mainly represented undue foreign exchange forward contracts entered into by the Company with banks . The amount is calculated based on the difference between the quotation of the undue foreign exchange contracts and the future foreign exchange rate as at 31 December 2012 .

141

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

40. Investment income

(1) Summary of investment income

	amount for	amount for
Item	current period	previous period
Income from long-term equity investment — the cost
method	3,800,000 00	3,534,000 00
Income from long-term equity investment — the
equity method	190,097,006 83	94,337,603 16
Income from disposal of long-term equity
investment*	98,395,591 58	18,499,320 95
Income from disposal of financial assets held-for-
trading	42,961,835 26	22,189,661 12
total	335,254,433.67	138,560,585.23

Investment income from disposal of long-term equity investment for the period represented investment income recognized for the disposal of equity in Xi’an Kelon and deregistration of USA Kelon by the Company .

(2) Income from long-term equity investment — the cost method

(3)

Investee
amount for
current period
amount for
previous period
Hisense International Marketing
3,800,000 00
3,534,000 00
total
3,800,000.00
3,534,000.00
Income from long-term equity investment — the equity method:
Investee
amount for
current period
amount for
previous period
Huayi Compressor
6,634,219 63
1,973,956 79
Hisense Whirlpool
3,430,870 26
(3,827,145 17)
Attend
(143,000 95)
(298,934 03)
Hisense Hitachi
180,174,917 89
96,489,725 57
total
190,097,006.83
94,337,603.16

142

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

41. non-operating income and non-operating expenses

Non-operating income

	amount for	amount for
Item	current period	previous period
Total gain from disposal of non-current assets	1,853,144 93	5,353,721 78
Including: Gain from disposal of fixed assets	1,853,144 93	5,353,721 78
Government grants	54,767,674 18	150,739,804 78
Others	8,031,065 74	2,628,200 05
total	64,651,884.85	158,721,726.61
Details of government grants during the year are as follows:
	amount for	amount for
Item	current period	previous period
1 Government grants related to assets
Production technology reform project for energy-saving
household SBS large-size refrigerator*1	(450,000 00)	(450,000 00)
Acceptance of equipment donation from the United Nations
in December 2006*2	(505,510 41)	(505,510 41)
Government grants related to other assets	16,488,891 92	8,525,405 00
subtotal	15,533,381.51	7,569,894.59
2 Government grants related to income
Production technology reform project for energy-saving
household SBS large-size refrigerator	450,000 00	450,000 00
Acceptance of equipment donation from the United Nations
in December 2006	505,510 41	505,510 41
Financial subsidies for promotion of high efficiency
air-conditioners*3	31,710,000 00	129,035,637 00
Other government grants	22,102,163 77	20,748,657 37
subtotal	54,767,674.18	150,739,804.78
total	70,301,055.69	158,309,699.37

143

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

41. non-operating income and non-operating expenses (continued)

Non-operating income (continued)

[1] The government grants represented the project award of RMB3,000,000 .00 granted to the subsidiary of the Company Guangdong Refrigerator by the Financial Bureau of Foshan, Shunde under “Circulating the Circular of Guangdong Provincial Support for Technology Renovation Tender Projects and Supplementary Projects in 2007” (Fo Jing Mao [2007] No . 391), and the project award of RMB1,500,000 .00 granted to the subsidiary of the Company Guangdong Refrigerator by the Economic and Trade Bureau of Foshan, Shunde under “Reply by the Office of the People’s Government of Shunde, Foshan on Consenting to Grant Regional Subsidy for Science and Technology Outlay to Enterprises Including Guangdong Xinbao Electrical Appliances Holdings Co ., Ltd . in 2007” (Shun Fu Ban Han [2008] No . 114) . The project was commenced from October 2007 and ended in October 2009 . In April and May 2008, Guangdong Refrigerator has recognized deferred income after receiving the project government grants of RMB3,000,000 .00 and RMB1,500,000 .00 respectively from the Company, and the amounts received were accounted for in the books of Guangdong Refrigerator as non-operating income over a period of 10 years . In 2008, Guangdong Refrigerator has recognized income in the amount of RMB325,000 .00 . In 2009, income in the amount of RMB450,000 .00 was recognized . In 2010, income in the amount of RMB450,000 .00 was recognized . In 2011, income in the amount of RMB450,000 .00 was recognized . In 2012, income in the amount of RMB450,000 .00 was recognized, and the remaining amount of RMB2,375,000 .00 was recognized as deferred income .
[2] The amount represented equipment donated made by United Nations Industrial Development Organization on 11 May 2005 to Beijing Refrigerator pursuant to Montreal Protocol . The amount has been recognized by the Company as deferred income and recognized as non-operating income over a period of 10 years . As at 31 December 2012, the balance of RMB2,022,041 .66 was pending to be recognized as deferred income .
[3] The government grants represented grants to the Company according to the Notice on Grant Settlement for June 2010 to May 2011 by the Ministry of Finance in Relation to Promotion of High Efficiency and Energy Saving Air-Conditioners (Yue Cai Gong (2012) No . 296), issued by the Guangdong Provincial Department of Finance, and Notice on Central Financial Subsidy Budget Benchmark Settlement for June 2010 to May 2011 in Relation to Promotion of High Efficiency and Energy Saving Air-Conditioners (Qing Cai Jian Zhi (2012) No . 122) issued by the Qingdao Bureau of Finance in accordance with the requirements of the Temporary Regulations for the Government Subsidy Management for Promotion of High Efficiency and Energy-Saving Products (Finance Ministry Document Cai Jian [2009] No . 213), Implementation Rules for Promotion of High Efficiency Room Air-Conditioners (Finance Ministry Document Cai Jian [2009] No . 214, Cai Jian [2010] No . 32, Cai Jian [2010] No . 149, Cai Jian [2010] No .539) .

Non-operating expenses

*Non-operating expenses*
	amount for	amount for
Item	current period	previous period
Total loss on disposal of non-current assets	2,711,055 26	7,324,104 26
Including: Loss on disposal of fixed assets	2,711,055 26	7,324,104 26
Others	4,682,638 36	6,095,932 51
total	7,393,693.62	13,420,036.77

144

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

42. Income tax expenses

	amount for	amount for
Item	current period	previous period
Current income tax	14,219,306 52	17,980,944 58
Including: PRC enterprise income tax	12,561,887 81	16,402,424 58
Hong Kong profit tax	1,657,418 71	1,578,520 00
Deferred tax expenses	(3,670,871 80)	3,269,407 68
total	10,548,434.72	21,250,352.26

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:

	amount for	amount for
Item	current period	previous period
Total profits	742,854,008 07	246,699,580 26
Income tax expenses calculated at statutory (or applicable)
tax rates	185,713,502 02	61,674,895 07
Tax effect of different rate applicable to subsidiaries	(6,761,202 70)	(6,963,570 45)
Adjustment of prior year income tax in the current year	(168,593 35)	3,269,407 68
Gain/(loss) attributable to jointly controlled entities and
associates	(47,524,251 69)	(23,584,400 79)
Non-taxable income	(8,007,318 42)	(5,981,608 71)
Non-deductible expenses	4,329,272 07	33,935,932 72
Utilization of tax loss of previous periods	(140,901,199 46)	(65,720,607 51)
Unused tax losses not recognized as deferred tax assets	23,868,226 25	24,620,304 25
Others
Income tax expenses	10,548,434 72	21,250,352 26

145

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

43. Calculation of basic and diluted earnings per share

		amount for	amount for
Item		current period	previous period
Net profits attributable to ordinary
shareholders of the Company of the
reporting period	P1	717,764,680 40	227,015,126 87
Non-recurring item attributable to ordinary
shareholders of the Company of the
reporting period	F	120,583,896 18	30,641,834 51
Net profits after non-recurring item
attributable to ordinary shareholders of
the Company of the reporting period	P2=P1-F	597,180,784 22	196,373,292 36
Effect of dilutive events on net profits
attributable to ordinary shareholders of
the Company	P3
Effect of dilutive events on net profits
after non-recurring item attributable to
ordinary shareholders of the Company	P4
Weighted average number of ordinary
shares	S	1,354,054,750 00	1,354,054,750 00
Add: Additional weighted average number
of ordinary shares assuming conversion
of all dilutive potential ordinary shares
to ordinary shares	X1
Weighted average number of ordinary
shares in the calculation of diluted
earnings per share	X2=S+X1	1,354,054,750 00	1,354,054,750 00
Basic earnings per share attributable to
ordinary shareholders of the Company	Y1=P1/S	0 5301	0 1677
Basic earnings per share attributable to
ordinary shareholders of the Company
after non-recurring items	Y2=P2/S	0 4410	0 1450
Diluted earnings per share attributable to
ordinary shareholders of the Company	Y3=(P1＋P3)/X2	0 5301	0 1677
Diluted earnings per share attributable to
ordinary shareholders of the Company
after non-recurring items	Y4=(P2＋P4)/X2	0 4410	0 1450

146

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

44. other comprehensive incomes

		amount for	amount for
Item		current period	previous period
1 Recognition of share of other comprehensive incomes of
the	investee based on equity method	72,876 70	(4,345 60)
Less:	Income tax effect arising from recognition of share
	of other comprehensive incomes of the investee
	based on equity method
Add:	Net amount accounted for as other comprehensive
	incomes in the previous period and transferred to
	profit and loss in the current period		(2,982,192 07)
subtotal		72,876.70	(2,986,537.67)
2 Difference on translation of foreign currency financial
statements		(15,567,439 94)	(6,378,506 57)
Less:	Net amount transferred to gain/(loss) upon disposal
	of foreign operations in the current period
subtotal		(15,567,439.94)	(6,378,506.57)
3 Other
Less:	Income tax effect arising from other items under
	other comprehensive income
	Net amount of other items under other
	comprehensive income of previous period
	transferred in the current period
subtotal
total		(15,494,563.24)	(9,365,044.24)

45. notes to cash flows statement

(1) Cash received relating to other operating activities

	amount for	amount for
Item	current period	previous period
Current accounts	125,447,861 07	172,650,948 02
Interest incomes	3,051,399 68	1,941,417 40
Government grants	70,301,055 69	158,309,699 37
Others	478,263,151 31	31,968,151 51
total	677,063,467.75	364,870,216.30

147

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

45. notes to cash flows statement (continued)

(2) Cash paid relating to other operating activities

	amount for	amount for
Item	current period	previous period
Cash payments for general and administrative
expenses	357,274,718 00	271,995,466 52
Cash payments for selling and distribution expenses	1,512,573,756 27	1,558,429,152 72
Bank charges	6,701,653 21	6,777,538 05
Others	186,483,811 17	86,292,841 68
total	2,063,033,938.65	1,923,494,998.97
*Cash received relating to other financing activities*
	amount for	amount for
Item	current period	previous period
Receipt of guarantee deposits		7,543,201 56
total		7,543,201.56

