Medlive Technology Co., Ltd. — Interim / Quarterly Report 2018

Sep 21, 2018

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lnterim Report 2018

The Board of Directors (the “Board”) of Hisense Kelon Electrical Holdings Company Limited (the “Company”) hereby announces the unaudited interim results of the Company and its subsidiaries (collectively referred to as the “Group”) for the six months ended 30 June 2018 (the “Reporting Period”) together with comparative figures for the corresponding period in 2017. This interim results announcement has been reviewed by the Company’s Audit Committee.

FINANCIAL INFORMATION PREPARED IN ACCORDANCE WITH CHINA ACCOUNTING STANDARDS FOR BUSINESS ENTERPRISES

(Unless otherwise specified, all amounts are denominated in RMB)

I. AUDITOR’S REPORT

Whether the interim report has already been audited or not

□ Yes √ No

The interim financial report of the Company has not been audited.

II. FINANCIAL STATEMENTS

The unit in the financial statements of the financial report is: RMB

1

~~1. CONSOLIDATED BALANCE SHEETS~~

Prepared by: Hisense Kelon Electrical Holdings Company Limited

	30 June 2018
			Unit: RMB
Item	Notes	Closing balance	Opening Balance
Current assets:
Cash at bank and on hand	VI.1	3,564,480,487.06	2,996,028,194.89
Balances with clearing companies
Financial assets at fair value through profit or loss
for the current period			82,670.52
Financial assets held-for-trading	VI.2	939.96
Derivative financial assets
Notes and accounts receivable	VI.3	7,897,819,444.91	6,350,259,386.45
Prepayments	VI.4	236,535,033.07	239,594,948.71
Insurance premium receivable
Receivables from reinsurers
Reserves for reinsurance contract receivable
Others receivables	VI.5	282,644,311.19	312,462,291.68
Financial assets purchased under agreements to resell
Inventories	VI.6	3,702,617,067.29	3,397,860,489.07
Contract assets
Assets held for sale
Non-current assets due within one year
Other current assets	VI.7	1,805,603,720.98	1,551,317,129.32
Total current assets		17,489,701,004.46	14,847,605,110.64
Non-current assets:
Disbursement of entrusted loans and advances
Financial assets available-for-sale			3,900,000.00
Other bond investments
Long-term receivables
Long-term equity investments	VI.8	2,750,603,129.03	2,372,045,624.57
Other equity instrument investments		3,900,000.00
Other non-current financial assets
Investment properties	VI.9	23,819,958.72	24,997,438.39
Fixed assets	VI.10	3,308,565,913.59	3,252,289,033.55
Construction in progress	VI.11	70,669,196.48	148,361,940.80
Productive biological assets
Oil and gas assets
Intangible assets	VI.12	710,549,950.90	716,335,386.22
Development costs
Goodwill
Long-term prepaid expenses	VI.13	7,974,301.95	3,727,675.38
Deferred tax assets	VI.14	111,176,470.09	104,404,613.17
Other non-current assets
Total non-current assets		6,987,258,920.76	6,626,061,712.08
Total assets		24,476,959,925.22	21,473,666,822.72

2

~~1. CONSOLIDATED BALANCE SHEETS —~~ ~~Continued~~

Prepared by: Hisense Kelon Electrical Holdings Company Limited

	30 June 2018
			Unit: RMB
Item	Notes	Closing balance	Opening Balance
Current liabilities:
Short-term borrowings	VI.15	200,000,000.00
Borrowings from central bank
Receipt of deposits and deposits from other banks
Financial liabilities at fair value through profit or loss
for the current period			373,723.35
Financial liabilities held-for-trading	VI.16	2,735,600.00
Derivative financial liabilities
Notes and accounts payable	VI.17	12,142,013,145.66	10,379,862,551.66
Advances from customers			791,262,245.11
Contract liabilities	VI.18	380,125,486.60
Proceeds from disposal of financial assets under
agreements to repurchase
Handling fees and commission payable
Employee remunerations payable	VI.19	295,365,483.44	323,419,615.39
Taxes payable	VI.20	254,202,385.67	265,563,541.86
Other payables	VI.21	2,689,623,794.48	1,709,226,096.76
Reinsured accounts payable
Reserves for reinsurance contract
Customer brokerage deposits
Securities underwriting brokerage deposits
Liabilities held for sale
Non-current liabilities due within one year
Other current liabilities	VI.22	922,359,059.39	639,347,580.40
Total current liabilities		16,886,424,955.24	14,109,055,354.53

3

~~1. CONSOLIDATED BALANCE SHEETS —~~ ~~Continued~~

Prepared by: Hisense Kelon Electrical Holdings Company Limited

	30 June 2018
			Unit: RMB
Item	Notes	Closing balance	Opening Balance
Non-current liabilities:
Long-term borrowings
Bonds payable
Including: Preference shares
Perpetual debts
Long-term payables
Long-term employee remunerations payable
Accrued Liabilities	VI.23	348,127,434.73	337,091,145.64
Deferred income	VI.25	73,276,553.27	73,013,121.41
Deferred tax liabilities	VI.14	1,126,697.40	1,137,179.22
Other non-current liabilities
Total non-current liabilities		422,530,685.40	411,241,446.27
Total liabilities		17,308,955,640.64	14,520,296,800.80
Shareholders’ equity:
Share capital	VI.26	1,362,725,370.00	1,362,725,370.00
Other equity instruments
Including: Preference shares
Perpetual debts
Capital reserves	VI.27	2,088,891,556.36	2,088,891,556.36
Less: treasury shares
Other comprehensive income	VI.28	7,334,789.26	7,370,127.86
Special reserves
Surplus reserves	VI.29	460,339,686.31	460,339,686.31
General risk provisions
Undistributed profit	VI.30	2,729,335,784.39	2,525,976,933.34
Total equity attributable to shareholders of the parent		6,648,627,186.32	6,445,303,673.87
Minority interests		519,377,098.26	508,066,348.05
Total shareholders’ equity		7,168,004,284.58	6,953,370,021.92
Total liabilities and shareholders’ equity		24,476,959,925.22	21,473,666,822.72

Legal representative: Tang Ye Guo

Chief financial officer: Gao Yu Ling

Accounting supervisor: Liang Hong Tao

4

~~2. BALANCE SHEETS OF PARENT COMPANY~~

			Unit: RMB
Item	Notes	Closing balance	Opening Balance
Current assets:
Cash at bank and on hand		316,349,844.91	42,091,702.34
Financial assets held-for-trading
Derivative financial assets
Notes and accounts receivable	XVI.1	9,921,659.23	9,632,170.78
Prepayments		19,592,920.34	24,180,185.94
Others receivables	XVI.2	1,217,935,617.81	1,235,500,456.32
Inventories		2,985.38	66,179.44
Contract assets
Assets held for sale
Non-current assets due within one year
Other current assets		661,321,727.78	811,863,956.36
Total current assets		2,225,124,755.45	2,123,334,651.18
Non-current assets:
Financial assets available-for-sale			3,900,000.00
Other bond investments
Long-term receivables
Long-term equity investments	XVI.3	5,203,962,436.72	4,824,775,461.60
Other equity instrument investments		3,900,000.00
Other non-current financial assets
Investment properties		7,604,906.00	8,297,036.00
Fixed assets		26,831,490.23	30,816,121.41
Construction in progress
Productive biological assets
Oil and gas assets
Intangible assets		181,788,857.00	183,205,022.00
Development costs
Goodwill
Long-term prepaid expenses
Deferred tax assets
Other non-current assets
Total non-current assets		5,424,087,689.95	5,050,993,641.01
Total assets		7,649,212,445.40	7,174,328,292.19

5

~~2. BALANCE SHEETS OF PARENT COMPANY —~~ ~~Continued~~

			Unit: RMB
Item	Notes	Closing balance	Opening Balance
Current liabilities:
Short-term borrowings
Financial liabilities held-for-trading
Derivative financial liabilities
Notes and accounts payable		390,209,397.83	281,776,799.72
Advances from customers			8,915,630.84
Contract liabilities		66,344,809.32
Employee remunerations payable		1,317,465.99	2,512,848.08
Taxes payable		3,237,608.82	11,049,746.83
Other payables		1,195,937,290.01	693,422,000.94
Liabilities held for sale
Non-current liabilities due within one year
Other current liabilities		24,346,575.84	21,322,070.67
Total current liabilities		1,681,393,147.81	1,018,999,097.08
Non-current liabilities:
Long-term borrowings
Bonds payable
Including: Preference shares
Perpetual debts
Long-term payables
Long-term employee remunerations payable
Accrued Liabilities		162,033,419.57	155,053,623.08
Deferred income		28,492,807.43	28,995,438.83
Deferred tax liabilities
Other non-current liabilities
Total non-current liabilities		190,526,227.00	184,049,061.91
Total liabilities		1,871,919,374.81	1,203,048,158.99
Shareholders’ equity:
Share capital		1,362,725,370.00	1,362,725,370.00
Other equity instruments
Including: Preference shares
Perpetual debts
Capital reserves		2,273,807,969.86	2,273,807,969.86
Less: treasury shares
Other comprehensive income		136,340.26
Special reserves
Surplus reserves		429,731,061.32	429,731,061.32
General risk provisions
Undistributed profit		1,710,892,329.15	1,905,015,732.02
Total shareholders’ equity		5,777,293,070.59	5,971,280,133.20
Total liabilities and shareholders’ equity		7,649,212,445.40	7,174,328,292.19

Legal representative: Tang Ye Guo

Chief financial officer: Gao Yu Ling

Accounting supervisor: Liang Hong Tao

6

~~3. CONSOLIDATED INCOME STATEMENT~~

				Unit: RMB
			Amount for	Amount for
Item		Notes	current period	previous period
I. Total operating revenue			20,370,759,289.58	17,606,357,421.41
Including: Operating revenue		VI.31	20,370,759,289.58	17,606,357,421.41
Interest income
Insurance premium earned
Income from handling fees and commission
II. Total operating costs			19,971,447,150.13	17,262,230,654.38
Including: Operating costs		VI.31	16,624,633,310.44	14,347,700,763.30
Interest expenses
Handling fees and commission expenses
Refunded premiums
Net amount of compensation payout
Net amount of insurance contract reserves provided
Policyholder dividend expenses
Reinsurance premium expenses
Taxes and surcharges		VI.32	161,071,308.45	135,074,666.02
Selling expenses		VI.33	2,643,873,486.50	2,267,388,760.01
General and administrative expenses		VI.34	214,080,347.92	220,996,266.44
Research and development expenses			319,451,060.26	287,291,959.34
Financial expenses		VI.35	13,267,112.63	4,669,098.25
Including: Interest expenses			2,472,249.99
Interest income			15,885,956.22	10,404,401.67
Impairment losses on assets		VI.36	-3,507,882.40	-890,858.98
Credit impairment loss			-1,421,593.67
Add: Other income		VI.37	90,355,764.85	53,818,935.07
Investment income (Loss denoted by “–”)		VI.38	418,752,839.98	366,251,715.27
Including: Share of profit of associates and jointly	controlled entities		380,821,164.20	331,090,333.07
Foreign exchange gains (Loss denoted by “–”)
Gain net exposure to hedging (Loss denoted by “–”)
Gains from changes in fair value (Loss denoted by “–”)		VI.39	-2,443,607.21	-14,766,266.84
Gains on disposal of assets (Loss denoted by “–”)		VI.40	471,937.85	5,509,206.20
III. Operating profits (loss denoted by “–”)			906,449,074.92	754,940,356.73
Add: Non-operating income		VI.41	47,013,064.01	74,790,830.33
Less: Non-operating expenses		VI.42	11,896,255.36	6,370,885.89
IV. Total profit (total loss denoted by “–”)			941,565,883.57	823,360,301.17
Less: Income tax expenses		VI.43	111,675,938.47	117,992,544.82
V. Net profits (net loss denoted by “–”)			829,889,945.10	705,367,756.35
(I) Classified on a going concern basis
1. Net profit from continuing operations (net loss denoted by “-”)			829,889,945.10	705,367,756.35
2. Net profit from discontinued operations (net loss denoted by “-”)
(II) Classified by ownership of equity
1. Profit and loss of minority interests (net loss denoted by “-”)			26,931,931.25	33,268,897.05
2. Net profit attributable to owners of the parent (net loss denoted by “-”)			802,958,013.85	672,098,859.30
VI. Other comprehensive income after tax, net			-35,338.60	-1,378,647.48
Other comprehensive income after tax attributable to
shareholders of the parent, net			-35,338.60	-1,378,647.48
(I) Items not to be reclassified into profit or loss
1. Changes arising from remeasurement of defined benefit plans
2. Other comprehensive income not to be reclassified into profit
or loss under the equity method
3. Change in fair value of other equity instrument	investments
4. Changes in fair value of enterprise’s own credit risk
(II) Items to be reclassified into profit or loss			-35,338.60	-1,378,647.48
1. Other comprehensive income to be reclassified into profit
or loss under the equity method			136,340.26
2. Change in fair value of other debt investments
3. Financial assets reclassified into other comprehensive income
4. Credit impairment provision for other debt instruments
5. Reserve for cash flow hedging
6. Differences on translation of foreign currency financial statements			-171,678.86	-1,378,647.48
7. Others
Other comprehensive income after tax attributable to
minority interests, net
VII. Total comprehensive income			829,854,606.50	703,989,108.87
Total comprehensive income attributable to shareholders of the parent			802,922,675.25	670,720,211.82
Total comprehensive income attributable to minority interests			26,931,931.25	33,268,897.05
VIII. Earnings per share:
(I) Basic earnings per share		VI.44	0.59	0.49
(II) Diluted earnings per share		VI.44	0.59	0.49
Legal representative: Tang Ye Guo	Chief financial officer:	Gao Yu Ling	Accounting supervisor:	Liang Hong Tao

7

~~4. INCOME STATEMENT OF PARENT COMPANY~~

			Unit: RMB
		Amount for	Amount for
Item	Notes	current period	previous period
I. Operating revenue	XVI.4	37,396,412.12	34,278,980.47
Less: Operating costs	XVI.4	32,349,596.88	34,093,751.94
Taxes and surcharges		3,075,516.45	790,726.62
Selling expenses		30,060,673.31	16,268,889.61
General and administrative expenses		12,595,711.44	12,743,633.09
Research and development expenses
Financial expenses		-5,238,553.34	14,538,006.88
Including: Interest expenses
Interest income		1,117,159.93	363,783.16
Impairment losses on assets			-3,626,222.07
Credit impairment loss		-820,101.17
Add: Other income		537,545.40	502,631.40
Investment income (Loss denoted by “–”)	XVI.5	442,496,172.56	414,150,493.24
Including: Share of profit of associates and jointly controlled entities		381,450,634.86	331,090,333.07
Gain net exposure to hedging (Loss denoted by “–”)
Gains from changes in fair value (Loss denoted by “–”)
Gains on disposal of assets (Loss denoted by “–”)
II. Operating profits (Loss denoted by “–”)		408,407,286.51	374,123,319.04
Add: Non-operating income		203,223.91	16,954,076.44
Less: Non-operating expenses		3,134,750.49	-75,208.06
III. Total profit (Total loss denoted by “–”)		405,475,759.93	391,152,603.54
Less: Income tax expenses
IV. Net profits (Net loss denoted by “–”)		405,475,759.93	391,152,603.54
(I) Net profit from continuing operations (net loss denoted by “-”)		405,475,759.93	391,152,603.54
(II) Net profit from discontinued operations (net loss denoted by “-”)
V. Other comprehensive income after tax, net		136,340.26
(I) Items not to be reclassified into profit or loss
1. Changes arising from remeasurement of defined benefit plans
2. Other comprehensive income not to be reclassified into profit
or loss under the equity method
3. Change in fair value of other equity instrument investments
4. Changes in fair value of enterprise’s own credit risk
(II) Items to be reclassified into profit or loss		136,340.26
1. Other comprehensive income to be reclassified into profit
or loss under the equity method		136,340.26
2. Change in fair value of other debt investments
3. Financial assets reclassified into other comprehensive income
4. Credit impairment provision for other debt instruments
5. Reserve for cash flow hedging
6. Differences on translation of foreign currency
financial statements
7. Others
VI. Total comprehensive income		405,612,100.19	391,152,603.54
VII. Earnings per share:
(1) Basic earnings per share
(2) Diluted earnings per share

Legal representative: Tang Ye Guo

Chief financial officer: Gao Yu Ling

Accounting supervisor: Liang Hong Tao

8

~~5. CONSOLIDATED CASH FLOW STATEMENT~~

~~5.~~ ~~CONSOLIDATED CASH FLOW STATEMENT~~
			Unit: RMB
		Amount for	Amount for
Item	Notes	current period	previous period
I. Cash flows from operating activities:
Cash received from sales of goods and rendering of services		13,292,660,158.09	12,156,017,540.22
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 and investments from policyholders
Net increase from disposal of financial assets at fair value
through profit or loss
Cash received from interests, fees and commissions
Net increase in capital borrowed
Net increase in repurchase business capital
Tax rebates received		695,000,022.44	591,629,782.01
Other cash received concerning operating activities	VI.46	380,981,372.84	282,834,325.81
Subtotal of cash inflows from operating activities		14,368,641,553.37	13,030,481,648.04
Cash paid for purchases of commodities and receipt of services		9,514,548,526.13	8,187,278,779.82
Net increase in loans and advances to customers
Net increase in deposits with central bank and other banks
Cash paid for compensation under original insurance contract
Cash paid for interests, fees and commissions
Cash paid for policyholders’ dividend
Cash paid to and for employees		1,678,076,600.33	1,510,659,976.41
Cash paid for taxes and surcharges		673,202,913.76	563,260,302.62
Cash paid for other operating activities	VI.46	1,865,865,857.24	2,169,134,464.20
Subtotal of cash outflows from operating activities		13,731,693,897.46	12,430,333,523.05
Net cash flows from operating activities	VI.47	636,947,655.91	600,148,124.99
II. Cash flows from investing activities:
Cash received from recovery of investments		2,400,000.00
Cash received from investment income		38,203,135.88	31,459,934.06
Net cash received from disposals of fixed assets,
intangible assets and other long-term assets		583,149.66	1,110,463.69
Net cash received from disposals of subsidiaries and
other operation units
Cash received relating to other investing activities	VI.46	1,580,000,000.00	2,800,000,000.00
Subtotal of cash inflows from investing activities		1,621,186,285.54	2,832,570,397.75
Cash paid for acquisition of fixed assets, intangible assets
and other long-term assets		145,808,725.00	197,559,248.87
Cash paid for investments			240,000,000.00
Net increase in pledge loans
Cash paid for acquiring subsidiaries and other operation units
Cash paid relating to other investing activities	VI.46	1,730,000,000.00	1,500,000,000.00
Subtotal of cash outflows from investing activities		1,875,808,725.00	1,937,559,248.87
Net cash flows from investing activities		-254,622,439.46	895,011,148.88

9

~~5. CONSOLIDATED CASH FLOW STATEMENT —~~ ~~Continued~~

			Unit: RMB
		Amount for	Amount for
Item	Notes	current period	previous period
III. Cash flows from financing activities:
Cash received from capital contribution			13,791,096.00
Including: Cash contribution to subsidiaries from minority
shareholders’ investment			13,791,096.00
Cash received from borrowings		200,000,000.00
Cash received from issuance of bonds
Cash received relating to other financing activities
Subtotal of cash inflows from financing activities		200,000,000.00	13,791,096.00
Cash paid for repayment of borrowings
Cash paid for distribution of dividends, profit or payment
of interest expenses		12,833,922.68	13,043,592.32
Including: Dividend and profit paid to minority shareholders
by subsidiaries
Cash paid relating to other financing activities	VI.46	365,328,088.72	1,016,209,836.70
Subtotal of cash outflows from financing activities		378,162,011.40	1,029,253,429.02
Net cash flows from financing activities		-178,162,011.40	-1,015,462,333.02
IV. Effects of foreign exchange rate changes on cash and
cash equivalents		-1,039,001.59	-1,175,966.03
V. Net increase in cash and cash equivalents		203,124,203.46	478,520,974.82
Add: Balance of cash and cash equivalents at the beginning
of the period		952,318,970.66	794,984,893.88
VI. Balance of cash and cash equivalents at the end of the period		1,155,443,174.12	1,273,505,868.70

Legal representative: Tang Ye Guo

Chief financial officer: Gao Yu Ling

Accounting supervisor: Liang Hong Tao

10

~~6. CASH FLOW STATEMENT OF PARENT COMPANY~~

~~6.~~ ~~CASH FLOW STATEMENT OF PARENT COMPANY~~
			Unit: RMB
		Amount for	Amount for
Item	Notes	current period	previous period
I. Cash flows from operating activities:
Cash received from sales of goods and rendering of services		248,365,385.03	124,325,203.86
Tax rebates received
Cash received concerning other operating activities		145,421,628.03	286,438,389.17
Subtotal of cash inflows from operation activities		393,787,013.06	410,763,593.03
Cash paid for purchases of commodities and receipt of
labor services
Cash paid to and for employees		30,531,159.10	31,907,812.22
Cash paid for taxes and surcharges		16,555,620.65	5,678,433.05
Cash paid for other operating activities		277,681,415.82	171,446,569.66
Subtotal of cash outflow from operating activities		324,768,195.57	209,032,814.93
Net cash flows from operating activities		69,018,817.49	201,730,778.10
II. Cash flow from investing activities:
Cash received from recovery of investments
Cash received from investment income		55,330,941.70	39,023,369.40
Net cash received from disposals of fixed assets,
intangible assets and other long-term assets
Net cash received from disposals of subsidiaries and
other operation units
Cash received relating to other investing activities		1,200,000,000.00
Subtotal of cash inflows from investing activities		1,255,330,941.70	39,023,369.40
Cash paid for acquisition of fixed assets, intangible assets
and other long-term assets		91,616.75	145,771.00
Cash paid for investments			240,000,000.00
Net cash paid for acquisition of subsidiaries and other
operation units
Cash paid relating to other investing activities		1,050,000,000.00
Subtotal of cash outflows from investing activities		1,050,091,616.75	240,145,771.00
Net cash flows from investing activities		205,239,324.95	-201,122,401.60
III. Cash flows from financing activities:
Cash received from capital contribution
Cash received from borrowings
Cash received from issuance of bonds
Cash received relating to other financing activities			50,000.00
Subtotal of cash inflows from financing activities			50,000.00
Cash paid for repayment of borrowings
Cash paid for distribution of dividends, profit or payment
of interest expenses
Cash paid relating to other financing activities
Subtotal of cash outflows from financing activities			50,000.00
Net cash flows from financing activities
IV. Effects of foreign exchange rate changes on cash and
cash equivalents
V. Net increase in cash and cash equivalents		274,258,142.44	658,376.50
Add: Balance of cash and cash equivalents at the beginning
of the period		42,041,702.34	91,482,499.69
VI . Balance of cash and cash equivalents at the end of the period		316,299,844.78	92,140,876.19

Accounting supervisor: Liang Hong Tao

Legal representative: Tang Ye Guo Chief financial officer: Gao Yu Ling

11

~~7. CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY~~

Amount for current period

Unit: RMB

Amount for current period	t period	Unit: RMB
Item Share capital I. Closing balance of previous year 1,362,725,370.00 Add: Changes in accounting policies Correction for error in previous period Business combination involving entities under common control Others II. Opening balance for the year 1,362,725,370.00 III. Movements in the current period (Decreases denoted in “–”) (1) Total comprehensive income (2) Shareholders’ contributions and capital reductions 1. Ordinary shares contributed by owners 2. Capital contributions by holders of other equity instruments 3. Amount of sharebased payment included in shareholders’ equity 4. Others (3) Profit Distribution 1. Appropriations to surplus reserve 2. Appropriations to general risk provisions 3. Distribution to shareholders 4. Others (4) Transfer of shareholders’ 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. Retained earnings transferred from the changes in defined benefit plan 5. Retained earnings transferred from the changes in other comprehensive income 6. Others (5) Special reserves 1. Provided during the period 2. Used during the period (6) Others IV. Closing balance for the period 1,362,725,370.00		Current period
		Attributable to shareholders of the parent Other equity instruments Less: Treasury shares Other comprehensive income General risk provisions Total shareholders’ equity Preference shares Perpetual debts Others Capital reserve Special reserves Surplus reserves Undistributed profits Minority interests 2,088,891,556.36 7,370,127.86 460,339,686.31 2,525,976,933.34 508,066,348.05 6,953,370,021.92 2,088,891,556.36 7,370,127.86 460,339,686.31 2,525,976,933.34 508,066,348.05 6,953,370,021.92 -35,338.60 203,358,851.05 11,310,750.21 214,634,262.66 -35,338.60 802,958,013.85 26,931,931.25 829,854,606.50 -599,599,162.80 -15,621,181.04 -615,220,343.84 -599,599,162.80 -15,621,181.04 -615,220,343.84 2,088,891,556.36 7,334,789.26 460,339,686.31 2,729,335,784.39 519,377,098.26 7,168,004,284.58

Legal representative: Tang Ye Guo

Accounting supervisor: Liang Hong Tao

Chief financial officer: Gao Yu Ling

12

~~7. CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY —~~ ~~Continued~~

Amount for previous year

Unit: RMB

Amount for previous year	us year	Unit: RMB
Item Share capital I. Closing balance for previous year 1,362,725,370.00 Add: Changes in accounting policies Correction for error in previous period Business combination involving entities under common control Others II . Opening balance for the year 1,362,725,370.00 III. Movements in the current period (Decreases denoted in “–”) (1) Total comprehensive income (2) Shareholders’ contributions and capital reductions 1. Ordinary shares contributed by shareholders 2. Capital contributions by holders of other equity instruments 3. Amount of sharebased payment included in owners’ equity 4. Others (3) Profit Distribution 1. Appropriations to surplus reserve 2. Appropriations to general risk provisions 3. Distribution to shareholders 4. Others (4) Transfer of shareholders’ 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. Retained earnings transferred from the changes in defined benefit plan 5. Retained earnings transferred from the changes in other comprehensive income 6. Others (5) Special reserves 1. Provided during the period 2. Used during the period (6) Others IV. Closing balance for the period 1,362,725,370.00		Previous period
		Other equity instruments Less: Treasury shares Other comprehensive income Total shareholders’ equity Preference shares Perpetual debts Others Capital reserve Special reserves Surplus reserves General risk provisions Undistributed profits Minority interests 2,092,861,943.89 14,274,706.17 313,689,564.15 1,083,914,592.96 455,993,877.28 5,323,460,054.45 2,092,861,943.89 14,274,706.17 313,689,564.15 1,083,914,592.96 455,993,877.28 5,323,460,054.45 -3,970,387.53 -6,904,578.31 146,650,122.16 1,442,062,340.38 52,072,470.77 1,629,909,967.47 -6,904,578.31 1,997,530,073.54 53,893,226.65 2,044,518,721.88 -2,505.05 13,793,709.05 13,791,204.00 13,791,204.00 13,791,204.00 -2,505.05 2,505.05 146,650,122.16 -555,467,733.16 -15,614,464.93 -424,432,075.93 146,650,122.16 -146,650,122.16 -408,817,611.00 -15,614,464.93 -424,432,075.93 -3,967,882.48 -3,967,882.48 2,088,891,556.36 7,370,127.86 460,339,686.31 2,525,976,933.34 508,066,348.05 6,953,370,021.92

Accounting supervisor: Liang Hong Tao

Legal representative: Tang Ye Guo

Chief financial officer: Gao Yu Ling

13

~~8. STATEMENT OF CHANGES IN OWNERS’ EQUITY OF THE PARENT COMPANY~~

Amount for current period

Unit: RMB

		Unit: RMB
Item I. Closing balance of previous year Add: Changes in accounting policies Correction for error in previous period Others II. Opening balance for the year III. Movements in the current period (Decreases denoted in “–”) (1) Total comprehensive income (2) Shareholders’ contributions and capital reductions 1. Ordinary shares contributed by shareholders 2. Capital contributions by holders of other equity instruments 3. Amount of share-based payment included in shareholders’ equity 4. Others (3) Profit Distribution 1. Appropriations to surplus reserve 2. Appropriations to general risk provisions 3. Distribution to shareholders 4. Others (4) Transfer of shareholders’ 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. Retained earnings transferred from the changes in defined benefit plan 5. Retained earnings transferred from the changes in other comprehensive income 6. Others (5) Special reserves 1. Provided during the period 2. Used during the period (6) Others IV. Closing balance for the period		Current period
	Share capital 1,362,725,370.00 1,362,725,370.00 1,362,725,370.00	Other equity instruments Preference shares Perpetual debts Others Capital reserve Less: Treasury shares Other comprehensive income Special reserves Surplus reserves General risk provisions Undistributed profits Total shareholders’ equity 2,273,807,969.86 429,731,061.32 1,905,015,732.02 5,971,280,133.20 2,273,807,969.86 429,731,061.32 1,905,015,732.02 5,971,280,133.20 136,340.26 -194,123,402.87 -193,987,062.61 136,340.26 405,475,759.93 405,612,100.19 -599,599,162.80 -599,599,162.80 -599,599,162.80 -599,599,162.80 2,273,807,969.86 136,340.26 429,731,061.32 1,710,892,329.15 5,777,293,070.59

Legal representative: Tang Ye Guo Chief financial officer: Gao Yu Ling

Accounting supervisor: Liang Hong Tao

14

~~8. STATEMENT OF CHANGES IN OWNERS’ EQUITY OF THE PARENT COMPANY —~~ ~~Continued~~

Amount for previous year

Unit: RMB

Amount for previous year	ous year	Unit: RMB
Item Share capital I. Closing balance for previous year 1,362,725,370.00 Add: Changes in accounting policies Correction for error in previous period Others II . Opening balance for the year 1,362,725,370.00 III. Movements in the current period (Decreases denoted in “–”) (1) Total comprehensive income (2) Shareholders’ contributions and capital reductions 1. Ordinary shares contributed by owners 2. Capital contributions by holders of other equity instruments 3. Amount of share-based payment included in shareholders’ equity 4. Others (3) Profit Distribution 1. Appropriations to surplus reserve 2. Appropriations to general risk provisions 3. Distribution to shareholders 4. Others (4) Transfer of shareholders’ 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. Retained earnings transferred from the changes in defined benefit plan 5. Retained earnings transferred from the changes in other comprehensive income 6. Others (5) Special reserves 1. Provided during the period 2. Used during the period (6) Others IV. Closing balance for the period 1,362,725,370.00		Previous period
		Other equity instruments Less: Treasury shares Other comprehensive income Special reserves Surplus reserves General risk provisions Undistributed profits Total shareholders’ equity Preference shares Perpetual debts Others Capital reserve 2,277,775,852.34 283,080,939.16 993,982,243.54 4,917,564,405.04 2,277,775,852.34 283,080,939.16 993,982,243.54 4,917,564,405.04 -3,967,882.48 146,650,122.16 911,033,488.48 1,053,715,728.16 1,466,501,221.64 1,466,501,221.64 146,650,122.16 -555,467,733.16 -408,817,611.00 146,650,122.16 -146,650,122.16 -408,817,611.00 -408,817,611.00 -3,967,882.48 -3,967,882.48 2,273,807,969.86 429,731,061.32 1,905,015,732.02 5,971,280,133.20

Accounting supervisor: Liang Hong Tao

Legal representative: Tang Ye Guo

Chief financial officer: Gao Yu Ling

15

HISENSE KELON ELECTRICAL HOLDINGS COMPANY LIMITED ~~NOTES TO THE FINANCIAL STATEMENTS~~

Half year of 2018

(Unless otherwise stated, all amounts are denominated in Renminbi)

I. COMPANY PROFILE

Hisense Kelon Electrical Holdings Company Limited (hereinafter referred to as the “Company”), formerly known as Guangdong Shunde Pearl River factory（廣東順德珠江冰箱廠）was 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 the 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 (Ronshen) Group Company Limited (hereinafter referred to as “Ronshen Group”, which previously held 34.06% interest in the Company) entered into a share transfer agreement and a supplemental agreement with Shunde Greencool Enterprise Development Company Limited (which 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 Ronshen Group. In April 2002, Ronshen 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, Ronshen 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 was 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 of the 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. 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”.

