2017 Annual Report Stock Code：900956 Stock Abbreviation：Dongbei B Huangshi Dongbei Electrical Appliance Co., Ltd. 2017 Annual Report 1 / 139 2017 Annual Report Important Notes 1.The Board of Directors ，Supervisory Committee，directors , supervisors and Senior Executives of the Company hereby guarantees that there are no misstatement, misleading representation or important omissions in this report and shall assume joint and several liability for the authenticity, accuracy and completeness of the contents hereof. 2.All the directors attended the board meeting. 3. Hubei Daxin Certified Public Accountants Co., Ltd. ( Special General Partnership) issued standard unqualified auditors' report for the Company. 4. Mr.Zhu Jinming, Person in charge of the Company, Ms. Lu Lihua, Chief financial officer and the Ms. Ma Li, the person in charge of the accounting department (the person in charge of the accounting )hereby confirm the authenticity and completeness of the financial report enclosed in this Annual Report. 5. The profit allocation plan or the capitalization from capital public reserve during the report period examined by the Board of Directors. Considering taking into account the company's development and the project's demand for funds, the com pany's 2017 profit distribution plan is formulated as: The profit allocation and the capitalization from capital public reserve will not be conducted for the Company in the report period.. 6.And forward-looking statement √ Applicable □ Not applicable Such as those involving the future operational plans in this report shall not be considered as virtual prolmises of the Company to investors. And investors are kindly reminded to pay attention to possible risks. 7. Whether the controlling shareholder and its related parties did not occupy the funds of the Company for operation. No. 8. Whether the Company did not provide guarantee in violation of specified decision-making procedure. No. 9.Reminder of Major Risks： √ Applicable □ Not applicable The Company has described the possible risks in this year’s report in order to attract attention from the investors. For more refer to the ― Report of the future development discussion by Board of Directors‖. 10.Other □Applicable√ Not applicable 2 / 139 2017 Annual Report Table of Contents I. Definitions II. Basic Information of the Company and Financial index III. Outline of Company Business IV. Management’s Discussion and Analysis V. Important Events VI. Change of share capital and shareholding of Principal Shareholders VII. Situation of the Preferred Shares VIII. Information about Directors, Supervisors and Senior Executives IX. Administrative structure X. Corporate Bond XI. Financial Report XII. Documents available for inspection 3 / 139 2017 Annual Report I. Definition 1.Definition In this report, medium, the following words and expressions shall have the following meaning unless otherwise defined: Definition of frequently mentioned words and expressions Company, The Company, We Huangshi Dongbei Electrical Appliance Co., Refers to Ltd. Dongbei Group, Controlling Huangshi Dongbei Electromechanical Group Refers to shareholder Co., Ltd Refrigerator Industry Refers to Huangshi Dongbei Refrigerator Industry Co., Ltd Xingbei Machinery & electric Refers to Huangshi Xingbei Machinery & electric Co., Ltd. Huizhi Partnership Refers to Huangshi Huizhi Investment Partnership (Limited partnership) Daxin, Daxin Certified Public Hubei Daxin Certified Public Accountants Refers to Accountants Co., Ltd. ( Special General Partnership) Report period Refers to 2017 SSE Refers to Shanghai Stock Exchange CSRC Refers to China Securities Regulatory Commission The Securities Law of the People’s Republic The Securities Law Refers to of China The Company Law of the People’s Republic The Company Law Refers to of China The Articles of association of Huangshi Articles, The Articles of association Refers to Dongbei Electrical Appliance Co., Ltd. RMB Yuan , RMB million Yuan,RMB Yuan, Million Yuan, Billion Yuan Refers to Billion Yuan II. Basic Information of the Company and Financial index I.Information of the Company Chinese name of the Company 黄石东贝电器股份有限公司 Abbr. of the Chinese name of the Company 东贝B股 English name of the Company Huangshi Dongbei Electrical Appliance Co.,Ltd English Abbreviation DONGBEI Legal representative of the Company Zhu Jinming II.Contact person and contact manner Board secretary Securities affairs Representative Name Lu Lihua Huang Jie No.6, Jinshan East Road, Economic & Technology No.6, Jinshan East Road, Economic & Technology Contact address Development Zone, Huangshi City, Hubei Development Zone, Huangshi City, Hubei Province. Province. Tel 0714-5415858 0714-5415858 Fax 0714-5415858 0714-5415858 E-mail [email protected] [email protected] III.Basic Information about the Company No.6, Jinshan East Road, Economic & Technology Development Registered Address: Zone, Huangshi City, Hubei Province. Postal code of Registered address 435000 No.6, Jinshan East Road, Economic & Technology Development Business Address Zone, Huangshi City, Hubei Province. Postal