(3) Cash received relating to other financing activities

148

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

46. supplementary information on cash flows statement

(1) Supplementary information on cash flows statement

	amount for	amount for
supplementary information	current period	previous period
1. reconciliation of net profit to cash flows from
operating activities:
Net profit	732,305,573 35	225,449,228 00
Add: Provision for assets impairment	40,896,674 83	24,876,652 11
Depreciation of fixed assets, depletion of oil and gas
assets and depreciation of productive biological
assets	353,430,052 12	331,432,793 12
Amortization of intangible assets	24,248,227 22	27,264,417 59
Amortization of long-term prepaid expenses	75,267 23	296,766 66
Loss on disposals of fixed assets, intangible and other
long-term assets (Gain denoted in “bracket”)	857,910 33	1,970,382 48
Loss on scrapping of fixed assets
(Gain denoted in “bracket”)
Loss on change in fair value
(Gain denoted in “bracket”)	16,637,512 22	(4,961,913 35)
Financial expenses (Gain denoted in “bracket”)	42,177,883 55	43,983,251 91
Investment loss (Gain denoted in “bracket”)	(335,254,433 67)	(138,560,585 23)
Decrease in deferred tax assets
(Increase denoted in “bracket”)	(3,670,871 80)	3,269,407 68
Increase in deferred tax liabilities
(Decrease denoted in “bracket”)
Decrease in inventory (Increase denoted in “bracket”)	(195,486,406 67)	344,736,770 82
Decrease in operating receivables
(Gain denoted in “bracket”)	(1,220,594,730 58)	27,213,026 61
Increase in operating payables
(Decrease denoted in “bracket”)	1,642,570,120 00	(520,705,005 91)
Others
Net cash flows from operating activities	1,098,192,778 13	366,265,192 49
2. significant investing and financing activities
not involving cash receipts and payment:
Liabilities converted into equity
Convertible company debentures due within one year
Fixed assets under finance leases
3. net movement in cash and cash equivalents:
Cash at the end of the period	513,661,376 53	396,814,919 98
Less: Cash at the beginning of the period	396,814,919 98	419,921,513 93
Add: Cash equivalents at the end of the period
Less: Cash equivalents at the beginning of the period
Net increase in cash and cash equivalents	116,846,456 55	(23,106,593 95)

149

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

46. supplementary information on cash flows statement (continued)

(2) Information on disposal of subsidiaries and other operating units during the reporting period

Unit: RMB’0000

		Unit: RMB’0000
	amount for	amount for
Item	current period	previous period
Information on disposal of subsidiaries and
other operating companies
1 Consideration of disposal of subsidiaries and other
operating companies	6,858 00	910 37
2 Cash and cash equivalents received from disposal
of subsidiaries and other operating companies	6,858 00	865 00
_Less:_Cash and cash equivalents held by
subsidiaries and other operating companies
3 Net cash received from disposal of subsidiaries and
other operating companies	6,858 00	865 00
4 Net assets of subsidiaries disposed	(17,494 48)	19,731 91
Current assets	511 58	19,619 64
Non-current assets	2,131 97	111 64
Current liabilities	20,138 02	(0 63)
Non-current liabilities
*Details of cash and cash equivalents*
Item	Closing balance	opening balance
1 Cash
Including: Cash on hand	6,911 06	166,157 33
Bank deposit that are readily available
for payment	513,654,465 47	396,648,762 65
Other cash that are readily available for
payment
2 Cash equivalents
Including: Bond investments due within three months
3 Cash and cash equivalents as at the end
of the period	513,661,376 53	396,814,919 98

(3) Details of cash and cash equivalents

47. net current assets

Item	Closing balance	opening balance
Current assets (Consolidated)	5,930,166,101 14	4,435,201,230 69
Less: Current liabilities (Consolidated)	6,958,391,755 74	6,162,158,773 54
Net current Assets (Consolidated)	(1,028,225,654 60)	(1,726,957,542 85)
Current assets (the Company)	4,730,456,072 49	4,024,527,726 67
Less: Current liabilities (the Company)	5,672,829,625 08	5,227,092,433 23
Net current assets (the Company)	(942,373,552 59)	(1,202,564,706 56)

150

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

48. total assets less current liabilities

Item	Closing balance	opening balance
Total assets (Consolidated)	9,200,334,640 73	7,635,439,578 36
Less: Current liabilities (Consolidated)	6,958,391,755 74	6,162,158,773 54
Total assets less current liabilities (Consolidated)	2,241,942,884 99	1,473,280,804 82
Total assets (the Company)	8,278,917,143 79	7,469,144,553 26
Less: current liabilities (the Company)	5,672,829,625 08	5,227,092,433 23
Total assets less current liabilities (the Company)	2,606,087,518 71	2,242,052,120 03

49. segment information

The Group manages its business by divisions which are organized by a mixture of both business lines and geographical locations . For the purpose of resource allocation and performance assessment, the management manages the operating results of each business segment separately, and the segment results are assessed based on the profits of the reporting segments .

(1) Segment profit or loss and assets and liabilities

				Inter-segment
amount for current period	refrigerators	air-conditioners	others	elimination	total
1 Revenue from external sales	8,461,166,469 00	6,665,134,751 43	2,227,475,462 28		17,353,776,682 71
2 Revenue from Inter-segment			676,793,128 22	(676,793,128 22)
3 Gain from investment in
associates and jointly
controlled entities	10,065,089 89	180,174,917 89	(143,000 95)		190,097,006 83
4 Depreciation and amortization	157,257,659 98	123,199,415 13	97,296,471 46		377,753,546 57
5 Gain from changes in fair value	(18,877,582 57)	(10,481,249 64)	12,721,319 99		(16,637,512 22)
6 Impairment losses on assets	12,541,870 92	18,180,374 60	10,174,429 31		40,896,674 83
7 Total profit (Total loss)	383,535,395 57	211,840,410 68	180,114,227 65	(32,636,025 83)	742,854,008 07
8 Income tax expenses	815,401 83	1,333,698 10	8,399,334 79		10,548,434 72
9 Net profit (net loss)
(including minority interests)	382,719,993 75	210,506,712 58	171,714,892 85	(32,636,025 83)	732,305,573 35
10 Total assets	7,811,010,733 14	5,171,832,963 97	3,474,332,492 51	(7,256,841,548 89)	9,200,334,640 73
11 Total liabilities	5,040,013,259 72	4,029,079,030 52	2,440,086,482 12	(4,182,052,143 59)	7,327,126,628 77
12 Additions to other non-current
assets other than long-term
equity investments	3,719,865 79	(52,778,720 84)	(22,180,836 57)		(71,239,691 62)

151

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

5. notEs to thE ConsolIDatED FInanCIal statEMEnts (continued)

49. segment information (continued)

(1) Segmental profit or loss and assets and liabilities (continued)

Continued from above table

				Inter-segment	Inter-segment
amount for last period	refrigerators	air-conditioners	others	elimination		total
1 Revenue from external sales	8,246,154,462 25	6,516,774,558 25	1,985,520,255 63			16,748,449,276 13
2 Revenue from inter-segment			491,507,674 29	(491,507,674 29)
3 Gain from investment in
associates and jointly
controlled entities	(1,853,188 38)	96,489,725 57	(298,934 03)			94,337,603 16
4 Depreciation and amortization	165,105,768 59	117,059,256 24	76,532,185 88			358,697,210 71
5 Gain from changes in
fair value	5,539,845 99	(547,737 26)	(30,195 38)			4,961,913 35
6 Impairment losses on assets	20,574,240 66	2,097,039 31	2,205,372 14			24,876,652 11
7 Total profit (Total loss)	264,157,297 87	(95,856,125 44)	97,342,800 43	(18,944,392 60)		246,699,580 26
8 Income tax expenses			21,250,352 26			21,250,352 26
9 Net profit (net loss) (including
minority interests)	264,157,297 87	(95,856,125 44)	76,092,448 17	(18,944,392 60)		225,449,228 00
10 Total assets	7,309,137,528 15	5,007,184,529 18	3,510,717,240 75	(8,191,599,719 72)		7,635,439,578 36
11 Total liabilities	4,816,526,137 42	4,125,554,419 92	2,632,462,148 15	(5,099,918,001 56)		6,474,624,703 93
12 Additions to other non-current
assets other than long-term
equity investments	220,001,135 23	86,720,778 70	51,945,075 69			358,666,989 62
*Geographic Information*
Item				2012		2011
Revenue from external customers — Mainland			11,534,718,459 71		11,763,768,033 18
Revenues from external customers —		Overseas	5,819,058,223 00		4,984,681,242 95
total			17,353,776,682.71		16,748,449,276.13
Non-current assets — Mainland			2,853,489,324 27		2,778,410,063 08
Non-current assets — Overseas			416,679,215 32		421,828,284 59
total			3,270,168,539.59		3,200,238,347.67

(2) Geographic Information

The Company is mainly operated in Mainland China, where the majority of non-current assets are located, Therefore the further detailed regional information is unnecessarily to be reported .

152

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons

1. Particulars of the parent company

							Unit: RMB’0000	Unit: RMB’0000
name of parent		Category of		registration	legal
company	relationship	enterprise		address	representative	business nature
Qingdao Hisense	Controlling	Foreign-sino joint		Qingdao	Tang Ye Guo	Manufacture of		air-
Air-conditioning	shareholder	venture					conditioners, moulds and
							provision of	after-sale
							services
Hisense Group	Ultimate holding	State wholly-		Qingdao	Zhou Hou Jian	Entrusted operation of
	shareholder	owned					state-owned	assets;
							manufacture	and sales
							of household appliances,
							communication products
							and services
Continued from	above table
name of parent	registered	Equity interest		voting rights	ultimate holding organization
company	capital		(%)	(%)	Company			code
Qingdao Hisense	67,479	45	22%	45 22%	State-owned Assets			61430651-4
Air-conditioning					Supervision	and
					Administration
					Commission	of
					Qingdao Municipal
Hisense Group	80,617				State-owned Assets			16357877-1
					Supervision	and
					Administration
					Commission	of
					Qingdao Municipal

2. For information on the subsidiaries, associates and joint ventures of the Company, please see note 4, note 5(9) and note 5(10).

3. greencool Companies

name of related parties of greencool Companies	relationship with the Company
Guangdong Greencool	Former controlling shareholder of
	the Company
Shenzhen Greencool Environmental	Related party of Guangdong Greencool
Shenzhen Greencool Technology	Related party of Guangdong Greencool
Greencool Procurement (Shenzhen) Co , Ltd	Related party of Guangdong Greencool
(“Greencool Procurement”)
Hainan Greencool	Related party of Guangdong Greencool
Jiangxi Greencool Electrical Appliance Co , Ltd	Related party of Guangdong Greencool
(“Jiangxi Greencool”)

153

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

4. other related parties of the Company

	other related parties
	relationship with	Institution
name of other related parties	the Company	code
Hisense Finance Co , Ltd (“Hisense Finance”)	Subsidiary of ultimate	71788291x
	holding company
Qingdao Hisense Electric Co , Ltd	Subsidiary of ultimate	26462882-x
(“Hisense Electrical Appliances”)	holding company
Shunde Yunlong Consultancy Service Limited	Minority shareholder of
(“Shunde Yunlong Consultancy”)	Huaao Electronics
Beijing Xuehua Group Company Limited	Minority shareholder of
(“Xuehua Group”)	Beijing Refrigerator
Beijing Embraco Snowflake compressor Co , Ltd	Subsidiary of Xuehua
(“Embraco”)	Group
Hisense International (HK) Co , Ltd	Subsidiary of ultimate
(“Hisense Hong Kong”)	holding company

5. the greencool Companies had a series of transactions or unusual cash flows through the following “specific third Party Companies”

name of related party	relationship with the Company
Jiangxi Kesheng	Specific Third Party Company
Jinan San Ai Fu	Specific Third Party Company
Tianjin Xiangrun	Specific Third Party Company
Tianjin Lixin	Specific Third Party Company
Jiangxi Keda	Specific Third Party Company
Hefei Weixi	Specific Third Party Company
Zhuhai Longjia	Specific Third Party Company
Zhuhai Defa	Specific Third Party Company
Wuhan Changrong	Specific Third Party Company
Tianjin Taijin	Specific Third Party Company
Deheng Solicitors	Specific Third Party Company
Shangqiu Bingxiong	Specific Third Party Company
Finance Bureau of Yangzhou Economic Development Zone	Specific Third Party Company