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.

In accordance with the resolutions of the fourth interim general meeting of the Company held on 31 August 2009, and as approved by China Securities Regulatory Commission with the “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 Air-Conditioning 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)” dated 23 March 2010, the Company was permitted to issue 362,048,187 ordinary shares (A shares) in Renminbi to Qingdao Hisense Air-conditioning (as a specific object), to fund 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 Air-Conditioning Systems Co., Ltd. (“Hisense Hitachi”), 55% equity interests in Hisense (Beijing) Electrical 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”).

16

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

I. 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 object was completed, and the Company issued 362,048,187 additional 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.

On 18 June 2013, 612,221,909 restricted A shares of the Company held by Qingdao Hisense Air Conditioning were no longer subject to selling moratorium and were listed for trading.

On 23 May 2014, upon the satisfaction of the conditions to the first exercise period of the First Share Option Incentive Scheme of the Company and after approval by and registration with the Shenzhen branch of China Government Securities Depository Trust & Clearing Co. Ltd., an additional of 4,440,810 new shares issued upon the exercise of options were approved for listing.

On 19 June 2015, upon the satisfaction of the conditions to the second exercise period of the First Share Option Incentive Scheme of the Company and after approval by and registration with the Shenzhen branch of China Government Securities Depository Trust & Clearing Co. Ltd., an additional of 4,229,810 new shares issued upon the exercise of options were approved for listing.

As at 30 June 2018, the total number of shares of the Company was 1,362,725,370 and the registered share capital of the Company was RMB1,362,725,370.00; of which, the shareholding of the Company held by Qingdao Hisense AirConditioning was 37.92%.

Scope of operations of the Company:

The Company and its subsidiaries are principally engaged in home appliances (such as refrigerators) development and manufacture, domestic and overseas sales of products, provision of after-sale services and transportation of own products.

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.

This financial statements was approved by the Board of the Company on 29 August 2018.

During the reporting period, there were a total of 37 subsidiaries consolidated into the Company, details of which are set out in note VIII “Interests in other entities”.

II. BASIS OF PREPARATION OF FINANCIAL STATEMENTS

The financial statements are prepared based on going-concern assumption and actual transactions and events according to the Accounting Standards for Business Enterprises — Basic Standard (the Ministry of Finance Order No. 33 Issue, the Ministry of Finance Order No. 76 Amendment) issued by the Ministry of Finance, and 42 specific accounting standards, application guidelines for Accounting Standards for Business Enterprises, explanation of Accounting Standards for Business Enterprises and other relevant regulations (hereinafter collectively referred to as “Accounting Standards For Business Enterprises”) issued and revised on February 15, 2006 or later, and the Information Disclosure Regulations for Companies Publicly Issuing Securities No. 15 — General Provisions for Financial Statements (Revised 2014) issued by China Securities Regulatory Commission.

According to the relevant provisions of Accounting Standards for Business Enterprises, the Company’s financial accounting is conducted on accrual basis. Except for certain financial instruments, the financial statements take the historical cost as the accounting basis. If an asset is impaired, the provision for impairment shall be accrued in accordance with the relevant provisions.

17

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

II. BASIS OF PREPARATION OF FINANCIAL STATEMENTS — Continued

As the Company is listed in both Mainland and Hong Kong stock exchange, save as the abovementioned relevant regulations, the financial statements shall also disclose such information as required by 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.

III. 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 reflect the financial state as at 30 June 2018 and the operating results, cash flows and other related information of the Company for the half year then ended. In addition, the financial statements also comply with the disclosure requirements as contained in the Information Disclosure Regulations for Companies Publicly Issuing Securities No. 15 — General Provisions for Financial Statements (Revised 2014) issued by China Securities Regulatory Commission relating to financial statements and notes thereto in all material respects.

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES

The Company and its subsidiaries are engaged in the production of household appliances. Based on actual production and management features, the Company and its subsidiaries formulated a number of specific accounting policies and accounting estimates for revenue recognition and other related transactions and matters in accordance with the relevant requirements of Accounting Standards for Business Enterprises. See this note IV.24 “Income” for details. For the explanation on significant accounting judgments and estimates made by the management, please refer to note IV.30 “Significant Accounting Judgments and Estimates”.

1. Accounting period

The Company’s accounting periods are divided into annual and interim periods. An interim period refers to a reporting period less than a full accounting year. The Company adopts a calendar year, being the period from 1 January to 31 December of each year, as its financial year.

2. Business cycle

A normal business cycle represents a period from purchase of assets used for production to realization of cash or cash equivalents by the Company. The Company adopts a 12-month period as its business cycle and the basis for liquidity classification between assets and liabilities.

3. Reporting currency

Renminbi (RMB) is the currency in the primary economic environment in which the Company and its domestic subsidiaries operate. The Company and its domestic subsidiaries adopt RMB as their reporting currencies. The overseas subsidiaries of the Company adopt the Hong Kong dollar, Euro or Japanese Yen as their respective reporting currencies depending on the currency in the primary economic environment where they operate. RMB is the functional currency adopted by the Company in preparing these financial statements.

4. Accounting treatment for business combinations involving entities under common and not under common control

A business combination refers to the transaction or matter in which one reporting subject formed due to the combination of two or above separate entities. A business combination can be classified as the combination under common control and not under common control.

18

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

1. Accounting treatment for business combinations involving entities under common and not under common control — Continued

(1) Business combination involving entities under common control

A business combination under common control is a business combination in which all of the combining entities are ultimately controlled by the same party or parties both before and after the combination, and that control is not transitory. For a business combination under common control, the party that obtains the control of the other parties on the combination date is the acquirer, and other parties involving in the business combination are the acquirees. The combination date is the date on which the acquirer effectively obtains the control of the acquirees.

Assets and liabilities that are obtained by the acquirer in a business combination shall be measured at their carrying amount at the combination date as recorded by the acquirees. The difference between the carrying amount of the net assets obtained and the carrying amount of the consideration paid by the acquirer for the combination (or the aggregate par value of the issued shares) shall be adjusted to share premium under capital reserve (or capital premium). If the share premium under capital reserve (or capital premium) is not sufficient to absorb the difference, any excess shall be adjusted against retained earnings.

Expenses that are directly attributable to the business combination by the acquirer are charged to the profit and loss for the period in which they are incurred.

(2) Business combination involving entities not under common control

A business combination not under common control is a business combination in which all of the combining entities are not ultimately controlled by the same party or parties both before and after the combination. For a business combination not under common control, the party that obtains the control of the other parties on the acquisition date is the acquirer; other parties involving in the business combination are the acquirees. The acquisition date is the date on which the acquirer effectively obtains control of the acquirees.

For a business combination not under common control, the cost of business combination is the fair value of assets paid, liabilities incurred or undertaken, and equity securities issued by the acquirer for obtaining the control of the acquirees at the acquisition date. Expenses that are attributable to the business combination such as audit fees, legal services fees, consultancy fees and other administration expenses incurred by the Company as acquirer are expensed in the profit or loss for the period in which they are incurred. Transaction fees of equity securities or debt securities issued by the acquirer as consideration for a business combination are included in the initially recognised amount of equity securities or debt securities. Contingent consideration involved is recorded as the combination cost at its fair value on the acquisition date. Should any new or further evidence in relation to the circumstances existing on the acquisition date arise within 12 months after the acquisition date, making it necessary to adjust the contingent consideration, the goodwill arising from the business combination shall be adjusted accordingly. The cost of combination incurred and identifiable net assets obtained by the acquirer in a business combination are measured at fair value on the acquisition date. Where the cost of the combination exceeds the acquirer’s interest in the fair value of the acquiree’s identifiable net assets on the acquisition date, the difference is recognised 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 on the acquisition date, the difference is recognised in profit or loss for the current year after a review of measurement for the fair value of identifiable assets, liabilities and contingent liabilities of the acquiree and the combination cost.

19

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

• Accounting treatment for business combinations involving entities under common and not under common control — Continued

(2) Business combination involving entities not under common control — Continued

In relation to the deductible temporary difference acquired from the acquiree, which was not recognised as deferred tax assets due to non-fulfillment of the recognition criteria at the date of the acquisition, if new or further information that is obtained within 12 months after the acquisition date indicates that related conditions at the acquisition date already existed, and that the realization of the economic benefits brought by the deductible temporary difference of the acquiree on the acquisition date can be expected, the relevant deferred tax assets shall be recognised and goodwill shall be deducted accordingly. When the amount of goodwill is less than the deferred tax assets that shall be recognised, the difference shall be recognised in the profit or loss for the period. Except for the above circumstances, deferred tax assets in relation to business combination are recognised in the profit or loss for the period.

For a business combination involving entities not under common control that is achieved in stages, the Company shall determine whether the business combination shall be treated as “a bundle of transactions” in accordance with the determination standards as contained in the “Circular on the Publishment of Interpretation 5 on Accounting Standards for Business Enterprises” issued by the Ministry of Finance (Cai Kuai [2012] No. 19) and Section 51 of “Accounting Standards for Business Enterprises 33 – Consolidated Financial Statements” (Refer to note IV.5(2)). Where the business combination is treated as “a bundle of transactions”, the business combination shall be accounted for in accordance with the previous paragraphs and note IV.12 “Long term equity investment”; where the business combination does not fall within “a bundle of transactions”, the business combination in the Company’s and the consolidated financial statements shall be accounted for as follows:

In the Company’s financial statements, the initial cost of the investment shall be the sum of the carrying amount of equity investment held in the acquiree prior to the acquisition date and the amount of additional investment made to the acquiree at the acquisition date. Other comprehensive income relating to the equity interest held in the acquiree prior to the acquisition date shall be, upon disposal of the investment, accounted for in accordance with the same basis as that the acquiree adopts in directly disposing of relevant assets or liabilities, that is, except for the acquirer’s interest in the changes arising from remeasurement of net assets or liabilities relating to the defined benefit plan of the acquiree that is accounted for in accordance with the equity method of accounting, the balance shall be transferred to investment income for the current period.

In the consolidated financial statements, the equity interest held in the acquiree prior to the acquisition date is re-measured according to its fair value at the acquisition date; the difference between the fair value and the carrying amount is recognised as investment income for the current period. Other comprehensive income relating to the equity interest held in the acquiree prior to the acquisition date shall be accounted for in accordance with the same basis as that the acquiree adopts in directly disposing of relevant assets or liabilities, that is, except for the acquirer’s interest in the changes arising from remeasurement of net assets or liabilities relating to the defined benefit plan of the acquiree that is accounted for in accordance with the equity method of accounting, the balance shall be transferred to investment income for the period within which the acquisition date falls.

20

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

• Preparation of consolidated financial statements

(1) Criteria for the recognition of scope of consolidation

The scope of consolidation shall be determined based on the concept of control. Control refers to the power over the investee, share of or entitlement to the risk exposure or rights of reward of variable returns, and the ability to affect the amount of such returns by using its power over the investee. The consolidated financial statements comprise the financial statements of the Company and all of its subsidiaries, which are defined as those entities controlled by the Company.

Once any change in the facts and circumstances arises which leads to a change in the elements involved in the definition of control, the Company will conduct an assessment.

(2) Preparation of consolidated financial statements

Subsidiaries are consolidated from the date on which the Company obtains their net assets and actual control over their operating decisions, and are deconsolidated from the date when such control ceases. For subsidiaries being disposed, the operating results and cash flows prior to the date of disposal are duly included in the consolidated income statement and consolidated cash flow statement; for subsidiaries disposed during the period, the opening balances of the consolidated balance sheet would not be restated. For subsidiaries acquired from a business combination not under common control, their operating results and cash flows subsequent to the acquisition date are included in the consolidated income statement and consolidated cash flow statement, and the opening balances and comparative figures in the consolidated financial statements would not be restated. For subsidiaries acquired from a business combination under common control, their operating results and cash flows from the date of commencement of the period in which the combination occurred to the date of combination are included in the consolidated income statement and consolidated cash flow statement, and the comparative figures in the consolidated financial statements would be restated.

In preparing the consolidated financial statements, where the accounting policies or the accounting periods are inconsistent between the Company and subsidiaries, the financial statements of subsidiaries are adjusted in accordance with the accounting policies and accounting period of the Company. For subsidiaries acquired from a business combination not under common control, their financial statements are adjusted based on the fair value of the identifiable net assets at the acquisition date.

All significant inter-group balances, transactions and unrealised profits are eliminated in preparing the consolidated financial statements.

The portion of a subsidiary’s equity and the portion of a subsidiary’s net profits and losses for the period not attributable to the Company are recognised as minority interests and profits and losses attributable to minority interests respectively, which are presented under shareholders’ equity and net profit separately, in the consolidated financial statement. A subsidiary’s net profit and loss for the period attributable to minority interests is recognised as share of profit or loss of minority interests under net profit in the consolidated income statement. When the amount of a subsidiary’s loss attributable to the minority shareholders exceeds the minority shareholders’ share of the opening balance of shareholders’ equity of the subsidiary, the excess is deducted from the minority interests.

21

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

• Preparation of consolidated financial statements — Continued

  • (2) Preparation of consolidated financial statements — Continued

When the control over a subsidiary is lost due to disposal of a portion of equity investment or otherwise, the remaining equity interest is re-measured at the fair value on the date when the control ceased. The difference between the sum of the consideration received from disposal of equity interest and the fair value of the remaining equity interest, and the net assets of the former subsidiary attributable to the Company since the acquisition date as calculated based on its original shareholding percentage in that subsidiary, is recognised as the investment income for the period when the loss of control occurred. Other comprehensive incomes in relation to the equity investment of the subsidiary shall be, upon the loss of control, accounted for in accordance with the same basis as that the acquiree adopts in directly disposing of relevant assets or liabilities, that is, except for the changes arising from remeasurement of net assets or liabilities relating to the defined benefit plan of that subsidiary, the balance shall be transferred to investment income for the current year. Subsequent measurement of the remaining equity interests shall be in accordance with relevant accounting standards such as “Accounting Standards for Business Enterprises 2 — Long-term Equity Investments” or “Accounting Standards for Business Enterprises 22 — Recognition and Measurement of Financial Instruments”, which are detailed in note IV.12 “Long term equity investment” or note IV.9 “Financial instrument”.

The Company shall determine whether a series of transactions in relation to disposal of equity investment in or even loss of control over a subsidiary in stages should be treated as a bundle of transactions. When the economic effects and terms and conditions of the transactions in relation to the disposal of equity investment met one or more of the following situations, the series of transactions shall normally be accounted for as a bundle of transactions: (i) these transactions are entered into simultaneously or after considering the mutual consequences of each individual transaction; (ii) these transactions need to be considered as a whole in order to achieve a deal in commercial sense; (iii) the occurrence of an individual transaction depends on the occurrence of one or more individual transaction(s) in the series; (iv) The result of an individual transaction is not economical, but it would be economical after taking into account the other transactions in the series. When the transactions are not treated as a bundle of transactions, each of the individual transactions shall be accounted for as the “portion disposal of long term equity investment in a subsidiary which would not lead to loss of control” (detailed in note IV.12(2) ④ “Disposal of long-term equity investment” or the “loss of control due to portion disposal of equity investment in a subsidiary or otherwise” (detailed in the previous paragraph), as the case may be. When the transactions in relation to disposal of equity investment in or even loss of control over a subsidiary are treated as a bundle of transactions, each of the transactions shall be accounted for as one transaction in relation to disposal of the subsidiary leading to loss of control; however, the difference between the consideration received from the disposal and the share of net assets of the subsidiary disposed in each individual transaction before loss of control shall be recognised as other comprehensive income in the consolidated financial statements, and reclassified as profit or loss for the period when control is lost.

22

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

1. Classification of joint arrangements and accounting treatment for joint operations

A joint arrangement refers to an arrangement over which two or more parties have joint control. In accordance with the Company’s rights and obligations under a joint arrangement, the Company classifies joint arrangements into joint operations and joint ventures. A joint operation refers to a joint arrangement under which the Company is entitled to the assets and assumes the obligations. A joint venture refers to a joint arrangement under which the Company is only entitled to net assets.

The investment in joint ventures is accounted for using the equity method in accordance with the accounting policies as set out in note IV.12(2)② “Long-term equity investment by using equity method”.

As a party to a joint operation, the Company recognise the assets held and obligations assumed solely by the Company, and the assets held and obligations assumed jointly by the Company in proportion to the share of the Company; recognise the revenue from sales of the share of outputs of the joint operation of the Company; recognise the share of revenue from sales of outputs by the joint operation of the Company; recognise the expenses solely incurred by Company; and recognise the expenses incurred by the joint operation in proportion to the share of the Company.

When the Company, as a party to a joint operation, invests in or disposes of an asset (not being a business, the same below) to or purchase an asset from the joint operation, the Company shall only recognise the portion of profit or loss arising from this transaction attributable to other parties to the joint operation before such disposal to any third party. Where an impairment loss of these assets that meets the requirements in “Accounting Standard for Business Enterprises 8 — Asset Impairment” arises, the Company shall recognise the loss in full in relation to the assets invested in or disposed of to the joint operation by the Company; and shall recognise the loss in proportion to the share of the Company in relation to the assets purchased from the joint operation by the Company.

1. Criteria for the recognition of cash and cash equivalents

Cash and cash equivalents of the Company include cash on hand, deposits readily available for payment, and highly liquid investments with a short maturity of generally within three months when acquired that are readily convertible into known amounts of cash and are subject to an insignificant risk of changes in value.

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

(1) Translation of foreign currency transactions

Foreign currency transactions are, on initial recognition, translated into the functional currency at the spot exchange rates prevailing at the dates of the transactions, i.e. the middle price of RMB exchange rate published by the People’s Bank of China on that date in general and the same below, except when the Company carries on a business of currency exchange or involves in currency exchange transactions, at the actual exchange rates which would be used.

23

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

• Foreign currency transactions and translation of financial statements in foreign currency — Continued

(2) Translation of monetary items and non-monetary items in foreign currencies

At the balance sheet date, monetary items denominated in foreign currency are translated into the functional currency using the spot exchange rate prevailing at the balance sheet date. The resulting exchange differences are recognised in profit or loss for the current period, except for (i) those attributable to foreign currency borrowings that have been taken out specifically for the acquisition, construction or production of qualifying assets, which are capitalised as part of the cost of those assets; (ii) exchange difference arising from changes in carrying amount of available for sale foreign-currency monetary items other than changes in amortized cost, which is recognised in other comprehensive income.

For the purpose of preparing consolidated financial statements involving foreign operations, the exchange differences arising from changes in exchange rates in relation to translation of foreign currency monetary items which effectively constitute a net investment in the foreign operation, are recognized in other comprehensive income, or upon disposal of the foreign operation, in the profit or loss for the period.

Non-monetary items denominated in foreign currency that are measured at historical cost are translated into the functional currency using the spot rates prevailing at the dates of the transactions. Non-monetary items denominated in foreign currency that are measured at fair value are translated into the functional currency using the spot rate prevailing on the date when fair value is determined and the resulting exchange differences will be recognised as fair value change (including a change of exchange rate) in profit or loss for the period or as other comprehensive income.

(3) Translation of financial statements in foreign currency

For the purpose of preparing consolidated financial statements involving foreign operations, the exchange differences arising from changes in exchange rates in relation to translation of foreign currency monetary items which effectively constitute a net investment in the foreign operation, are recognised as “exchange difference on translation of financial statements in foreign currency” in other comprehensive income, or upon disposal of the foreign operation, in the profit or loss for the period.

The following displays the methods for translating financial statements in foreign currency of foreign operations into the statements in RMB: The asset and liability items in the balance sheets are translated at the spot exchange rates on the balance sheet date. Under the shareholders’ equity, the items other than “undistributed profits” are translated at the spot exchange rates at the transaction dates. The income and expense items in the income statements are translated at the spot average exchange rates at the transaction dates. Opening balance of undistributed profits is equal to the closing balance of undistributed profits after translation in the previous year; closing balance of undistributed profit is measured and presented based on the items in profit distribution after translation. The exchange difference arising from translation of the sum of assets, liabilities and equity items is recognised as the difference on translation of financial statements in foreign currency in other comprehensive income. Such exchange difference in relation to the foreign operation as shown under shareholders’ equity in the balance sheet is recognised in the profit or loss for the period in full or on a pro rata basis upon disposal of the foreign operation leading to a loss of control.

24

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

• Foreign currency transactions and translation of financial statements in foreign currency — Continued

(3) Translation of financial statements in foreign currency — Continued

The cash flows in foreign currency and of overseas operations are translated at the spot exchange rates on the dates of the cash flows or the spot average exchange rates approximate thereto. The effect of exchange rate changes on cash is presented separately as an adjustment item in the cash flow statement.

The opening balance and the prior year’s figures are presented as the balances after translation of the financial statements in the previous year.

On disposal of the entire owners’ equity held in a foreign operation by the Company, or upon a loss of control over a foreign operation due to partial disposal of equity investment or other reasons, the exchange differences arising on translation of the financial statements in foreign currency in relation to that foreign operation, which are attributable to owners’ equity of parent company as shown under shareholders’ equity in the balance sheet, are recognised in the profit or loss in the period in which the disposal took place.

In case of partial disposal of equity investment or other reason resulting in reduction in shareholding in a foreign operation without losing control over it, the exchange differences arising from the translation of financial statements in foreign currency in relation to the assets disposed will be attributable to minority interests and will not recognised in profit or loss for the period. For partial disposals of equity interests in foreign operations which are associates or joint ventures, the exchange differences arising from the translation of financial statements in foreign currency of the foreign operation is reclassified to profit or loss for the period in which the disposal took place on a pro rata basis.

9. Financial instruments

The Group recognizes a financial asset or a financial liability when it becomes a party to the contractual provisions of a financial instrument. Financial assets and financial liabilities are measured at fair value upon initial recognition. For financial assets and financial liabilities measured at fair value through profit or loss, the transaction costs are directly recognised in profit or loss for the period. For financial assets and financial liabilities classified as other categories, the transaction costs are included in the amount initially recognised.

(1) Determination of fair value for financial assets and financial liabilities

The fair value refers to the price that will be received when selling an asset or the price to be paid to transfer a liability in an orderly transaction between market participants on the date of measurement. For financial instruments that have an active market, fair value is determined based on the quoted price in such market. The quoted price in an active market refers to the price that is easily and regularly obtained from exchanges, brokers, industrial organisations and price fixing service organisations, representing the actual price of a market transaction that takes place in a fair deal. Where financial instruments do not have an active market, the fair value is determined using valuation techniques. Valuation techniques include, among others, reference to the prices reached in recent market transactions entered into by both willing parties with an informed view, and reference to present fair values of other substantially identical financial instruments, cash flow discounting method and option pricing models.

25

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

9. Financial instruments — Continued

(2) Classification, recognition and measurement of financial assets

Financial assets are classified into the following categories upon initial recognition: financial assets at amortized costs; financial assets at fair value through other comprehensive income; financial assets at fair value through current profit or loss.

The classification of financial assets depends on the business model under which the Company manages the financial assets and the cash flow characteristics of the financial assets.

Business model: the business model under which the Company manages the financial assets is determined based on the specific business objective of financial asset management as determined by key management personnel, with reference to objective facts. The business model reflects how the Company manages the financial assets in order to generate cash flow, i.e., whether the Company’s objective is solely to collect contractual cash flow or is to collect both the contractual cash flow and cash flow arising from the sales of the financial assets. Where neither of these is applicable (e.g., financial assets held for trading), the group of financial assets is classified as part of the “other” business model and measured at fair value through profit or loss.

(3) Impairment of financial assets (other than receivables)

The Company provides for impairment on financial assets and recognises provision for losses based on the expected credit losses at each of the balance sheet date.

(4) Basis for recognition and measurement of transfer of financial assets

The financial asset will be de-recognised if any of the following conditions is satisfied: (1) The contractual right to receive the cash flow of the financial asset is terminated; (2) The financial asset has been transferred and substantially all of the risks and rewards of ownership of the financial asset have been transferred to the transferee; (3) The financial asset has been transferred and the entity has waived the control over the financial asset although it has neither transferred nor reserved substantially all of the risks and rewards of ownership of the financial asset.

26

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

9. Financial instruments — Continued

(4) Basis for recognition and measurement of transfer of financial assets — Continued

Where the entity has neither transferred nor reserved substantially all of the risks and rewards of ownership of the financial asset and not waived the control over the financial asset, to the extent of its continuous involvement in the financial asset transferred, the entity recognises the relevant financial asset and meanwhile, recognises the relevant liability accordingly. The extent of the continuous involvement is the level of risk to which the entity exposes due to changes in the value of such financial asset.

Where the conditions of de-recognition are satisfied upon overall transfer of the financial asset, the difference between the carrying amount of the transferred financial asset and the sum of the consideration received from the transfer and the accumulated changes in fair value previously recognised in other comprehensive income is recognised in the profit or loss for the current period.

Where the conditions of de-recognition are satisfied upon partial transfer of the financial asset, the carrying amount of the transferred financial asset is allocated between the derecognized and nonderecognised portion at the corresponding fair value, and the difference between the sum of the consideration received from the transfer and the accumulated changes in fair value previously recognised in other comprehensive income to be allocated to the de-recognised portion and the above mentioned allocated carrying amount is recognised in the profit or loss for the current period.

Where the Company disposes of the financial asset with the right of recourse or transfers the financial asset by endorsement, it shall be ascertained that whether substantially all the risks and rewards of ownership of the financial asset have been transferred. Where substantially all the risks and rewards of ownership of the financial asset have been transferred to the transferee, the financial asset are derecognised; where substantially all the risks and rewards of ownership of the financial asset have been retained, the financial asset are not de-recognised; and where substantially all the risks and rewards of ownership of the financial asset have been neither transferred nor retained, it shall be determined whether the entity retains the control over the asset and the asset shall be accounted for in accordance with the above mentioned policies.

(5) Classification and measurement of financial liabilities

Upon initial recognition, financial liabilities are classified into financial liabilities at fair value through profit or loss and other financial liabilities. Upon initial recognition, financial liabilities are measured at fair value. For the financial liabilities at fair value through profit or loss, the relevant transaction costs are directly recognised in profit or loss for the current period; and for other financial liabilities, the relevant transaction costs are included in the initially recognized amount.

• ① Financial liabilities at fair value through profit or loss

The conditions for the financial liabilities to be classified as held for trading and to be designated to be measured at fair value through profit or loss upon initial recognition are the same as those for the financial assets to be classified as held for trading and to be designated to be measured at fair value through profit or loss upon initial recognition.

The financial liabilities at fair value through profit or loss are subsequently measured at the fair value. The gains or losses arising from the change in fair value and the dividend and interest expenses related to the financial liabilities are charged to the profit or loss for the current period.

27

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

9. Financial instruments — Continued

(5) Classification and measurement of financial liabilities — Continued

② Other financial liabilities

The derivative financial liabilities linked to and to be settled through delivery of the equity instruments that are not quoted in an active market and the fair value of which cannot be reliably measured such equity instruments are subsequently measured at cost. Other financial liabilities are subsequently measured at amortised cost using the effective interest rate method and the gains or losses arising from de-recognition or amortization are recognised in profit or loss for the current period.

③ Financial guarantee contracts

The financial guarantee contracts other than the financial liabilities designated as at fair value through profit or loss are initially recognised at fair value and subsequently measured at the amount determined in accordance with the Accounting Standards for Business Enterprises 13 — Contingencies or the balance of the initially recognized amount less the accumulated amortisation determined in accordance with the Accounting Standards for Business Enterprises 14 — Income, whichever is the higher.

(6) De-recognition of financial liabilities

The financial liabilities may not be de-recognised in whole or in part unless and until the present obligations of the financial liabilities are discharged in whole or in part. Where the Company (the debtor) concludes an agreement with a creditor to replace the existing financial liabilities with the new financial liabilities and the contractual terms for new financial liabilities are materially not the same as existing financial liabilities, the existing financial liabilities are de-recognised and the new financial liabilities are recognised.

Where the financial liabilities are de-recognised in whole or in part, the difference between the carrying amount of the de-recognised portion and the consideration paid (including nonmonetary assets transferred or new financial liabilities assumed) is recognised in profit or loss for the current period.

(7) Derivatives and embedded derivatives

Derivatives are initially measured at fair value at the date when the derivative contracts are entered into and are subsequently re-measured at fair value. The gain or loss arising from the change in fair value of a derivative is recognised in profit or loss for the current period, unless the derivative is designated and highly effective as a hedging instrument, in which case the timing of the recognition in profit or loss depends on the nature of the hedge relationship in accordance with hedging accounting policies.

An embedded derivative is separated from the hybrid instrument, where the hybrid instrument is not designated as a financial asset or financial liability at fair value through profit or loss, and treated as a stand-alone derivative if the economic characteristics and risks of the embedded derivative are not closely related to those of the host contract, and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative. If the Group is unable to measure the embedded derivative separately either at acquisition or at a subsequent balance sheet date, it will designate the entire hybrid instrument as a financial asset or financial liability at fair value through profit or loss.

28

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

9. Financial instruments — Continued

(8) Offsetting financial assets and financial liabilities

Where the Company has a legal right to offset the recognised financial assets and financial liabilities and may enforce this right at present and plans to net or realise the financial assets and settle the financial liabilities, the remaining balance upon the offset between the financial assets and the financial liabilities is presented in the balance sheet. Otherwise, the financial assets and the financial liabilities are separately presented in the balance sheet and do not offset against each other.

(9) Equity instruments

An equity instrument refers to a contract which proves the ownership of the remaining equities in net assets of the Company after deduction of all liabilities. The issuance (including refinancing), repurchase, sale or cancellation of equity instruments is accounted for as the change in equity. The Company does not recognise the change in fair value of equity instruments. Transaction costs related to equity transactions are charged to equity.

Various distributions (excluding dividends) made by the Company to holders of equity instruments reduce owners’ equity. The Company does not recognise the change in fair value of equity instruments.

10. Accounts receivable

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

• ① The basis or criteria for determination of individually significant receivables

Accounts for 10% or above of the total receivables, except for the Greencool receivables.

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

Individually significant receivables are subject to separate impairment test. Where there is an objective evidence of impairment, the balance of the present value of the future cash flows less than the carrying amount shall be treated as impairment loss and accounted for as provision for bad debts. Where there is no impairment according to the separate impairment test, the accounts receivable shall be combined into a group of receivables with similar credit risk characteristics and subject to a further impairment test collectively.

29

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

10. Accounts receivable — Continued

(2) Receivables subject to collective provision

Basis for determination of groups is as follows

Group 1 A group of accounts receivable based on ageing characteristics Group 2 A group of Greencool receivables. Method of provision for bad debts by groups Group 1 Using ageing analysis method. Group 2 Conducting an individual impairment test, where the balance of the present value of the future cash flows expected to be derived from the receivables less than the carrying amount shall be treated as impairment loss and accounted for as provision for bad debts.