code of Business address 435000 4 / 139 2017 Annual Report Website： http://www.donper.com E-mail [email protected] IV.The Place for Placing the Annual Report and the Information Disclosure Newspapers for Information Disclosure Shanghai Securities Daily and Hong Kong Commercial Daily Internet Website for Publishing the Annual Report www.sse.com.cn The Place for Placing the Annual Report Securities Dept. of the Company V.Stock Profile Stock Condition of the Compan Stock Abbreviation Type Stock exchange for listing Stock Abbreviation Stock Code (Before change) B share Shanghai Stock Exchange Dongbei B 900956 VI.Other Relevant Information Name Hubei Daxin Certified Public Accountants Co., Ltd. ( Special General Partnership) Certified public accountants Office address 16/F, Zhiyin Media Square, No.31, Zhongbei engaged by the Company Road, Wuhan （Domestic） Names of the Certified Public Suo Boguo, Zhang Ling Accountants as the signatories Name Sponsor engaged by the Company Office address for performing continuous Sponsor representative supervision duties in reporting Duration of continuous period supervision VII.Main accounting data and financial indicators of the Company in the last three years 1.Main accounting data In RMB Changed Main accounting data 2017 2016 over last 2015 year（％) Operating income 3,789,307,855.30 3,473,518,271.43 9.09 3,420,131,010.98 Net profit attributable to the 83,402,663.88 83,040,363.66 0.44 69,792,841.69 shareholders of the listed company Net profit after deducting of 56,228,437.99 57,867,834.66 -2.83 58,701,752.38 non-recurring gain/loss attributable to the shareholders of listed company Cash flow generated by business 166,782,836.34 -87,308,500.10 Not applica 501,750,054.81 operation, net ble Changed End of End of End of over last 2017 2016 2015 year（％) Net assets attributable to the 1,147,175,783.39 1,087,134,859.75 5.52 1,003,962,628.52 shareholders of the listed company Gross assets 4,701,589,019.10 4,351,074,660.89 8.06 4,441,133,850.47 2.Main Financial Index Main Financial index 2017 2016 Changed over last yea（r ％) 2015 Basic earning per share(RMB/Share) 0.355 0.353 0.57 0.297 Diluted gains per share(RMB/Share) 0.355 0.353 0.57 0.297 Basic earning per share after deducting of non-recurring 0.239 0.246 -2.85 0.250 gains/losses(RMB/Share) 5 / 139 2017 Annual Report Weighted average net asset earning ratio（%） 7.39 7.94 Decreased by 0.55% 7.20 Net income on asset, weighted and deducted 4.98 5.54 Decreased by 0.56% 6.06 non-recurring gain/loss(%) Notes □ Applicable √Not applicable VIII.The differences between domestic and international accounting standards 1.Simultaneously pursuant to both Chinese accounting standards and international accounting standards disclosed in the financial reports of differences in net income and net assets. □ Applicable √Not applicable 2. Differences of net profit and net assets disclosed in financial reports prepared under overseas and Chinese accounting standards. □ Applicable √Not applicable 3.Notes of the differences between domestic and international accounting standards □ Applicable √Not applicable IX.Main Financial Index by Quarters of 2017 In RMB First quarter Second quarter Third quarter Fourth quarter （1-3 Month） （4-6 Month） （7-9 Month） （10-12 Month） Operating income 900,572,653.41 1,057,916,938.91 1,018,869,312.24 811,948,950.74 Net profit attributable to the 6,280,252.54 35,331,530.08 13,799,792.70 27,991,088.56 shareholders of the listed company Net profit after deducting of non-recurring gain/loss attributable 4,363,555.70 22,929,873.84 7,275,407.23 21,659,601.22 to the shareholders of listed company Net Cash flow generated by -96,839,417.65 103,241,515.97 26,320,691.58 134,060,046.44 business operation Quarterly data and Disclosed periodic reports data discrepancies explained □ Applicable √Not applicable X.Items and amount of non-operating gains and losses: √ Applicable □ Not applicable In RMB Items of non-operating gains and losses Amount (2017) Notes (If any) Amount (2016) Amount(2015) Gain/loss form disposal of non-current assets. -11,096,055.52 -7,813,437.33 -462,241.68 Tax rebates, reductions or exemptions due to approval beyond authority or the lack of official approval documents Governmental Subsidy accounted as current 34,318,163.70 38,293,336.06 20,038,689.31 gain/loss, except for those subsidies at with amount or quantity fixed by the national government and closely related to the Company’s business operation. Capital occupation charges on non-financial enterprises that are recorded into current gains and losses Gains due to that the investment costs for the Company to obtain subsidiaries, associates and joint ventures are lower than the enjoyable fair 6 / 139 2017 Annual Report value of the identifiable net assets of the investees when making the investments Gain/loss on non-monetary asset swap Gain/loss on entrusting others with investments or asset management Asset impairment provisions due acts of God such as natural disasters Gains/losses of debt restructure Reorganization expenses, such as expenditure for allocation of