154

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

(6) related party transactions

(1) Purchase of goods/receipt of services

related party Particulars of related parties transactions Pricing and decision- making procedures of related parties transactions Hisense Whirlpool Finished goods Agreed price Hisense Electrical Appliances and its subsidiaries Finished goods Agreed price	amount for current period amount for previous period amount Percentage to similar transaction (%) amount Percentage to similar transaction (%) 349,849,515 68 2 33 437,593,469 15 2 88 116,566 71 120,098 36 349,966,082.39 2.33 437,713,567.51 2.88 738,685,597 41 4 91 687,695,484 32 4 52 41,833,871 81 0 28 40,512,368 84 0 27 5,127,848 50 0 03 4,262,261 63 0 03 6,504,984 81 0 04 4,778,686 37 0 03 5,982,255 07 0 04 6,613,394 86 0 04 12,199,141 46 0 08 13,177,430 14 0 09 810,333,699.06 5.38 757,039,626.16 4.98 687,840 40 728,754 01 28,119 76 82,632 14 1,110,062 58 0 01 715,960.16 1,921,448.73 0.01 221,143,204 53 1 47 154,899,089 57 1 02 22,460,245 50 0 15 18,284,617 50 0 12 9,381,775 43 0 06 8,000,920 86 0 05 252,985,225.46 1.68 181,184,627.93 1.19 85,141,686 04 0 57 156,524,642 03 1 03 85,141,686.04 0.57 156,524,642 03 1.03
subtotal of purchase of finished goods
Huayi Compressor and its subsidiaries Raw materials Agreed price Embraco Raw materials Agreed price Hisense Whirlpool Raw materials Agreed price Hisense Hitachi Raw materials Agreed price Hisense Group and its subsidiaries Raw materials Agreed price Hisense Electrical Appliances and its subsidiaries Raw materials Agreed price
subtotal of purchase of raw materials
Hisense Group and its subsidiaries Mould and equipment Agreed price Hisense Electrical Appliances and its subsidiaries Mould and equipment Agreed price Hisense Whirlpool Mould and equipment Agreed price
subtotal of purchase of moulds and equipment
Hisense Group and its subsidiaries Receipt of services Agreed price Xuehua Group Receipt of services Agreed price Hisense Electrical Appliances and its subsidiaries Receipt of services Agreed price
subtotal of receipt of services
Hisense Hong Kong Financing purchase
subtotal of financing purchase

155

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

(6) related party transactions (continued)
(1) Purchase of goods/receipt of services (continued)
- (1) Hisense Kelon and the related subsidiaries of Hisense Group have entered into a Business Cooperation Framework Agreement on 29 November 2011, During the effective period of the agreement, the transaction with Hisense Kelon being the purchaser and recipient of services was subject to an upper limit (inclusive of tax) of RMB401,250,000 .
- (2) Hisense Kelon and Hisense Whirlpool have entered into a Business Framework Agreement (II) on 29 November 2011, During the effective period of the agreement, the transaction with Hisense Kelon being the purchaser and recipient of services was subject to an upper limit (inclusive of tax) of RMB1,014,100,000 .
- (3) Hisense Kelon and Huayi Compressor have entered into a Compressors Purchase and Supply Framework Agreement on 29 November 2011, During the effective period of the agreement, the transaction with Hisense Kelon being the purchaser and recipient of services was subject to an upper limit (inclusive of tax) of RMB1,380,000,000 .
- (4) Hisense Kelon and Hisense Hitachi have entered into a Business Framework Agreement (I) on 29 November 2011, During the effective period of the agreement, the transaction with Hisense Kelon being the purchaser and recipient of services was subject to an upper limit (inclusive of tax) of RMB15,000,000 .
- (5) Hisense Kelon and Embraco have entered into a Compressors Purchase Framework Agreement on 29 November 2011, During the effective period of the agreement, the transaction with Hisense Kelon being the purchaser and recipient of services was subject to an upper limit (inclusive of tax) of RMB250,000,000 .
- (6) Hisense Kelon and Beijing Xuehua Group have entered into a Property Service Framework Agreement on 29 November 2011, During the effective period of the agreement, the transaction in which Hisense Kelon engaged Xuehua Group to provide property services was subject to an upper limit (inclusive of tax) of RMB33,200,000 .
- (7) Hisense Kelon and Hisense Hong Kong has entered into a Factoring Purchase Framework Agreement on 29 November 2011, During the effective period of the agreement, the transaction in which Hisense Kelon shall perform factoring purchase through Hisense Hong Kong was subject to an upper limit of USD150,000,000 .

The above agreements were considered and approved at the fourteenth interim meeting of the Company’s seventh session of the board of directors in 2011 convened on 29 November 2011 and the first extraordinary general meeting in 2012 convened on 16 January 2012 respectively .

156

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

(6) related party transactions (continued)
- (2) Sale of goods/rendering of service

name of related party Particulars of related parties transactions Pricing policies and procedures for decision- making Hisense Electrical Appliances and its subsidiaries Finished goods Agreed price Hisense Whirlpool Finished goods Agreed price Hisense Hitachi Finished goods Agreed price Hisense Group and its subsidiaries Finished goods Market price	amount for current period amount for previous period
	amount Percentage to similar transaction (%) amount Percentage to similar transaction (%) 104,787 60 2,154,249 57 0 01 359,940 53 46,352,001 50 0 24 31,502,205 89 0 17 2,321,308,431 16 12 24 1,544,072,482 85 8 35
subtotal of sales amount of finished product	2,367,765,220.26 12.48 1,578,088,878.84 8.53
Hisense Whirlpool Raw materials Agreed price Hisense Group and its subsidiaries Raw materials Agreed price Hisense Hitachi Raw materials Agreed price Hisense Electrical Appliances and its subsidiaries Raw materials Agreed price	22,135,363 33 0 12 6,635,647 13 0 04 36,718,517 66 0 19 34,645,035 85 0 19 62,606 54 746,503 14 12,926 82 80,117 74
subtotal of sales amount of raw materials	58,929,414.35 0.31 42,107,303.86 0.23
Hisense Group and its subsidiaries Mould and equipment Market price Hisense Hitachi Mould Market price Hisense Whirlpool Mould and equipment Market price Hisense Electrical Appliances and its subsidiaries Mould Market price	162,765,821 13 0 86 119,115,888 69 0 64 213,675 21 1,722,638 38 0 01 854,700 85 56,199,720 78 0 30 47,754,580 06 0 26
subtotal of sales amount of moulds	220,901,855.50 1.17 167,725,169.60 0.90
Attend Agreed price Hisense Electrical Appliances and its subsidiaries Agreed price Hisense Whirlpool Agreed price Hisense Group and its subsidiaries Agreed price	3,000 00 53,770 94 308,000 00 307,692 31 739,797 81 625,111 97 2,462,818 40 0 01 153,393 26
subtotal of rendering of services Agreed price	3,513,616.21 0.01 1,139,968.48 0 01

(1) Hisense Kelon and related subsidiaries of Hisense Group have entered into a Business Cooperation Framework Agreement on 29 November 2011 . During the effective period of the agreement, the transaction with Hisense Kelon being the supplier and service provider was subject to an upper limit (inclusive of tax) of RMB2,881,920,000 .
(2) Hisense Kelon and Hisense Whirlpool have entered into a Business Framework Agreement (II) on 29 November 2011 . During the effective period of the agreement, the transaction with Hisense Kelon being the supplier and service provider was subject to an upper limit (inclusive of tax) of RMB71,500,000 .
(3) Hisense Kelon and Hisense Hitachi have entered into a Business Framework Agreement (I) on 29 November 2011 . During the effective period of the agreement, the transaction with Hisense Kelon being the supplier and service provider was subject to an upper limit (inclusive of tax) of RMB489,200,000 .

157

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

(6) related party transactions (continued)
(3) Particulars of related party guarantees

		amount	Effective date	Expiry date	nature of	guarantee
guarantor	guaranteed party	(rMb’0000)	of guarantee	of guarantee	guarantee	completed
Hisense Group	The Company	90 00	2012 09 24	2013 01 15	Bank acceptance	No
					notes
Hisense Group	The Company	3,421 71	2012 09 24	2013 03 21	Bank acceptance	No
					notes
Hisense Group	The Company	3,503 30	2012 09 24	2013 03 22	Bank acceptance	No
					notes
Hisense Group	The Company	2,600 00	2012 09 27	2013 03 26	Bank acceptance	No
					notes
Hisense Group	The Company	4,376 48	2012 09 27	2013 03 27	Bank acceptance	No
					notes
Hisense Group	The Company	1,493 00	2012 10 24	2013 01 22	Bank acceptance	No
					notes
Hisense Group	The Company	2,857 90	2012 10 24	2013 01 24	Bank acceptance	No
					notes
Hisense Group	The Company	350 00	2012 10 24	2013 04 10	Bank acceptance	No
					notes
Hisense Group	The Company	3,515 30	2012 10 24	2013 04 22	Bank acceptance	No
					notes
Hisense Group	The Company	3,388 72	2012 10 24	2013 04 24	Bank acceptance	No
					notes
Hisense Group	The Company	4,127 00	2012 10 24	2013 04 29	Bank acceptance	No
					notes
Hisense Group	The Company	1,252 40	2012 10 30	2013 01 28	Bank acceptance	No
					notes
Hisense Group	The Company	3,812 59	2012 10 30	2013 04 24	Bank acceptance	No
					notes
Hisense Group	The Company	450 00	2012 10 30	2013 04 25	Bank acceptance	No
					notes
Hisense Group	The Company	4,341 14	2012 10 30	2013 04 29	Bank acceptance	No
					notes
Hisense Group	The Company	4,640 00	2012 11 19	2013 05 20	Bank acceptance	No
					notes
Hisense Group	The Company	1,768 15	2012 12 25	2013 03 21	Bank acceptance	No
					notes
Hisense Group	The Company	3,198 47	2012 12 25	2013 06 21	Bank acceptance	No
					notes
Hisense Group	The Company	5,282 04	2012 12 25	2013 06 25	Bank acceptance	No
					notes
Hisense Group	The Company	158 30	2012 12 28	2013 06 28	Bank acceptance	No
					notes
Hisense Group	The Company	1,405 30	2012 12 31	2013 06 30	Bank acceptance	No
					notes
Hisense Group	The Company	1,888 36	2012 09 14	2013 03 14	Bank acceptance	No
					notes
Hisense Group	Shandong	2,031 00	2012 10 29	2013 01 29	Bank acceptance	No
	Air-Conditioner				notes
Hisense Group	Shandong	185 00	2012 10 29	2013 04 26	Bank acceptance	No
	Air-Conditioner				notes
Hisense Group	Beijing Refrigerator	1,089 91	2012 09 28	2013 03 28	Bank acceptance	No
					notes
subtotal of bank
acceptance notes		61,226.07	—	—
Hisense Group	The Company	868.51	2012.08.29	2013.05.23	Commercial	No
					acceptance
subtotal of
commercial
acceptance		868.51	—	—

158

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

(6) related party transactions (continued)
(3) Particulars of related party guarantees (continued)

Particulars of related party guarantee:

(1) In February 2012, the Company and Hisense Finance have entered into Hai Xin Shou Xin Zi No . 037 Consolidated Credit Contract, pursuant to which, the Company might apply to Hisense Finance for the utilization of a maximum credit limit of RMB600,000,000 from 24 February 2012 to 21 March 2013 . To ensure the settlement of the liabilities under the credit contract, Hisense Group and Hisense Finance have entered into a Maximum Guarantee Contract Hai Xin Gao Bao Zi No . 019 to provide guarantee for the repayment of debts by the Company on 24 February 2012 .
(2) In October 2011, Hisense Group and the Qingdao Shandong Road branch of ICBC have entered into a 3803001-2011 Ying Ye (Bao) Zi No . 0025 Maximum Guarantee Contract, pursuant to which Shandong Air-Conditioner would provide guarantee securities for the liabilities under the maximum credit limit of RMB200,000,000 applied from the Qingdao Shandong Road branch of Industrial and Commercial Bank of China Limited during the period from 22 October 2011 to 31 December 2012 .
(3) In January 2012, Beijing Refrigerator and Hisense Finance Co ., Ltd . have entered into Hai Xin Shou Xin Zi Di No . 035 Consolidated Credit Contract, pursuant to which, Beijing Refrigerator might apply to Hisense Finance Co ., Ltd . for the utilization of a maximum credit limit of RMB100,000,000 from 16 January 2012 to 31 December 2012 . To ensure the settlement of the liabilities under the credit contract, Hisense Group and Hisense Finance have entered into a Maximum Guarantee Contract Hai Xin Gao Bao Zi No . 017 to provide guarantee securities for the repayment of debts by Beijing Refrigerator on 16 January 2012 .
(4) As at 31 December 2012, the Company and its subsidiaries had balances of bank deposit of RMB283,962,600, bank loans of RMB0, and notes payable of RMB1,162,751,300 with Hisense Finance . For the year, loan interests paid to Hisense Finance amounted to RMB23,829,000, interests paid in relation to discounted notes amounted to RMB4,822,500, and handling fees paid amounted to RMB768,700 . Interest income received from Hisense Finance for the deposits amounted to RMB1,485,600 .