For Group 1, receivables for which provision for bad debts is made using age analysis method are as follows:

	Ratio of
	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

Individually insignificant receivables subject to separate provision:

Reason for individual Receivables which are individually insignificant over one year or above. provision Method for provision for Where there is an objective evidence of impairment, receivables shall be bad debts separated from the group they belong to and subject to an individual test. The balance of the present value of the future cash flows expected to be derived from the receivables less than the carrying amount shall be treated as impairment loss and accounted for as provision for bad debts.

30

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

11. Inventories

(1) Classification of inventories

Inventories are classified into: raw materials, work in progress, finished goods and etc.

(2) Measurement of inventories

Inventories are initially measured at actual cost. Cost of an inventory consists of purchase cost, processing cost and other cost.

Raw materials are measured at 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 at the actual cost upon delivery, whereas the actual cost is determined using the weighted average method.

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

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

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

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

The Company takes general inventory checkup at each balance sheet date, and records 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 a large quantity and with relatively low unit prices, provision for impairment loss on inventories shall be made based on the category; for inventories relevant to the production and sales of products in the same region with same or similar use or purpose and difficult to measure separately, provision for impairment loss on inventories shall be made on an aggregated basis. In case the factors causing the previous writedown of inventories disappear, the write-down amount shall be reversed to the provision of impairment previously made and the reverse amount shall be charged to the profit or loss for the period.

31

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

11. Inventories — Continued

• (4) 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.

12. Long-term equity investments

Long-term equity investments under this section refer to long-term equity investments in which the Company has control, joint control or significant influence over the investee. Long-term equity investment without control or joint control or significant influence of the Group is accounted for as available-for-sale financial assets or financial assets at fair value through profit or loss for the period. For details on its accounting policy, please refer to note IV.9 “Financial instruments”.

Joint control is the Company’s contractually agreed sharing of control over an arrangement, the activities under which must be decided by unanimous agreement from parties who share the control. Significant influence is the power of the Company to participate in the decision-making for financial and operating policies of an investee, but not to control or joint control the formulation of such policies together with other parties.

(1) Determination of investment cost

For a long-term equity investment acquired through a business combination involving entities under common control, the initial investment cost shall be recognised at the carrying amount of the Company’s share of the combined party’s equity in the consolidated financial statements of the ultimate controlling party on the date of combination. The difference between the initial cost of the long-term equity investment and the cash paid, non-monetary assets transferred and the carrying amount of the debts assumed shall offset against the capital reserve. Where the capital reserve is insufficient to offset, the retained earnings shall be adjusted. In case that the consideration of the business combination is satisfied by issuing equity securities, the initial investment cost of the long-term equity investment shall be recognised at the carrying amount of the Company’s share of the combined party’s equity in the consolidated financial statements of the ultimate controlling party on the date of combination. With the total face value of the shares issued as share capital, the difference between the initial cost of the long-term equity investment and total face value of the shares issued shall be used to offset against the capital reserve. Where the capital reserve is insufficient to offset, the retained earnings shall be adjusted. For a business combination involving entities under common control by acquiring equity interests in the combined party under common control in a series of transactions, the transactions shall be treated separately: in case of “a bundle of transactions”, each of the transactions shall be accounted for as an acquisition of control; otherwise, the initial investment cost of the longterm equity investment shall be recognised at the carrying amount of the Company’s share of the combined party’s equity in the consolidated financial statements of the ultimate controlling party on the date of combination. The difference between the initial cost of the long-term equity investment and the sum of the carrying amount of the long-term equity investment before combination and the book value of the additional consideration paid for further acquisition of shares on the date of combination shall offset against the capital reserve. Where the capital reserve is insufficient to offset, the retained earnings shall be adjusted. Other comprehensive income recognised for the equity investment held prior to the date of combination by using equity method or for available-for-sale financial assets will not be accounted for in the financial statements.

32

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

• Long-term equity investments — Continued

(1) Determination of investment cost — Continued

For a long-term equity investment acquired through a business combination involving entities not under common control, the initial investment cost of the long-term equity investment shall be recognised at the cost of combination on the date of acquisition. Cost of combination includes the aggregate fair value of assets paid, liabilities incurred or assumed and equity securities issued by the acquirer. For a business combination involving entities not under common control by acquiring the equity in the acquiree in a series of transactions, the transactions shall be treated separately: in case of “a bundle of transactions”, each of the transactions shall be accounted for as an acquisition of control; otherwise, the initial investment cost of the long-term equity investment shall be accounted for using the cost method at the sum of the carrying amount of equity investment previously held in the acquiree and the additional investment cost. Where the equity investment previously held is accounted for by using the equity method, the corresponding other comprehensive income will not be accounted for. Where the equity investment previously held is classified as an available-for-sale financial asset, the difference between its fair value and carrying amount, as well as the accumulated changes in fair value previously included in the other comprehensive income shall be recognised in the profit or loss for the current period.

Agent fees incurred by the combining party or the acquirer for a business combination such as audit, legal service, and valuation and consultation fees, and other related administration expenses are charged to profit or loss in the current period when such expenses incurred.

The long-term equity investment acquired other than by means of a business combination shall be initially measured at cost. Such cost, depending upon the means of acquisition of the longterm equity investment, is determined based on, among others, the purchase price actually paid by the Company in cash, the fair value of equity securities issued by the Company, the agreed value by the investment contracts or agreements, fair value or original carrying amount of the asset exchanged in a nonmonetary asset exchange transaction, and fair value of the long-term equity investment. The costs, taxes and other necessary expenses that are directly attributable to the acquisition of the longterm equity investment are also included in the investment cost. Where an additional equity investment gives rise to an ability to exercise a significant influence or joint control over the investee but without obtaining the control, the cost of the long-term equity investment shall be the sum of fair value of the equity investment previously held determined in accordance with “Accounting Standard for Business — Enterprises 22 Recognition and Measurement of Financial Instruments” and additional investment cost.

33

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

12. Long-term equity investments — Continued

(2) Subsequent measurement and recognition of profit or loss

A long-term equity investment with joint control (excluding that constituting a joint venture) over or significant influence on the investee is accounted for by using the equity method, and a long-term equity investment with control over the investee is accounted for in the Company’s financial statements by using the cost method.

① Long-term equity investments accounted for by using the cost method

Under the cost method, a long-term equity investment is measured at its initial investment cost. The cost of the long-term equity investment shall be adjusted in case of any additional investment or return. Except for the actual consideration paid on acquisition of the investment or cash dividends or profits declared but not yet distributed which are included in the consideration, the gain on investment for the period is recognised at the Company’s share of cash dividends or profits declared by the investee.

② Long-term equity investments accounted for by using the equity method

Under the equity method, where the initial investment cost of a long-term equity investment exceeds the Company’s share of fair value of the investee’s identifiable net assets at the acquisition date, no adjustment shall be made to the initial investment cost. Where the initial investment cost is less than the Company’s share of fair value of the investee’s identifiable net assets at the acquisition date, the difference shall be charged to profit or loss for the current period, and the cost of the long term equity investment shall be adjusted accordingly.

Under the equity method, the gain on investment and other comprehensive income shall be recognised at the Company’s share of the net profit or loss and other comprehensive income realised by the investee, respectively, and carrying amount of the long-term equity investment shall be adjusted accordingly. Carrying amount of the long-term equity investment shall be reduced by the Company’s share of the profit or cash dividend declared by the investee. In respect of the changes in owners’ equity of the investee other than in net profit or loss, other comprehensive income and profit distribution, the carrying amount of the long-term equity investment shall be adjusted and included in the capital reserves. The Company recognises its share of the investee’s net profit or loss based on fair value of the investee’s identifiable assets at the time of acquisition, after making appropriate adjustments thereto. In the case of any inconsistency between the accounting policies and accounting periods adopted by the investee and by the Company, the financial statements of the investee shall be adjusted in accordance with the accounting policies and accounting periods of the Company, and the gain on investment and other comprehensive income shall be recognised accordingly. In respect of the transactions between the Company and its associates and joint ventures in which the assets invested or disposed of are not part of the business, the share of unrealised gain or loss arising from inter-group transactions shall be offset by the portion attributable to the Company, and the gain or loss on investment shall be recognized accordingly. However, any unrealised loss arising from inter-group transactions between the Company and an investee is not offset to the extent that the loss is impairment loss of the assets transferred. Where the Company invests to its joint ventures or associates an asset forming part of a business, giving rise to the acquisition of a longterm equity investment by the investor without obtaining control, the initial investment cost of the additional long-term equity investment shall be recognised at fair value of the business invested. The difference between initial investment cost and carrying amount of the business invested will be fully included in profit or loss for the current period. Where the Company disposes of an asset forming part of a business to its associates or joint ventures, the difference between the consideration received and the carrying amount of the business shall be fully included in profit or loss for the current period. Where the Company acquires from its associates or joint ventures an asset forming part of a business, the profit or loss related to the transaction shall be accounted for and recognised in accordance with “Accounting Standards for Business Enterprises 20 “Business Combination”.

34

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

1. Long-term equity investments — Continued

2. (2) Subsequent measurement and recognition of profit or loss — Continued

   • ② Long-term equity investments accounted for by using the equity method — Continued

The Company’s share of net loss of the investee shall be recognised to the extent that the carrying amount of the long-term equity investment and any long-term equity that substantially forms part of the investor’s net investment in the investee are written down to zero. If the Company has to assume additional obligations to the loss of the investee, the estimated liabilities shall be recognised for the estimated obligation assumed and charged to the profit or loss as investment loss for the period. Where the investee makes profits in subsequent periods, the Company shall re-recognise its share of the profits after setting off against the share of unrecognised losses.

③ Acquisition of minority interests

When preparing the consolidated financial statements, the Company adjusts the capital reserve and, if the capital reserve is insufficient, adjusts the retained earnings based on the difference between the additional long-term equity investment arising on acquisition of minority interests and the Company’s share in the net assets of the subsidiary accrued from the acquisition date (or combination date) in proportion to the additional shareholdings.

④ Disposal of long-term equity investment

In the consolidated financial statements, if the parent disposes part of the long-term equity investment in the subsidiary without losing its control, the difference between the disposal price and the Company’s share in the net assets of the subsidiary attributable to the disposal of the long-term equity investment is recognised in the shareholders’ equity; if the parent disposes part of the long-term equity investment in the subsidiary resulting in the loss of its control over the subsidiary, the accounting treatment shall be in accordance with the policies as set out in note IV.5(2) “Preparation of consolidated financial statements”.

In other cases, upon the disposal of a long-term equity investment, the difference between the carrying amount of the investment and the price received is recognised in the profit or loss for the current period.

For a long-term equity investment that is accounted for using the equity method where the remaining equity after disposal continues to be accounted for using the equity method, the portion of other comprehensive income previously included in shareholder’s equity shall be treated in accordance with the same basis as the investee directly disposes of relevant asset or liability on pro rata basis at the time of disposal. The owners’ equity recognised for the change in owners’ equity of the investee other than net profit or loss, other comprehensive income and profit distribution shall be transferred to profit or loss for the current period on pro rata basis.

35

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

• Long-term equity investments — Continued

  • (2) Subsequent measurement and recognition of profit or loss — Continued

    • ④ Disposal of long-term equity investment — Continued

For a long-term equity investment accounted for using the cost method where the remaining equity after disposal continues to be accounted for using cost method, other comprehensive income recognised using the equity method or in accordance with the standard for recognition and measurement of financial instruments prior to the acquisition of control over the investee shall be treated in accordance with the same basis as the investee directly disposes of relevant asset or liability, and transferred to profit or loss for the current period on pro rata basis. The change in owners’ equity recognised in net assets of the investee by using the equity method other than net profit or loss, other comprehensive income and profit distribution shall be transferred to profit or loss for the current period on pro rata basis.

In preparing separate financial statements, if control is lost over the investee upon partial disposal of equity investment, the remaining equity with joint control or an ability to impose a significant influence over the investee after disposal shall be accounted for using the equity method, and shall be adjusted as if it has been accounted for using the equity method since it was acquired. The remaining equity without joint control or an ability to impose a significant influence over the investee after disposal shall be accounted for based on the standard for recognition and measurement of financial instruments, and the difference between its fair value and carrying amount as at the date of loss of control shall be included in profit or loss for the current period. In respect of other comprehensive income recognised using the equity method or in accordance with the standard for recognition and measurement of financial instruments prior to the acquisition of control over the investee, it shall be accounted for in accordance with the same basis as the investee directly disposes of relevant asset or liability when the control is lost. The change in owners’ equity recognised in net assets of the investee by using the equity method other than net profit or loss, other comprehensive income and profit distribution shall be transferred to profit or loss for the current period at the time when the control over investee is lost. Where the remaining equity after disposal is accounted for using the equity method, other comprehensive income and other owners’ equity shall be carried forward on pro rata basis. Where the remaining equity after disposal is accounted for in accordance with the standard for recognition and measurement of financial instruments, other comprehensive income and other owners’ equity shall be fully carried forward.

If the joint control or significant influence over the investee is lost upon partial disposal of equity investment, the remaining equity after disposal shall be accounted for in accordance with the standard for recognition and measurement of financial instruments. The difference between its fair value and carrying amount as at the date of loss of joint control or significant influence shall be included in profit or loss for the current period. For other comprehensive income recognised previously for the equity investment using equity method, it shall be accounted for in accordance with the same basis as the investee directly disposes of relevant asset or liability at the time when the equity method was ceased to be used. The owners’ equity recognised arising from the change in owners’ equity of the investee other than net profit or loss, other comprehensive income and profit distribution shall be transferred to profit or loss for the current period at the time when the equity method was ceased to be used.

Where the Company disposes of its equity investment in a subsidiary in a series of transactions until the control is lost, and such transactions form “a bundle of transactions”, each transaction shall be accounted for as a disposal of equity investment of the subsidiary resulting in a loss of control. The difference between the consideration for each transaction and the carrying amount of the long-term equity investment attributable to the equity interests disposed prior to loss of control shall be initially recognised as other comprehensive income, and upon loss of control, transferred to profit or loss for the period when the loss of control takes place.

36

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

12. Long-term equity investments — Continued

(3) Impairment test and provision for impairment

For long-term equity investments in subsidiaries, joint ventures and associates, the Company provides for impairment in accordance with the policies in note IV.20.

13. Investment properties

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

Investment property is initially measured at cost. Subsequent expenditures related to an investment property shall be included in cost of investment property only when the economic benefits associated with the asset will likely flow to the Group and its cost can be measured reliably. All other expenditures on investment property shall be included in profit or loss for the current period when incurred.

The Company adopts cost method for subsequent measurement of investment property, which is depreciated or amortised using the same policy as that for buildings and land use rights.

The method for impairment test of investment property and measurement of impairment provision are detailed in note IV.20 “Impairment of long-term assets”.

In the event that an owner-occupied property or inventories is converted to an investment property (or vice versa), upon the conversion, the property shall be stated at the carrying amount prior to the conversion.

If an investment property is disposed of or if it withdraws permanently from use and no economic benefit will be obtained from the disposal, the recognition of it as an investment property shall be terminated. When an investment property is sold, transferred, retired or damaged, the amount of proceeds on disposal of the property net of the carrying amount and related tax and surcharges is recognised in profit or loss for the current period.

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.

37

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

14. Fixed assets — Continued

(2) Depreciation of fixed assets

Fixed assets are depreciated by categories using the straight-line method over their useful life. Depreciations are provided following the month when the fixed assets are available for intended use, and are terminated when the fixed assets are derecognised or classified as non-current assets held-forsale (except for 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 asset category, estimated useful life and estimated residual value are as follows:

		Rate of residual	Annual
Category	Useful life (year)	value (%)	depreciation rates
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

Estimated net residual value of a fixed asset is the estimated amount that the Company would obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset was already of the stage and in the condition expected at the end of its useful life.

(3) Impairment test and provision for impairment loss of fixed assets

Please see note IV.20 “Impairment on long term assets” for recognition of provision for impairment of fixed assets of the Company.

(4) Other explanations

Subsequent expenditures incurred for the fixed asset are included in the cost of the fixed asset and if it is probable that economic benefits associated with the asset will flow to the Company and the subsequent expenditures can be measured reliably. Meanwhile the carrying amount of the replaced part is derecognised. Other subsequent expenditures shall be charged to profit or loss when incurred.

If a fixed asset is upon disposal or no future economic benefits are expected to be generated from its use or disposal, the fixed asset is derecognised. When a fixed asset is sold, transferred, retired or damaged, the amount of any proceeds on disposal of the asset net of the carrying amount and related taxes is recognised in profit or loss for the period.

The Company reviews the useful life and estimated net residual value of a fixed asset and the depreciation method applied at least once at each financial year-end, and account for any change as a change in an accounting estimate.

38

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

15. Construction in progress

(1) Measurement of construction in progress

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

(2) Timing of transfer from construction in progress to fixed assets

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

(3) Provision for impairment loss on construction in progress

Please see note IV.20 “Impairment on long term assets” for the recognition of provision for impairment on construction in progress.

16. Borrowing costs

(1) Principles for recognition of capitalization of 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 production activities for 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 production 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 in profit or loss for the period on the basis of the actual amount incurred at the time when they are incurred.

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

• ① The expenditure for the asset has already been incurred, which shall include the expenses by means of cash, transfer of non-cash assets or interest bearing debts paid for the acquisition and construction or production activities of the asset eligible for capitalization;

• ② The borrowing costs have been incurred;

• ③ The acquisition and construction or production activities necessary to prepare the asset for itsintended use or for sale have already commenced.

39

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

16. Borrowing costs — Continued

(2) Period of capitalization of the borrowing costs

The borrowing costs that are directly attributable to the acquisition and construction or production of qualifying asset are capitalized as the cost before the asset is ready for its intended use or sale. Borrowing costs incurred afterwards are recognised in profit or loss for the current period.

Where the acquisition and construction or production activities of a qualifying 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 acquisition and 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 acquisition and construction or production of the asset is resumed, and by then capitalization of the borrowing costs shall also be resumed. Where part of the acquisition and construction or production activities of asset qualified for capitalization is completed and available for separate use, the capitalization of borrowing cost for that part of the asset shall be ceased.

(3) Calculation of capitalized borrowing costs

For the specific borrowings obtained for the acquisition and construction or production of a qualifying asset, the interest expense (deducting any interest income earned from depositing the unused specific borrowings with the bank or any investment income arising on the temporary investment of those borrowings) and the ancillary expense incurred in relation to the specific borrowings shall be capitalized until the qualifying asset is ready for the intended use or sale.

For the general borrowings obtained for the acquisition and construction or production of a qualifying asset, the interest expense to be capitalized is determined by multiplying the capitalization rate of general borrowings used by 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 borrowings.

Where there is any discount or premium, the amount of discounts or premiums shall be amortized in each accounting period by using effective 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 specific borrowings denominated in foreign currencies are capitalized as part of the cost of the qualifying assets.

40

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

17. Intangible asset

(1) Initial measurement of intangible assets

An intangible asset is an identifiable non-monetary asset without physical substance owned or controlled by the Company.

An intangible asset shall be initially measured at cost. The expenditures incurred on an intangible asset shall be recognised as cost of the intangible asset only if it is probable that economic benefits associated with the asset will flow to the Company and the cost of the asset can be measured reliably. Other expenditures on an item asset shall be charged to profit or loss when incurred.

Land use right acquired shall normally be recognised as an intangible asset. For self-constructed buildings (e.g. plants), the expenditures on the land use right and cost of the buildings shall be separately accounted for as an intangible asset and fixed asset. For buildings and structures purchased, the purchase consideration shall be allocated among the land use right and the buildings on a reasonable basis. In case there is difficulty in making a reasonable allocation, the consideration shall be recognised in full as an fixed asset.

(2) Subsequent measurement of intangible assets

• ① Useful life of intangible assets

The useful life of intangible assets is determined upon acquisition. For an intangible asset with definite useful life, the Company estimates the years of its useful life or the amount of similar measurement units such as production capacity constituting a useful life. An intangible asset with unforeseeable life to bring economic benefits to the Company is deemed to be an intangible asset with indefinite useful life.

② Amortisation of intangible assets

An intangible asset with a definite useful life are amortized over the estimated useful life from the month of acquisition using the straight-line method. An intangible asset with indefinite useful life are not amortized but an impairment test is carried out at the end of the year.

During the end of the period, the Company shall check the useful life and the amortization method of intangible assets with limited useful life and carry out accounting estimate change in case that a change happens. In addition, the Company shall check the useful life of intangible assets with indefinite useful life, if there are evidences showing that the intangible assets can bring economic benefit for the Company within the foreseeable period, the Company shall estimate the useful life and carry out amortization according to the amortization policy for intangible assets with finite useful life.

• ③ When an intangible asset is expected to no longer generate any future economic benefits to the Company at the end of the year, the carrying amount of the intangible asset is entirely transferred into the profit or loss for the period.

• ④ Impairment of intangible assets

Please see note IV.20 “Impairment on long term assets” for the recognition of provision for impairment of intangible assets.

41

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

18. Expenditure on research and development

• (1) The Group classifies the expenditure on an internal research and development project into expenditure at the research phase and expenditure at the development phase.

• (2) Specific criteria for the classification of the Company’s internal research and development projects into research phase and development phase:

Research phase: the phase at which creative investigation and research activities are carried out as planned for the purpose of obtaining and understanding new scientific or technical knowledge.

Development phase: the phase at 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 and etc. before commercial production or utilization.

• (3) Expenditure at the research phase of an internal research and development project is recognized in profit or loss for the period when it is incurred.

• (4) Expenditure at the development phase of an internal research and development project is recognised as an intangible asset 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 and to use or sell the intangible asset;

• ③ It can be demonstrated how the intangible asset will generate economic benefits, including demonstrating that there is an existing market for products produced by the intangible asset or for the intangible asset itself, and that it can be used if the intangible asset is to be used internally;

• 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 the intangible asset at its development phase can be reliably measured.

• (5) All the expenditures on research and development which cannot be distinguished between the research phase and development phase are recognised in the profit or loss when incurred.

19. Long-term prepaid expenses

• (1) Long-term prepaid expenses are expenditures that have been incurred but should be recognized as expenses over more than one year in the current and subsequent periods. Long-term prepaid expenses are amortized on a straight-line basis over the expected beneficial period.

• (2) Pre-operating expenses during the establishment period should be recognized directly in profit or loss in the month as incurred.

42

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

20 Impairment on long term assets

At balance sheet date, the Company will assess whether there are any indications of impairment on noncurrent and non-financial assets such as fixed assets, construction in progress, intangible asset with finite useful life, investment properties accounted for using cost model, long-term equity investments in joint ventures and associates. If any indication exists that an asset may be impaired, the recoverable amount of the asset is estimated and impairment test will be performed. Impairment test will be performed on goodwill, intangible asset with infinite useful life and intangible asset which are not yet ready for use each year, regardless of whether any indications for impairment exist.

If the result of the impairment test indicates that the recoverable amount of an asset is less than its carrying amount, a provision for impairment and an impairment loss are recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and the present value of the future cash flows expected to be derived from the asset. Fair value of an asset is determined based on the transaction amount in arm’s length transaction; when there are no transactions but has an active market for the asset, the fair value is determined based on the bid price in the market; when there no transactions and active market for the asset, the fair value is estimated based on the best information available. Costs to sell include legal fee, taxes, logistics charges and other expenses that incurred directly to bring the asset to saleable condition. Present value of the future cash flows expected to be derived from the asset is calculated by discounting the expected future cash flows from continuous use of the asset and disposal of the asset using an appropriate discount rate. Provision for asset impairment is determined and recognized on the individual asset basis. If it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount of a group of assets to which the asset belongs is determined. A group of assets is the smallest group of assets that is able to generate independent cash inflows.

Once the above asset impairment loss is recognized, it will not be reversed for the value recovered in the subsequent periods.

21. Employee benefits

Staff remuneration of the Company mainly includes short-term staff remuneration, post-employment benefits, termination benefits and other long-term staff benefits, in which:

Short-term remuneration mainly includes salaries, bonuses, allowance and subsides, staff welfare, medical insurance premium, maternity insurance premium, work-related injury insurance premium, housing provident funds, union operation costs and employee education costs and non-monetary welfare etc. Short-term remuneration incurred during the accounting period in which the staff provided services for the Company is recognised as a liability, and included in profit or loss for the current period or as related asset cost. Nonmonetary welfare is measured at fair value.

Post-employment benefits mainly include defined contribution plan. Defined contribution plan mainly includes pension insurance premium and unemployment insurance premium. Relevant contribution amount is included as part of related asset cost or in profit or loss for the current period during the period in which the expenses incurred.

43

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

21. Employee benefits — Continued

Where the Company terminates the employment relationship with employees before the expiration of the employment contracts or proposes compensation to encourage employees to accept voluntary redundancy, it shall recognise employee compensation liabilities arising from termination benefit and included in profit or loss for the current period, on the date when the Company may not revoke unilaterally the termination benefit provided due to the termination of employment relationship plans or employee redundance proposals or when the Company recognises the cost and expenses related to restructuring involving in the payment of termination benefit, whichever is earlier. However, if the termination benefit is not expected to be fully paid within 12 months from the end of the reporting period, it shall be accounted for as other long-term staff remuneration.

The early retirement plan shall be accounted for in accordance with the same accounting principles for termination benefit abovementioned. The salaries or wages and the social contributions to be paid to the retiring employees for the period from the date on which the employees cease rendering services to the scheduled retirement date, shall be recognised as termination benefit in profit or loss for the current period if the recognition criteria for provisions are satisfied.

Where other long-term employee benefit provided by the Company for its employees falls in defined contribution plans, it shall be accounted for as a defined contribution plan, or otherwise as a defined benefit plan.

22. Provisions

Obligations pertinent to the contingencies which satisfy all the following conditions are recognised as accrued liabilities: (a) The obligation is a current obligation borne by the Company; (b) it is likely that an outflow of economic benefits will be resulted from the performance of the obligation; and (c) the amount of the obligation can be reliably measured.

At the balance sheet date, accrued liabilities shall be measured at the best estimate of the necessary expenses required for the performance of existing obligations, after taking into account relevant risks, uncertainties, time value of money and other factors pertinent to the contingencies.

If all or part of the expenses required for settlement of accrued liabilities are expected to be compensated by a third party, the compensation amount shall, on a recoverable basis, be recognised as an asset separately, and compensation amount recognised shall not be more than the carrying amount of the accrued liabilities.

23. Share-based payments and equity instruments

(1) Share-based payments

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

(2) Accounting treatment of share-based payments

The equity-settled share-based payment in return for employees’ services shall be measured based on the fair value of equity instruments granted to the employees on the grant date. If the equity-settled share-based payment cannot be vested until the services are completed in vesting period or until the prescribed performance conditions are met, then within the vesting period, the amount of fair value should, based on the best estimate of the number of vested equity instruments, be included in relevant costs or expenses according to the straight-line method, and the capital reserves should be increased accordingly when the equity instruments can be vested upon grant.

44

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

23. 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 fair value of the equity instrument is determined based on the quoted price in the active market. If not, the fair value is determined using the option pricing model.

(4) Recognition basis for the best estimate 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 best estimate made by the Company according to the latest available subsequent information as to changes in the number of employees with exercisable rights. The effect of the above estimate is included in relevant costs or expenses for the period and the capital reserve is adjusted accordingly. As at the exercise date, the final estimated 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

When there is changes in the Company’s share-based payment plans, if the modification increases the fair value of the equity instruments granted, corresponding recognition of service increases in accordance with the increase in the fair value of the equity instruments. Increase in the fair value of equity instruments refers to the differences between the fair values of the date of modification. If the modification reduces the total fair value of shares paid or is not conductive to the use of other employees’ share-based payment plans, it will continue to be accounted for, as if the change had not occurred, unless the Company cancelled some or all of the equity instruments granted.

During the vesting period, if the equity instruments granted are cancelled, the Company would treat the cancelled equity instruments granted as accelerated vesting, and the amount within the remaining period should be recognized immediately in profit or loss while recognizing the capital reverses. If employees or other parties can meet non-vesting conditions but do not meet within the vesting period, the Company will treat it as cancelled equity instruments granted.

24. Revenue

Revenue is recognized when the customer obtains control of the goods, subject to the fulfilment of the following conditions under the contract entered into the Company and customers: the parties has approved the contract and undertaken to fulfil their respective obligations; the contract clearly states the parties to the contract and their rights and obligations relating to the transferred goods and rendered services; the contract clearly stated the payment terms relating to the transferred goods; the contract has commercial substance that the fulfilment of the contract will result in changes in the risk, time frame or amount of the future cash flow risk of the Company; the collection of the consideration that the Company is entitled to for transferring the goods is probable.

On the effective date of the contract, the Company identifies each performance obligation under such contracts and allocate the transaction price to each performance obligation based on the percentage of respective unit price of a good guaranteed by each performance obligation. The determination of the transaction price has taken into account the impact of factors, such as variable consideration, the significant financing component exist in the contract, non-cash consideration, consideration payable to the customers.

45

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

24. Revenue — Continued

For each of the performance obligations under the Contract, if one of the following conditions is fulfilled, the Company shall recognised the transaction price which was allocated to each of the performance obligations as income based on the progress of performance within a certain period: the Client has received and consumed simultaneously all of the economics benefits; When the customer simultaneously receives and consumes the benefits provided by the Company when the Company performs its obligations under the contract; When the customer is able to control the commodity in progress in the course of performance by the Company under the contract; The product produced by the Company under the contract is irreplaceable and the Company has the right to payment for performance completed to date. The stage of fulfilment are determined based on the nature of the transferred goods with the adoption of input method or output-based method. When the progress of performance cannot be reasonably determined, if the costs incurred by the Group are expected to be recoverable, the revenue will be recognised to the extent of the costs incurred until the progress of performance can be reasonably determined.

If one of the above conditions is not fulfilled, the Company shall recognised the transaction price which was allocated to each of the performance obligations as income when the customer is able to control the commodity. When determining whether the customer has obtained control of the goods, the Group will consider the following indications: the enterprise has the current right to receive payment for the goods, which is when the customers has the current payment obligations for the goods; the enterprise has transferred the legal title of the goods to the client, which is when the client possesses the legal title of the goods; the Group has transferred the physical possession of goods to the customer, which is when the customer obtain physical possession of the goods; the Group has transferred all of the substantial risks and rewards of ownership of the goods to the customer, which is when the client obtain all of the substantial risks and rewards of ownership of the goods to the customer; when the customer has accepted the goods, which is when other information indicates that the customer has obtained control of the goods.

25. Government grants

Government grants are monetary assets or non-monetary assets transferred from the government to the Company at no consideration, excluding capital considerations from the government as an owner of the Company. Government grants are divided into asset-related government grants and income-related government grants.

Government grants obtained for acquisition or construction of long-term assets or other forms of longterm asset formation are classified as related to assets. Other government grants are classified as related to revenue. If related government documents do not specify the objective of the grants, the grants are classified as related to assets or income as follows: (1) In case a project for which the grants are granted is specified in such documents, the grants are classified as related to assets and income based on the budgeted ratio of the expenditure on asset formation and the expenditure recorded as expenses, where such ratio should be reviewed and, if necessary, changed on each balance sheet date; and (2) in case of general description without specifying any project in such documents, the grants are classified as related to income.

46

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

25. Government grants — Continued

If a government grant is in the form of monetary asset, the item shall be measured at the amount received or receivable. If a government grant is in the form of non-monetary asset, the item shall be measured at fair value. If fair value is not reliably determinable, the item shall be measured at a nominal amount and recognized immediately in profit or loss for the period.

Government grants are generally recognized when received and measured at the amount actually received, but are measured at the amount likely to be received when there is conclusive evidence at the end of the period that the Company will meet related requirements of such grants and will be able to receive the grants. The government grants so measured should also satisfy the following conditions: (1) the amount of the grants be confirmed with competent authorities in written form or reasonably deduced from related requirements under financial fund management measures officially released without material uncertainties; (2) the grants be given based on financial support projects and fund management policies officially published and voluntarily disclosed by local financial authorities in accordance with the Requirements for Disclosure of Government Information, where such policies should be open to any company satisfying conditions required and not specifically for certain companies; (3) the date of payment be specified in related documents and the payment thereof will be covered by corresponding budget to ensure such grants will be paid on time as specified; (4) pursuant to the specific situation between the Company and such grants, other relevant conditions (if any) should be satisfied.

A government grant related to an asset shall be recognized as deferred income, and included in profit or loss over the useful life of the asset based on reasonable and systemic methods. For government grants related to income, where the grant is a compensation for related expenses or losses to be incurred in the subsequent periods, the grant is recognised as deferred income, and included in profit or loss over the periods in which the related costs or losses are recognised; where the grant is a compensation for related expenses or losses already incurred, the grant is recognised immediately in profit or loss for the current period.

At the same time, if the government grants contain both assets related and income related, the accounting treatment will depend on the different parts of government grants; if it is difficult to distinguish, the whole government grants are classified as the income-related government grants.

The government grants related to daily activities of the Company, depending on the essence of economic business, are recognized in other income, otherwise, recognized in non-operating income or non-operating expenses.

For the repayment of a government grant already recognized, if there is any balance of related deferred income, the repayment shall be set-off against the book balance of deferred income, and any excess shall be recognized in profit or loss for the period; if there is other circumstance, the repayment shall be recognized immediately in profit or loss for the period.

26. Deferred tax assets/deferred tax liabilities

(1) Current income tax

At the balance sheet date, current income tax liabilities (or assets) for the current and prior periods shall be measured at the income tax expected to be paid (or returned) as required by tax laws. Taxable income, based on which the current income tax expense is calculated, is derived after adjusting the accounting profit before tax for the year in accordance with relevant requirements of tax laws.

47

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

26. Deferred tax assets/deferred tax liabilities — Continued

(2) Deferred income tax assets and deferred income tax liabilities

Temporary differences arising from the difference between the carrying amount of an asset or liability and its tax base, and the difference between the tax base and the carrying amount of an item that is not recognised as an asset or liability but has a tax base that can be determined according to tax laws, shall be recognised for deferred income tax assets and deferred income tax liabilities using the balance sheet liability method.

Deferred income tax liabilities are not recognised for taxable temporary differences related to: the initial recognition of goodwill; and the initial recognition of an asset or liability in a transaction which is neither a business combination nor affects accounting profit or taxable income (or deductible loss) at the time of the transaction. In addition, for taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, if the Company is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future,relevant deferred income tax liabilities are not recognised either. Except for abovementioned circumstances, the Company recognises deferred income tax liabilities arising from other taxable temporary differences.

Deferred income tax assets are not recognised for deductible temporary differences related to the initial recognition of an asset or liability in a transaction which is neither a business combination nor affects accounting profit or taxable income (or deductible loss) at the time of the transaction. In addition, for deductible temporary differences associated with investments in subsidiaries, associates and joint ventures, if it is not probable that the temporary difference will reverse in the foreseeable future, and it is not probable that taxable income will be available in the future against which the deductible temporary difference can be utilised, relevant deferred income tax assets are not recognised. Except for abovementioned circumstances, the Company recognises deferred income tax assets arising from other deductible temporary differences to the extent that it is probable that taxable income will be available against which the deductible temporary differences can be utilised.

The Company recognises a deferred income tax asset for deductible losses and tax credits that can be carried forward to subsequent periods, to the extent that it is probable that future taxable income will be available against which the deductible losses and tax credits can be utilised.

At the balance sheet date, deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, according to the tax laws.

At the balance sheet date, the Company reviews the carrying amount of a deferred income tax asset. If it is probable that sufficient taxable income will not be available in future periods against which the benefit of deferred income tax asset can be utilised, the carrying amount of the deferred income tax asset shall be written down. Any amount so written down shall be reversed when it becomes probable that sufficient taxable income will be available.

(3) Income tax expense

Income tax expense comprises current income tax expense and deferred income tax expense.

Current and deferred income tax expense or income is included in profit or loss for the current period, except for those recognised as other comprehensive income or current income tax and deferred income tax related to transactions or events that are directly recognised in shareholders’ equity, which are recognised in other comprehensive income or shareholders’ equity, and except for deferred income tax arising from a business combination, which is used to adjust the carrying amount of goodwill.

48

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

26. Deferred tax assets/deferred tax liabilities — Continued

(4) Offsetting income tax

With the legal rights of netting off and with an intention to net off or realize the assets and settle the liabilities, the Company records the net current income tax assets and current income tax liabilities after offsetting between the assets and liabilities.

When the Company has the legal rights of netting off current income tax assets and liabilities, and deferred income tax assets and deferred income tax liabilities are related to income tax imposed on the same taxable entity by the same tax competent authority or related to different taxable entities, the Company records the net current income tax assets and current income tax liabilities after offsetting between the assets and liabilities, provided that the taxable entity involved is intended to net off current income tax assets and liabilities or, realise assets and settle liabilities during each significant future period whenever deferred income tax assets and liabilities would be reversed.

27. Segment information

The Company 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 Company that satisfies all the following conditions:

• (1) he component is able to generate revenues and incur expenses in the course of ordinary activities;

• (2) The operating results of the component are regularly reviewed by the Company’s management in order 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 of the component is available to the Company. The accounting policies of operating segments are the same with the major accounting policies of the Company.

The segment revenue, operating results, assets and liabilities include the amount that is directly attributable to the segment and can be allocated to the segment on a reasonable basis. Revenue, assets and liabilities of an operating segment are determined at the amount before the elimination of inter-group transactions and intergroup current account balances. Transfer price between operating segments is calculated based on terms similar to those of the transactions with other parties.

28. Operating leases

(1) The Company as lessee under operating leases

Lease payment for operating lease is recognized as related asset cost or profits and losses for the current period using the straight-line method over the lease term. The initial direct cost is accounted in profit or loss for the current period. Contingent rental is recognized as profit or loss for the current period upon occurrence.

(2) The Company as lessor under operating leases

Rental income is recognized in profit or loss for the current period using the straight-line method over the lease term. The initial direct cost where the amount is significant is capitalized when incurred, and accounted for as profit or loss for the current period on the same basis as recognition of rental income over the entire lease period; the initial direct cost where the amount is less significant is included in the profit or loss for the period when incurred. Contingent rental is recognized as profit or loss for the current period upon occurrence.

49

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

1. Changes in significant accounting policies and accounting estimates

(1) Changes in accounting policies

— The Ministry of Finance issued the Accounting Standards for Business Enterprises No. 22 Recognition and Measurement of Financial Instruments, the Accounting Standards for Business Enterprises No. 23 — — Transfer of Financial Assets and the Accounting Standards for Business Enterprises No. 24 Hedge Accounting based on Accounting [2017] No. 7, 8 and 9 on 31 March 2017, the Accounting Standards for — Business Enterprises No. 37 Presentation and Reporting of Financial Instruments based on Accounting [2017] No. 14 on 2 May 2017 and the Accounting Standards for Business Enterprises No. 14 — Revenue based on Accounting [2017] No. 22 on 5 July 2017. The five standards stated above required companies listed both at home and abroad to implement such standards starting on 1 January 2018. The Company started to implement such accounting standards according to the schedule required by the Ministry of Finance.

On 15 June 2018, the Ministry of the Finance issued the “Notice on Revising and Issuing the Format of Financial Statements of General Enterprises for Year 2018” (No. 15 [2018] of the Ministry of Finance) which revised the format of financial statements of enterprises. The Company implemented new format of financial statements according to the requirements of the Ministry of Finance.

The change in accounting policies and the adjustment in format of financial statements will not profoundly affect the Company.

(2) Changes in accounting estimates

There were no changes in the accounting estimates of the Company in the current period.

30. Critical accounting judgements and estimates

The Company needs to make judgments, estimates and assumptions as to the carrying amount of statement items which cannot be accurately measured in applying its accounting policies due to inherent uncertainties of operation activities. Such judgments, estimates and assumptions are made based on the historical experience of the Company’s management and taking into account other relevant factors, and may affect the reported amount of revenue, expenses, assets and liabilities and disclosure of contingent liabilities at the balance sheet date. However, the actual results derived from the uncertainties of such estimates may differ from the current estimation of the Company’s management, which may cause critical adjustment to the carrying amount of assets or liabilities which may be affected in the future.

The Company regularly reviews the aforesaid judgments, estimates and assumptions on a going concern basis. A revision to accounting estimate is recognised in the period in which the estimate is revised if it only affects that period. A revision is recognised in the period of the revision and future periods if it affects both current and future periods.

50

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

30. Critical accounting judgements and estimates — Continued

At the balance sheet date, the critical areas where the Company needs to make judgments, estimates and assumptions as to the amount of items in the financial statements are set out below:

(1) Classification of leases

The Company classifies the leases as operating lease and financing lease in accordance with “Accounting Standards for Business Enterprises 21 — Leases”. When making the classification, the management needs to analyse and judge whether all the risks and rewards relating to the ownership of leased out assets have been substantially transferred to the leasee, or whether the Company has been substantially obliged to all the risks and rewards relating to the ownership of leased assets.

(2)

Provision for bad debts

The Company adopts the allowance method to account for bad debt loss under the accounting policies of accounts receivable. Impairment of accounts receivable is based on the recoverability of assessed accounts receivable. Given the management’s judgment and estimate required for impairment of accounts receivable, the difference between the actual outcome and original estimate will affect the carrying amount of accounts receivable and provision and reversal of bad debts of accounts receivable during the estimate revision period.

(3)

Allowance for inventories

In accordance with the accounting policies of inventories and by measuring at the lower of cost and net realisable value, the Company makes allowance for inventories which have costs higher than net realisable value or become obsolete and slow-moving. Write-down of inventories to their net realisable values is based on the valuation of marketability and net realisable values of inventories. Determination of impairment of inventories requires the management to make judgments and estimates on the basis of definite evidence and taking into account the purpose of holding inventories and impacts of events after balance sheet date. The difference between the actual outcome and original estimates shall affect the carrying amount of inventories and provision for and reversal of the provision for the impairment of inventories during the period in which the estimates are revised.

(4) Provision for impairment of long term assets

At the balance sheet date, the Company makes its judgment as to whether there is any evidence indicating potential impairment of non-current assets other than financial assets. Intangible assets with indefinite useful life shall be tested for impairment when there is any indication of impairment in addition to the annual impairment testing. Other non-current assets other than financial assets shall be tested for impairment if there is any evidence indicating that their carrying amount cannot be recovered.

When the carrying amount of an asset or asset groups is higher than the recoverable amount, being the higher of its fair value less costs of disposal and the present value of the future cash flows expected to be derived from the asset, it indicates impairment.

The net amount of the fair value less costs of disposal is determined by making reference to the price in a sale agreement in an arm’s length transaction or the observable market price less the incremental costs directly attributable to such assets disposal.

In projecting the present value of the future cash flows, critical judgments shall be made to the output, selling price and relevant operating costs of such assets (or asset groups) and the discount rate applied in calculating the discount. In estimating the recoverable amount, the Company may adopt all relevant materials including the projections as to the output, selling price and relevant operating costs based on reasonable and supportive assumptions.

51

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IV. MAJOR ACCOUNTING POLICIES AND ACCOUNTING ESTIMATES — Continued

30. Critical accounting judgements and estimates — Continued

(5) Depreciation and amortisation

The Company shall provide depreciation and amortisation for investment properties, fixed assets and intangible assets over their useful lives and after taking into account of their residual value by using straight-line method. The Company shall regularly review the useful lives to determine the amount depreciated and amortised to be accounted for in each reporting period. The useful life is determined by the Company according to its previous experience on similar assets and estimated technical updates. If there is any material change in the estimate previously made, the depreciation and amortisation will be adjusted over the future period.

(6) Deferred income tax assets

The deferred income tax assets will be recognised for all unused tax losses to the extent that it is probable there will be sufficient taxable profits against which the loss is utilised. This requires the Company’s management to apply numerous judgments to estimate the timing and amount of the future taxable profits so as to determine the amount of deferred income tax assets to be recognised with reference to the tax planning strategy.

(7) Income tax

There are some uncertainties in tax treatment and calculation for some transactions of the Company during its ordinary course of business. The approval from the tax authority is required for pre-tax expending of some items. Any difference between the final determined outcome of such tax matters and the initially estimated amount will exert an effect on the current income tax and deferred income tax during the period in which the final amount is determined.

(8) Sales discount

In recognising revenue from sales of goods, the Company estimates the relevant expenses in accordance with the terms of the sales agreement and deducts the sales discounts provided to customers from the revenue from sales of goods.

52

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

V. TAXATION

1. The types and rates of taxes applicable to the Group

Type of taxes	Tax basis	Tax rate
Value-added tax	Sales tax is computed on 17%, 13%, 11%,	17%, 13%,
	6%, 5%, 3%, 16% and 10%, respectively,	11%, 6%, 5%,
	of the taxable income. Value-added	3%,16%,10%
	tax is computed on the difference after
	deduction of input value-added tax of
	the current period. Input value-added
	tax is not deductible for value-added
	tax to which simple collection method is
	applicable.
City maintenance and construction tax	Turnover tax payable	5%, 7%
Education surcharges	Turnover tax payable	3%
Corporate income tax	Taxable income	25%/for details, please
		see the table below

Note: The overseas subsidiaries of the Company shall pay tax in accordance with local tax laws where they are located.

Notes on taxpayers subject to different enterprise income tax rates

Name of tax payer	Income tax rate
Guangdong Kelon Mould Co., Ltd.	15%
Hisense (Shandong) Air-Conditioning Co. Ltd.	15%
Qingdao Hisense Mould Co., Ltd.	15%
Hisense (Shandong) Refrigerator Ltd.	15%
Hisense Ronshen (Yangzhou) Refrigerator Co., Ltd.	15%
Hisense (Chengdu) Refrigerator Co., Ltd.	15%
Kelon International Incorporation	16.5%
Pearl River Electric Refrigerator Co., Ltd.	16.5%
Kelon Development Co., Ltd.	16.5%
Hisense Mould (Deutschland) GmbH	15%

2. Tax preferences and approvals

According to the approved list of high and new technology enterprises by the Torch High Technology Industry Development Centre of the Ministry of Science and Technology, Guangdong Kelon Mould Co., Ltd., a subsidiary of the Company, which was subject to an enterprise income tax rate of 15% in 2016, was accredited as a high-tech enterprise (Certificate No. GR201744002498), with an effective period of three years (2017, 2018 and 2019). Pursuant to the tax preference regulation on High-tech Enterprise, this subsidiary is entitled to the preferential enterprise income tax rate of 15% in 2017, 2018 and 2019.

53

Half year of 2018

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

V. TAXATION — Continued

1. Tax preferences and approvals — Continued

Hisense (Shandong) Air-conditioning Co., Ltd., a subsidiary of the Company, received the Certificate of Hightech Enterprise (Number: GR201737100982) dated 4 December 2017 which was jointly issued by the Qingdao Science and Technology Department, Qingdao Finance Department, Qingdao State Taxation Bureau and Qingdao Local Taxation Bureau, with an effective period of three years (2017, 2018 and 2019). According to the relevant tax preference regulation on High-tech Enterprise, the applicable enterprise income tax rate for this subsidiary is 15% in 2017, 2018 and 2019.

Qingdao Hisense Mould Co., Ltd., a subsidiary of the Company, received the Certificate of Hightech Enterprise (Number: GR201737100218) dated 19 September 2017 which was jointly issued by the Qingdao Science and Technology Department, Qingdao Finance Department, Qingdao State Taxation Bureau and Qingdao Local Taxation Bureau, with an effective period of three years (2017, 2018 and 2019). According to the relevant tax preference regulation on High-tech Enterprise, the applicable enterprise income tax rate for this subsidiary is 15% in 2017, 2018 and 2019.

Hisense (Shandong) Refrigerator Ltd., a subsidiary of the Company, received the Certificate of Hightech Enterprise (Number: GR201737100767) dated 4 December 2017 which was jointly issued by the Qingdao Science and Technology Department, Qingdao Finance Department, Qingdao State Taxation Bureau and Qingdao Local Taxation Bureau, with an effective period of three years (2017, 2018 and 2019). According to the relevant tax preference regulation on High-tech Enterprise, the applicable enterprise income tax rate for this subsidiary is 15% in 2017, 2018 and 2019.

Hisense Ronshen (Yangzhou) Refrigerator Co., Ltd., a subsidiary of the Company, received the Certificate of High-tech Enterprise (Number: GR201632000323) dated 20 October 2016 which was jointly issued by the Jiangsu Science and Technology Department, Jiangsu Finance Department, Jiangsu Provincial State Taxation Bureau and Jiangsu Local Taxation Bureau, with an effective period of three years (2016, 2017 and 2018). According to the relevant tax preference regulation on Hightech Enterprise, the applicable enterprise income tax rate for this subsidiary is 15% in 2016, 2017 and 2018.

Hisense (Chengdu) Refrigerator Co,. Ltd, a subsidiary of the Company, received a Letter of Chuan Jing Xin Chan Ye Han [2014] No.176 issued by Economic and Information Commission of Sichuan in 7 March 2014. The principle business of Chengdu Refrigerator was recognized as the state incentive items. According to the tax treaty in relation to western development policy, the applicable enterprises income tax for this subsidiary is 15% from 2014 to 2020.

The subsidiaries of the Company which were incorporated in Hong Kong are subject to an enterprise income tax on the estimated assessable profits derived from or arising in Hong Kong at a rate of 16.5% income tax rate (2017: 16.5%).

Hisense Mould (Deutschland) GmbH, a subsidiary of the Company in Germany, is entitled to enterprise income tax rate of 15% (2017: 15%) in respect of its taxable profits as stipulated in German law.

3. Other illustrations

Other taxes in the PRC, including, among others, real estate tax, land use tax, local education surcharges, vehicle and vessel tax, stamp duty and withholding individual income tax, are calculated and payable in accordance with the relevant regulations of the State tax laws.

54

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unless otherwise specified, opening balances refer to balances as at 1 January 2018, whereas closing balances refer to balances as at 30 June 2018; and the current period refers to January to June 2018, whereas the previous period refers to January to June 2017 in the following notes (including major notes to the financial statements of the Company):

1. Cash at bank and on hand

Item	Closing balance	Opening balance
Cash on hand:	5,453.38	7,953.54
Bank deposits:	1,155,437,720.74	952,311,017.12
Other cash at bank and on hand:	2,409,037,312.94	2,043,709,224.23
Total	3,564,480,487.06	2,996,028,194.89
Including: Total amount deposited overseas	23,611,225.07	180,063,603.76
Notes to cash at bank and on hand:
Other cash at bank and on hand represented mainly security deposit.

Breakdown of restricted cash at bank and on hand are listed as follows:

Item	Closing balance	Opening balance
Security deposit	2,409,037,312.94	2,043,709,224.23
Total	2,409,037,312.94	2,043,709,224.23

55

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Financial assets held-for-trading

Item	Closing balance	Opening balance
Financial assets held-for-trading	939.96
Total	939.96

Notes to financial assets held-for-trading:

Financial assets held-for-trading mainly represented the outstanding forward exchange settlement and sale contracts entered into by the Company and banks, which were recognized as the financial assets or liabilities held-for-trading based on the difference between the quoted price of the outstanding forward contracts and the forward rates as at the end of the period.

The Company has implemented the new standards for financial instruments from 1 January 2018, which recognized the financial assets or liabilities held-for-trading based on the difference between the quoted price of the outstanding forward contracts and the forward rates as at the end of the period. The opening balance is presented in “financial assets at fair value through profit or loss for the current period”.

3. Notes and accounts receivable

Item	Closing balance	Opening balance
Notes receivable	3,276,023,568.30	3,517,031,644.77
Accounts receivable	4,621,795,876.61	2,833,227,741.68
Total	7,897,819,444.91	6,350,259,386.45

• 3.1 Notes receivable

(1) Classification of notes receivable

Category	Closing balance	Opening balance
Bank acceptance notes	3,127,549,860.80	3,438,917,579.17
Commercial acceptance notes	148,473,707.50	78,114,065.60
Total	3,276,023,568.30	3,517,031,644.77

56

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• 3.1 Notes receivable — Continued

  • (2) Pledged notes receivable as at the end of the period:

	Pledged amounts
	as at the end
Item	of the period
Bank acceptance notes	1,649,264,306.31
Total	1,649,264,306.31

• (3) Notes endorsed as at the end of the period but not due as at the balance sheet date

	Amount	Amount not
	derecognized	derecognized
	as at the end	as at the end
Item	of the period	of the period
Bank acceptance notes	3,063,186,864.58
Including: Endorsed and not due	3,063,186,864.58
Discounted and not due
Commercial acceptance notes	51,518,000.05
Including: Endorsed and not due	51,518,000.05
Discounted and not due
Total	3,114,704,864.63

• (4) As at the end of the period, there were no notes receivable that are reclassified to accounts receivable due to failure of the issuers to settle the notes.

57

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• 3.2 Accounts receivable

  • (1) Accounts receivable by category

Category Individually significant and subject to separate provision for bad debts Accounts receivable subject to collective provision for bad debts based on credit risk features: Ageing analysis		Closing balance
	Book value Amount Percentage (%) 4,516,996,400.65 94.71	Provision for bad debts Amount Percentage (%) Carrying amount 128,884,759.82 2.85 4,388,111,640.83
Subtotal	4,516,996,400.65 94.71	128,884,759.82 2.85 4,388,111,640.83
Individually insignificant but subject to separate provision for bad debts	252,209,435.50 5.29	18,525,199.72 7.35 233,684,235.78
Total	4,769,205,836.15 100.00	147,409,959.54 3.09 4,621,795,876.61
Continued Category Individually significant and subject to separate provision for bad debts Accounts receivable subject to collective provision for bad debts based on credit risk features: Ageing analysis		Opening balance Provision for bad debts Amount Percentage (%) Carrying amount 126,695,268.93 4.66 2,594,077,123.51 126,695,268.93 4.66 2,594,077,123.51 17,660,941.60 6.88 239,150,618.17 144,356,210.53 4.85 2,833,227,741.68
	Book value Amount Percentage (%) 2,720,772,392.44 91.38
Subtotal	2,720,772,392.44 91.38
Individually insignificant but subject to separate provision for bad debts	256,811,559.77 8.62
Total	2,977,583,952.21 100.00

58

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

3.2 Accounts receivable — Continued

(1) Accounts receivable by category — Continued

Accounts receivable in the group provided for bad debts by using ageing analysis method are analyzed based on invoice date as follows:

Age Within three months Over three months but within six months Over six months but within one year Over one year	Closingbalance
	Accounts receivable Provision for bad debts Percentage (%) 4,324,228,260.86 62,091,036.30 6,209,103.63 10.00 16,002,894.60 8,001,447.30 50.00 114,674,208.89 114,674,208.89 100.00
Total	4,516,996,400.65 128,884,759.82 2.85

(2) Provision for bad debts made, recovered or reversed during the period

Provision for bad debts made during the period amounted to RMB9,585,215.71; provision for bad debts recovered or reversed during the period amounted to RMB6,033,634.74.

(3) Accounts receivable written-off during the period

Item	Amount
Accounts receivable that are written off	497,831.96

(4) Top five accounts receivable by closing balance of debtors

The total top five accounts receivable of the Company by closing balance of debtors amounted to RMB2,815,839,223.05, accounting for 59.04% of the closing balance of accounts receivable. A provision for bad debts of RMB1,359,046.05 in total was made as at the end of the period.

59

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Prepayments

(1) Prepayments are presented by aging as follows:

Age Within one year Over one year	Closingbalance Amount Percentage (%) 235,265,982.91 99.46 1,269,050.16 0.54	Openingbalance
		Amount Percentage (%) 238,817,912.89 99.68 777,035.82 0.32
Total	236,535,033.07 100.00	239,594,948.71 100.00

The Company had no prepayments with ageing of one year and significant amount as at the end of the period.

(2) Top five prepayments by supplier based on closing balance

The total top five prepayments of the Company by supplier based on closing balance amounted to RMB126,263,925.89, accounting for 53.38% of total closing balance of prepayments.

5. Other receivables

Item	Closing balance	Opening balance
Interests receivable	131,506.92	151,200.00
Other receivables	282,512,804.27	312,311,091.68
Total	282,644,311.19	312,462,291.68

(1) Other receivables are disclosed by category as follows

Category Individually significant and subject to separate provision for bad debts Other receivables subject to collective provision for bad debts based on credit risk features Ageing analysis Greencool Companies		Closing balance
	Book value Amount Percentage (%) 136,932,214.96 35.29 224,630,200.00 57.90	Provision for bad debts Amount Percentage (%) Carrying amount 34,669,594.78 25.32 102,262,620.18 60,030,000.00 26.72 164,600,200.00
Subtotal	361,562,414.96 93.19	94,699,594.78 26.19 266,862,820.18
Individually insignificant but subject to separate provision for bad debts	26,416,436.57 6.81	10,766,452.48 40.76 15,649,984.09
Total	387,978,851.53 100.00	105,466,047.26 27.18 282,512,804.27

60

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Other receivables — Continued

  • (1) Other receivables are disclosed by category as follows — Continued

Continued

Category Individually significant and subject to separate provision for bad debts Other receivables subject to collective provision for bad debts based on credit risk features Ageing analysis Greencool Companies		Opening balance
	Book value Amount Percentage (%) 169,159,708.01 39.99 224,630,200.00 53.10	Provision for bad debts Amount Percentage (%) Carrying amount 36,064,901.80 21.32 133,094,806.21 60,030,000.00 26.72 164,600,200.00
Subtotal	393,789,908.01 93.09	96,094,901.80 24.40 297,695,006.21
Individually insignificant but subject to separate provision for bad debts	29,232,170.95 6.91	14,616,085.48 50.00 14,616,085.47
Total	423,022,078.96 100.00	110,710,987.28 26.17 312,311,091.68

• ① Other receivables in the group provided for bad debts by aging are as follows:

Age Within three months Over three months but within six months Over six months but within one year Over one year	Closingbalance
	Other receivables Provision for bad debts Percentage (%) 96,166,127.14 4,916,461.52 491,646.15 10 3,343,355.34 1,671,677.67 50 32,506,270.96 32,506,270.96 100
Total	136,932,214.96 34,669,594.78 25.32

61

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

1. Other receivables — Continued

2. (1) Other receivables are disclosed by category as follows — Continued

   • ② Other receivables in the group provided for bad debts by Greencool Companies are as follows:

Closing balance Name Amount Provision for bad debts Jinan San Ai Fu Chemical Co., Ltd. (“Jinan San Ai Fu”) 81,600,000.00 Jiangxi Keda Plastic Technology Co. Ltd. (“Jiangxi Keda”) 13,000,200.00 Zhuhai Longjia Refrigerating Plant Co., Ltd. (“Zhuhai Longjia”) 28,600,000.00 Zhuhai Defa Air-conditioner Fittings Co., Ltd. (“Zhuhai Defa”) 21,400,000.00 Wuhan Changrong Electrical Appliance Co., Ltd. (“Wuhan Changrong”) 20,000,000.00 Beijing DeHeng Law Offices (“DeHeng Law Offices”) 2,000,000.00 2,000,000.00 Shangqiu Bingxiong Freezing Facilities Co., Ltd. (“Shangqiu Bingxiong”) 58,030,000.00 58,030,000.00	Opening balance
	Amount Provision for bad debts 81,600,000.00 13,000,200.00 28,600,000.00 21,400,000.00 20,000,000.00 2,000,000.00 2,000,000.00 58,030,000.00 58,030,000.00
Total 224,630,200.00 60,030,000.00	224,630,200.00 60,030,000.00

(2) Provision for bad debts made, recovered or reversed during the period

Provision for bad debts made during the period amounted to RMB240,802.46; provision for bad debts recovered or reversed during the period amounted to RMB5,213,977.10.

(3) Other receivables written-off during the period

Item	Amount
Other receivables that are written off	271,765.38

62

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

5. Other receivables — Continued

(4) Other receivables by nature

Nature	Closing balance	Opening balance
Security deposit	39,768,008.44	44,751,111.88
Refund of tax for exports		87,754,444.67
Balance with Greencool Companies	224,630,200.00	224,630,200.00
Other current account	123,580,643.09	65,886,322.41
Total	387,978,851.53	423,022,078.96

(5) Top five other receivables by debtor as at the end of the period

					Provision for
				Percentage	bad debts
	Relationship with			of total other	Closing
No.	the Company	Amount	Ageing	receivables (%)	balance
Top 1	“Specific third party”	81,600,000.00	Over three years	21.03
Top 2	“Specific third party”	58,030,000.00	Over three years	14.96	58,030,000.00
Top 3	“Specific third party”	28,600,000.00	Over three years	7.37
Top 4	“Specific third party”	21,400,000.00	Over three years	5.52
Top 5	“Specific third party”	20,000,000.00	Over three years	5.15
Total		209,630,000.00	–	54.03	58,030,000.00

From October 2001 to July 2005, the Greencool Companies through the third Parties incurred a series of unusual cash inflows and outflows with the Company. The companies are collectively the “specific third party”, please see note XI.6 “The Greencool Companies had a series of transactions or unusual cash inflows and outflows through the following “Specific Third Party Companies” for details.

6. Inventories

(1) Classification of inventories

Item Raw materials Works in progress Finished goods	Closingbalance
	Book value Provision for declines in value Carrying amount 421,783,766.15 31,152,972.59 390,630,793.56 226,664,084.98 9,496,028.23 217,168,056.75 3,129,659,365.14 34,841,148.16 3,094,818,216.98
Total	3,778,107,216.27 75,490,148.98 3,702,617,067.29

63

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Inventories — Continued

  • (1) Classification of inventories — Continued

Continued from above table

Item Raw materials Works in progress Finished goods	Openingbalance
	Book value Provision for declines in value Carrying amount 609,145,133.73 31,735,734.13 577,409,399.60 258,956,246.38 9,514,899.24 249,441,347.14 2,611,182,335.06 40,172,592.73 2,571,009,742.33
Total	3,479,283,715.17 81,423,226.10 3,397,860,489.07

(2) Provision for declines in value of inventories

Item Opening balance Raw materials 31,735,734.13 Works in progress 9,514,899.24 Finished goods 40,172,592.73	Increase for the period Provision for the period Others 571,607.77 207,880.31 4,470,815.87	Decrease for the period Recovered or written-off Others Closing balance 1,154,369.31 31,152,972.59 226,751.32 9,496,028.23 9,802,260.44 34,841,148.16
Total 81,423,226.10	5,250,303.95	11,183,381.07 75,490,148.98

• (3) Basis of the provision for declines in value of inventories and reasons for the reversal or write-off during the period

Reasons for the write-off of Basis of the provision for provision for declines in value of Item declines in value of inventories inventories during the period Raw materials The lower of the cost and net Removal due to sales Works in progress realizable value Finished goods

1. Other current assets

Item	Closing balance	Opening balance
Wealth management products	1,230,000,000.00	1,080,000,000.00
Prepaid tax and tax deductible	553,740,305.59	431,399,110.00
Long-term prepaid expenses	21,863,415.39	39,918,019.32
Total	1,805,603,720.98	1,551,317,129.32

64

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Long-term equity investment

Investee Opening balance I. Joint ventures Qingdao Hisense Hitachi Air-Conditioning Systems Co., Ltd. 2,125,852,095.55 Qingdao Hisense E-commerce Co., Ltd. 1,279,758.52	Change for the period Increase in investment Decrease in investment Gains or losses from investment recognised using equity method Adjustment for other comprehensive income Other change in equity Declaration of cash dividend or profit Provision for impairment made Other decreases Closing balance Closing balance of provision for impairment 372,776,271.64 2,498,628,367.19 -629,470.66 650,287.86
Subtotal 2,127,131,854.07	372,146,800.98 2,499,278,655.05
II. Associates Hisense Financial Holdings Co., Ltd. 244,913,770.50	8,674,363.22 136,340.26 2,400,000.00 251,324,473.98
Subtotal 244,913,770.50	8,674,363.22 136,340.26 2,400,000.00 251,324,473.98
III. Others Jiangxi Kelon Combine Electrical Appliances Co., Ltd. 11,000,000.00	11,000,000.00 11,000,000.00
Subtotal 11,000,000.00	11,000,000.00 11,000,000.00
Total 2,383,045,624.57	380,821,164.20 136,340.26 2,400,000.00 2,761,603,129.03 11,000,000.00

• Note: 1. As Jiangxi Kelon Combine Electrical Appliances Co., Ltd., a subsidiary of the Company, has been declared in liquidation, it has not been included in the consolidated financial statements and impairment has been fully provided for the investment cost.