159

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

(7) receivables from and payables to related parties
- (1) Receivables from related parties

		Closing	balance	opening	balance
		Carrying	Provision for	Carrying	Provision for
Item	related party	amount	bad debts	amount	bad debts
Accounts receivable	Hisense Electrical Appliances	4,111,613 09		5,680,553 92
	and its subsidiaries
Accounts receivable	Hisense Group	341,067,486 70	863,752 76	275,640,454 10	863,752 76
	and its subsidiaries
Accounts receivable	Hisense Whirlpool	11,685,289 52		2,784,028 98
Accounts receivable	Hisense Hitachi	100,000 00
Accounts receivable	Huayi Compressor			217,666 55
	and its subsidiaries
	subtotal	356,964,389.31	863,752.76	284,322,703.55	863,752.76
Notes receivable	Hisense Group	28,452,507 01		31,152,446 57
	and its subsidiaries
	subtotal	28,452,507.01		31,152,446.57
Other receivables	Shunde Yunlong Consultancy	4,455,375 57	4,455,375 57	4,455,375 57	4,455,375 57
Other receivables	Hisense Electrical Appliances			200,000 00
	and its subsidiaries
Other receivables	Hisense Group	22,760 00		6,420 00
	and its subsidiaries
Other receivables	Hisense Whirlpool			431,841 02
	subtotal	4,478,135.57	4,455,375.57	5,093,636.59	4,455,375.57
Prepayments	Hisense Group and its			1,123,591 99
	subsidiaries
Prepayments	Huayi Compressor and its	5,852,060 18
	subsidiaries
	subtotal	5,852,060.18		1,123,591.99

160

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

(7) receivables from and payables to related parties (continued)

(2) Payables to related parties

Item	related party	Closing balance	opening balance
Notes payable	Huayi Compressor and its	15,000,000 00
	subsidiaries
subtotal		15,000,000.00
Accounts payable	Huayi Compressor and its	176,551,619 44	146,198,325 53
	subsidiaries
Accounts payable	Embraco	14,975,319 81	6,649,203 00
Accounts payable	Hisense Group and its	12,404,602 33	19,701,923 51
	subsidiaries
Accounts payable	Hisense Whirlpool	55,750,858 43	116,870,313 04
Accounts payable	Hisense Hitachi	292,761 19
subtotal		259,975,161.20	289,419,765.08
Other payables	Hisense Group and its	368,738 49	1,717,184 03
	subsidiaries
Other payables	Huayi Compressor and its	300,000 00	200,000 00
	subsidiaries
Other payables	Embraco	100,000 00	100,000 00
Other payables	Combine	5,099,880 00	5,099,880 00
Other payables	Hisense Whirlpool	13,452 61
subtotal		5,882,071.10	7,117,064.03
Advances from	Hisense Hitachi	1,551,940 98
customers
Advances from	Hisense Group and its	6,006,903 93	37,762,190 02
customers	subsidiaries
subtotal		7,558,844.91	37,762,190.02

161

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

(8) transactions with “specific third party companies”

Item	related parties	Closing balance	opening balance
Accounts receivable	Hefei Weixi	18,229,589 24	18,229,589 24
	Wuhan Changrong	20,460,394 04	20,460,394 04
subtotal of accounts receivable		38,689,983.28	38,689,983.28
Prepayments	Hefei Weixi	465,213 00	465,213 00
subtotal of prepayments		465,213.00	465,213.00
Other receivables	Jiangxi Kesheng	27,462,676 72	27,462,676 72
	Jinan San Ai Fu	121,496,535 45	121,496,535 45
	Tianjin Xiangrun	96,905,328 00	96,905,328 00
	Tianjin Lixin	89,600,300 00	89,600,300 00
	Jiangxi Keda	13,000,200 00	13,000,200 00
	Zhuhai Longjia	28,600,000 00	28,600,000 00
	Zhuhai Defa	21,400,000 00	21,400,000 00
	Wuhan Changrong	20,000,000 00	20,000,000 00
	Deheng Solicitors	4,000,000 00	4,000,000 00
	Finance Bureau of	40,000,000 00	40,000,000 00
	Yangzhou Economic
	Development Zone
	Shangqiu Bingxiong	58,030,000 00	58,030,000 00
subtotal of other receivables		520,495,040.17	520,495,040.17
Other payables	Zhuhai Longjia	28,316,425 03	28,316,425 03
	Zhuhai Defa	21,400,000 00	21,400,000 00
	Tianjin Taijin	65,000,000 00	65,000,000 00
subtotal of other payables		114,716,425.03	114,716,425.03

162

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

6. rElatED PartIEs anD rElatED Party transaCtIons (continued)

(9) transactions with greencool Companies

Item	related parties	Closing balance	opening balance
Other receivables	Guangdong Greencool	13,754,600 00	13,754,600 00
	Shenzhen Greencool	33,000,000 00	33,000,000 00
	Environmental
	Shenzhen Greencool	32,000,000 00	32,000,000 00
	Technology
	Hainan Greencool	12,289,357 71	12,289,357 71
subtotal of other receivables		91,043,957.71	91,043,957.71
Other payables	Jiangxi Greencool	13,000,000 00	13,000,000 00
subtotal of other payables		13,000,000.00	13,000,000.00

7. sharE-basED PayMEnt

1. general information about share-based payments

Item	amount for current period
Total equity instruments granted during the period	4,648,452 00
Total equity instruments exercised during the period
Total equity instruments expired during the period
Range of exercise price of share option outstanding and remaining	Exercise price of share option
term of contract as the end of the period	was RMB7 65, with a remaining
	term of contract term of
	1,338 days
Range of exercise price of other equity instruments and remaining
term of contract as at the end of the period

2. Equity settled share-based payments

Item	amount for current period
Determination on fair value of equity instruments	Fair value of share options under
as the date of grant	the Scheme calculated by using
	the Black-Scholes option
	pricing model
Determination on the best estimate of quantity of	Determined by the number of
exercisable equity instruments	incentive objects, expected gain
	of share option and performance
	assessment of incentive
	objects, etc
Reasons for significant discrepancies between estimate of current	Nil
and previous period
Accumulated amount of equity settled share-based payments in	6,208,452 00
capital reserve
Total expense recognized for equity settled share-based payments	6,208,452 00

163

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

7. sharE-basED PayMEnt (continued)

3. share-based services

	amount for current period
Item	amount for previous period
Total amount of employee services as a result of the share-based
payments	6,208,452 00
Total amount of other services as a result of the share-based
payments

4. shares granted

			transferred
		outstanding	from other				outstanding
		as at	categories	granted	Exercised	Expired	as at
	Exercise	1 January	during	during	during	during	31 December
Category	price	2012	the year	the year	the year	the year	2012
Directors	RMB7 65	2,808,000					2,808,000
Senior management	RMB7 65	2,484,000					2,484,000
Other management	RMB7 65	14,218,000					14,218,000
total		19,510,000					19,510,000

The Board has completed the registration for the grant of share options under the First Share Option Incentive Scheme of Hisense Kelon Electrical Holdings Company Limited under the authorization granted at the general meeting of the Company on 28 September 2011, the basic information as follows:

(1) Date of grant: 31 August 2011
(2) Exercise price: RMB7 .65 per share .
(3) Option abbreviation: Hisense JLC1
(4) Option code: 037018
(5) The share options valid for five years from the date of grant, subject to a restriction period of 2 years . The incentive participants may exercise their options in equal installments within 3 years from the third year of the date of grant, with 33%, 33% and 34% of the total options granted being exercisable each year .
(6) The incentive participants may include: the directors of the Company excluding of the independent directors and external directors who are not officers of the Hisense Group and its subsidiaries (other than the Company and its subsidiaries), senior management (including president, vice president, financial controller, Board secretary, company secretary and other officers which are regarded as senior management under the Articles of Association) of the Company, mid-level management staff of the Company and its subsidiaries, and technical backbone determined by the Board .
(7) The fund to be used for exercise of share options by the participants shall be raised by themselves and the Company does not provide borrowings or any other kind of financial assistance to the participants under the Scheme (including guarantee for their borrowings) .
(8) The share option scheme has been examined and approved by the SASAC of Qingdao, filed with the SASAC of the State Council and filed with the CSRC with no objections .

164

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

8. ContIngEnCIEs

1. Contingent liabilities arising from pending litigations and their financial impact

As at 31 December 2012, the pending litigations involving the Company are summarized as follows:

(1) Cases with the Company as the plaintiff

			total amount
Plaintiff	Defendant	Causes	involved
The Company	Beijing Diamond Advertising	Dispute over	5,000,000 00
	Co , Ltd	advertising
		contract
Kelon Jiake	Shunde Yunlong Consultancy	Dispute over	4,455,375 57
		debts
Rongsheng Plastic	Shenzhen Fudong Industrial	Dispute over	4,287,600 00
	Equipment Co , Ltd ,	processing
	Zhang Yong, Yang Lanruo,	and
	Shenzhen Yonghecheng	outsourcing
	Blower Industry Co , Ltd	contract
The Company and	Others		5,080,430 00
its subsidiaries
total			18,823,405.57
*Cases with the Company*	*as the defendant*
			total amount
Plaintiff	Defendant	Cause	involved
Supplier of raw materials	The Company	Dispute over	7,652,976 18
		sale and
		purchase
		contract and
		processing
		contract
Other	The Company	Labor dispute	8,731,019 53
		and others
total			16,383,995.71

(2) Cases with the Company as the defendant

165

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

8. ContIngEnCIEs (continued)

1. Contingent liabilities arising from pending litigations and their financial impact (continued)

(3) Cases for which the judgment was in favor of the Company and become effective but was not yet executed

*yet executed*
Greencool case:
			total amount
Plaintiff	Defendant	Cause	involved
The Company*	Greencool and Gu Chu Jun	Fraud in	725,414,350 00
		purchase;
		capital
		infringement
total			725,414,350.00

As at 12 August 2009, the Company had received civil judgment, namely (2009) Yuegaofaliminzhongzi Nos . 238, 171, 172 and 116 and (2008) Yue Gao Fa Li Min Zhong Zi Nos . 439, 465, 441, 466, 440, 471, 396, 318, 319 and 206 from the Higher People’s Court of Guangdong Province (the “Guangdong Higher Court”), being the final judgments in respect of the litigations instituted by the relevant controlling subsidiaries of the Company against Gu Chu Jun, the Greencool Companies and the specific third parties . It was judged that civil judgments namely (2006)Fo Zhong Fa Min Er Chu Zi Nos . 11, 12, 13, 10, 14, 153, 184, 185, 180, 154, 175,181,182 and 186 from the Foshan Intermediate Court become effective from the date of delivery of the final civil judgment from the Guangdong Higher Court mentioned above, and the judgments were in favor of the Company .