• Qingdao Hisense Hitachi Air-Conditioning Systems Co., Ltd. was hereinafter referred to as “Hisense Hitachi”.

• Hisense Financial Holdings Co., Ltd. (青島海信金融控股有限公司) was hereinafter referred to as “Hisense Financial Holdings”.

• Qingdao Hisense E-commerce Co., Ltd. (青島海信電子商務有限公司) was hereinafter referred to as “Hisense E-commerce”.

• As at the end of the Reporting Period, all the joint ventures and associates of the Company were unlisted companies.

65

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Long-term equity investment — Continued

Whereas:

Item	Closing balance	Opening balance
Non-listed investment:
Equity method	2,750,603,129.03	2,372,045,624.57
Joint venture	2,499,278,655.05	2,127,131,854.07
Associate	251,324,473.98	244,913,770.50
Total	2,750,603,129.03	2,372,045,624.57

1. Investment properties

2. (1) Investment properties measured at cost

		Buildings and	Land	Construction
Item		structures	use rights	in progress	Total
I.	Original carrying amount
	1. Opening balance	69,762,765.07			69,762,765.07
	2. Increase for the period	128,924.77			128,924.77
	(1) Transferred from
	construction in
	progress	128,924.77			128,924.77
	3. Decrease for the period
	4. Closing balance	69,891,689.84			69,891,689.84
II.	Accumulated depreciation
	and accumulated
	amortisation
	1. Opening balance	44,765,326.68			44,765,326.68
	2. Increase for the period	1,306,404.44			1,306,404.44
	(1) Provision made or
	amortisation	1,306,404.44			1,306,404.44
	3. Decrease for the period
	4. Closing balance	46,071,731.12			46,071,731.12
III.	Provision for impairment
	1. Opening balance
	2. Increase for the period
	3. Decrease for the period
	4. Closing balance
IV.	Carrying amount
	1. Carrying amount as at
	the end of the period	23,819,958.72			23,819,958.72
	2. Carrying amount as at
	the beginning of the
	period	24,997,438.39			24,997,438.39

66

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

1. Investment properties — Continued

(2) Amount of investment properties without ownership certificates and reason

Item	Carrying amount	Reason for failure to obtain ownership certificates
Mee King Building	3,418,593.42	Due to historical reasons; in the process of application

• (3) Depreciation expenses for the half year of 2018 amounted to RMB1,306,404.44, and depreciation expenses for the half year of 2017 amounted to RMB1,255,596.87.

• (4) As at 30 June 2018, no investment properties were pledged by the Company.

• (5) Among the investment properties, all buildings and structures are located in the Mainland China with useful lives ranging from 20 to 50 years.

10. Fixed assets

Item	Closing balance	Opening balance
Fixed assets	3,308,063,806.80	3,251,808,744.32
Disposal of fixed assets	502,106.79	480,289.23
Total	3,308,565,913.59	3,252,289,033.55

67

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Fixed assets — Continued

  • (1) Particulars of fixed assets

				Furniture, fixtures
		Buildings and	Machinery and	and office
Item		structures	equipment	equipment	Motor vehicles	Moulds	Total
A. Cost
1.	Opening balance	2,250,830,368.97	3,276,351,791.21	438,510,148.18	35,463,548.32	1,756,173,021.62	7,757,328,878.30
2.	Additions in
	the period	58,969,802.71	176,219,841.61	31,883,426.83	1,642,796.07	114,951,224.30	383,667,091.52
	(1) Purchase	6,274,473.84	85,963,771.18	12,363,204.89	1,642,796.07	79,164,768.92	185,409,014.90
	(2) Transferred from
	construction in
	progress	52,695,328.87	90,256,070.43	19,520,221.94		35,786,455.38	198,258,076.62
3.	Reductions in
	the period	728,380.00	27,429,037.45	5,253,694.73	384,652.10	17,271,959.71	51,067,723.99
	(1) Disposal or
	retirement	728,380.00	27,429,037.45	5,253,694.73	384,652.10	17,271,959.71	51,067,723.99
4.	Closing balance	2,309,071,791.68	3,425,142,595.37	465,139,880.28	36,721,692.29	1,853,852,286.21	8,089,928,245.83
B. Accumulated
	depreciation
1.	Opening balance	956,577,237.15	1,708,221,840.43	315,717,815.46	23,130,972.73	1,351,313,248.58	4,354,961,114.35
2.	Additions in
	the period	44,595,585.59	122,113,506.88	18,787,484.13	2,010,471.45	131,540,651.35	319,047,699.40
	(1) Provision	44,595,585.59	122,113,506.88	18,787,484.13	2,010,471.45	131,540,651.35	319,047,699.40
3.	Reductions in
	the period	243,299.45	19,234,217.89	4,277,895.36	269,636.09	16,795,738.97	40,820,787.76
	(1) Disposal or
	retirement	243,299.45	19,234,217.89	4,277,895.36	269,636.09	16,795,738.97	40,820,787.76
4.	Closing balance	1,000,929,523.29	1,811,101,129.42	330,227,404.23	24,871,808.09	1,466,058,160.96	4,633,188,025.99
C. Impairment provision
1.	Opening balance	13,592,332.05	122,391,166.53	2,253,538.21	318,608.61	12,003,374.23	150,559,019.63
2.	Additions in
	the period
	(1) Provision
3.	Reductions in
	the period	415,144.70	1,448,936.48	18,525.41			1,882,606.59
	(1) Disposal or
	retirement	415,144.70	1,448,936.48	18,525.41			1,882,606.59
4.	Closing balance	13,177,187.35	120,942,230.05	2,235,012.80	318,608.61	12,003,374.23	148,676,413.04
D. Carrying amount
1.	Closing carrying
	amount	1,294,965,081.04	1,493,099,235.90	132,677,463.25	11,531,275.59	375,790,751.02	3,308,063,806.80
2.	Opening carrying
	amount	1,280,660,799.77	1,445,738,784.25	120,538,794.51	12,013,966.98	392,856,398.81	3,251,808,744.32

In the first half of 2018, the fixed assets transferred from construction in progress amounted to RMB198,258,076.62 (the previous period: RMB121,092,399.98).

(2) Depreciation expense for the first half of 2018 amounted to RMB319,047,699.40 and amounted to RMB339,201,375.55 for the first half of 2017.

• (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.

68

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Fixed assets — Continued

  • (5) The rent out fixed asset under operating lease

	Closing carrying
Item	amount
Buildings and structures	35,353,961.46
Total	35,353,961.46

• Note: Part of the above buildings and structures were rent out, which does not fulfill the definition of investment properties.

• (6) As at the end of the period, no fixed asset was held for sale.

• (7) As at the end of the period, fixed asset which has not obtained the ownership certificate

		Reasons of not obtaining
Item	Carrying amount	the ownership certificate
Buildings and structures	266,241,437.00	Achieved scheduled availability and were
		reclassified as fixed assets, the issuance
		of ownership certificate is in progress

• (8) As at the end of the period, no building or structure was pledged.

11. Constructions in progress

(1) Breakdown of constructions in progress

Closing balance Item Book value Impairment provision Net carrying amount MES system 2,997,532.97 2,997,532.97 Technology transformation of washing machine line Mequipment of Shandong Refrigerator Upgrade and transformation of Shunde Freezer Upgrade and transformation of Shunde Refrigerator Production line of Shangqiu Kelon 7,770,917.67 7,770,917.67 Others 67,671,663.51 67,671,663.51	Opening balance
	Book value Impairment provision Net carrying amount 6,176,994.48 6,176,994.48 4,172,307.77 4,172,307.77 33,187,341.21 33,187,341.21 14,785,159.64 14,785,159.64 7,770,917.67 7,770,917.67 90,040,137.70 90,040,137.70
Total 78,440,114.15 7,770,917.67 70,669,196.48	156,132,858.47 7,770,917.67 148,361,940.80

69

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Constructions in progress — Continued

  • (2) Movements in major projects of construction in progress

		Opening	Increase	Transferred to	Other	% Contribution		Source of	Closing
Name of project	Budget	balance	for the year	fixed assets	reductions	in budget	Progress	funding	balance
MES system	20,319,053.34	6,176,994.48	3,494,069.98	4,437,005.11	2,236,526.38	88.89	Not	Self-funding	2,997,532.97
							completed
Technology transformation of
washing machine line
equipment of Shandong
Refrigerator	18,473,548.75	4,172,307.77	88,461.56	4,260,769.33		100.00	Completed	Self-funding
Upgrade and transformation of
Shunde Freezer	59,392,776.40	33,187,341.21	17,436,204.45	50,515,426.00	108,119.66	100.00	Completed	Self-funding
Upgrade and transformation of
Shunde Refrigerator	14,785,159.64	14,785,159.64		14,785,159.64		100.00	Completed	Self-funding
Production line of Shangqiu Kelon		7,770,917.67					Pending	Self-funding	7,770,917.67
							retirement
Others		90,040,137.70	108,807,628.03	124,259,716.54	6,916,385.68				67,671,663.51
Total	112,970,538.13	156,132,858.47	129,826,364.02	198,258,076.62	9,261,031.72				78,440,114.15

• Note: All constructions in progress of the Company were self-financed, without capitalisation of borrowing cost and interest.

• (3) As at the end of the period, the Company had made no provision for constructions in progress.

70

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

12. Intangible assets

(1) Particulars of intangible assets

Item		Land use rights	Trademarks	Know-how	Others	Total
A. Cost
1.	Opening balance	850,225,738.33	524,409,198.95	73,100,447.88	120,861,260.18	1,568,596,645.34
2.	Additions in
	the period				10,941,766.90	10,941,766.90
	(1) Purchase				10,941,766.90	10,941,766.90
3.	Reductions in
	the period	96,339.91			2,102,305.30	2,198,645.21
	(1) Disposal or
	retirement	96,339.91			2,102,305.30	2,198,645.21
4.	Closing balance	850,129,398.42	524,409,198.95	73,100,447.88	129,700,721.78	1,577,339,767.03
B. Accumulated
	amortization
1.	Opening balance	237,662,246.69	134,130,255.55	71,296,138.61	71,482,205.93	514,570,846.78
2.	Additions in
	the period	8,400,049.01		23,650.00	8,303,503.21	16,727,202.22
	(1) Provision	8,400,049.01		23,650.00	8,303,503.21	16,727,202.22
3.	Reductions in
	the period	96,339.91			2,102,305.30	2,198,645.21
	(1) Disposal or
	retirement	96,339.91			2,102,305.30	2,198,645.21
4.	Closing balance	245,965,955.79	134,130,255.55	71,319,788.61	77,683,403.84	529,099,403.79
C. Impairment provision
1.	Opening balance	50,012,843.19	286,061,116.40		1,616,452.75	337,690,412.34
2.	Additions in
	the period
	(1) Provision
3.	Reductions in
	the period
	(1) Disposal or
	retirement
4.	Closing balance	50,012,843.19	286,061,116.40		1,616,452.75	337,690,412.34
D. Carrying amount
1.	Closing carrying
	amount	554,150,599.44	104,217,827.00	1,780,659.27	50,400,865.19	710,549,950.90
2.	Opening carrying
	amount	562,550,648.45	104,217,827.00	1,804,309.27	47,762,601.50	716,335,386.22

(2) Notes to intangible assets:

• ① Amortization of intangible assets amounted to RMB16,727,202.22 for the first half of 2018, compared to that of RMB17,685,478.47 in the first half of 2017.

• ② As at the end of the period, no land use rights were pledged.

• ③ Trademarks were not amortized due to indefinite useful lives, and no provision was made for impairment of trademarks after tested for impairment at the end of the period.

71

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

1. Long-term prepaid expenses

	Opening	Additions	Amortization	Other	Closing	Reasons for
Item	balance	in the period	in the period	deductions	balance	Other deductions
Long-term prepaid expenses	3,727,675.38	5,425,301.94	1,178,675.37		7,974,301.95
Total	3,727,675.38	5,425,301.94	1,178,675.37		7,974,301.95

14. Deferred tax assets/deferred tax liabilities

(1) Breakdown of deferred tax assets

Item Provision for impairment of assets Accrued expenses Others	Closingbalance Deductible temporary difference Deferred tax assets 117,058,061.91 26,446,227.43 397,774,643.71 61,382,840.78 90,867,732.35 23,347,401.88	Openingbalance
		Deductible temporary difference Deferred tax assets 115,233,289.38 26,877,077.44 401,527,220.72 62,295,335.79 61,560,122.70 15,232,199.94
Total	605,700,437.97 111,176,470.09	578,320,632.80 104,404,613.17

(2) Breakdown of deferred tax liabilities

Item Accelerated depreciation Financial assets held-for-trading	Closingbalance Taxable temporary difference Deferred tax liabilities 7,510,376.07 1,126,556.41 939.93 140.99	Openingbalance
		Taxable temporary difference Deferred tax liabilities 7,498,524.25 1,124,778.64 82,670.52 12,400.58
Total	7,511,316.00 1,126,697.40	7,581,194.77 1,137,179.22

15. Short-term borrowings

Item	Closing balance	Opening balance
Unsecured loan	200,000,000.00
Total	200,000,000.00

Note: It is a short-term RMB unsecured loan incurred by a subsidiary of the Company.

72

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

1. Financial liabilities held-for-trading

Item	Closing balance	Opening balance
Financial liabilities held-for-trading	2,735,600.00
Total	2,735,600.00

Notes to financial liabilities held-for-trading:

It represented mainly the outstanding forward exchange settlement and sale contracts entered into by the Company and banks, which were recognized as the financial assets or liabilities held-for-trading based on the difference between the quoted price of the outstanding forward contracts and the forward rates as at the end of the period.

The Company has implemented the new standards for financial instruments from 1 January 2018, which recognized the financial assets or liabilities held-for-trading based on the difference between the quoted price of the outstanding forward contracts and the forward rates as at the end of the period. The opening balance is presented in “financial liabilities at fair value through profit or loss for the current period”.

17. Notes and accounts payable

Item	Closing balance	Opening balance
Notes payable	6,265,960,051.52	6,141,025,710.22
Accounts payable	5,876,053,094.14	4,238,836,841.44
Total	12,142,013,145.66	10,379,862,551.66
Notes payable
Category	Closing balance	Opening balance
Bank acceptance notes	2,934,663,806.49	3,168,085,830.99
Commercial acceptance notes	3,331,296,245.03	2,972,939,879.23
Total	6,265,960,051.52	6,141,025,710.22

• 17.1 Notes payable

Note: There were no outstanding notes payable due as at the end of the period.

73

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

17.2 Accounts payable

(1) Ageing analysis of accounts payable

Ageing analysis of accounts payable based on the date of recognition is as follows:

Age	Closing balance	Opening balance
Within one year	5,763,435,934.72	4,127,751,339.22
Over one year	112,617,159.42	111,085,502.22
Total	5,876,053,094.14	4,238,836,841.44

• (2) As at 30 June 2018, accounts payable with ageing of over one year amounted to RMB112,617,159.42 (31 December 2017: RMB111,085,502.22), which represented mainly raw material payable and was not settled yet.

18. Contract liabilities

(1) Aging analysis of contract liabilities

Age	Closing balance	Opening balance
Within one year	330,473,694.91
Over one year	49,651,791.69
Total	380,125,486.60

• (2) As at 30 June 2018, contract liabilities with ageing of over one year amounted to RMB49,651,791.69, which represented advances from customers for sale of goods and were not recognised as revenue yet as at the end of the period as the relevant products had not been sold.

• (3) The Company has implemented the new standards for revenue from 1 January 2018, which recognized contract liabilities based on advances from customers as at the end of the period. The opening balance is presented in “advances from customers”.

19. Compensations payable to employee

(1) Compensations payable to employee are listed as follows:

		Increase for	Decrease for
Item	Opening balance	the period	the period	Closing balance
1. Short-term compensations	320,237,042.98	1,538,658,636.57	1,565,151,280.30	293,744,399.25
2. Post-employment benefit-defined
contribution plans	3,182,572.41	110,279,258.88	111,840,747.10	1,621,084.19
3. Termination benefits		1,084,572.93	1,084,572.93
Total	323,419,615.39	1,650,022,468.38	1,678,076,600.33	295,365,483.44

74

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Compensations payable to employee — Continued

  • (2) Short-term compensations are as follows:

		Increase for	Decrease for
Item	Opening balance	the period	the period	Closing balance
1. Wages and salaries, bonuses,
allowances and subsidies	312,555,109.93	1,343,350,203.51	1,372,423,597.42	283,481,716.02
2. Staff welfare	2,809,366.39	76,509,434.61	72,893,465.37	6,425,335.63
3. Social insurance	1,018,562.68	59,104,312.53	59,371,646.95	751,228.26
Including: Medical insurance	740,786.46	50,862,443.88	51,145,201.25	458,029.09
Work-related injury
insurance	212,558.08	3,017,625.09	3,016,828.31	213,354.86
Maternity insurance	65,218.14	5,224,243.56	5,209,617.39	79,844.31
4. Housing provident funds	1,184,902.89	51,967,889.28	52,868,620.62	284,171.55
5. Labor union funds and employee
education funds	2,669,101.09	7,726,796.64	7,593,949.94	2,801,947.79
Total	320,237,042.98	1,538,658,636.57	1,565,151,280.30	293,744,399.25

(3) Defined contribution plans are as follows:

		Increase for	Decrease for
Item	Opening balance	the period	the period	Closing balance
1. Basic pension insurance	2,527,968.49	105,880,165.84	107,691,416.60	716,717.73
2. Unemployment insurance	654,603.92	4,399,093.04	4,149,330.50	904,366.46
Total	3,182,572.41	110,279,258.88	111,840,747.10	1,621,084.19

Notes to compensations payable to employee:

• (1) There were no defaulted payables included in compensations payable to employee.

• (2) Arrangements in respect of expected payout time and amount for employee compensations payable: calculated in the current month and paid in the following month.

75

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

20. Taxes payable

Item	Closing balance	Opening balance
Value-added tax	84,422,271.37	81,072,908.93
Enterprise income tax	80,538,897.36	96,643,432.48
Others	89,241,216.94	87,847,200.45
Total	254,202,385.67	265,563,541.86

21.	Other payables Item Closing balance Opening balance Dividends payable 600,026,746.80 Other payables 2,089,597,047.68 1,709,226,096.76
	Total 2,689,623,794.48 1,709,226,096.76

21.1	Dividends payable Name Closing balance Opening balance Shareholders of listed companies 599,599,162.80 Other minority interests 427,584.00
	Total 600,026,746.80

• 21.2 Other payables

(1) Other payables by nature

Item	Closing balance	Opening balance
Current account	1,669,666,462.80	1,255,703,007.32
Deposit and margin	300,251,662.69	335,897,718.01
Payment for project and equipment	88,912,497.16	86,858,946.40
Amount payable to Greencool Companies
and specific third party	30,766,425.03	30,766,425.03
Total	2,089,597,047.68	1,709,226,096.76

(2) Significant other payables with ageing of over 1 year

		Reason for unsettlement
Name	Closing balance	or carrying forward
		Current account with specific
Zhuhai Longjia	17,766,425.03	third party
Jiangxi Greencool	13,000,000.00	Balance with Greencool Companies

76

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

22. Other current liabilities

Item	Closing balance	Opening balance	Reasons for the balance
Installation fees	582,649,779.19	345,046,680.30	Installation fee provided
			for but not yet paid in
Sales discounts	117,514,038.19	112,056,773.38	Incurred but not yet settled
Others	222,195,242.01	182,244,126.72	Incurred but not yet settled
Total	922,359,059.39	639,347,580.40

23. Provisions

	Closing	Opening
Item	balance	balance
Pending litigation	8,916,982.00	5,795,550.00
Provision for warranties*	315,420,452.73	307,505,595.64
Others	23,790,000.00	23,790,000.00
Total	348,127,434.73	337,091,145.64

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

24. Government grants

(1) Details of the government grant recognized at the beginning of the period

		Related	to assets		Related	to revenue
			Book value of					Actually
		Deferred	assets that are	Deferred	Other	Non-operating	Written down	received
Item	Amount	income	written down	income	income	income	of costs	or not
Other government grants
related to assets	5,056,100.00	5,056,100.00						Yes
Refund of value-added tax	57,935,837.05				57,935,837.05			Yes
Other government grants
related to daily operation	27,969,059.66				27,627,259.66			Yes
Government grants not
related to daily operation	20,547,265.28					20,547,265.28		Yes
Total	–	5,056,100.00			85,563,096.71	20,547,265.28		–

Note: There were no outstanding government grants to be received for the period.

77

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Government grants — Continued

  • (2) Details of government grants to be included in the profit or loss for the period

							Included	in
			Related to		Included in		non-operating		Written down
	Item		assets/revenue		other income		income		of costs
	Other government grants related
	to assets		Related to assets		4,792,668.14
	Refund of value-added tax		Related to revenue		57,935,837.05
	Other government grants related
	to daily operation		Related to revenue		27,627,259.66
	Government grants not related
	to daily operation		Related to revenue				20,547,265.28
	Total		–		90,355,764.85		20,547,265.28
Deferred income
Item					Closing balance			Opening balance
Deferred income						73,276,553.27			73,013,121.41
Total						73,276,553.27			73,013,121.41
		Opening	Increase for	Decrease for					Reason for
Item		balance	the period		the period	Closing balance			occurrence
Government grants		73,013,121.41	5,056,100.00	4,792,668.14		73,276,553.27			Amortization
									of government
									grants
Total		73,013,121.41	5,056,100.00	4,792,668.14		73,276,553.27			–

1. Deferred income

78

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

25. Deferred income — Continued

Of which, items relating to government grants:

		New grants	New grants	Amount
			received	included in			Related
	Opening		during	other income	Other	Closing	to assets/
Liabilities	balance	the period		during the period	changes	balance	revenue
State debenture	21,450,000.00					21,450,000.00	Related to
projects for							assets
technical
advancement
and industry
upgrade
Technology reform	1,306,666.67			140,000.00		1,166,666.67	Related to
project for design							assets
and production
of high-precision
smart moulds
Production	112,500.00			112,500.00			Related to
technology reform							assets
project for energy-
saving household
SBS large-size
refrigerator
Transformation	11,520,000.00					11,520,000.00	Related to
project on							assets
system integration
technology of
green supply chain
of freezers
Others	38,623,954.74	5,056,100.00		4,540,168.14		39,139,886.60	Related to
							assets
Total	73,013,121.41	5,056,100.00		4,792,668.14		73,276,553.27

79

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

26. Share capital

Categories of shares Opening balance Restricted floating shares subject to lock-up 1,100,497.00 Including: Other domestic shares 1,100,497.00 Including: Shares held by domestic natural persons 1,100,497.00 Unrestricted floating shares not subject to lock-up 1,361,624,873.00 Including: RMB ordinary shares 902,035,065.00 Overseas listed foreign shares 459,589,808.00	Categories of shares Opening balance Restricted floating shares subject to lock-up 1,100,497.00 Including: Other domestic shares 1,100,497.00 Including: Shares held by domestic natural persons 1,100,497.00 Unrestricted floating shares not subject to lock-up 1,361,624,873.00 Including: RMB ordinary shares 902,035,065.00 Overseas listed foreign shares 459,589,808.00	Change for the period (+,-) Issue of new shares Bonus issue Conversion from reserve Others Subtotal Closing balance 1,100,497.00 1,100,497.00 1,100,497.00 1,361,624,873.00 902,035,065.00 459,589,808.00
Total number of shares 1,362,725,370.00		1,362,725,370.00
Capital reserve (1) Changes in capital reserve Item Share premium Other capital reserve Total		Opening balance Increase for the period Decrease for the period Closing balance 1,974,061,180.93 1,974,061,180.93 114,830,375.43 114,830,375.43
	Total	2,088,891,556.36 2,088,891,556.36

27. Capital reserve

(2) Notes to changes in capital reserve:

There was no change in the capital reserve during the period.

80

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

1. Other comprehensive income

Item Opening balance 1. Other comprehensive income that would not be reclassified subsequently to profit or loss Including: Share of other comprehensive income of investee that not to be reclassified into profit or loss under equity method 2. Other comprehensive income that would be reclassified subsequently to profit or loss 7,370,127.86 Including: Share of other comprehensive income of investee that would be reclassified into profit or loss under equity method Difference arising from translation of financial statements presented in foreign currency 7,370,127.86

Amount incurred in the period Amount before income tax for the period Less: Amount included in other comprehensive income in previous period and transfered to profit or loss in current period Less: income tax expense Attributable to parent after tax Attributable to minority interest after tax Closing balance -35,338.60 -35,338.60 7,334,789.26 136,340.26 136,340.26 136,340.26 -171,678.86 -171,678.86 7,198,449.00

Total other comprehensive income 7,370,127.86

-35,338.60 -35,338.60 7,334,789.26

81

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

29. 30. 31.	Surplus reserve Item Opening balance Increase for the period Decrease for the period Closing balance Statutory surplus reserve 460,339,686.31 460,339,686.31	Surplus reserve Item Opening balance Increase for the period Decrease for the period Closing balance Statutory surplus reserve 460,339,686.31 460,339,686.31
	Total 460,339,686.31 460,339,686.31
	Undistributed profits Item Amount for the period Amount for previous period Undistributed profits at the end of the previous period before adjustment 2,525,976,933.34 1,083,914,592.96 Adjustment for total undistributed profits as at the beginning of the period (+ for increase and – for decrease) Undistributed profits as at the beginning of the period after adjustment 2,525,976,933.34 1,083,914,592.96 Add: Net profits attributable to the shareholders of the parent in current period 802,958,013.85 1,997,530,073.54 Less: Appropriation of statutory surplus reserve 146,650,122.16 Dividends payable on ordinary shares 599,599,162.80 408,817,611.00
	Undistributed profits at the end of the period 2,729,335,784.39 2,525,976,933.34
	Operating revenue and operating costs (1) Operating revenue and operating costs Item Amount for the period Amount for previous period Revenue from principal operations 18,439,652,550.65 15,988,986,946.73 Revenue from other operations 1,931,106,738.93 1,617,370,474.68 Total operating revenue 20,370,759,289.58 17,606,357,421.41 Costs of principal operations 14,788,200,733.98 12,796,472,032.26 Costs of other operations 1,836,432,576.46 1,551,228,731.04 Total operating costs 16,624,633,310.44 14,347,700,763.30
		Total operating revenue 20,370,759,289.58 17,606,357,421.41
		Costs of principal operations 14,788,200,733.98 12,796,472,032.26 Costs of other operations 1,836,432,576.46 1,551,228,731.04
		Total operating costs 16,624,633,310.44 14,347,700,763.30

82

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Operating revenue and operating costs — Continued

(2) Principal operations (by products)

Products 1. Refrigerators and washing machines 2. Air-conditioners 3. Others	Amount for the period Operating revenue Operating costs 7,922,828,341.20 6,398,661,638.28 9,648,456,857.31 7,679,113,408.34 868,367,352.14 710,425,687.36	Amount for previous period
		Operating revenue Operating costs 6,668,625,568.41 5,374,279,321.90 8,524,894,129.91 6,814,028,367.21 795,467,248.41 608,164,343.15
Total	18,439,652,550.65 14,788,200,733.98	15,988,986,946.73 12,796,472,032.26

(3) Principal operations (by region)

Region Domestic Overseas	Amount for the period Operating revenue Operating costs 12,421,473,427.49 9,040,237,068.69 6,018,179,123.16 5,747,963,665.29	Amount for previous period
		Operating revenue Operating costs 9,956,646,420.24 7,184,100,335.59 6,032,340,526.49 5,612,371,696.67
Total	18,439,652,550.65 14,788,200,733.98	15,988,986,946.73 12,796,472,032.26

• (4) Operating revenue from the top five customers

The percentage of top five customers of the Company to the total revenue from principal operation for the period is 49.35%, of which the percentage of top one customer is 20.95%.

32. Tax and surcharges

	Amount for	Amount for
Item	the period	previous period
City maintenance and construction tax	28,286,310.63	28,610,291.96
Education surcharges	19,755,406.73	17,624,367.76
Others	113,029,591.09	88,840,006.30
Total	161,071,308.45	135,074,666.02

Note: For details of the standard charge rate of various taxes and surcharges, please see note V “Taxation”.

83

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

33. Sales expenses

	Amount for	Amount for
Item	the period	previous period
After-sales service, logistics, promotional and advertising costs	1,824,584,660.00	1,532,607,995.63
Staff costs and other	819,288,826.50	734,780,764.38
Total	2,643,873,486.50	2,267,388,760.01
Management expenses
	Amount for	Amount for
Item	the period	previous period
Management expenses	214,080,347.92	220,996,266.44
Total	214,080,347.92	220,996,266.44

34. Management expenses

Note: Management expenses mainly comprised staff costs.

1. Financial expenses

	Amount for	Amount for
Item	the period	previous period
Interest expenses*	2,472,249.99
Less: Interest income	15,885,956.22	10,404,401.67
Exchange gain or loss	1,752,989.08	17,584,638.25
Others	24,927,829.78	-2,511,138.33
Total	13,267,112.63	4,669,098.25

• Interest expenses for the half year of 2018 were the interests on bank borrowings of the last instalment of repayment within five years.

36. Impairment losses on assets

	Amount for	Amount for
Item	the period	previous period
1. Bad debt loss		-5,592,934.55
2. Loss on decline in value of inventories	-3,507,882.40	3,705,229.39
3. Impairment loss on fixed assets		996,846.18
Total	-3,507,882.40	-890,858.98

The Company has implemented the new standards for financial instruments from 1 January 2018, which recognized bad debt provision based on credit loss as “credit impairment loss”. The closing balance is presented in “credit impairment loss”.

84

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

37. Other income

				Amount included
				in non-recurring
		Amount for	Amount for	profit or loss of
Item		the period	previous period	the current period
Refund of value-added tax	57,935,837.05		35,231,407.16
Other government grants related
to daily operation	32,419,927.80		18,587,527.91	32,419,927.80
Total	90,355,764.85		53,818,935.07	32,419,927.80
Investment gain
			Amount for	Amount for
Item			the period	previous period
Investment income of other equity instruments invested
in the holding period			10,142,200.00	13,227,800.00
Gain from long-term equity investment under the equity		method	380,821,164.20	331,090,333.07
Investment gain from disposal of financial assets at fair value
through profit or loss			-271,460.10	3,701,448.14
Investment gain from wealth management products			28,060,935.88	18,232,134.06
Total			418,752,839.98	366,251,715.27
Investment income of other equity instruments invested		in the holding	period
			Amount for	Amount for
Investee			the period	previous period
Qingdao Hisense International Marketing Co., Ltd.			10,142,200.00	13,227,800.00
Total			10,142,200.00	13,227,800.00
Gain from long-term equity investment under the equity		method
			Amount for	Amount for
Investee			the period	previous period
Hisense Hitachi			372,776,271.64	331,193,198.81
Hisense Financial Holdings			8,674,363.22	-102,865.74
Hisense E-commerce			-629,470.66
Total			380,821,164.20	331,090,333.07

38. Investment gain

Note: The gains from equity investment under the equity method of the Company for the current period were all generated from non-listed investments.

85

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Gain arising from changes in fair value

40. 41. 42.	Sources of gain arising from changes in fair value Amount for the period Amount for previous period Financial assets at fair value through profit or loss -81,730.56 -9,695,070.04 Financial liabilities at fair value through profit or loss -2,361,876.65 -5,071,196.80
	Total -2,443,607.21 -14,766,266.84
	Gains on disposal of assets Item Amount for the period Amount for previous period Amount included in non-recurring profit or loss of the current period Gains on disposal of fixed assets 490,656.98 8,051,447.98 490,656.98 Losses on disposal of fixed assets -18,719.13 -2,542,241.78 -18,719.13
	Total 471,937.85 5,509,206.20 471,937.85
	Non-operating income Item Amount for the period Amount for previous period Amount included in non-recurring profit or loss of the current period Gain from scrapping of non-current assets 1,059,975.06 1,130,019.96 1,059,975.06 Government grants not related to daily operation of the enterprise 20,547,265.28 46,395,853.43 20,547,265.28 Others 25,405,823.67 27,264,956.94 25,405,823.67
	Total 47,013,064.01 74,790,830.33 47,013,064.01
	Non-operating expenses Item Amount for the period Amount for previous period Amount included in non-recurring profit or loss of the current period Loss on scrapping of non-current assets 1,680,409.68 5,351,041.90 1,680,409.68 Others 10,215,845.68 1,019,843.99 10,215,845.68
	Total 11,896,255.36 6,370,885.89 11,896,255.36

86

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Income tax expenses

(1) Income tax expenses

	Amount for	Amount for
Item	the period	previous period
Current income tax	118,458,277.21	119,998,424.44
Deferred tax expenses	-6,782,338.74	-2,005,879.62
Total	111,675,938.47	117,992,544.82

• (2) Reconciliation of accounting profit and income tax expenses is as follows:

	Amount for
Item	the period
Total profits	941,565,883.57
Income tax expense calculated at statutory (or applicable) tax rates	285,688,144.43
Effect of application of different tax rate to certain subsidiaries	-47,844,789.65
Adjustment to income tax in previous period	-313,535.51
Effect of non-taxable income	-109,089,175.86
Effect of non-deductible cost, expense and loss	650,203.23
Effect of utilization of deductible losses unrecognized as
deferred tax assets in previous period	-15,519,568.74
Effect of deductible temporary difference or deductible loss
unrecognized as deferred tax assets in current period	12,776,555.86
Changes in opening balance of deferred tax assets/liabilities arising
from changes in tax rate
Effect of super deduction of research and development expense	-14,671,895.29
Others
Income tax expense	111,675,938.47

87

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

1. Calculation of basic and diluted earnings per share

		Amount for	Amount for
Item		the period	previous period
Net profits attributable to ordinary shareholders
of the Company of the reporting period	P1	802,958,013.85	672,098,859.30
Non-recurring item attributable to ordinary
shareholders of the Company of the reporting
period	F	53,556,014.52	67,586,659.67
Net profits after non-recurring item attributable
to ordinary shareholders of the Company of
the reporting period	P2=P1-F	749,401,999.33	604,512,199.63
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	1,362,725,370.00	1,362,725,370.00
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	1,362,725,370.00	1,362,725,370.00
Basic earnings per share attributable to ordinary
shareholders of the Company	Y1=P1/S	0.59	0.49
Basic earnings per share attributable to ordinary
shareholders of the Company after non-recurring
items	Y2=P2/S	0.55	0.44
Diluted earnings per share attributable to
ordinary shareholders of the Company	Y3=(P1+P3)/X2	0.59	0.49
Diluted earnings per share attributable to
ordinary shareholders of the Company after
non-recurring items	Y4=(P2+P4)/X2	0.55	0.44

45. Other comprehensive incomes

Please see note VI.28 “Other comprehensive income” for details.

88

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

• Notes to cash flows statement

  • (1) Other cash receipt related to operating activities

(2) (3) (4) (5)

Item Amount for the period Amount for previous period Interest incomes 15,905,649.30 10,404,401.67 Government grants 111,508,261.99 76,047,280.61 Other 253,567,461.55 196,382,643.53 Total 380,981,372.84 282,834,325.81 Other cash payment related to operating activities Item Amount for the period Amount for previous period Cash payments 1,637,178,183.48 1,701,772,027.47 Other 228,687,673.76 467,362,436.73 Total 1,865,865,857.24 2,169,134,464.20 Other cash receipt related to investing activities Item Amount for the period Amount for previous period Disposal of wealth management products upon maturity 1,580,000,000.00 2,800,000,000.00 Total 1,580,000,000.00 2,800,000,000.00 Other cash payment related to investing activities Item Amount for the period Amount for previous period Acquisition of wealth management products 1,730,000,000.00 1,500,000,000.00 Total 1,730,000,000.00 1,500,000,000.00 Other cash payments related to financing activities Item Amount for the period Amount for previous period Security deposit 365,328,088.72 1,016,209,836.70 Total 365,328,088.72 1,016,209,836.70

89

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

47. Supplementary information on cash flows statement

• (1) Supplementary information on cash flows statement

	Amount for	Amount for
Supplementary information	the period	previous period
1. Reconciliation of net profit to cash flows from operating
activities:
Net profit	829,889,945.10	705,367,756.35
Add: Provision for assets impairment	-4,929,476.07	-890,858.98
Depreciation of fixed assets , depletion of oil and gas assets
and depreciation of productive biological assets	320,354,103.84	340,456,972.42
Amortization of intangible assets	16,727,202.22	17,685,478.47
Amortization of long-term prepaid expenses	1,178,675.37	2,751,060.09
Loss on disposals of fixed assets, intangible and other
longterm assets (Gain denoted in “-”)	-471,937.85	-5,509,206.20
Loss on scrapping of fixed assets (Gain denoted in “-”)	620,434.62	4,221,021.94
Loss on change in fair value (Gain denoted in “-”)	2,443,607.21	14,766,266.84
Financial expenses (Gain denoted in “-”)	2,472,249.99
Investment loss (Gain denoted in “-”)	-418,752,839.98	-366,251,715.27
Decrease in deferred tax assets (Increase denoted in “-”)	-6,771,856.92	-2,140,919.43
Increase in deferred tax liabilities (Decrease denoted in “-”)	-10,481.82	135,039.81
Decrease in inventory (Increase denoted in “-”)	-298,823,501.10	-176,930,020.09
Decrease in operating receivables (Increase denoted in “-”)	-1,648,786,734.48	-1,355,522,112.02
Increase in operating payables (Decrease denoted in “-”)	1,841,808,265.78	1,422,009,361.06
Others
Net cash flows from operating activities	636,947,655.91	600,148,124.99
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	1,155,443,174.12	1,273,505,868.70
Less: Cash at the beginning of the period	952,318,970.66	794,984,893.88
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	203,124,203.46	478,520,974.82

90

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

1. Supplementary information on cash flows statement — Continued

2. (2) Details of cash and cash equivalents

	Amount for	Amount for
Item	the period	previous period
1. Cash	1,155,443,174.12	1,273,505,868.70
Including: Cash on hand	5,453.38	6,313.99
Bank deposit that are readily available for payment	1,155,437,720.74	1,273,499,554.71
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	1,155,443,174.12	1,273,505,868.70
Including: Cash and cash equivalents of the parent
or subsidiaries subject to restrictions on use

48. Assets with limited ownership or use rights

	Closing
Item	carrying amount	Reason for limitation
Monetary funds	2,409,037,312.94	As secured amount
Notes receivables	1,649,264,306.31	As collaterals for bank
		acceptance notes
Total	4,058,301,619.25

91

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

49. Monetary items in foreign currencies

(1) Monetary items in foreign currencies

				Closing balance
		Closing balance		denominated
Item	of foreign currency		Translation rate	in RMB
Cash at bank and on hand
Including: USD		34,352,789.56	6.6166	227,298,667.40
EUR		5,207,772.89	7.6515	39,847,274.27
HKD		4,618,181.83	0.8431	3,893,589.10
GBP		55,562.11	8.6551	480,895.62
Accounts receivable
Including: USD		17,530,643.98	6.6166	115,993,258.96
EUR		5,338,550.85	7.6515	40,847,921.83
Other receivables:
Including: USD		80,000.00	6.6166	529,328.00
EUR		49,888.25	7.6515	381,719.94
Accounts payable
Including: USD		1,609,132.45	6.6166	10,646,985.77
EUR		575,851.96	7.6515	4,406,131.27
Other payables:
Including: USD		2,996,805.01	6.6166	19,828,660.03
EUR		1,148,516.11	7.6515	8,787,871.02

(2) Overseas operating entities

			Whether there
			is change of
	Principal place	Functional	functional
Name	of business	currency	currency
Kelon International Incorporation	Hong Kong	HKD	No
Pearl River Electric Refrigerator Co., Ltd.	Hong Kong	HKD	No
Kelon Development Co., Ltd.	Hong Kong	HKD	No
Hisense Mould (Deutschland) GmbH	Germany	EUR	No

92

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

50. 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

	Refrigerators and			Inter-segment
Amount for the period	washing machines	Air-conditioners	Others	elimination	Total
1. Revenue from external sales	7,922,828,341.20	9,648,456,857.31	868,367,352.14		18,439,652,550.65
2. Revenue from Inter-segment			857,738,034.96	-857,738,034.96
3. Gain from investment in associates
and jointly controlled entities	-314,735.33	372,461,536.31	8,674,363.22		380,821,164.20
4. Depreciation and amortization	195,618,680.70	103,030,565.55	38,432,059.81		337,081,306.06
5. Gain from changes in fair value			-2,443,607.21		-2,443,607.21
6. Impairment losses on assets
(including credit impairment loss)	-5,646,597.36	1,115,973.34	-398,852.05		-4,929,476.07
7. Total profit (Total loss)	105,589,542.84	738,395,199.57	116,577,309.89	-18,996,168.73	941,565,883.57
8. Total assets	16,386,441,287.17	13,760,463,626.00	3,732,943,459.79	-9,402,888,447.74	24,476,959,925.22
9. Total liabilities	10,946,010,474.75	9,987,436,686.16	1,851,271,388.12	-5,475,762,908.39	17,308,955,640.64
10. Additions to other non-current
assets other than long-term
equity investments	-69,016,710.87	35,297,606.87	16,358,808.22		-17,360,295.78

Continued from above table

	Refrigerators and			Inter-segment
Amount for previous period	washing machines	Air-conditioners	Others	elimination	Total
1. Revenue from external sales	6,668,625,568.41	8,524,894,129.91	795,467,248.41		15,988,986,946.73
2. Revenue from Inter-segment			677,843,132.62	-677,843,132.62
3. Gain from investment in associates
and jointly controlled entities		331,193,198.81	-102,865.74		331,090,333.07
4. Depreciation and amortization	205,748,643.65	108,892,019.32	43,501,787.92		358,142,450.89
5. Gain from changes in fair value			-14,766,266.84		-14,766,266.84
6. Impairment losses on assets	-1,318,203.17	1,389,590.94	-962,246.75		-890,858.98
7. Total profit (Total loss)	33,336,260.70	691,360,632.42	130,510,839.19	-31,847,431.14	823,360,301.17
8. Total assets	14,903,068,963.20	12,904,568,348.40	4,059,752,756.52	-10,438,777,068.80	21,428,612,999.32
9. Total liabilities	9,839,070,015.12	10,217,433,790.94	2,305,089,198.55	-6,549,788,588.26	15,811,804,416.35
10. Additions to other non-current
assets other than long-term
equity investments	-98,841,500.30	-68,283,534.34	70,165,382.60		-96,959,652.04

93

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VI. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — Continued

50. Segment information — Continued

(2) Geographic Information

	Amount for	Amount for
	the period/closing	previous period/
Region	balance	opening balance
Revenue from domestic transactions	12,421,473,427.49	9,956,646,420.24
Revenues from overseas transactions	6,018,179,123.16	6,032,340,526.49
Total	18,439,652,550.65	15,988,986,946.73
Non-current assets — Domestic	6,974,793,253.90	6,613,223,821.24
Non-current assets — Overseas	12,465,666.86	12,837,890.84
Total	6,987,258,920.76	6,626,061,712.08

The Company mainly operates in Mainland China, where the majority of non-current assets are located, Therefore it is not necessary to present further details of the regional information.

VII. CHANGE IN SCOPE OF CONSOLIDATION

There was no change in the scope of consolidation during the reporting period.

VIII. INTERESTS IN OTHER ENTITIES

1. Interests in subsidiaries

(1) Composition of enterprise group

		Principal			Shareholding	Shareholding
		place of	Place of		percentage (%)
Name of subsidiary	Abbreviation	business	registration	Business nature	Direct	Indirect	Method for acquisition
Hisense Ronshen (Guangdong) Refrigerator Co.,	Guangdong	Foshan	Foshan	Manufacturing	70	30	Establishment or investment
Ltd.	Refrigerator
Guangdong Kelon Airconditioner Co., Ltd. (i)	Guangdong	Foshan	Foshan	Manufacturing	60		Establishment or investment
	Airconditioner
Hisense Ronshen (Guangdong) Freezer Co., Ltd.	Guangdong Freezer	Foshan	Foshan	Manufacturing	44	56	Establishment or investment
Guangdong Hisense Home Appliances Co., Ltd.	Hisense Home	Foshan	Foshan	Manufacturing	81.17		Establishment or investment
	Appliances
Foshan Shunde Rongsheng Plastic Co., Ltd.	Rongsheng Plastic	Foshan	Foshan	Manufacturing	44.92	25.13	Establishment or investment
Guangdong Kelon Mould Co., Ltd.	Kelon Mould	Foshan	Foshan	Manufacturing		70.11	Establishment or investment
Guangdong Huaao Electronics Co., Ltd. (i)	Huaao Electronics	Foshan	Foshan	Manufacturing		70	Establishment or investment
Guangdong Foshan Shunde Kelon Property	Kelon Property	Foshan	Foshan	Provision of	80	20	Establishment or investment
Service Co., Ltd.				services
Foshan Shunde Wangao Import & Export Co., Ltd.	Wangao I&E	Foshan	Foshan	Trading	20	80	Establishment or investment
Foshan Shunde Kelon Jiake Electronics Co., Ltd.	Jiake Electronics	Foshan	Foshan	Manufacturing	70	30	Establishment or investment
Guangdong Kelon Weili Electrical Appliances Co.,	Kelon Weili	Zhongshan	Zhongshan	Manufacturing	55	25	Establishment or investment
Ltd.
Hisense Ronshen (Yingkou) Refrigerator Co., Ltd.	Yingkou Refrigerator	Yingkou	Yingkou	Manufacturing	42	36.79	Establishment or investment
Jiangxi Kelon Industrial Development Co., Ltd.	Jiangxi Kelon	Nanchang	Nanchang	Manufacturing	60	40	Establishment or investment

94

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VIII. INTERESTS IN OTHER ENTITIES — Continued

1. Interests in subsidiariess — Continued

2. (1) Composition of enterprise groups — Continued

		Principal			Shareholding	Shareholding
		place of	Place of		percentage (%)
Name of subsidiary	Abbreviation	business	registration	Business nature	Direct	Indirect	Method for acquisition
Jiangxi Kelon Combine Electrical Appliances Co.,	Combine	Nanchang	Nanchang	Manufacturing		55	Establishment or investment
Ltd. (ii)
Hangzhou Kelon Electrical Co., Ltd.	Hangzhou Kelon	Hangzhou	Hangzhou	Manufacturing	100		Establishment or investment
Hisense Ronshen (Yangzhou) Refrigerator Co., Ltd.	Yangzhou	Yangzhou	Yangzhou	Manufacturing	74.33	25.67	Establishment or investment
	Refrigerator
Shangqiu Kelon Electrical Co., Ltd.	Shangqiu Kelon	Shangqiu	Shangqiu	Manufacturing		100	Establishment or investment
Zhuhai Kelon Electrical Industrial Development	Zhuhai Kelon	Zhuhai	Zhuhai	Manufacturing	75	25	Establishment or investment
Co., Ltd.
Shenzhen Kelon Purchase Co., Ltd.	Shenzhen Kelon	Shenzhen	Shenzhen	Trading	95	5	Establishment or investment
Pearl River Electric Refrigerator Co., Ltd.	Pearl River	Hong Kong	Hong Kong	Trading		100	Establishment or investment
	Refrigerator
Kelon Development Co., Ltd.	Kelon Development	Hong Kong	Hong Kong	Investment	100		Establishment or investment
Kelon International Incorporation	KII	Hong Kong	British Virgin Islands	Trading		100	Establishment or investment
Hisense (Chengdu) Refrigerator Co., Ltd.	Chengdu	Chengdu	Chengdu	Manufacturing	100		Establishment or investment
	Refrigerator
Hisense (Shandong) Refrigerator Ltd.	Shandong	Qingdao	Qingdao	Manufacturing	100		Establishment or investment
	Refrigerator
Guangdong Hisense Refrigerator Marketing Co.,	Refrigerator	Foshan	Foshan	Trading		78.82	Establishment or investment
Ltd.	Marketing
	Company
Qingdao Hisense Airconditioner Marketing Co.,	Airconditioner	Qingdao	Qingdao	Trading		75.57	Establishment or investment
Ltd.	Marketing
	Company
Hisense (Guangdong) AirConditioner Company	Hisense Guangdong	Jiangmen	Jiangmen	Manufacturing		100	Establishment or investment
Limited	Air-Conditioner
Hisense (Guangdong) Mould Plastic Company	Hisense Guangdong	Jiangmen	Jiangmen	Manufacturing		100	Establishment or investment
Limited	Mould Plastic
Jiangmen Hisense Electrical Appliances Co., Ltd.	Jiangmen Hisense	Jiangmen	Jiangmen	Manufacturing		100	Establishment or investment
	Electrical
	Appliances
Hisense (Beijing) Electric Co., Ltd.	Beijing Refrigerator	Beijing	Beijing	Manufacturing	55		Business combination under
							common control
Hisense (Shandong) AirConditioning Co. Ltd.	Shandong	Qingdao	Qingdao	Manufacturing	100		Business combination under
	Airconditioning						common control
Hisense (Zhejiang) Airconditioning Co., Ltd.	Zhejiang	Huzhou	Huzhou	Manufacturing		100	Business combination under
	Airconditioning						common control
Qingdao Hisense Mould Co., Ltd.	Hisense Mould	Qingdao	Qingdao	Manufacturing	78.70		Business combination under
							common control
Hisense (Nanjing) Electric Company Limited	Nanjing Refrigerator	Nanjing	Nanjing	Manufacturing		60	Business combination under
							common control
Zhejiang Hisense Electric Co., Ltd.	Zhejiang Hisense	Huzhou	Huzhou	Manufacturing		100	Business combination not
							under common control
Qingdao Hisense Commercial Cold Chain Co.,	Commercial Cold	Qingdao	Qingdao	Manufacturing		70	Establishment or investment
Ltd.	Chain
Hisense Changsha Electronic Commerce Co., Ltd.	Changsha	Changsha	Changsha	Trading		100	Establishment or investment
	Electronic
Hisense Mould (Deutschland) GmbH	Deutschland	Germany	Germany	Manufacturing		98	Establishment or investment

• Business combination under common control

• Business combination under common control

• 100 Business combination under common control

• Business combination under common control

• 60 Business combination under common control

95

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VIII. INTERESTS IN OTHER ENTITIES — Continued

1. Interests in subsidiariess — Continued

(1) Composition of enterprise groups — Continued

Notes:

• (i) The Company holds 60% equity interest in Guangdong Air-conditioner and 70% equity interest in Huaao Electronics. However, as the Company has undertaken to provide them with financial support, bear 100% of their losses and enjoy 100% of their voting rights, they have been accounted for as long-term equity investment at a 100% shareholding percentage;

• (ii) The Company holds 55% equity interest in Combine. As Combine had been declared in liquidation, it has not been included in the consolidated financial statements;

• (iii) All subsidiaries incorporated in the PRC are companies with limited liability, save for Refrigerator Marketing Company, Air-conditioner Marketing Company and Commercial Cold Chain which are joint-stock companies with limited liability;

(2) Principal non-wholly-owned subsidiaries

		Gain or loss		Closing
	Percentage of	attributable to	Dividends paid to	balance
	minority interest	minority interests	minority interests	of minority
Name of subsidiary	(%)	for the period	for the period	interests
Refrigerator Marketing Company	21.18	1,869,485.17	170,172.00	49,835,986.49
Air-conditioner Marketing Company	24.43	8,878,497.31	6,951,300.00	47,144,671.48

(3) Major financial information of principal non-wholly-owned subsidiaries

RMB’0000

Closing balance

	RMB’0000 Closing balance
Name of subsidiary Refrigerator Marketing Company Air-conditioner Marketing Company (Continued) Name of subsidiary Refrigerator Marketing Company Air-conditioner Marketing Company	Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities 506,707.99 2,153.10 508,861.09 485,331.35 485,331.35 659,627.09 1,397.71 661,024.80 641,726.94 641,726.94 Opening balance
	Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities 571,012.13 2,201.67 573,213.80 550,486.40 550,486.40 395,938.30 1,386.82 397,325.12 378,815.86 378,815.86

96

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VIII. INTERESTS IN OTHER ENTITIES — Continued

1. Interests in joint ventures or associates

2. (1) Significant joint ventures or associates

				Shareholding	Shareholding	Accounting method for
Name of joint venture	Principal place	Place of		percentage (%)		investment in joint ventures
or associate	of business	registration	Business nature	Direct	Indirect	or associates
Hisense Hitachi	Qingdao	Qingdao	Manufacturing	49.00		Equity method
Hisense Financial Holdings	Qingdao	Qingdao	Provision of financial	24.00		Equity method
			services
Hisense E-commerce	Qingdao	Qingdao	E-commerce		45.00	Equity method

• (2) Major financial information of significant joint ventures

Item Current assets Including: Cash and cash equivalents Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Minority interest Equity attributable to shareholders of the parent company Share of net assets based on shareholding percentage Adjustments – Goodwill – Unrealized profit from intra-group transactions – Others Carrying amount of equity investments in joint ventures Fair value of investments in joint ventures with public quoted prices Operating revenue Net profit Net profit from discontinued operations Other comprehensive income Total comprehensive income Dividend received from joint ventures during the period	Closing balance/ Amount for the period Hisense Hitachi 893,859.60 509,189.12 207,684.91 1,101,544.51 561,847.98 13,457.75 575,305.73 20,161.90 506,076.88 247,977.67 1,885.17 249,862.84 543,762.47 79,639.07 79,639.07	RMB’0000 Opening balance/ Amount for previous period
		Hisense Hitachi 817,748.63 521,555.24 145,782.95 963,531.58 504,131.66 10,357.71 514,489.36 19,357.18 429,685.04 210,545.67 2,039.54 212,585.21 441,781.49 71,128.03 71,128.03

97

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

VIII. INTERESTS IN OTHER ENTITIES — Continued

1. Interests in joint ventures or associates — Continued

(3) Aggregated financial information of insignificant joint ventures and associates

			RMB’0000	RMB’0000
	Closing balance/		Opening balance/
	Amount for the		Amount for
Item		period	previous period
Joint ventures:
Total carrying amount of investments		65.03		127.98
Amounts in aggregate in proportion to the shareholdings:
– Net profit		-62.95
– Other comprehensive income
– Total comprehensive income		-62.95
Associates:
Total carrying amount of investments		25,131.99	24,491.38
Amounts in aggregate in proportion to the shareholdings:
– Net profit		867.44		-10.29
– Other comprehensive income		13.63
– Total comprehensive income		881.07		-10.29

IX. RISKS RELATING TO FINANCIAL INSTRUMENTS

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 with respect to the above financial instruments include: credit risk, liquidity risk, interest rate risk and foreign currency risk.

1. Credit risk

Credit risk is the risk to which the Company is exposed to on financial losses due to the failure of clients or financial instrument counterparties to fulfill their contractual obligations, mainly with respect to bank balances, trade and other receivables and financial derivative.

The Company maintains substantially all of its bank balances in domestic financial institutions with higher credit rating. The Board believes these assets are not exposed to significant credit risk that would cause financial losses.

The Company mitigates its exposure to risks in respect of trade and other receivables by dealing with diversified customers with healthy financial positions. Certain new customers are required by the Company to make cash payment in order to minimise credit risk. The Company 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.

98

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IX. RISKS RELATING TO FINANCIAL INSTRUMENTS — Continued

2. Liquidity risk

In respect of 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 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 accounts and other payables, availability of borrowings and loan financing provided by Hisense Finance, and it is concluded that the Company has adequate funding to fulfill its short-term obligations and capital expenditure requirements.

As at the balance sheet date, the undiscounted contractual cash flows of financial assets and financial liabilities of the Company based on maturity date were as follows:

30 June 2018

Item	Within 1 year	1 to 2 years	2 to 5 years	Over 5 years	Total
Financial assets
Cash at bank and on hand	3,564,480,487.06				3,564,480,487.06
Financial assets
held-for-trading	939.96				939.96
Notes and accounts
receivable	8,045,228,325.94				8,045,228,325.94
Other receivables	388,110,358.45				388,110,358.45
Other current assets	1,805,603,720.98				1,805,603,720.98
Total	13,803,423,832.39				13,803,423,832.39
Financial liabilities
Short-term borrowings	200,000,000.00				200,000,000.00
Financial liabilities
held-for-trading	2,735,600.00				2,735,600.00
Notes and accounts
payable	12,142,013,145.66				12,142,013,145.66
Other payables	2,689,623,794.48				2,689,623,794.48
Other current liabilities	922,359,059.39				922,359,059.39
Total	15,956,731,599.53				15,956,731,599.53

99

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• IX. RISKS RELATING TO FINANCIAL INSTRUMENTS — Continued

• Liquidity risk — Continued

31 December 2017

Item	Within 1 year	1 to 2 years	2 to 5 years	Over 5 years	Total
Financial assets
Cash at bank and on hand	2,996,028,194.89				2,996,028,194.89
Financial assets at fair value
through profit or loss	82,670.52				82,670.52
Notes and accounts
receivable	6,494,615,596.98				6,494,615,596.98
Other receivables	423,022,078.96				423,022,078.96
Other current assets	1,551,317,129.32				1,551,317,129.32
Total	11,465,065,670.67				11,465,065,670.67
Financial liabilities
Financial liabilities at fair
value through profit or loss
for the current period	373,723.35				373,723.35
Notes and accounts payable	10,379,862,551.66				10,379,862,551.66
Other payables	1,709,226,096.76				1,709,226,096.76
Other current liabilities	639,347,580.40				639,347,580.40
Total	12,728,809,952.17				12,728,809,952.17

The maturity of bank and other borrowings were analyzed as follows:

As at 30 June 2018, all bank loans of the Company were one-year bank loans (31 December 2017: no bank and other borrowings).

100

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IX. RISKS RELATING TO FINANCIAL INSTRUMENTS — Continued

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 30 June 2018, the bank borrowings of the Company were short-term borrowings. As such, changes in the interest rate are not considered to have significant impact on the Company’s performance.

4.

Foreign currency risk

Foreign currency risk is the risk of loss due to adverse change in exchange rates with respect to investments and transactions denominated in foreign currencies. The Group’s monetary assets and transactions are mainly denominated in RMB, HKD, USD and EUR. The exchange rates between RMB, HKD, USD and EUR are not pegged, and there is fluctuation in exchange rates between RMB, USD and EUR.

The carrying amounts of the Company’s monetary assets and liabilities denominated in foreign currencies at the end of reporting period are as follows:

Currency USD EUR	Closingbalance Assets Liabilities 343,821,254.36 30,475,645.80 81,076,916.04 13,194,002.29	Openingbalance
		Assets Liabilities 530,948,560.89 40,863,002.66 59,787,423.79 5,442,353.92

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:

		Amount for
	Amount for the period	previous period
	Increase/Decrease	Increase/Decrease
Item	in profit after tax	in profit after tax
USD to RMB
Appreciates by 5%	11,750,460.32	31,223,952.17
Depreciates by 5%	-11,750,460.32	-31,223,952.17
EUR to RMB
Appreciates by 5%	2,545,609.27	421,248.43
Depreciates by 5%	-2,545,609.27	-421,248.43

101

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

IX. RISKS RELATING TO FINANCIAL INSTRUMENTS — Continued

1. Foreign currency risk — Continued

Sensitivity analysis of change in forward rate:

		Amount for
	Amount for the period	previous period
	Increase/Decrease	Increase/Decrease
Item	in profit after tax	in profit after tax
USD to RMB
Appreciates by 5%	-450,000.00	-562,500.00
Depreciates by 5%	450,000.00	562,500.00
EUR to RMB
Appreciates by 5%	-39,195.00	-1,197,862.50
Depreciates by 5%	39,195.00	1,197,862.50

• X. DISCLOSURE OF FAIR VALUE

• Fair value of assets and liabilities measured at fair value as at the end of the period

Item I. Fair value measurement on a recurring basis (i) Financial assets held-for-trading Total assets measured at fair value on a recurring basis (ii) Financial liabilities held-for-trading Total liabilities measured at fair value on a recurring basis	Fair value as at the end of the period
	Level 1 Fair value measurement Level 2 Fair value measurement Level 3 Fair value measurement Total 939.96 939.96 939.96 939.96 2,735,600.00 2,735,600.00 2,735,600.00 2,735,600.00

1. Valuation techniques and qualitative and quantitative information for level 2 items measured on and not on a recurring basis

As at the balance sheet date, the Company had obtained forward rate quotations from contracted banks, which were determined based on the remaining term to maturity. The fair values of forward exchange contracts were determined by multiplying the difference between the quotations and agreed exchange rate for forward exchange contracts by the amount for forward exchange settlement.

102

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XI. RELATED PARTIES AND RELATED TRANSACTIONS

1. Particulars of the parent

(Unit: RMB’0000)

		Category of	Place of	Legal
Name of the Parent	Relationship	enterprise	registration	Representative	Business Nature
Qingdao Hisense	Controlling	Foreign-sino Joint	Qingdao	Tang Ye Guo	Manufacture of	air-conditioners, moulds
Air-conditioning	Shareholder	Venture			and provision	of after-sale services
Hisense Group	Ultimate Holding	State wholly-owned	Qingdao	Zhou Houjian	Entrusted operation of state-owned assets;
	shareholder				manufacture	and sales of household appliances,
					communication, products and services
Continued from	above table
		Shareholding	Voting rights
	Registered	of the parent	of the parent
Name of the Parent	capital	(%)	(%)	Ultimate holding company		Creditability codel
Qingdao Hisense	67,479	37.92	37.92	State-owned Assets	Supervision	913702126143065147
Air-conditioning				and Administration Commission
				of Qingdao Municipal
Hisense Group	80,617			State-owned Assets	Supervision	913702001635787718
				and Administration Commission
				of Qingdao Municipal

2. Subsidiaries of the Company

Please see note VIII.1 “Interests in subsidiaries”.