On 9 June 2008, the Company received the civil judgment, namely (2008) Yue Gao Fa Li Min Zhong Zi No . 190 and No . 191 from the Guangdong Higher Court, being the final judgments in respect of the litigations instituted by the Company against Gu Chu Jun, the Greencool Companies and the specific third parties, which stated the civil judgments numbered (2006) Fo Zhong Fa Min Er Chu Zi Nos . 93 and 94 from the Foshan Intermediate Court become effective from the date of delivery of the final civil judgment from the Guangdong Higher Court mentioned above, and the judgments were in favor of the Company .

On 15 August 2008, the Company received a notice from the Foshan Intermediate Court, stating that as the defendants had not appealed within the prescribed period under the law, the civil judgment, namely (2006) Fo Zhong Fa Min Er Chu Zi No . 179 and (2007) Fo Zhong Fa Min Er Chu Zi No . 56 from the Foshan Intermediate Court became effective, and the judgments were in favor of the Company .

On 9 January 2009, the Company received the civil judgment, namely (2006) Fo Zhong Fa Min Er Chu Zi No . 183 from the Foshan Intermediate Court, being the judgments in respect of the litigations instituted by the Company against Gu Chu Jun, the Greencool Companies and the specific third parties . The institution of legal proceedings was dismissed due to insufficiency of evidence submitted by the Company .

On 2 March 2009, the Company received the paper of civil judgment, namely (2006) Fo Zhong Fa Min Er Chu Zi i No . 178 from the Foshan Intermediate Court, being the judgments in respect of the litigations instituted by the Company against Gu Chu Jun, the Greencool Companies and the specific third parties . The Court agreed to the withdraw by the Company of the institution of legal proceedings due to insufficiency of evidence .

On 21 December 2012, the Company received the notices of resumption of execution of (2008) Fo Zhong Fa Zhi Zi No . 853, (2009) Fo Zhong Fa Zhi Zi No . 113, 114, 115, 116, 118, 157, 234, 235, 236, 237, 238, 259, 502, 852, 995, 996 and (2010) Fo Zhong Fa Zhi Zi No . 32 from the Intermediate People’s Court of Foshan City, Guangdong Province (the “Foshan Intermediate Court”) . Regarding the application by the Company and the relevant subsidiaries in which it holds a controlling equity interest for the execution of the cases regarding the damage to their corporate interests by Guangdong Greencool Enterprises Development Company Limited and its associated companies (the “Greencool Companies”) and Gu Chu Jun, the Foshan Intermediate Court has decided to resume the execution of the relevant cases based on the spirit in the notice issued by the Supreme People’s Court on the resumption of execution procedures against the Greencool Companies in accordance with the law .

Up to 28 March 2013, the execution of the above cases have not been completed by the relevant courts and it was determined that there was no difference in the recoverability as compared to 2011 in substance .

166

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

8. ContIngEnCIEs (continued)

1. Contingent liabilities arising from pending litigation and their financial effect (continued)

(3) Cases for which the judgment was in favor of the Company and become effective but was not yet executed (continued)

Other cases:
			total amount
Plaintiff	Defendant	Cause	involved
The Company	Shangqiu Kelon	Purchase amount outstanding	25,660,900 00
total			25,660,900.00

It represented the request of the Company to the defendants to repay the purchase amount of goods, related interests and all the litigation fees . The civil judgment is now in effect .

9. CoMMItMEnt

As at 31 December 2012, the assets of the Company and its subsidiaries used as securities for borrowings are as follows:

						net carrying
		balance of finance			valuation amount	amount of security
Mortgagor	Mortgagee	(rMb’0000)	name of securities	Pledge/security contracts	(rMb’0000)	(rMb’0000)
Yangzhou			Buildings at Nos 9 and 19	GDY476400120100007	17,702 02	12,112 04
Refrigerator			Hongyang Road
Yangzhou			Land use right of the west side	GDY476400120100008	26,685 03	4,082 55
Refrigerator			of Yangzijiang South Road
			Yangzhou, No 9 Hungyang
	Shunde, Foshan		Road and Fuyang Road
The Company	Branch of The Bank of China	21,809 60	North No 8 Ronggang Road, No 13	GDY476400120100005	32,727 60	14,331 45
	Limited		Ronggang Road, No 11
			Ronggang Road and No 29
			Neighborhood Committee of
			Wenfeng North Road
Guangdong Air-			No 1 Rongqi Road, side of	GDY476400120100009	25,751	8,735 62
Conditioner			Rongqi Bridge

167

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

10. EvEnts aFtEr thE balanCE shEEt DatE

Huayi Compressor, an associate of the Company, issued 235,042,735 RMB-denominated ordinary shares to specific investors through private issue of shares at an issue price of RMB4 .68 per share (payable in cash) in January 2013 . Registered capital changed from RMB324,581,218 .00 to RMB559,623,953 .00 upon the issue and subscription . Such change in registered capital has been verified by Shinewing Certified Public Accountants, who issued the capital verification report XYZH/2012CDA4086-2 .

Upon the private issue of Huayi Compressor, the shareholding of the Company changed from 6 .45% to 3 .74% .

11. othEr sIgnIFICant EvEnts

1. assets and liabilities measured at fair value

		amount of	gain/(loss)	Impairment
	opening	financial	from change	provision for	Closing
Item	balance	assets	in fair value	the period	balance
Financial assets
Derivative financial
assets	33,787,696 24	(23,109,402 77)	(23,109,402 77)		10,678,293 47
subtotal of
financial assets	33,787,696.24	(23,109,402.77)	(23,109,402.77)		10,678,293.47
Derivative financial
liabilities	(6,636,121 77)	6,471,890 55	6,471,890 55		(164,231 22)
subtotal of
financial
liabilities	(6,636,121.77)	6,471,890.55	6,471,890.55		(164,231.22)

2. Financial risk management objectives and policies

The Company’s major financial instruments include: cash at bank and on hand, derivative financial instruments, notes receivable, accounts receivable, other receivables, notes payable, accounts payable, other payables, bank borrowings . Details of the financial instruments were disclosed in the relevant notes .

Risks associated with the above financial instruments include: credit risk, liquidity risk, interest rate risk and foreign currency risk .

(1) Credit risk

Credit risk is the risk exposed to the Company on financial losses arising from the failure of clients or financial instrument counterparties to fulfill contract obligations . It arises mainly from the bank balances, trade and other receivables and financial derivative .

The Company maintains substantially all of its bank balances in several major large state banks in the PRC . In strong support of the country on those banks, the Board is of the opinion that there is no significant credit risk exposed to losses associated with such assets .

168

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

11. othEr sIgnIFICant EvEnts (continued)

2. Financial risk management objectives and policies (continued)

(1) Credit risk (continued)

The Company mitigates its exposure to risk relating to trade and other receivables by dealing with diversified customers with solid financial foundation . Certain new customers are required to place cash deposits with the Group to reduce the maximum exposure to credit risk . The Group seeks to maintain strict control over its outstanding receivables and has a credit control policy to minimize credit risk . In addition, all receivable balances are monitored on an ongoing basis and overdue balances are followed up by senior management .

The credit risk on derivative instruments is not significant as the counterparties are high creditworthy banks rated by international credit-rating agencies .

The maximum exposure to credit risk at reporting date is the carrying amount of each class of financial assets shown on the consolidated financial statements .

(2) Liquidity risk

In the management of liquidity risk, the Company monitors and maintains cash and cash equivalents at a level which is adequate, in the management’s point of views, to finance the Company’s operations and mitigate the effects of short-term fluctuations in cash flows . The Company’s treasury department is responsible for maintaining a balance between continuity of funding and flexibility through the use of bank credit and loan in order to meet the Company’s liquidity requirements .

In order to mitigate the liquidity risk, the directors have carried out a detailed review of the liquidity of the Company, including maturity profile of its trade and other payables, borrowings and availability of loan financing provided by Hisense Finance and future renewal of bank borrowings, it is concluded that adequate funding is available to fulfill the Group’s short-term obligations and capital expenditure requirements .

(3) Interest rate risk

The Company is exposed to interest rate risk due to changes in interest rates of interestbearing financial assets and liabilities . Interest-bearing financial assets are mainly deposits with banks, which are mostly short-term in nature whereas interest-bearing financial liabilities are primarily short-term bank borrowings . As at 31 December 2012, the Company’s short-term bank borrowings were at fixed rate . As all the Company’s borrowings were short term loans, any change in the interest rate from time to time is not considered to have significant impact on the Company’s performance .

169

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

11. othEr sIgnIFICant EvEnts (continued)

2. Financial risk management objectives and policies (continued)

(4) Foreign currency risk

Foreign currency risk is the risk of loss due to adverse change in exchange rates relating to investments and transactions denominated in foreign currencies . The Group’s monetary assets and transactions are mainly denominated in RMB, HKD, USD, JPY and EUR . The exchange rates between RMB, HKD, USD, JPY and EUR are not pegged, and there is fluctuation of exchange rates between RMB, USD, JPY and EUR .

The carrying amounts of the Company’s monetary assets and monetary liabilities denominated in foreign currencies at the end of reporting period are as follows:

Currency USD EUR	Closing balance assets liabilities 583,485,858 40 32,183,140 67 84,088,791 97 4,434,575 43	opening balance
		assets liabilities 566,052,696 12 105,444,838 96 120,539,277 81 8,380,259 01

The following table indicates the approximate effect of reasonably possible foreign exchange rate changes on the net profit, to which the Group has significant exposure at the end of reporting period:

Sensitivity analysis of change in exchange rate:

	2012	2011
	Increase/Decrease	Increase/Decrease
Item	in profit after tax	in profit after tax
usD to rMb
Appreciates by 5%	20,673,851 91	17,272,794 64
Depreciates by 5%	(20,673,851 91)	(17,272,794 64)
Eur to rMb
Appreciates by 5%	2,987,033 12	4,205,963 21
Depreciates by 5%	(2,987,033 12)	(4,205,963 21)

Sensitivity analysis of change in forward rate:

	2012	2011
	Increase/Decrease	Increase/Decrease
Item	in profit after tax	in profit after tax
usD to rMb
Appreciates by 5%	(9,993,375 00)	(8,706,300 00)
Depreciates by 5%	9,993,375 00	8,706,300 00
Eur to rMb
Appreciates by 5%	(1,172,925 00)	(582,375 00)
Depreciates by 5%	1,172,925 00	582,375 00

170

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

11. othEr sIgnIFICant EvEnts (continued)

3. Capital management

The primary objectives of the Company’s capital management are to safeguard the Company’s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders’ value .

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets . To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares . No changes were made in the objectives, policies or processes for managing capital during the years ended 31 December 2012 and 31 December 2011 .