3. Joint ventures and associates of the Company

For details of the joint ventures and associates of the Company, please see note VIII.2 “Interests in joint ventures or associates”.

103

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• XI. RELATED PARTIES AND RELATED TRANSACTIONS — Continued

4. Greencool Companies

Name of related parties of Greencool Companies

Relationship with the Company

Guangdong Greencool Jiangxi Greencool Electrical Appliance Co., Ltd. (“Jiangxi Greencool”)

Former controlling shareholder of the Company Related party of Guangdong Greencool

1. Other related parties of the Company

Name of other related parties

Relationship of other related parties with the Company

Hisense Finance Co., Ltd. (“Hisense Finance”) Hisense Electric Co., Ltd. (“Hisense Electric”) Beijing Xuehua Group Company Limited (“Xuehua Group”) Hisense (Hong Kong) Co., Ltd. (“Hisense HK”)

Subsidiary of ultimate holding company Subsidiary of ultimate holding company Minority shareholder of Beijing Refrigerator Subsidiary of ultimate holding company

1. 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

Jinan San Ai Fu Jianxi Keda Zhuhai Longjia Zhuhai Defa Wuhan Changrong DeHeng Law Offices Shangqiu Bingxiong

Specific Third Party Company Specific Third Party Company Specific Third Party Company Specific Third Party Company Specific Third Party Company Specific Third Party Company Specific Third Party Company

104

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• XI. RELATED PARTIES AND RELATED TRANSACTIONS — Continued

• Related party transactions

  • (1) Purchase of goods/receipt of services

Amount for the Period Related Party Particulars of related parties transactions Pricing and decision-making procedures of related parties transactions Amount Percentage to similar transaction (%) Hisense Group Purchase of finished goods Agreed Price 99,502.52 Hisense Electric Purchase of finished goods Agreed Price Hisense Hitachi Purchase of finished goods Agreed Price 32,191.45	Amount for previous period
	Amount Percentage to similar transaction (%) 5,128.21 22,735.04
Subtotal of purchase of finished good 131,693.97	27,863.25
Hisense Group Purchase of raw materials Agreed Price 87,886,539.95 0.53 Hisense Electric Purchase of raw materials Agreed Price 3,142,807.20 0.02 Hisense Hitachi Purchase of raw materials Agreed Price 4,686,703.99 0.03	40,426,841.38 0.28 5,379,414.27 0.04 5,655,062.33 0.04
Subtotal of purchase of raw materials 95,716,051.14 0.58	51,461,317.98 0.36
Hisense Group Receipt of services Agreed Price 195,127,485.82 1.17 Hisense Electric Receipt of services Agreed Price 6,336,424.13 0.04 Xuehua Group Receipt of services Agreed Price 327,004.96	195,488,933.87 1.36 4,616,022.71 0.03
Subtotal of receipt of services 201,790,914.91 1.21	200,104,956.58 1.39
Hisense HK Financing Agency Agreed Price 171,598,410.50 1.03	190,614,932.27 1.33
Subtotal of financing purchase 171,598,410.50 1.03	190,614,932.27 1.33

105

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• XI. RELATED PARTIES AND RELATED TRANSACTIONS — Continued

• Related party transactions — Continued

  • (1) Purchase of goods/receipt of services — Continued

    • ① The Company and Hisense Group and Hisense Electric entered into a Business Cooperation Framework Agreement on 28 November 2017. During the effective period of the agreement, the transaction with the Company as the purchaser and recipient of services was subject to an aggregate cap (exclusive of value-added tax) of RMB880,010,000.

    • ② The Company and Hisense Hitachi entered into a Business Framework Agreement on 28 November 2017 and a Supplemental Agreement for Business Framework Agreement on 8 May 2018. During the effective period of the agreements, the transaction with the Company as the purchaser was subject to an aggregate cap (exclusive of value-added tax) of RMB44,630,000.

    • ③ The Company and Hisense HK entered into a Financing Purchase Framework Agreement on 28 November 2017. During the effective period of the agreement, the transaction in which the Company engaged Hisense HK to perform financing purchase as its agent was subject to an aggregate cap of US$100,000,000.

The above agreements were considered and approved at the ninth interim meeting of the Company’s ninth session of the board of directors in 2017 convened on 28 November 2017, the first interim meeting of the Company’s ninth session of the board of directors in 2018 convened on 8 May 2018, the first extraordinary general meeting in 2018 convened on 18 January 2018 and the 2017 annual general meeting convened on 26 June 2018 respectively.

• ④ The above transactions with Hisense Group, Hisense Electric, Hisense HK, constitute continuous connected transactions under Chapter 14A of the Listing Rules. The Company confirmed that it has complied with the relevant disclosure requirement and shareholders’ approval requirement under Chapter 14A of the Listing Rules with respect to such continuing connected transactions (with the exceptions of the Purchase Financing Agency Framework Agreement between the Company and Hisense HK, which was made on normal commercial terms and in the interest of the Company, without any charge on the Group’s assets for the financial assistance. As such, the connected transactions between the Company and Hisense HK were exempted from the requirements of reporting, announcement and shareholders’ approval according to rules 14A.65(4) and 14A.76(1) (b) under the Listing Rules).

Other than the above transactions, the transactions with related parties conducted in 2018 as disclosed in note XI of the financial statements in the 2018 interim report do not constitute connected transactions under Chapter 14A of the Listing Rules.

106

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• XI. RELATED PARTIES AND RELATED TRANSACTIONS — Continued

• Related party transactions — Continued

  • (2) Sale of goods/rendering of service

Amount for the period Name of related party Particulars of related transactions Pricing policies and procedures for decision-making Amount Percentage to similar transaction (%) Hisense Group Sale of finished goods Agreed price 5,650,785,478.47 27.74 Hisense Electric Sale of finished goods Agreed price 1,189,521.97 0.01 Hisense Hitachi Sale of finished goods Agreed price 254,961,622.12 1.25	Amount for previous period
	Amount Percentage to similar transaction (%) 4,261,189,716.88 24.20 719,054.62 206,211,908.40 1.17
Subtotal of sales amount of finished product 5,906,936,622.56 29.00	4,468,120,679.90 25.37
Hisense Group Materials Agreed price 33,360,002.54 0.16 Hisense Electric Materials Agreed price 6,913,959.97 0.03 Hisense Hitachi Materials Agreed price 1,158,968.81 0.01	22,820,750.25 0.13 10,695,423.66 0.06 930,456.66 0.01
Subtotal of sales amount of raw materials 41,432,931.32 0.20	34,446,630.57 0.20
Hisense Group Sale of mould and equipment Market price 40,270,112.02 0.20 Hisense Electric Sale of mould Market price 55,081,747.72 0.27 Hisense Hitachi Sale of mould Market price 11,156,800.62 0.05	139,166,425.44 0.79 42,358,974.34 0.24 1,835,897.44 0.01
Subtotal of sales amount of moulds 106,508,660.36 0.52	183,361,297.22 1.04
Hisense Group Rendering of service Agreed price 6,688,463.45 0.03 Hisense Electric Rendering of service Agreed price 1,022,398.21 0.01 Hisense Hitachi Rendering of service Agreed price Xuehua Group Rendering of service Agreed price 458,450.45	12,141,874.75 0.07 4,548.42
Subtotal of rendering of service 8,169,312.11 0.04	12,146,423.17 0.07

107

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XI. RELATED PARTIES AND RELATED TRANSACTIONS — Continued

1. Related party transactions — Continued

2. (2) Sale of goods/rendering of service — Continued

   • ① The Company and Hisense Group and Hisense Electric entered into a Business Cooperation Framework Agreement on 28 November 2017. During the effective period of the agreement, the transaction with the Company as the supplier and service provider was subject to an aggregate cap (exclusive of value-added tax) of RMB13,732,860,000.

   • ② The Company and Hisense Hitachi entered into a Business Framework Agreement on 28 November 2017 and a Supplemental Agreement for Business Framework Agreement on 8 May 2018. During the effective period of the agreements, the transaction with the Company as the supplier and service provider was subject to an aggregate cap (exclusive of value-added tax) of RMB805,230,000.

The above agreements were considered and approved at the ninth interim meeting of the Company’s ninth session of the board of directors in 2017 convened on 28 November 2017, the first interim meeting of the Company’s ninth session of the board of directors in 2018 convened on 8 May 2018, the first extraordinary general meeting in 2018 convened on 18 January 2018 and the 2017 annual general meeting convened on 26 June 2018 respectively.

• ③ The above transactions with Hisense Group, Hisense Electric, constitute continuous connected transactions under Chapter 14A of the Listing Rules. The Company confirmed that it has complied with the relevant disclosure requirement and shareholders’ approval requirement under Chapter 14A of the Listing Rules.

Other than the above transactions, the transactions with related parties conducted in 2018 as disclosed in note XI of the financial statements in the 2018 interim report do not constitute connected transactions under Chapter 14A of the Listing Rules.

(3) Other connected transactions

As at 30 June 2018, the Company had the balance of deposit of RMB3,140,000,000, interest income received of RMB13,561,600, the balance of loan of RMB200,000,000, balance of electronic bank acceptance bill of RMB2,960,000,000, the handling fee for opening accounts for electronic bank acceptance bill of RMB1,631,900, interest paid on the loans of RMB2,472,200, interest payment for discounted notes of RMB7,537,400, settlement and sale of foreign exchange services of US$2,640,500 and the service fee paid for the provision of agency services such as settlement services for receipt and payment of funds of RMB157,200 with Hisense Finance.

As of 30 June 2018, the Company had a recourse in the Hisense Financial Holdings, and the balance of commercial factoring business was RMB99.9730 million; and the balance of non-recourse commercial factoring business was RMB54.4072 million.

108

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• XI. RELATED PARTIES AND RELATED TRANSACTIONS — Continued

• Receivables from and payables to related parties

  • (1) Receivables from related parties

Item Related party Notes Receivable Hisense Electric and its subsidiaries Notes Receivable Hisense Group and its subsidiaries Notes Receivable Hisense Hitachi	Closing Balance Book Value Provision for bad debts 38,564,518.78 71,126,414.50 22,308,650.29	Opening Balance
		Book Value Provision for bad debts 44,914,566.88 24,265,961.53 17,468,894.11
Subtotal	131,999,583.57	86,649,422.52
Accounts Receivable Hisense Electric and its subsidiaries Accounts Receivable Hisense Group and its subsidiaries Accounts Receivable Hisense Hitachi	58,920,847.02 1,743,275,543.91 199,023.98 59,728,025.07	30,059,041.39 1,096,554,035.84 62,950.00 29,986,398.94
Subtotal	1,861,924,416.00 199,023.98	1,156,599,476.17 62,950.00
Other Receivables Hisense Electric and its subsidiaries Other Receivables Hisense Group and its subsidiaries	18,385.69 1,271,877.24	10,000.00 67,474.16 51,998.90
Subtotal	1,290,262.93	77,474.16 51,998.90
Prepayments Hisense Group and its subsidiaries	2,797,671.16	1,908,430.82
Subtotal	2,797,671.16	1,908,430.82

109

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• XI. RELATED PARTIES AND RELATED TRANSACTIONS — Continued

• Receivables from and payables to related parties — Continued

  • (2) Amount due to Related Parties from Listed Companies

		Closing	Opening
Item	Related Parties	Balance	Balance
Note payable	Hisense Group and its subsidiaries		5,650,000.00
Subtotal			5,650,000.00
Accounts Payable	Hisense Electric and its subsidiaries	705,707.47
Accounts Payable	Hisense Group and its subsidiaries	43,123,166.56	32,607,968.92
Accounts Payable	Hisense Hitachi	668,408.98	1,797,741.86
Subtotal		44,497,283.01	34,405,710.78
Other Payables	Hisense Group and its subsidiaries	20,173,322.48	17,871,480.24
Other Payables	Xuehua Group and its subsidiaries	100,859.00	185,656.11
Subtotal		20,274,181.48	18,057,136.35
Advances from Customers	Hisense Group and its subsidiaries	1,478,039.70	2,010,825.02
Subtotal		1,478,039.70	2,010,825.02

110

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• XI. RELATED PARTIES AND RELATED TRANSACTIONS — Continued

• Transactions with “specific third party companies”

		Closing	Opening
Item	Related Parties	Carrying Amount	Carrying Amount
	Jinan San Ai Fu	81,600,000.00	81,600,000.00
	Jiangxi Keda	13,000,200.00	13,000,200.00
	Zhuhai Longjia	28,600,000.00	28,600,000.00
Other Receivables	Zhuhai Defa	21,400,000.00	21,400,000.00
	Wuhan Changrong	20,000,000.00	20,000,000.00
	DeHeng Law Offices	2,000,000.00	2,000,000.00
	Shangqiu Bingxiong	58,030,000.00	58,030,000.00
Subtotal of other receivables		224,630,200.00	224,630,200.00
Other Payables	Zhuhai Longjia	17,766,425.03	17,766,425.03
Subtotal of other payables		17,766,425.03	17,766,425.03
Transactions with Greencool	Companies
		Closing	Opening
Item	Related parties	Carrying Amount	Carrying Amount
Other Payables	Jiangxi Greencool	13,000,000.00	13,000,000.00
Subtotal of other payables		13,000,000.00	13,000,000.00

1. Transactions with Greencool Companies

111

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XII. SHARE-BASED PAYMENT

Nil.

XIII. COMMITMENTS AND CONTINGENCIES

1. Significant commitments

(1) Capital commitments

		Unit: RMB’0000
Item	Closing balance	Opening balance
Commitments in respect of investment in subsidiaries
and jointly controlled entity (commitment to purchase
long-term assets):
– Authorized but not contracted
– Contracted but not paid	6,770.84	4,585.21
Commitments in respect of acquisition of the property,
plant and equipment of subsidiaries (commitment
for external investment):
– Contracted but not paid

(2) Operating lease commitments

Please see note XV.4 “Lease” for details.

2. Contingencies

Contingent liabilities arising from pending litigations and arbitration and their financial impacts

As at 30 June 2018, the Company was involved, as defendant, in litigations with amount of RMB24,168,857.80, and provision of RMB8,916,982.00 had been made.

XIV. SUBSEQUENT EVENTS

Nil.

112

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XV. 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/liabilities	in fair value	the period	Balance
Financial Assets
Financial assets held-for-trading	82,670.52		-81,730.56		939.96
Subtotal of financial Assets	82,670.52		-81,730.56		939.96
Financial liabilities
Financial liabilities held-for-trading	-373,723.35		-2,361,876.65		-2,735,600.00
Subtotal of financial liabilities	-373,723.35		-2,361,876.65		-2,735,600.00

2. 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 Company 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 Company 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 periods ended 30 June 2018 and 31 December 2017.

113

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XV. OTHER SIGNIFICANT EVENTS — Continued

2. Capital Management — Continued

The Company 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	Closing Balance	Opening Balance
Total Debt	17,308,955,640.64	14,520,296,800.80
Including: Short-term borrowings	200,000,000.00
Notes and accounts payable	12,142,013,145.66	10,379,862,551.66
Other Payables	2,689,623,794.48	1,709,226,096.76
Less: Cash and Cash equivalents	1,155,443,174.12	952,318,970.66
Net Debt	16,153,512,466.52	13,567,977,830.14
Equity attributable to shareholders of the Parent	6,648,627,186.32	6,445,303,673.87
Capital and net debt	22,802,139,652.84	20,013,281,504.01
Gearing Ratio	70.84%	67.79%

1. 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.

4. 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 and structures	5,917.39	6,250.83
Total	5,917.39	6,250.83

114

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XV. OTHER SIGNIFICANT EVENTS — Continued

1. Leases — Continued

(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 the half year of 2018 amounted to RMB18,437,200 (half year of 2017: RMB22,646,400). The minimum rent receivables under non-cancellable operating leases at the end of reporting period are follows:

		Unit: RMB’0000
	Amount for	Amount for
Item	the Period	previous Period
Within one year	924.94	486.08
Over one year but within five years, inclusive	805.23	1,066.49
Total	1,730.17	1,552.57

• (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 period ended 30 June 2018 was as follows:

		Unit: RMB’0000
	Amount for	Amount for
Operating lease payments	the Period	previous period
Leasehold land and buildings	1,658.94	1,890.44
Plant and machinery	1.61	69.33
Total	1,660.55	1,959.77

(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	the period	previous period
Within one year	1,259.20	1,525.25
Over one year but within five years	1,993.28	1,755.81
Total	3,252.48	3,281.06

115

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVI. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT

1. Notes and Accounts Receivable

Item	Closing balance	Opening balance
Notes receivable
Accounts receivable	9,921,659.23	9,632,170.78
Total	9,921,659.23	9,632,170.78

• (1) Disclosure of accounts receivable by categories

Carrying Amount Category Amount % of total balance Individually significant and subject to separate provision Accounts receivable subject to collective provision for bad debts based on credit risk features: Ageing analysis 112,307,632.70 93.64		Closing Balance
		Provision for bad debts Amount % of total balance Carrying Amount 108,710,686.99 96.80 3,596,945.71
Subtotal 112,307,632.70 93.64		108,710,686.99 96.80 3,596,945.71
Individually insignificant but subject to separate provision 7,633,913.25 6.36		1,309,199.73 17.15 6,324,713.52
Total 119,941,545.95 100.00		110,019,886.72 91.73 9,921,659.23

116

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

• XVI. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT — Continued

• Notes and Accounts Receivable — Continued

  • (1) Disclosure of accounts receivable by categories — Continued

Continued

Carrying Amount Category Amount % of total balance Individually significant and subject to separate provision Accounts receivable subject to collective provision for bad debts based on credit risk features: Ageing analysis 112,260,028.30 93.63		Closing Balance
		Provision for bad debts Amount % of total balance Carrying Amount 108,952,571.04 97.05 3,307,457.26
Subtotal 112,260,028.30 93.63		108,952,571.04 97.05 3,307,457.26
Individually insignificant but subject to separate provision 7,633,913.25 6.37		1,309,199.73 17.15 6,324,713.52
Total 119,893,941.55 100.00		110,261,770.77 91.97 9,632,170.78

117

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVI. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT — Continued

1. Notes and Accounts Receivable — Continued

(1) Disclosure of accounts receivable by categories — 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	ClosingBalance
	Accounts receivable Provision for bad debts % of total Balance 134.47 13.45 10 7,193,649.39 3,596,824.70 50 105,113,848.84 105,113,848.84 100
Total	112,307,632.70 108,710,686.99 96.80

(2) Provision for bad debts made, recovered or reversed during the period

No provision for bad debts was made during the period; provision for bad debts recovered or reversed during the period amounted to RMB241,884.05.

(3) Top five accounts receivable by closing balance of debtors

The total top five accounts receivable of the Company by closing balance of debtors amounted to RMB64,855,781.90, accounting for 54.07% of the closing balance of accounts receivable. A provision for bad debts of RMB29,058,222.72 in total was made as at the end of the period.

118

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVI. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT — Continued

1. Other Receivables

Item	Closing balance	Opening balance
Dividends receivable	8,114,596.00
Other receivables	1,209,821,021.81	1,235,500,456.32
Total	1,217,935,617.81	1,235,500,456.32

(1) Other Receivables are disclosed by category as follows

Item Individually significant and subject to separate provision Other receivables subject to collective provision for bad debts based on credit risk features Ageing Analysis Greencool Companies		Closing Balance
	Book value Amount Percentage (%) 1,229,378,653.34 99.89	Provision for bad debts Amount Percentage (%) Carrying Amount 20,241,631.53 1.65 1,209,137,021.81
Subtotal	1,229,378,653.34 99.89	20,241,631.53 1.65 1,209,137,021.81
Individually insignificant but subject to separate provision	1,368,000.00 0.11	684,000.00 50.00 684,000.00
Total	1,230,746,653.34 100.00	20,925,631.53 1.70 1,209,821,021.81

119

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVI. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT — Continued

1. Other Receivables — Continued

2. (1) Other Receivables are disclosed by category as follows — Continued

Continued

Category Individually significant and subject to separate provision Other receivables subject to collective provision for bad debts based on credit risk features Ageing Analysis Greencool Companies		Opening Balance
	Book value Amount Percentage (%) 1,255,686,304.97 99.89	Provision for bad debts Amount Percentage (%) Carrying Amount 20,869,848.65 1.66 1,234,816,456.32
Subtotal	1,255,686,304.97 99.89	20,869,848.65 1.66 1,234,816,456.32
Individually insignificant but subject to separate provision	1,368,000.00 0.11	684,000.00 50.00 684,000.00
Total	1,257,054,304.97 100.00	21,553,848.65 1.71 1,235,500,456.32

120

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVI. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT — Continued

1. Other Receivables — Continued

2. (1) Other Receivables are disclosed by category as follows — 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	ClosingBalance
	Other receivables % of total Balance Provision for bad debts 1,208,815,303.39 315,645.60 31,564.56 10 75,274.76 37,637.38 50 20,172,429.59 20,172,429.59 100
Total	1,229,378,653.34 20,241,631.53 1.65

(2) Provision for bad debts made, recovered or reversed during the period

Provision for bad debts during the period amounted to RMB17,840.85; provision for bad debts recovered or reversed during the period amounted to RMB596,057.97.

(3) Other receivables that are written off for the period

Item		Amount
Other receivables that are written off		50,000.00
Other receivables by nature
		Book value
	Book value	as at the
	as at the end	beginning
Nature	of the period	of the period
Security deposit	1,368,000.00	1,368,000.00
Other current account	1,229,378,653.34	1,255,686,304.97
Total	1,230,746,653.34	1,257,054,304.97

(4) Other receivables by nature

• (5) Top five other receivables by debtor as at the end of the period

				Percentage of	Provision for
				closing balance	bad debts
				of total other	Closing
Name	Nature	Closing balance	Ageing	receivables (%)	balance
Top 1	Inter-group current account payments	240,680,722.57	Within three months	19.56
Top 2	Inter-group current account payments	182,281,173.16	Within three months	14.81
Top 3	Inter-group current account payments	176,791,761.53	Within three months	14.36
Top 4	Inter-group current account payments	118,782,377.50	Within three months	9.65
Top 5	Inter-group current account payments	84,878,178.11	Within three months	6.90
Total	—	803,414,212.87	—	65.28

121

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVI. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT — Continued

1. Long-term equity investments

2. (1) Breakdown of long-term equity investments

Item Investments in subsidiaries Investments in associates and joint ventures	Closing balance Book value Impairment provision Carrying amount 2,513,391,236.55 59,381,641.00 2,454,009,595.55 2,749,952,841.17 2,749,952,841.17	Opening balance
		Book value Impairment provision Carrying amount 2,513,391,236.55 59,381,641.00 2,454,009,595.55 2,370,765,866.05 2,370,765,866.05
Total	5,263,344,077.72 59,381,641.00 5,203,962,436.72	4,884,157,102.60 59,381,641.00 4,824,775,461.60
Investments in subsidiaries Investee Opening balance Increase for the period Decrease for the period Guangdong Refrigerator 155,552,425.85 Guangdong Air-conditioner 281,000,000.00 Guangdong Freezer 15,668,880.00 Hisense Home Appliances 51,531,053.70 Rongsheng Plastic 53,270,064.00 Wangao I&E 600,000.00 Jiake Electronics 42,000,000.00 Yingkou Refrigerator 84,000,000.00 Jiangxi Kelon 147,763,896.00 Hangzhou Kelon 24,000,000.00 Yangzhou Refrigerator 252,356,998.00 Zhuhai Kelon 189,101,850.00 Shenzhen Kelon 95,000,000.00 Kelon Development 11,200,000.00 Chengdu Refrigerator 50,000,000.00 Beijing Refrigerator 92,101,178.17 Shandong Air-conditioning 567,175,477.74 Hisense Mould 121,628,013.09 Shandong Refrigerator 275,000,000.00 Kelon Property 4,441,400.00		Closing balance Provision for impairment made during the period Closing balance of provision for impairment 155,552,425.85 281,000,000.00 59,381,641.00 15,668,880.00 51,531,053.70 53,270,064.00 600,000.00 42,000,000.00 84,000,000.00 147,763,896.00 24,000,000.00 252,356,998.00 189,101,850.00 95,000,000.00 11,200,000.00 50,000,000.00 92,101,178.17 567,175,477.74 121,628,013.09 275,000,000.00 4,441,400.00
Total 2,513,391,236.55		2,513,391,236.55 59,381,641.00

• (2) Investments in subsidiaries

122

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVI. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT — Continued

1. Long-term equity investments — Continued

2. (3) Investments in associates and joint ventures

Investee Opening balance I. Joint ventures Hisense Hitachi 2,125,852,095.55	Change for the period
	Increase in investment Decrease in investment Gains or losses from investment recognised using equity method Adjustment for other comprehensive income Other change in equity 372,776,271.64
Subtotal 2,125,852,095.55	372,776,271.64
II. Associates Hisense Financial Holdings 244,913,770.50	8,674,363.22 136,340.26
Subtotal 244,913,770.50	8,674,363.22 136,340.26
Total 2,370,765,866.05	381,450,634.86 136,340.26

(Continued)

Investee I. Joint ventures Hisense Hitachi	Change for the period Declaration of cash dividend or profit Provision for impairment made Other decreases Closing balance Closing balance of provision for impairment 2,498,628,367.19
Subtotal	2,498,628,367.19
II. Associates Hisense Financial Holdings	2,400,000.00 251,324,473.98
Subtotal	2,400,000.00 251,324,473.98
Total	2,400,000.00 2,749,952,841.17

123

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVI. NOTES TO MAJOR ITEMS OF THE FINANCIAL STATEMENTS OF THE PARENT — Continued

1. Operating revenue and operating costs

5.	Item Amount for the period Amount for previous period Revenue from principal operations 725,459.41 -4,215,077.15 Revenue from other operations 36,670,952.71 38,494,057.62	Item Amount for the period Amount for previous period Revenue from principal operations 725,459.41 -4,215,077.15 Revenue from other operations 36,670,952.71 38,494,057.62
	Total operatingrevenue 37,396,412.12 34,278,980.47
	Costs of principal operations -421,933.47 Costs of other operations 32,349,596.88 34,515,685.41
	Total operating costs 32,349,596.88 34,093,751.94
	Investment income (1) Breakdowns of investment income Item Amount for the period Amount for previous period Gain from long-term equity investment under the cost method 30,410,182.64 39,100,612.37 Investment income of other equity instruments invested in the holding period 10,142,200.00 13,227,800.00 Gain from long-term equity investment under the equity method 381,450,634.86 331,193,198.81 Gain from disposal of long-term equity investment 30,628,882.06 Investment gain from wealth management products 20,493,155.06 Total 442,496,172.56 414,150,493.24 (2) Income from long-term equity investment — the equity method Investee Amount for the period Amount for previous period Hisense Hitachi 372,776,271.64 331,193,198.81 Hisense Financial Holdings 8,674,363.22 -102,865.74 Total 381,450,634.86 331,090,333.07
		Total 442,496,172.56 414,150,493.24
		Income from long-term equity investment — the equity method Investee Amount for the period Amount for previous period Hisense Hitachi 372,776,271.64 331,193,198.81 Hisense Financial Holdings 8,674,363.22 -102,865.74
		Total 381,450,634.86 331,090,333.07

124

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVII. SUPPLEMENTARY INFORMATION

1. Breakdown of non-recurring profit or loss

Item	Amount	Explanation
Profit or loss from disposal of non-current assets	-148,496.77
Return, reduction and exemption of taxes surpassing approval or
without official approval document
Government grants included in the gain or loss (excluding those government
grants that are closely related to the enterprise’s normal operation and
business and are received with fixed amounts or with fixed percentage in
compliance with national policies)	52,967,193.08
Capital occupation fees received from non-financial enterprises
that are included in current profits or losses
Gain arising under the circumstance where the investment cost for
acquisition of subsidiaries, associates and joint ventures is lower
than the fair value of the net assets attributable to the enterprise
Gain or loss arising from non-monetary assets exchange
Gain or loss arising from entrusted investment or entrusted asset
management
Asset impairment provided due to forced majeure (e.g. natural disasters)
Gain or loss arising from debt restructuring
Corporate restructuring expenses (e.g. staff placement costs and
integration expenses)
Gain or loss arising from the difference between the fair value and
transaction price in obviously unfair transactions
Net current profit or loss of subsidiaries arising from business
combination under common control from beginning of year to
the combination 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 effective hedging activities
related to the Company’s normal operations and investment gain
from disposal of financial assets and liabilities held-for-trading and
available-forsale financial assets
Reversal of impairment provision for accounts receivable individually
tested for impairment
Gain or loss arising from entrusted loan
Gain or loss arising from changes in fair value of investment
properties measured subsequently by using fair value model
Effect on current profit or loss of one-off adjustment to current profit
or loss as required by taxation, accounting and other laws and regulations
Custody fee income from entrusted operations
Other non-operating income and expense other than the
aforementioned items	15,189,977.99
Other profit or loss items within the meaning of nonrecurring profit or loss
Subtotal	68,008,674.30
Effect of income tax	9,013,266.20
Effect of minority interests (after tax)	5,439,393.58
Total	53,556,014.52

125

~~NOTES TO THE FINANCIAL STATEMENTS —~~ ~~Continued~~

Half year of 2018

XVII. SUPPLEMENTARY INFORMATION — Continued

1. Return on net asset and earnings per share

Current period

Weighted average Profit for the reporting period of return on net assets (%) Net profit attributable to ordinary shareholders of the Company 11.90 Net profit attributable to ordinary shareholders of the Company after non-recurring profit or loss 11.11 Corresponding period last year Weighted average Profit for the reporting period of return on net assets (%) Net profit attributable to ordinary shareholders of the Company 13.09 Net profit attributable to ordinary shareholders of the Company after deducting nonrecurring gain or loss 11.77	Earnings per share
	Basic earnings per share Diluted earnings per share 0.59 0.59 0.55 0.55 Earnings per share
	Basic earnings per share Diluted earnings per share 0.49 0.49 0.44 0.44

126

~~INTERIM DIVIDEND~~

The Board does not recommend the payment of an interim dividend for the six months ended 30 June 2018. No interim dividend was paid for the corresponding period last year.

~~MANAGEMENT DISCUSSION AND ANALYSIS~~

I. OVERVIEW

(I) INDUSTRY OVERVIEW

Domestic refrigerator sales remained stagnant during the Reporting Period. According to inferential statistics from the China Market Monitor Company Limited (“CMM”), as of June 2018, cumulative retail volume in the refrigerator sector decreased by 1.7% year-on-year. By contrast, the domestic air-conditioner market continued its growth momentum in 2017, driven by favorable factors such as high temperature in the peak season, rapid growth of e-commerce channels and steady growth in demand in the third and fourth-tier markets. According to inferential statistics from the CMM, as of June 2018, cumulative retail volume in the airconditioner market grew by 16.6% year-on-year. According to statistics from www.aicon.com.cn, in the first half of 2018, the overall capacity of the domestic central air-conditioning market increased by 11.6% yearon-year, and the market capacity maintained a growth trend, but the growth rate declined from 2017. In terms of export market, according to customs statistics, the cumulative export volume of refrigerators and air conditioners has experienced a year-on-year decline, trade friction, exchange rate fluctuations and other factors. The foreign trade environment is becoming increasingly complex and severe.