The Group monitors capital using a gearing ratio, which is net debt divided by the adjusted capital plus net debt . Net debt includes bank and other borrowings, accounts payable, notes payable, other payables and debentures payables, less cash and cash equivalents . The gearing ratios as at the end of the reporting periods were as follows:

Item	2012	2011
total debt	7,327,126,628 77	6,474,624,703 93
Including: Short-term borrowings	30,309,453 94	1,004,998,894 20
Accounts payable	2,335,425,936 47	2,054,610,132 81
Notes payable	1,432,852,210 08	612,667,073 33
Other payables	1,581,294,492 81	1,156,195,947 88
Less: Cash and cash equivalents	513,661,376 53	396,814,919 98
net debt	6,813,465,252 24	6,077,809,783 95
Equity attributable to shareholders of the parent	1,512,042,166 49	805,123,597 33
Capital and net debt	8,325,507,418 73	6,882,933,381 28
gearing ratio	81 84%	88 30%

171

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

11. othEr sIgnIFICant EvEnts (continued)

4. Directors and supervisors’ emoluments

The emoluments paid or payable to the directors and supervisors of the Company are as follows:

(1) As at 31 December 2012

Unit: RMB’0000

		Emoluments
		of		Pension
		independent	salaries and	scheme
name	Position	director	allowances	contributions	total
Executive director
Tang Ye Guo	Chairman		98 40	1 52	99 92
Yu Shu Min	Director
Lin Lan	Director
Xiao Jian Lin	Director
Ren Li Ren	Director and		78 18	1 89	80 08
	President
Gan Yong He	Director and		97 08	1 52	98 60
	Vice-president
Independent non-
executive director
Xu Xiang Yi	Independent	4 50			4 50
	non-executive
	Director
Wang Ai Guo	Independent	9 00			9 00
	non-executive
	Director
Wang Xin Yu	Independent	24 00			24 00
	non-executive
	Director
Zhang Sheng Ping	Former independent	4 50			4 50
	non-executive
	Director
supervisor
Guo Qing Cun	Supervisor
Liu Jiang Yan	Supervisor
Zhang Jian Jun	Employee		29 76	0 08	29 84
	representative
	supervisor
Gao Zhong Xiang	Former supervisor
Liu Zhan Cheng	Former supervisor		24 10		24 10
total		42.00	327.53	5.01	374.54
Particulars:

(1) During the year, no emoluments were paid by the Company to the directors as an inducement to join or upon joining the Group or as compensation for loss of office . None of the directors of the Company has waived or agreed to waive any emoluments during the year .
(2) Mr . Gan Yong He was appointed on 16 January 2012; Mr . Xu Xiang Yi was appointed on 26 June 2012; Ms . Liu Jiang Yan was appointed on 15 August 2012; Mr . Zhang Jian Jun was appointed on 26 June 2012; Mr . Zhang Sheng Ping resigned on 26 June 2012; Mr . Gao Zhong Xiang resigned on 26 June 2012; and Mr . Liu Zhan Cheng resigned on 26 June 2012 .

172

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

11. othEr sIgnIFICant EvEnts (continued)

4. Directors and supervisors’ emoluments (continued)

(1) As at 31 December 2011

Unit: RMB’0000

		Emoluments of		Pension
		independent	salaries and	scheme
name	Position	director	allowances	Contributions	total
Executive director
Tang Ye Guo	Chairman		90	1 04	91 04
Yu Shu Min	Director
Lin Lan	Director
Xiao Jian Lin	Director
Liu Chun Xin	Director		35 65	0 6	36 25
Zhou Xiao Tian	Director		34 67		34 67
Ren Li Ren	Director and President		61 71	1 45	63 16
Independent
non-executive director
Zhang Sheng Ping	Independent	9			9
	non-executive director
Wang Ai Guo	Independent	9			9
	non-executive director
Wang Xin Yu	Independent	6			6
	non-executive director
Cheung Yui Kai, Warren	Former independent	16			16
	non-executive director
supervisor
Guo Qing Cun	Supervisor
Gao Zhong Xiang	Supervisor
Liu Zhan Cheng	Supervisor		41	1 03	42 03
total		40	263.03	4.12	307.15

Particulars: Mr . Xiao Jian Lin was appointed on 20 January 2011; Mr . Ren Li Ren was appointed on 1 August 2011; Mr . Wang Ai Guo was appointed on 20 January 2011; Mr . Wang Xin Yu was appointed on 26 September 2011; Mr . Cheung Yui Kai, Warren resigned on 29 July 2011; Ms . Liu Chun Xin resigned on 15 September 2011; and Mr . Zhou Xiao Tian resigned on 27 June 2011 .

(2) Five highest paid individuals

In 2012, three (2011: two) of the five highest paid individuals of the Company were directors . The aggregate of the emoluments in respect of the other two individuals (2011: three) are as follows (the range of emoluments for 2012 and 2011 was below RMB1,000,000):

		Unit: RMB’0000
	amount for	amount for
Item	current period	previous period
Emolument	150	172

173

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

11. othEr sIgnIFICant EvEnts (continued)

5. key management personnel emoluments

		Unit: RMB’0000
Item	2012	2011
Salaries and other short-term employee benefits	699 58	667 62
Retirement benefit scheme costs	20 23	18 07
total	719.81	685.69

6. retirement benefit scheme

The Company contributes mainly to a defined contribution pension scheme, which is administered by the provincial government, in respect of employees of the Company and subsidiaries . According to such scheme, the Company and subsidiaries shall pay an amount, calculated at several percentages of the total salaries and wages of the employees, to a retirement fund .

The total costs charged to the profit or loss approximately of RMB208,643,600 (2011: RMB 166,526,800) represents contributions to the scheme by the Company and subsidiaries at rates specified in the scheme .

7. leases

(1) Different categories of leased assets of the Company are as follows:

		Unit: RMB’0000
	Closing	opening
Categories of leased assets under operating leases	carrying amount	carrying amount
Buildings	3,644 66	3,801 99
total	3,644.66	3,801.99

(2) The Company as lessor under operating lease

The Company’s investment properties are also leased to a number of tenants for different terms . The rental income for 2012 amounted to RMB7,860,000 (2011: RMB5,480,000) .

The minimum rent receivables under non-cancellable operating leases at the end of reporting period is are follows:

		Unit: RMB’0000
	amount for	amount for
Item	current period	previous period
Within one year Over one year but within five years, inclusive	669 63 473 69	512 37 52 34
total	1,143.32	564.71

174

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

11. othEr sIgnIFICant EvEnts (continued)

7. lease (continued)

(3) The Company as lessee under operating lease

The Company leases certain leasehold land and buildings and plant and machinery under operating leases with lease terms from one to five years . The operating lease payments for the year ended 31 December 2012 was as follows:

		Unit: RMB’0000
	amount for	amount for
operating lease payments	current period	previous period
Leasehold land and buildings	1,318 27	1,428 25
Plant and machinery	756 31
total	2,074.58	1,428.25

(4) The total future minimum lease payments under non-cancellable operating leases at the end of reporting period falling due are as follows:

			Unit: RMB’0000
		amount for	amount for
	Item	current period	previous period
	Within one year	804 25	419 02
	Over one year but within five years	992 75	545 62
	total	1,797.00	964.64
Capital commitment
			Unit: RMB’0000
Item		Closing balance	opening balance
Commitments for the investment in subsidiaries and jointly
controlled entity:
—	Authorized but not yet contracted for
—	Contracted but not provided for	4,688 66	7,969 00
Commitments for the acquisition of property, plant and
equipment of subsidiaries:
—	Contracted but not provided for

8. Capital commitment

9. Dividends

No dividends was paid or proposed for the year ended 31 December 2012 (2011: Nil), or reserve funds converted into capital .

175

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany

1. accounts receivable

(1) Disclosure of accounts receivable by categories:

			Closing balance	Closing balance	Closing balance
	Carrying amount				Provision for bad debts
		%	of	total		% of total
Category	amount	balance			amount	balance
Individually significant
and subject to separate
provision
Ageing analysis	803,290,236 75			95 40	165,054,919 79	20 55
Greencool Companies	38,689,983 28			4 60	22,726,941 64	58 74
subtotal	841,980,220.03		100.00		187,781,861.43	22.30
Individually insignificant
but subject to separate
provision
total	841,980,220.03		100.00		187,781,861.43	22.30
Continued from above table
			opening balance
	Carrying amount				Provision for bad debts
		%	of	total		% of total
Category	amount	balance			amount	balance
Individually significant
and subject to separate
provision
Aging analysis	955,088,317 99			96 11	162,538,384 64	17 02
Greencool Companies	38,689,983 28			3 89	22,726,941 64	58 74
subtotal	993,778,301.27		100.00		185,265,326.28	18.64
Individually insignificant
but subject to separate
provision
total	993,778,301.27		100.00		185,265,326.28	18.64

176

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

1. accounts receivable (continued)

  - _**(1) Disclosure of accounts receivable by category** (continued)_

Accounts receivable in the category provided bad debts by using ageing method:

age Within three months Over three months but within six months Over six months but within one year Over one year	Closing balance Carrying amount amount % of total balance Provision for bad debts 631,388,149 75 74 99 1,265,442 13 0 15 126,544 21 11,416,538 58 1 36 5,708,269 29 159,220,106 29 18 91 159,220,106 29	opening balance
		Carrying amount amount % of total balance Provision for bad debts 789,235,183 64 79 42 3,594,295 40 0 36 359,429 54 159,767 70 0 02 79,883 85 162,099,071 25 16 31 162,099,071 25
total	803,290,236.75 95.41 165,054,919.79	955,088,317.99 96.11 162,538,384.64

(2) Movements in provision for accounts receivable

opening Provision for the balance year 2012 185,265,326 28 3,666,951 25	Decrease for theyear Closing reversal Write-off balance 1,150,416 10 187,781,861 43

(3) Accounts receivable that were written off

	nature of			arising from
Company	accounts	amount	reason for	related party
name	receivable	written-off	write-off	transactions or not
Unrelated	Loans	1,150,416 10	Not recoverable	No
parties			due to long
			outstanding
total		1,150,416.10

(4) As at 31 December 2012, there was no amount due from shareholders holding 5% or more (including 5%) of the voting shares of the Company in the balance of accounts receivable . As at 31 December 2011, there was no amount due from shareholders holding 5% or more (including 5%) of the voting shares of the Company in the balance of accounts receivable .

177

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

1. accounts receivable (continued)

(5) Top five accounts receivable

2012

				Percentage of
				the total accounts
	relationship with			receivable amount
no.	the Company	amount	ageing	(%)
Top 1	Third party	238,358,502 63	Within three months	28 31
Top 2	Third party	195,596,319 17	Within three months	23 23
Top 3	Subsidiary	40,762,559 25	Within three months	4 84
Top 4	Third party	24,456,945 19	Within three months	2 90
Top 5	Subsidiary	19,748,315 16	Within three months	2 35
total		518,922,641.40		61.63

2011
				Percentage of
				the total accounts
	relationship with			receivable amount
no.	the Company	amount	ageing	(%)
Top 1	Subsidiary	178,737,705 00	Within three months	17 99
Top 2	Third party	162,914,960 00	Within three months	16 39
Top 3	Third party	169,330,251 51	Within three months	17 04
Top 4	Subsidiary	35,582,191 27	Within three months	3 58
Top 5	Subsidiary	33,489,741 75	Within three months	3 37
total		580,054,849.53		58.37

178

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

2. other receivables

(1) Disclosure of other receivables by category:

			Closing	balance
	Carrying	amount		Provision for bad debts
		% of total			% of total
Category	amount	balance		amount	balance
Individually significant
and subject to separate
provision
Aging analysis	1,038,532,918 70	98 51%		23,743,419 18	2 29%
Greencool Companies	15,754,600 00		1 49%	9,962,961 47	63 24%
Subtotal	1,054,287,518.70	100.00%		33,706,380.65	3.20%
Individually insignificant
but subject to separate
provision
total	1,054,287,518.70	100.00%		33,706,380.65	3.20%
Continued from above table
		opening		balance
	Carrying	amount		Provision for bad debts
		% of total			% of total
Category	amount	balance		amount	balance
Individually significant
and subject to separate
provision
Ageing analysis	946,814,635 01		98 36	17,754,064 36	1 88
Greencool Companies	15,754,600 00		1 64	9,962,961 47	63 24
Subtotal	962,569,235.01	100.00		27,717,025.83	2.88
Individually insignificant
but subject to separate
provision
total	962,569,235.01	100.00		27,717,025.83	2.88