White goods enterprises strive to offer products with better user experience through unceasing technological upgrades and innovations as well as refined management, and continue to optimize the product structure of white goods and upgrade industrial consumption by shifting to air-cooled products from two-door and threedoor refrigerators, broadening product offerings with high-end French-style products, and upgrading airconditioning products with inverter technology, energy efficiency, health and comfort and stronger cooling capacity.

(II) ANALYSIS OF COMPANY’S OPERATION

During the Reporting Period, the Company persisted in its operational concept of “creating products with high quality, enhancing customer value, improving system efficiency, accelerating industrial development, expanding international market”, and implemented various tasks to steadily improve its scale and efficiency. The Company achieved operating revenues of RMB20.37 billion, representing a year-on-year increase of 15.70%, and principal operating revenue of RMB18.44 billion, representing a year-on-year increase of 15.33%. Revenue from the refrigerator and washing machine business accounted for 42.97% of the principal operating revenue, representing a year-on-year increase of 18.81%; and revenue from the air-conditioner business accounted for 52.32% of the principal operating revenue, representing a year-on-year increase of 13.18%. The domestic sales business recorded a principal operating revenue of RMB12.42 billion, representing a year-onyear increase of 24.76%, whereas the export sales business recorded a principal operating revenue of RMB6.02 billion, representing a year-on-year decrease of 0.23%. Net profits attributable to shareholders in the listed company reached RMB0.80 billion, representing a year-on-year increase of 19.47%, in which net profits after deducting non-recurring gains or losses were RMB0.75 billion, representing a year-on-year increase of 23.97%. Earnings per share were RMB0.59.

The major works of each business are as follows:

127

~~MANAGEMENT DISCUSSION AND ANALYSIS~~ ~~— Continued~~

I. OVERVIEW — Continued

(II) ANALYSIS OF COMPANY’S OPERATION — Continued

1. The Refrigerator and Washing Machine Business

During the Reporting Period, the refrigerator and washing machine branch strived to create high quality products that embrace customer value based on the business philosophy of “home is the essence of home appliances”. Under the pressure of industry stagnancy in operation, the Company achieved a steady recovery of profitability by improving product competitiveness, enhancing system efficiency and other measures. The company achieved steady growth in scale and steady recovery of profitability. In the second quarter of 2018, the gross profit margin of refrigerators and washing machines improved by 2.47 percentage points year-on-year and 1.02 percentage points month to month. The Company adheres to technology development and continues to promote technology-oriented, health-oriented and life-oriented product development and technological innovation. At the 2018 China Refrigerator Industry Summit Forum, the Ronshen “Full-ecological Fresh-keeping” Refrigerator won the 2017-2018 Achievement Award of Purification Standards in China’s Refrigerator Industry by virtue of its innovative “purification” technology. The Caring Combo Washer Dryer received the AWE Most Popular Award (艾普蘭金口碑獎). The Company continued its journey to explore user experience and launch new high-tech products loved by users. The company’s high-end products are developing rapidly. The market share of refrigerators, freezers, and washing machines is steadily increasing. According to CMM offline statistics, as of June 2018, the Company’s cumulative retail market share in refrigerators, freezers and washing machines increased by 1.6 percentage point, 2.7 percentage points and 0.9 percentage point year-on-year, respectively. In terms of channels, whilst retaining good strategic partnerships with existing offline customers, the Company has made every effort to develop e-commerce channels and online market segments, thereby achieving a rapid growth in e-commerce year-on-year. According to CMM online statistics, in the first half of 2018, the online retail sales of Ronshen Refrigerator increased by 56.3% year-on-year, and the online retail sales of Hisense refrigerators increased by 38.7% year-on-year, both far higher than the average growth rate of 29.2% in the industry. In terms of product expansion, the sales of commercial cold chain achieved breakthrough during the Reporting Period, boosting the Company’s scale and profitability.

2. The Residential Air-conditioner Business

During the Reporting Period, the residential air-conditioning branch maintained a steady increase in its scale and efficiency by measures such as technology consolidation, product innovation and upgrade, key channel breakthrough and development, targeting at the third and fourth-tier markets and e-commerce market with growth potential and capitalizing on the industry development trend towards high-end and comfortable products. As one of the approaches to enrich the brand image of “Inverter Expert” of Hisense Air Conditioning and in view of the principle of technology orientation, the Company jointly published the White Paper on Comfortable Inverter Development of Air Conditioning Industry with China Household Electrical Appliances Research Institute (中國家用電器研究院) to establish the industry standards of comfortable inverter air-conditioning. “The Development and Application of Key Technologies for Ultra-high Temperature Inverter Air Conditioners in Dusty Atmosphere” project won a third place at the Guangdong Science and Technology Awards. By virtue of enhancing product intelligence and comfort, the Hisense “Prince Charming X” (男神X) Air Conditioner was included in the “2018 Energy Conservation and Environmental Protection Product Catalogue of the Chinese Association of Refrigeration” as a representative product of the third generation of comfortable inverter air conditioner. In terms of basic work: the Company adheres to the quality concept of “making good, high-quality products”, and the product’s NPS value and key quality indicators continue to improve steadily. In terms of channels, the Company’s product structure has been optimizing as a result of the determined strategy of promoting single-stage inverter air conditioners. According to CMM statistics, in the online sales structure of inverter air-conditioner, Kelon air-conditioners with APF Class I energy efficiency accounted for over 50% of its total retail sales. With the rapid development of e-commerce channels, for the first half of 2018, the online sales of Hisense and Kelon air-conditioners increased by 69.2% and 103.3% year-on-year, respectively, both far higher than the industry average. The Company further strengthened customer management and value enhancement and achieved notable growth in the third and fourth-tier markets by implementing customer classification management and evaluation, accelerating quality network development and further optimizing customer structure.

128

~~MANAGEMENT DISCUSSION AND ANALYSIS~~ ~~— Continued~~

I. OVERVIEW — Continued

(II) ANALYSIS OF COMPANY’S OPERATION — Continued

3. The Commercial Air-conditioning Business

During the Reporting Period, facing pressure from real estate sector regulation, Hisense Hitachi focused on products and users, improved research and development capabilities, and facilitated lean management and operational excellence in the entire value chain. The Company maintained a positive growth momentum for revenue and steady growth for the major operating indicators. The Company took over the domestic multi-connection business of the “York” brand, facilitating the further expansion of the Company.

The Company always put emphasis on technological research and development, which provides a solid guarantee for product performance improvement and demand for customization. The Integrated Full-inverter Multi-Connected Central Air-conditioning Project with Two-way Mirrored Current-flow Frame Heat Transfer and High Cooling Capacity of the Company won a third place in the Science and Technology Progress Awards by the China National Light Industry Council. By pursuing leadership through a development philosophy of “subsisting for centuries through technological innovation”, the Company kept abreast of the industry development and user needs. The Company’s Hisense Villa Home Series adopts HI-Mit intelligent mobile control system and is able to access to Apple HomeKit, significantly improving the convenience and intelligence of central air conditioning. In addition, in order to better meet the needs of the real estate market, the Company entered into long-term strategic agreements with a number of large-scale housing companies and launched new one-way flow fan and other products tailor-made for the corresponding real estate projects. During the Reporting Period, the real estate business achieved an excellent performance with an increase in revenue by more than 30% year-on-year.

4. Risks faced by the Company and contingency measures

Looking forward to the second half of 2018, the pressure faced by enterprises will remain enormous under the persisting downward pressure on the domestic economy and the increasingly complicated global business environment. The major risks we face are as follows:

• (1) The declining growth and transaction size of real estate investment will lead to a decline in the demand for the white household appliance market, thus affecting the Company’s sales scale.

• (2) The continued cost pressure: escalated prices of raw materials, and the continuously increasing human resources and labour costs, logistics and transportation costs, installation services costs, etc. will all have a negative impact on the Company’s profitability.

• (3) Trade protectionism is prevalent, and the downward pressure on exports is increasing.

• (4) Exchange rate fluctuation risk: The company’s overseas income accounts for more than 30% of the total operating income. The fluctuation of the RMB exchange rate directly affects the export competitiveness of the company’s products, thus affecting the company’s export operations.

129

~~MANAGEMENT DISCUSSION AND ANALYSIS~~ ~~— Continued~~

I. OVERVIEW — Continued

• (II) ANALYSIS OF COMPANY’S OPERATION — Continued

4. Risks faced by the Company and contingency measures — Continued

For the second half of 2018, the Company will endeavor to complete the following tasks committedly so as to ensure the steady enhancement of scale and efficiency:

• (1) Further explore user experience and create high quality products that embrace customer value; and continuously optimize product structure.

• (2) Continue to develop e-commerce channels vigorously and enhance the scale of e-commerce and market share; deepen the development of the third and fourth tier markets and build its core sales channels to continuously optimize the customer structure.

• (3) Improve product planning capabilities and product competitiveness, optimize the structure of export products and enhance the scale and efficiency of exports.

• (4) Facilitate industrial development, enhance the core competitiveness of products and achieve rapid business scale growth and economic efficiency in washing machines, commercial air-conditioners, commercial cold chain, environmental control appliances and kitchen appliances.

• (5) Strengthen fund management, reduce capital occupation and accelerate cash flows.

130

~~MANAGEMENT DISCUSSION AND ANALYSIS~~ ~~— Continued~~

II. 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
		Corresponding	corresponding
Items	Reporting Period	period last year	period last year (%)
Operating revenue (RMB)	20,370,759,289.58	17,606,357,421.41	15.70
Net profits attributable to shareholders
of listed company (RMB)	802,958,013.85	672,098,859.30	19.47
Net profits after deducting non-recurring
profit and loss attributable to shareholders
of listed company (RMB)	749,401,999.33	604,512,199.63	23.97
Net cash flow from operating activities (RMB)	636,947,655.91	600,148,124.99	6.13
Basic earnings per share (RMB/share)	0.59	0.49	20.41
Diluted earnings per share (RMB/share)	0.59	0.49	20.41
			-1.19
Weighted average rate of return on net assets (%)	11.90	13.09	percentage point
			Increase or decrease
	End of the		as compared to end
Items	Reporting Period	End of last year	of last year (%)
Total assets (RMB)	24,476,959,925.22	21,473,666,822.72	13.99
Net assets attributable to shareholders
of listed company (RMB)	6,648,627,186.32	6,445,303,673.87	3.15

(II) NON-RECURRING PROFIT AND LOSS ITEMS AND AMOUNTS

		Unit: RMB
Item	Amount	Description
Profits or losses from disposal of non-current assets
(including the part written off for provision for impairment on assets)	-148,496.77
Government grants recognized in the profits 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)	52,967,193.08
Other non-operating income and expenses other than
the aforementioned items	15,189,977.99
Minus: Effect of income tax	9,013,266.20
Effect of minority interests (after tax)	5,439,393.58
Total	53,556,014.52	–

131

~~MANAGEMENT DISCUSSION AND ANALYSIS~~ ~~— Continued~~

• II. ANALYSIS TO PRINCIPAL FINANCIALS DURING THE REPORTING PERIOD — Continued

• (III) ANALYSIS OF PRINCIPAL BUSINESS

Changes of major financial information as compared to corresponding period in previous year

Unit: RMB

				Unit: RMB
		Opening balance
	Closing balance	(corresponding
Items	(current period)	period last year)	Change (%)	Reasons of change
Construction in progress	70,669,196.48	148,361,940.80	-52.37	Mainly due to the completion of part of the
				construction transferring to fixed assets
Short-term borrowings	200,000,000.00	–	Not applicable	Mainly due to new short-term borrowings
				during the reporting period
Other payables	2,689,623,794.48	1,709,226,096.76	57.36	Mainly due to the increase in dividends
				payable
Other current liabilities	922,359,059.39	639,347,580.40	44.27	Mainly due to the increase in accrued
				expenses with the increase in scale
				during the peak season of sales
Operating revenue	20,370,759,289.58	17,606,357,421.41	15.70	No significant changes
Operating costs	16,624,633,310.44	14,347,700,763.30	15.87	No significant changes
Sales expenses	2,643,873,486.50	2,267,388,760.01	16.60	No significant changes
Management expenses	214,080,347.92	220,996,266.44	-3.13	No significant changes
Other income	90,355,764.85	53,818,935.07	67.89	Mainly due to the increase in software tax
				refunds received
Non-operating income	47,013,064.01	74,790,830.33	-37.14	Mainly due to the decrease in other
				government subsidies received
Income tax expense	111,675,938.47	117,992,544.82	-5.35	No significant changes
Cash received relating to	380,981,372.84	282,834,325.81	34.70	Mainly due to the increase in software tax
other operating activities				refunds received
Net cash flow from operating	636,947,655.91	600,148,124.99	6.13	No significant changes
activities
Cash received relating to	1,580,000,000.00	2,800,000,000.00	-43.57	Mainly due to the reduction of expired
other investing activities				wealth management products
Net cash flow from investing	-254,622,439.46	895,011,148.88	Not applicable	Mainly due to the reduction of expired
activities				wealth management products
Cash paid relating to other	365,328,088.72	1,016,209,836.70	-64.05	Mainly due to the year-on-year decrease in
financing activities				margin
Net cash flow from financing	-178,162,011.40	-1,015,462,333.02	Not applicable	Mainly due to the year-on-year decrease in
activities				margin
Net increase in cash and cash	203,124,203.46	478,520,974.82	-57.55	Mainly due to the decrease in net cash
equivalents				flow from investing activities

132

~~MANAGEMENT DISCUSSION AND ANALYSIS~~ ~~— Continued~~

II. ANALYSIS TO PRINCIPAL FINANCIALS DURING THE REPORTING PERIOD — Continued

(IV) DESCRIPTION OF PRINCIPAL BUSINESS SEGMENTS

Unit: RMB

						Unit: RMB
				Increase or	Increase or
				decrease in	decrease in	Increase or
				revenue from	costs of	decrease in
				operating	operating	gross profit
				businesses as	businesses as	margin as
				compared to	compared to	compared to
	Revenue from	Costs of	Gross profit	corresponding	corresponding	corresponding
	operating	operating	margin	period last year	period last year	period last year
Item	businesses	businesses	(%)	(%)	(%)	(percentage point)
By industry
Home appliances
manufacturing
industry	18,439,652,550.65	14,788,200,733.98	19.80	15.33	15.56	-0.17
By product
Refrigerators and
washing machines	7,922,828,341.20	6,398,661,638.28	19.24	18.81	19.06	-0.17
Air-conditioners	9,648,456,857.31	7,679,113,408.34	20.41	13.18	12.70	0.34
Others	868,367,352.14	710,425,687.36	18.19	9.16	16.81	-5.36
By region
Mainland	12,421,473,427.49	9,040,237,068.69	27.22	24.76	25.84	-0.63
Overseas	6,018,179,123.16	5,747,963,665.29	4.49	-0.23	2.42	-2.47

III. CORE COMPETITIVENESS ANALYSIS

1. Technological advantages

The Company adheres to its operating philosophy of “technology orientation” and focuses on “intelligent” and “green” to build its core competitiveness through continual innovations in technologies and products. The Company has top-notch research and development institutions including State-level enterprise technology center, enterprise post-doctoral scientific research station, State-recognized laboratory, and Guangdong Provincial Key Research and Development Center of Engineering Science, and an industry-leading research and development team with thousands of technical personnel. The Company is always committed to enhance its self-driven innovation capacity, strives to enhance the performance and level of intelligentization of its products, in order to improve its core competitiveness and its products’ market competitiveness and provide strong technical support for the Company’s industrial advancement. At the same time, the Company takes the advantage of opportunities created by Hisense Group in sports marketing, accelerating the process of company internationalization and carrying self-brand global developing strategy forward constantly.

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~~MANAGEMENT DISCUSSION AND ANALYSIS~~ ~~— Continued~~

III. CORE COMPETITIVENESS ANALYSIS — Continued

1. Brand advantages

The three brand names used in refrigerator and air-conditioner products of the Company, namely “Hisense”, “Ronshen” and “Kelon”, have good brand reputation and market base. Among these brands, the market share of “Hisense” inverter 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.

IV. MAJOR SUBSIDIARIES AND COMPANIES IN WHICH THE COMPANY HAS EQUITY INTEREST

						Operating	Operating
		Major		Total assets	Net assets	revenue	profit	Net profits
Name of	Company	product	Registered	(RMB ten	(RMB ten	(RMB ten	(RMB ten	(RMB ten
company	type	or service	capital	thousand)	thousand)	thousand)	thousand)	thousand)
Hisense Hitachi	A company in which	Production and	US$46 million	1,101,544.51	526,238.78	543,762.47	94,977.62	79,639.07
	the Company has	sale of commercial
	equity interest	air-conditioners

Acquisition and disposal of subsidiaries during the Reporting Period

■ Applicable ✓ Not applicable

~~LIQUIDITY AND SOURCES OF CAPITAL~~

Net cash generated from operating activities of the Group was approximately RMB636 million for the six months ended 30 June 2018 (for the six months ended 30 June 2017: RMB600 million).

As at 30 June 2018, the Group had bank deposits and cash (including pledged bank balances) amounting to approximately RMB3,564 million (as at 30 June 2017: RMB3,901 million) and bank loans amounting to approximately RMB200 million (as at 30 June 2017: RMB0 million).

Total capital expenditures of the Group for the six months ended 30 June 2018 amounted to approximately RMB146 million (for the six months ended 30 June 2017: RMB197 million).

134

~~GEARING RATIO~~

As at 30 June 2018, the Group’s gearing ratio (calculated according to the formula: total liabilities divided by total assets) was 71% (as at 30 June 2017: 74%).

~~TRUST DEPOSITS~~

As at 30 June 2018, 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 institutions in the PRC and Hong Kong.

~~HUMAN RESOURCES AND REMUNERATION POLICY~~

As at 30 June 2018, the Group had approximately 34,739 employees, mainly comprising 4,365 technical staff, 14,190 sales representatives, 348 financial staff, 678 administrative staff and 14,575 production staff. The Group had 14 employees with a doctorate degree, 549 with a master’s degree and 3,828 with a bachelor’s degree. There were 786 employees who occupied mid-level positions or above in the Group according to the national standards. For the six months ended 30 June 2018, the Group’s staff payroll amounted to RMB1,678 million (corresponding period in 2017 amounted to RMB1,511 million).

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 30 June 2018, the Group’s property, plant and equipment (including leasehold land held for own use) and investment properties and trade receivables of approximately RMB0 million (31 December 2017: 0 million) were pledged as security for the Group’s borrowings.

~~EXPOSURE TO EXCHANGE RATE FLUCTUATION AND ANY RELATED HEDGE~~

Since part of the purchase and 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.

~~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 Appendix 10 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “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 in the Reporting Period.

~~SHARE CAPITAL STRUCTURE~~

As at 30 June 2018, the share capital structure of the Company was as follows:

		Percentage to
		the total issued
Class of shares	Number of shares	share capital
H shares	459,589,808	33.73%
A shares	903,135,562	66.27%
Total	1,362,725,370	100.00%

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~~TOP TEN SHAREHOLDERS~~

As at 30 June 2018, there were 39,868 shareholders of the Company (the “Shareholders”) in total, of which the top ten Shareholders were as follows:

				Percentage to
			Percentage to	the relevant	No. of shares
			the total issued	class of issued	held subject
Name of	Nature	No. of	shares of	shares of the	to trading
Shareholder	of Shareholder	shares held	the Company	Company	moratorium
Qingdao Hisense Air-conditioning Co.,Ltd.	State-owned legal person	516,758,670	37.92%	57.22%	0
HKSCC Nominees Limited_Note_	Foreign legal person	456,537,069	33.50%	99.34%	0
Cental Huijin Investment Ltd.	State-owned legal person	26,588,700	1.95%	2.94%	0
Bank of China Limited – Shangtou	Other	24,348,783	1.79%	2.70%	0
Morgan Core Growth Stock Securities
Investment Fund
China Merchants Bank Limited – Guotai Growth	Other	22,449,100	1.65%	2.49%	0
Preferred Mixed Securities Investment Fund
Bank of Communications Limited – HSBC Jinxin	Other	10,013,201	0.73%	1.11%	0
Market Index Equity Securities Investment Fund
China Life Insurance Limited	Other	10,002,869	0.73%	1.11%	0
– Traditional-General Insurance Products
– 005L-CT001 Shen
China Construction Bank	Other	9,470,690	0.69%	1.05%	0
Corporation – Guotai Jinxin Stock
Securities Investment Fund
China Construction Bank Corporation – China	Other	8,000,020	0.59%	0.89%	0
Universal Consumer Industry Mixed
Security Investment Fund
Zhang Shao Wu	Domestic natural person	7,200,000	0.53%	0.80%	0

Note:

The shares held by HKSCC Nominees Limited are held on behalf of a number of its account participants, among which, Hisense HK, a party acting in concert with the controlling shareholder of the Company, increased its holdings of H shares of the company by a total of 12.533 million shares in the reporting period. By the end of the reporting period, Hisense HK held a total of 109.735 million H shares of the company, representing 8.05% of the total issued shares of the Company. From 1 July 2018 to 23 July 2018, Hisense HK increased its holdings of H shares of the company by a total of 14.717 million shares. As at the date of this report disclosed, Hisense HK held a total of 124.452 million H shares of the company, representing 9.13% of the total issued shares of the Company.

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~~SHAREHOLDINGS OF THE TOP TEN SHAREHOLDERS OF TRADABLE SHARES~~

	Number of
	tradable shares
Name of Shareholders	held	Class of shares
Qingdao Hisense Air-conditioning Co.,Ltd.	516,758,670	RMB ordinary shares
HKSCC Nominees Limited	456,537,069	Overseas listed
		foreign shares
Cental Huijin Investment Ltd.	26,588,700	RMB ordinary shares
Bank of China Limited – Shangtou Morgan Core Growth	24,348,783	RMB ordinary shares
Stock Securities Investment Fund
China Merchants Bank Limited – Guotai Growth Preferred Mixed	22,449,100	RMB ordinary shares
Securities Investment Fund
Bank of Communications Limited – HSBC Jinxin Market	10,013,201	RMB ordinary shares
Index Equity Securities Investment Fund
China Life Insurance Limited – Traditional-General Insurance	10,002,869	RMB ordinary shares
Products-005L-CT001 Shen
China Construction Bank Corporation – Guotai Jinxin	9,470,690	RMB ordinary shares
Stock Securities Investment Fund
China Construction Bank Corporation – China Universal	8,000,020	RMB ordinary shares
Consumer Industry Mixed Security Investment Fund
Zhang Shao Wu	7,200,000	RMB ordinary shares

137

~~INTERESTS AND SHORT POSITIONS OF SUBSTANTIAL SHAREHOLDERS IN THE SHARES~~

So far as is known to any Directors, supervisors and the chief executive of the Company, as at 30 June 2018, 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 Stock Exchange of Hong Kong Limited:

LONG POSITION OR SHORT POSITION IN THE SHARES OF THE COMPANY

				Percentage to the	Percentage
			Number of	relevant class of	to the total
Name of shareholder	Capacity	Type of shares	shares held	issued shares	issued shares
Qingdao Hisense Air-conditioning_Note_	Beneficial owner	A shares	516,758,670 (L)	57.22%	37.92%
Qingdao Hisense Electric	Interest of controlled corporation	A shares	516,758,670 (L)	57.22%	37.92%
Holdings Company Limited_Note_
Hisense Group_Note_	Interest of controlled corporation	A shares	516,758,670 (L)	57.22%	37.92%
Hisense HK_Note_	Beneficial owner	H shares	109,735,000 (L)	23.88%	8.05%
Qingdao Hisense Electric Holdings	Interest of controlled corporation	H shares	109,735,000 (L)	23.88%	8.05%
Company Limited_Note_
Hisense Group_Note_	Interest of controlled corporation	H shares	109,735,000 (L)	23.88%	8.05%

The letter “L” stands for a long position, the letter “S” stands for a short position and the letter “P” stands for lending pool.

Notes:

Qingdao Hisense Air-conditioning is a company directly owned as to 93.33% by Qingdao Hisense Electric Holdings Company Limited, whereas Hisense HK 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 32.36% by Hisense Group and is accustomed or obliged to act in accordance with the directions or instructions of Hisense Group. By virtue of the SFO, Qingdao Hisense Electric Holdings Company Limited and Hisense Group were deemed to be interested in the same parcel of A shares of which Qingdao Hisense Air-conditioning was interested and in the same parcel of H shares of which Hisense HK was interested.

Save as disclosed above, as at 30 June 2018, 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.

138

INTERESTS OF DIRECTORS, SUPERVISORS AND CHIEF EXECUTIVES IN THE SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 June 2018, save as disclosed below, none of the members of the Board, supervisors and the chief executive of the Company and their respective associates 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 Stock Exchange of Hong Kong Limited pursuant to the Model Code.

LONG POSITION IN THE SHARES OF THE COMPANY

				Percentage to
			Percentage to	the relevant
			the total issued	class of issued
		Number of	shares of	shares of
Name of Director	Nature of interest	shares	the Company	the Company
Tang Ye Guo	Beneficial owner	831,600 A Shares	0.061%	0.092%
Jia Shao Qian	Beneficial owner	539,060 A Shares	0.040%	0.060%
Wang Yun Li	Beneficial owner	52,120 A Shares	0.004%	0.006%

~~PURCHASE, SALE OR REDEMPTION OF SECURITIES~~

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

~~AUDIT COMMITTEE~~

The Audit Committee of the Company has reviewed the interim results announcement for the period ended 30 June 2018.

~~CORPORATE GOVERNANCE CODE~~

To the best knowledge and information of the Company, during the Reporting Period, the Company has complied with the code provisions in the Corporate Governance Code as set out in Appendix 14 to the Listing Rules.

139

SUPPLEMENTARY INFORMATION AS REQUIRED BY THE STOCK EXCHANGE OF HONG KONG LIMITED IN RELATION TO THE COMPANY’S A SHARES INTERIM RESULTS ANNOUNCEMENT

• I. PARTICULARS OF CONNECTED TRANSACTIONS IN RELATION TO ORDINARY BUSINESS OCCURRED DURING THE REPORTING PERIOD

				Connected	Percentage of	Percentage of
		Particulars of	Pricing principle	transaction	total amount
	Type of connected	connected	of connected	amount		of similar
Connected parties	transaction	transaction	transaction	(RMB ten thousand)	transaction (%)
Hisense Group	Purchase	Finished Goods	Agreed Price	9.95		0.00
Hisense Hitachi	Purchase	Finished Goods	Agreed Price	3.22		0.00
Hisense Group	Purchase	Materials	Agreed Price	8,788.65		0.53
Hisense Electric	Purchase	Materials	Agreed Price	314.28		0.02
Hisense Hitachi	Purchase	Materials	Agreed Price	468.67		0.03
Hisense Group	Receipt of Services	Receipt of Services	Agreed Price	19,512.75		1.17
Hisense Electric	Receipt of Services	Receipt of Services	Agreed Price	633.64		0.04
Hisense HK	Agency Financing	Agency Financing	Agreed Price	17,159.84		1.03
Hisense Group	Sale	Finished Goods	Agreed Price	565,078.55		27.74
Hisense Electric	Sale	Finished Goods	Agreed Price	118.95		0.01
Hisense Hitachi	Sale	Finished Goods	Agreed Price	25,496.16		1.25
Hisense Group	Sale	Materials	Agreed Price	3,336.00		0.16
Hisense Electric	Sale	Materials	Agreed Price	691.40		0.03
Hisense Hitachi	Sale	Materials	Agreed Price	115.90		0.01
Hisense Group	Sale	Moulds	Agreed Price	4,027.01		0.20
Hisense Electric	Sale	Moulds	Agreed Price	5,508.17		0.27
Hisense Hitachi	Sale	Moulds	Agreed Price	1,115.68		0.05
Hisense Group	Provisions of Services	Provisions of Services	Agreed Price	668.85		0.03
Hisense Electric	Provisions of Services	Provisions of Services	Agreed Price	102.24		0.01

As at the end of the Reporting Period, the Company had the balance of deposit of approximately RMB3.140 billion and interest income received of approximately RMB13.5616 million, the actual balance of loan of RMB200 million, balance of electronic bank acceptance bill of approximately RMB2.96 billion, and the handling fee for opening accounts for electronic bank acceptance bill of approximately RMB1.6319 million with Hisense Finance. The loan interest paid is RMB2.4722 million. The actual amount of discounted interest for the provision of draft discount services was approximately RMB7.5374 million, the actual amount involved for the provision of settlement and sale of foreign exchange services was approximately US$ 2.6405 million and the actual service fee paid for the provision of agency services such as settlement services for receipt and payment of funds was approximately RMB157,200. The Company has a recourse in the Hisense Financial Holdings, and the balance of commercial factoring business is RMB99.9730 million; The balance of non-recourse commercial factoring business is RMB54.4072 million.

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SUPPLEMENTARY INFORMATION AS REQUIRED BY THE STOCK EXCHANGE OF HONG KONG LIMITED IN RELATION TO THE COMPANY’S A SHARES INTERIM RESULTS ANNOUNCEMENT — Continued

II. CONNECTED TRANSACTION IN RELATION TO JOINT EXTERNAL INVESTMENT

■ Applicable ✓ Not applicable

III. PARTICULARS OF GUARANTEES

■ Applicable ✓ Not applicable

IV. DERIVATIVES INVESTMENT

Unit: RMB (in ten thousand)

												Proportion of
												investment
												to the net	Actual
							Investment					asset of the	amount of
				Initial			at the	Amount of	Amount of		Investment	Company	profit and
Name of		Whether		investment			beginning	purchase	disposal	Amount of	at the	at the end	loss during
operators of		or not a	Type of	of			of the	during the	during the	provision for	end of the	of the	the
derivatives		connected	derivatives	derivatives			Reporting	Reporting	Reporting	impairment	Reporting	Reporting	Reporting
investment	Connection	transaction	investment	investment	Effective Date	Expiry Date	Period	Period	Period	(if any)	Period	Period (%)	Period
Bank	No	No	Forward foreign	5,050.05	1 January	30 June 2018	5,050.05	14,329.18	10,639.58	–	8,739.65	1.31	-271.51
			exchange		2018
			contracts
Source	of derivatives investment funding					Export	trade	payment

Date of the announcement disclosing the approval of 30 March 2018 derivatives investment by the Board (if any)

Date of the announcement disclosing the approval of Not applicable derivatives investment during shareholders’ meetings (if any)

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 forward foreign exchange contracts 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.

141

SUPPLEMENTARY INFORMATION AS REQUIRED BY THE STOCK EXCHANGE OF HONG KONG LIMITED IN RELATION TO THE COMPANY’S A SHARES INTERIM RESULTS ANNOUNCEMENT — Continued

IV. DERIVATIVES INVESTMENT — Continued

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-2.4436 million. Investment gain amounted to RMB-0.2715 million, resulting in a total profits or losses of RMB-2.7151 million.

E x p l a n a t i o n s o f a n y s i g n i f i c a n t c h a n g e s i n t h e C o m p a n y ’ s a c c o u n t i n g p o l i c i e s a n d s p e c i f i c 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.

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.

This announcement 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 the announcement, 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 Electric” Hisense Electric Co., Ltd. “Hisense Finance” Hisense Finance Co., Ltd. “Hisense Financial Holdings” Qingdao Hisense Financial Holdings Co., Ltd. “Hisense Group” Hisense Company Limited “Hisense Hitachi” Qingdao Hisense Hitachi Air-Conditioning Systems Co., Ltd. “Hisense HK” Hisense (Hong Kong) Company Limited “Hong Kong Stock Exchange” The Stock Exchange of Hong Kong Limited “Qingdao Hisense Air-Conditioning” Qingdao Hisense Air-Conditioning Company Limited “RMB” Renminbi “%” Per cent

142