179

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

2. other receivables (continued)

  - _**(1) Disclosure of other receivables by category:** (continued)_

Other receivables in the category provided bad debts by using ageing analysis:

age Within three months Over three months but within six months Over six months but within one year Over one year	Closing balance Carrying amount amount % of total balance Provision for bad debts 1,013,443,126 16 96 13% 610,204 95 0 06% 61,020 50 1,594,377 82 0 15% 797,188 91 22,885,209 77 2 17% 22,885,209 77	opening balance
		Carrying amount amount % of total balance Provision for bad debts 917,812,372 71 95 35 11,668,759 58 1 21 1,166,875 96 1,492,628 64 0 16 746,314 32 15,840,874 08 1 65 15,840,874 08
total	1,038,532,918.70 98.51% 23,743,419.18	946,814,635.01 98.37 17,754,064.36

(2) Movements in provision for other receivables

opening balance Provision for the year 2012 27,717,025 83 7,981,804 11	Decrease for the year Closing balance reversal Write-off 1,992,449 29 33,706,380 65

(3) Other receivable that were written-off

				arising from
				related party
	nature of	amount	reason for	transactions
Company name	other receivables	written-off	write-off	or not
Unrelated party	Loans	1,992,449 29	Not recoverable	No
			due to long
			outstanding

(4) As at 31 December 2012, there was no amount due from shareholders holding 5% or more (including 5%) of the voting shares of the Company in the balance of other receivables . As at 31 December 2011, there was no amount due from shareholders holding 5% or more (including 5%) of the voting shares of the Company in the balance of other receivables .

180

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

2. other receivables (continued)

(5) Top five other receivables

2012

				Percentage of the
				total other
	relationship with			receivables
no.	the Company	amount	ageing	amount (%)
Top 1	Subsidiary	211,154,792 61	Within three months	20 03
Top 2	Subsidiary	170,029,177 84	Within three months	16 13
Top 3	Subsidiary	137,171,745 54	Within three months	13 01
Top 4	Subsidiary	117,511,986 92	Within three months	11 15
Top 5	Subsidiary	63,588,915 14	Within three months	6 03
total		699,456,618.05	—	66.35

2011

				Percentage of the
				total other
	relationship with			receivables
no.	the Company	amount	ageing	amount (%)
Top 1	Subsidiary	274,859,098 81	Within three months	28 55
Top 2	Subsidiary	214,414,337 32	Within three months	22 28
Top 3	Subsidiary	123,097,538 10	Within three months	12 79
Top 4	Subsidiary	110,356,172 08	Within three months	11 46
Top 5	Subsidiary	80,592,758 52	Within three months	8 37
total		803,319,904.83	—	83.45

181

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

3. long-term equity investments

									Impairment
									provided in
	accounting		opening		Closing	% Equity	% voting	Provision	the current	Cash dividend
Investee	treatment	Investment cost	balance	Changes	balance	interest held	rights held	for impairment	year	in current year
Huayi Compressor	Equity method	41,686,088 96	43,637,782 08	6,707,096 33	50,344,878 41	6 45	6 45
Attend	Equity method	2,000,000 00	3,428,851 76	(143,000 95)	3,285,850 81	20 00	20 00
Hisense Whirlpool Hisense Hitachi	Equity method Equity method	225,000,000 00 332,821,597 45	206,388,118 32 353,301,093 20	3,430,870 26 131,174,917 89	209,818,988 58 484,476,011 09	50 00 49 00	50 00 49 00			49,000,000 00
Equity method
subtotal		601,507,686.41	606,755,845.36	141,169,883.53	747,925,728.89					49,000,000.00
Guangdong Refrigerator	Cost method	155,552,425 85	155,552,425 85		155,552,425 85	70 00	70 00
Guangdong	Cost method
Air-
Conditioner		281,000,000 00	281,000,000 00		281,000,000 00	60 00	60 00	59,381,641 00
Guangdong Freezer	Cost method	15,668,880 00	15,668,880 00		15,668,880 00	44 00	44 00
Kelon	Cost method
Household
Electrical
Appliance Kelon Fittings	Cost method	2,500,000 00 32,634,553 70	2,500,000 00 32,634,553 70		2,500,000 00 32,634,553 70	25 00 70 00	25 00 70 00
Rongsheng Plastic Kelon Mould Wangao I&E Kelon Jiake Kelon Weili	Cost method Cost method Cost method Cost method Cost method	53,270,064 00 50,323,475 20 600,000 00 42,000,000 00	53,270,064 00 50,323,475 20 600,000 00 42,000,000 00		53,270,064 00 50,323,475 20 600,000 00 42,000,000 00	44 92 40 22 20 00 70 00 55 00	44 92 40 22 20 00 70 00 55 00
YingKou Refrigerator Jiangxi Kelon	Cost method Cost method	84,000,000 00 147,763,896 00	84,000,000 00 147,763,896 00		84,000,000 00 147,763,896 00	42 00 60 00	42 00 60 00
Hangzhou Kelon	Cost method	24,000,000 00	24,000,000 00		24,000,000 00	100 00	100 00
Yangzhou Refrigerator Zhuhai Kelon	Cost method Cost method	252,356,998 00 189,101,850 00	252,356,998 00 189,101,850 00		252,356,998 00 189,101,850 00	74 33 75 00	74 33 75 00
Xi’an Kelon	Cost method	107,729,620 45	107,729,620 45	(107,729,620 45)		60 00	60 00
Shenzhen	Cost method
Kelon		95,000,000 00	95,000,000 00		95,000,000 00	95 00	95 00
Kelon	Cost method
Development		11,200,000 00	11,200,000 00		11,200,000 00	100 00	100 00
Chengdu Refrigerator	Cost method	50,000,000 00	50,000,000 00		50,000,000 00	100 00	100 00
Beijing Refrigerator	Cost method	92,101,178 17	92,101,178 17		92,101,178 17	55 00	55 00

182

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

3. long-term equity investments (continued)

									Impairment
									provided in
	accounting		opening		Closing	% Equity	% voting	Provision	the current	Cash dividend
Investee	treatment	Investment cost	balance	Changes	balance	interest held	rights held	for impairment	year	in current year
Shandong Air- Conditioner	Cost method	567,175,477 74	567,175,477 74		567,175,477 74	100 00	100 00
Zhejiang Air- Conditioner	Cost method	54,523,643 83	54,523,643 83		54,523,643 83	51 00	51 00
Hisense Mould	Cost method	121,628,013 09	121,628,013 09		121,628,013 09	78 70	78 70
Shandong Refrigerator Xinjiang Kelon	Cost method Cost method	100,000,000 00 100,000 00	100,000 00	100,000,000 00	100,000,000 00 100,000 00	100 00 2 00	100 00 2 00
Fujian Kelon	Cost method	100,000 00	100,000 00		100,000 00	2 00	2 00
Hisense	Cost method
International
Marketing		3,800,000 00	3,800,000 00		3,800,000 00	12 67	12 67			3,800,000 00
subtotal by
cost method		2,534,130,076.03	2,434,130,076.03	(7,729,620.45)	2,426,400,455.58			59,381,641.00		3,800,000.00
total		3,135,637,762.44	3,040,885,921.39	133,440,263.08	3,174,326,184.47			59,381,641.00		52,800,000.00

4. operating revenue and operating costs

(1) Operating revenue and operating costs

	amount for	amount for
Item	current period	previous period
Revenue from principal operations	10,893,593,680 70	10,892,602,626 72
Revenue from other operations	2,512,754,821 87	955,129,068 90
total operating revenue	13,406,348,502.57	11,847,731,695.62
Costs of principal operations	8,563,618,825 63	8,800,871,140 75
Costs of other operations	2,214,424,604 03	702,982,573 02
total operating costs	10,778,043,429.66	9,503,853,713.77

(2) Principal operations (by products)

Products Refrigerators Air-conditioners Others	amount for current period operating revenue operating costs 6,205,246,053 64 4,802,391,754 86 3,989,222,718 97 3,221,180,133 02 699,124,908 09 540,046,937 75	amount for previous period
		operating revenue operating costs 6,018,753,460 33 4,753,389,068 57 4,274,997,748 16 3,585,529,489 75 598,851,418 23 461,952,582 43
total	10,893,593,680.70 8,563,618,825.63	10,892,602,626.72 8,800,871,140.75

183

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

4. operating revenue and operating costs (continued)

  - _**(3) Principal operations (by regions)**_

region Domestic Overseas	amount for current period operating revenue operating costs 10,893,593,680 70 8,563,618,825 63	amount for previous period
		operating revenue operating costs 10,892,602,626 72 8,800,871,140 75
total	10,893,593,680.70 8,563,618,825.63	10,892,602,626.72 8,800,871,140.75

(4) Operating revenue from the top five customers of the Company

2012

		Percentage of the
		total revenue
		from principal
	amount for the	operations of the
no.	current period	Company (%)
Top 1	1,311,005,853 74	12 03
Top 2	986,464,145 61	9 06
Top 3	205,057,899 02	1 88
Top 4	180,757,884 05	1 66
Top 5	148,982,418 42	1 37
total	2,832,268,200.84	26.00

2011

		Percentage of the
		total revenue
		from principal
	amount for	operations of the
no.	the current period	Company (%)
Top 1	1,207,391,797 41	11 08
Top 2	1,200,296,700 51	11 02
Top 3	184,024,560 54	1 69
Top 4	147,791,006 22	1 36
Top 5	135,379,906 37	1 24
total	2,874,883,971.05	26.39

184

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

5. Investment income

(1) Summary of investment income

	amount for	amount for
Item	current period	previous period
Income from long-term equity investment — the cost
method	15,826,368 60	18,823,552 90
Income from long-term equity investment — the
equity method	190,097,006 83	94,337,603 16
Income from disposal of long-term equity investment	(78,121,106 88)	28,351,625 36
total	127,802,268.55	141,512,781.42

(2) Income from long-term equity investments — the cost method

	amount for	amount for
Investee	current period	previous period
Beijing Refrigerator	5,500,000 00	5,500,000 00
Hisense Mould	6,526,368 60	9,789,552 90
Hisense International Marketing	3,800,000 00	3,534,000 00
total	15,826,368.60	18,823,552.90

(3) Income from long-term equity investment — the equity method

	amount for	amount for
Investee	current period	previous period
Huayi Compressor	6,634,219 63	1,973,956 79
Hisense Whirlpool	3,430,870 26	(3,827,145 17)
Attend	(143,000 95)	(298,934 03)
Hisense Hitachi	180,174,917 89	96,489,725 57
total	190,097,006.83	94,337,603.16

185

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

12. notEs to MaJor ItEMs oF thE FInanCIal statEMEnts oF thE CoMPany (continued)

6. supplementary information on cash flows statement

	amount for	amount for
supplementary information	current period	previous period
1. reconciliation of net profit to cash flows from
operating activities:
Net profit	336,604,324 71	246,020,866 58
Add: Provision for assets impairment	33,546,203 90	13,381,932 10
Depreciation of fixed assets, depletion of oil and gas assets
and depreciation of productive biological assets	32,407,602 37	42,509,581 50
Amortization of intangible assets	9,201,933 74	10,620,323 00
Amortization of long-term prepaid expenses
Loss on disposals of fixed assets, intangible and other long-
term assets (Gain denoted in “bracket”)	54,925 62	185,752 57
Loss on retirement of fixed assets (Gain denoted in
“bracket”)
Loss from scrapping in fair value (Gain denoted in
“bracket”)
Financial expenses (Gain denoted in “bracket”)	7,576,200 74	19,794,414 12
Investment loss (Gain denoted in “bracket”)	(127,802,268 55)	(141,512,781 42)
Decrease in deferred tax assets (Increase denoted in
“bracket”)
Increase in deferred tax liabilities (Decrease denoted in
“bracket”)
Decrease in inventory (Increase denoted in “bracket”)	(117,023,469 68)	64,218,677 76
Decrease in operating receivable (Gain denoted in “bracket”)	(2,422,836,491 42)	(410,691,937 07)
Increase in operating payable (Decrease denoted in
“bracket”)	2,864,883,692 35	(42,111,702 22)
Others
Net cash flows from operating activities	616,612,653 78	(197,584,873 08)
2. significant investing and financing activities not
involving cash receipts and payment:
Liabilities converted into equity
Convertible company debentures due within one year
Fixed assets under finance leases
3. net movement in cash and cash equivalents:
Cash at the end of the period	342,912,430 57	98,869,779 84
Less: Cash at the beginning of the period	98,869,779 84	163,407,687 61
Add: Cash equivalents at the end of the period
Less: Cash equivalents at the beginning of the period
Net increase in cash and cash equivalents	244,042,650 73	(64,537,907 77)

186

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

13. suPPlEMEntary InForMatIon

summary of non-recurring profit or loss
	amount for	amount for
Item	current period	previous period
Losses and profits from disposal of non-current assets	97,537,681 25	16,528,938 47
Tax return or exemption without proper authorizationl
Government grants recognized in the profits or losses
(excluding those government grants that are closely
related to the Company’s business and are received with
fixed amounts or with fixed percentage based on unified standards promulgated by government)	23,057,674 18	21,704,167 78
Interests received from entities other than financial
institutions recognized in profits or losses
Gain arising from the difference between investment cost
on subsidiaries associates and jointly controlled entities
and the fair value of the net assets attributable to the
Company
Gain or loss arising from non-monetary assets exchange
Gain or loss arising from entrusted investment or entrusted
asset management
Asset impairment provided in current year due to forced majeure (e g natural disasters)
Gain or loss arising from debt restructuring Corporate restructuring costs (e g staff replacement costs
and costs during the course of integration)
Gain or loss arising from the difference between the fair
value and transaction price in obviously unfair transactions
Net profit of subsidiaries acquired under common control
from beginning of year to the merger date
Gain or loss arising from contingencies irrelevant to the
Company’s normal business
Gain or loss from changes in fair values of financial assets
and liabilities held-for-trading except for hedging contracts
and disposal of financial assets and liabilities held-for-
trading and available-for-sale financial assets
Reversal of provision for bad-debts of trade receivable
subject to separate provision
Gain or loss arising from entrusted loan granted to other
entities
Gain or loss arising from changes in fair value of investment
properties under the fair value model
One-off adjustments to profit or loss as required by taxation
and accounting laws and regulations
Consignment fee income arising from entrusted operations
Other non-operating income and expense other than the aforementioned items	3,348,427 38	(3,467,732 46)
Other profit or loss items meeting the definition of non-
recurring profit or loss Total non-recurring profit or loss Less: Effect of non-recurring profit or loss after taxation Net non-recurring profit or loss	123,943,782 81 2,187,048 64 121,756,734 17	34,765,373 79 1,948,610 72 32,816,763 07
Less: Net effect of non-recurring profit or loss attributable to minority interests (after tax)	1,172,837 99	2,174,928 56
Non-recurring profit or loss attributable to ordinary shareholders of the Company	120,583,896 18	30,641,834 51

187

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

13. suPPlEMEntary InForMatIon (continued)

2. return on net asset and earnings per share:

2012

Profit for the reporting period Weighted average of return on net assets (%) Net profit attributable to ordinary shareholders of the Company 61 95 Net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss 51 54	Earnings per share basic earnings per share Diluted earnings per share 0 5301 0 5301 0 4410 0 4410

2011

Profit for the reporting period Weighted average of return on net assets (%) Net profit attributable to ordinary shareholders of the Company 33 72 Net profit attributable to ordinary shareholders of the Company after deducting non-recurring gain or loss 29 17	Earnings per share basic earnings per share Diluted earnings per share 0 1677 0 1677 0 1450 0 1450

3. reasons for exceptional items in financial statements

	Closing balance
	(or amount	opening balance
	for the	(or amount
statement Item	current year)	for last year)	% Change	reasons for change
Notes receivable	1,558,766,192 61	502,919,307 39	209 94%	Mainly due to the
				Company’s enhanced
				management of payment
				collection, improvement
				in the Company’s
				capital position, and
				decrease in endorsement
				and discounting of
				the Company’s notes
				receivable due to maturity
				mismatch of notes
				receivable and accounts
				payable in the Reporting
				Period
Short-term borrowings	30,309,453 94	1,004,998,894 20	(96 98%)	Mainly due to improvement
				in the Company’s
				capital position and
				the adjustment in the
				financing structure during
Notes payable	1,432,852,210 08	612,667,073 33	133 87%	the Reporting Period Mainly due to promotion of
				electronic bill payment
				during the Reporting
				Period

188

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

13. suPPlEMEntary InForMatIon (continued)

3. reasons for exceptional items in financial statements (continued)

	Closing balance
	(or amount	opening balance
	for the	(or amount
statement Item	current year)	for last year)	% Change	reasons for change
Taxes payable	(48,994,818 36)	(90,090,833 72)	(45 62%)	Mainly due to decrease in
				the Company’s value-
				added tax credits at the
				end of the Reporting
				Period
Other payables	1,581,294,492 81	1,156,195,947 88	36 77%	Mainly due to increase
				in expenses and funds
				payable by the Company
				during the Reporting
				Period
Other non-current	56,872,390 49	40,977,575 97	38 79%	Mainly due to increase in
liabilities				assets-related government
				grants received by the
				Company during the Reporting Period The
				related assets were
				amortized in their
				expected useful life
Difference on translation	10,539,505 90	26,106,945 84	(59 63%)	Mainly due to deregistration
of foreign currency				of overseas subsidiary of
financial statements				the Company during the
Business taxes and	105,218,703 08	63,151,069 49	66 61%	Reporting Period Mainly due to increase in
surcharges				turnover taxes paid by
				the Company, leading to
				corresponding increase
				in taxes and surcharges
				paid during the Reporting
				Period
Finance expenses	38,999,591 86	56,004,041 79	(30 36%)	Mainly due to decrease
				in borrowings of the
				Company, leading to
				decrease in interest
				expenses during the
Impairment losses on	40,896,674 83	24,876,652 11	64 40%	Reporting Period Mainly due to
assets				impairment tests on
				assets and provision
				of corresponding
				impairment by the
				Company during the
Investment income	335,254,433 67	138,560,585 23	141 96%	Reporting Period Mainly due to increase
				in profit from Hisense
				Hitachi and gain on
				disposal of subsidiaries
Non-operating income	64,651,884 85	158,721,726 61	(59 27%)	Mainly due to decrease
				in benefiting people
				subsidies
Net cash from disposal	69,034,178 70	8,650,000 00	698 08%	Mainly due to disposal of
of subsidiaries and				Xi’an Kelon during the
other business units				Reporting Period

189

notes to the Financial statements

(Unless otherwise expressly stated, the following amounts are denominated in RMB)

13. suPPlEMEntary InForMatIon (continued)

4. Five-years summary

					Unit: RMB’0000
statement
item	2012	2011	2010	2009	2008
Total	1,895,891 53	1,848,866 32	1,769,032 36	1,297,159 17	1,286,492 34
operating
revenue
Total profit	74,285 40	24,669 96	62,770 86	19,631 55	(22,865 39)
Income tax	1,054 84	2,125 04	3,158 83	2,329 22	(221 38)
Net profit	73,230 56	22,544 92	59,612 03	17,302 34	(22,644 01)
Net profit
attributable
to equity
holders of the
Company	71,776 47	22,701 51	58,527 77	15,644 95	(23,331 20)
Minority
interests	1,454 09	(156 59)	1,084 26	1,657 39	687 19
Distribution of
dividends
Continued from	above table
statement	31 December	31 December	31 December	31 December	31 December
item	2012	2011	2010	2009	2008
Total assets	920,033 46	763,543 96	801,896 89	612,836 59	584,242 45
Total	732,712 66	647,462 47	710,802 11	601,759 78	589,293 99
liabilities
Net assets	187,320 80	116,081 49	91,094 79	11,076 81	(5,051 54)
Total equity
attributable
to equity
holders
of the
Company	151,204 22	80,512 36	54,124 14	(26,674 83)	(41,622 71)
Minority
interests	36,116 58	35,569 13	36,970 65	37,751 63	36,571 17
Total equity	187,320 80	116,081 49	91,094 79	11,076 81	(5,051 54)

14. aPProval oF FInanCIal statEMEnts

The financial statements and the notes to financial statements of the Company in 2012 were approved for publication at the first meeting of the eighth session of the Board of the Company in 2013 .

190

AI assistant

Medlive Technology Co., Ltd. — Annual Report 2012

50436_rns_2013-04-23_41bf112b-be1b-474c-94e1-1e08e92d5a0f.pdf

Contents

Company Profile

MarCh

May

JunE

July

august

sEPtEMbEr

novEMbEr

DECEMbEr

I. InDustry ovErvIEW

II. analysIs oF thE CoMPany’s oPEratIon

overall situation

research and development of technology

refrigerator and freezer business

air-conditioner business

III. analysIs to PrInCIPal FInanCIals DurIng thE rEPortIng PErIoD

(I) Major accounting Data and Financial Indicators

(II) non-recurring profit and loss items and amounts

(III) analysis of Principal business

1. Income

Management Discussion and analysis

2. Costs

4. Cash Flow

5.

Research and development expenses

Management Discussion and analysis

(Iv) Description of Principal business segments

(v) analysis of assets and liabilities position

1. Significant changes in asset items

Management Discussion and analysis

2. Significant changes in liability items

(vI) assets and liabilities measured at fair value

(vII) Major subsidiaries and companies in which the Company has equity interest

(vIII) Core Competitiveness analysis

1. Technological advantages

2. Brand advantages

Iv. outlook

Corporate governance report

I. Corporate governance structure:

(a) shareholders’ general Meeting

rights of shareholders

Procedures for shareholders to requisition the convening of shareholders’ extraordinary general meeting or class meeting

Procedures by which enquiries may be made by shareholders

Procedures for putting forward proposals at shareholders’ general meeting

(b) the board of Directors

the attendance of the meetings of the seventh session of the board

the attendance of the meetings of the eighth session of the board

Independent non-Executive Directors

Dedicated committees of the board of directors

remuneration and appraisal Committee

nomination Committee

strategic Committee

audit Committee

(c) Supervisory Committee

II. Compliance with the CG Code

training of the Directors

Chairman and President

Internal Control

III. securities transactions by Directors

Iv. auditor

v. Company secretary

Directors:

supervisors:

senior Management Members:

PrInCIPal busInEssEs

FInal DIvIDEnD

rEsErvEs

DIstrIbutablE rEsErvEs

lIQuIDIty anD sourCEs oF FunDs

huMan rEsourCEs anD EMPloyEEs’ rEMunEratIon

EMPloyEEs’ traInIng anD rEMunEratIon PolICy

ChargE on thE grouP’s assEts

ProPErty, Plant anD EQuIPMEnt

PEnsIon sChEMEs

EXPosurE to EXChangE ratE FluCtuatIon anD any rElatED hEDgE

PublIC Float

Medlive Technology Co., Ltd. Annual Report 2012