employees and integration fee Gains/losses exceeding the fair value arising from transactions with obviously unfair prices Net gain and loss of the subsidiary under the common control and produced from enterprise consolidation from the beginning of the period to the consolidation date Gain and loss anising from contingent matters irrelevant with the Company’s normal operation business Gain and loss from change of the fair value arising from transactional monetary assets, transactional financial liabilities as held as well as the investment income arising from disposal of the transactional monentary assets, transactional financial liabilities and financial assets available for sale excluding the effective hedging transaction in connection with the Company’s normal business Reverse of the provision for impairment of acounts receivable undergoing impairment test individually Gain/loss from external entrusted loan Gain and loss arising from change in the fair value of the investment based real estate measure afterwards by means of fair value mondel Influence upon the current gains and losses from the once-and –for –all adjustment over the current gains and losses according to the taxation and accounting laws and regulations Income from custodian charge obtained from entrusted operation Operating income and expenses other than the 10,872,405.78 6,513,157.81 2,644,433.78 aforesaid items Other gains/losses in compliance with the definition of non-recurring gain/loss Influenced amount of minor shareholders’ equity - 1,506,569.15 -7,250,561.72 -7,250,561.72 Influenced amount of income tax - 5,413,718.92 -4,569,965.82 -3,879,230.38 Total 27,174,225.89 25,172,529.00 11,091,089.31 XI. Fair value measurement □ Applicable √Not applicable XII.Other □ Applicable √Not applicable 7 / 139 2017 Annual Report III. Outline of Company Business I.Main businesses , business mode and industry situation of the company in the reporting period 1. The main business The Company is specialized in R&D and production of high-efficiency, energy-saving and environmentally-friendly refrigeration compressors, it has more than 200 types products ranging in 7 series, and it is the leading company with the largest number of product models, the most abundant specifications and the largest power span in the industry. Also in the industry, the company is the sole enterprise that’s awarded the second prize of national science and technology progress. Business Mode: through the measures of personalized service, the company has established long-term cooperative relationship with a great number of domestic and foreign consumers which also are well-known companies. The company has been always seeking to provide customers with better quality products and better services of pre-sales, sales and after-sales. Furthermore, the company has set up the high-efficient communication mechanism with customers, established strategic partnerships with key customers and constantly pays attention to the customers' satisfaction to the company's product quality and technical services. When the sales department of the company carries out the product marketing, it will, according to different needs and requirements of users, set up the policy of "One user, One Strategy" to provide customers better personalized product and service. Meanwhile, the company has set up user-records and implemented the regular and random visits to customers, established the "One stop nanny service" for quaternity service of quality, technology, service and sales and has shaped a sound service network, thus to improve the customer satisfaction. 2. Industry Description Please refer to the fourth section-Analysis of business information Ⅱ.Major Changes in Main Assets √ Applicable □ Not applicable Monetary funds increased by 46.54% over the same period last year, Mainly due to the increase in net cash inflow from operating activities. Advance payment increased by 42.54% over the same period last year，Mainly due to increased project input. Other receivable account decreased by 70.87% over the same period last year ，mainly due to the expiration of the contract with Far Eastern Finance Leasing Company, and the deposit is due to the rental charge. Inventory increased by 42.06% over the same period last year, Mainly due to the increase in raw material prices and the increase in inventory reserve volume. The construction in process decreased by 93.94% over the same period last year，Mainly due to the 8 / 139 2017 Annual Report transfer of construction projects into fixed assets. Ⅲ.Analysis On core Competitiveness √ Applicable □ Not applicable The company has the core competitiveness formed by five aspects of "constant and sustainable innovation for R&D of new products, diversified matching production capacity, people-oriented team cohesion, sustainable and constant innovation ability and all-round marketing ability", thus to enable a solid foundation for the company's future sustainable development. 1. R & D capabilities and technology The company has the domestic leading R & D capabilities and the R & D platform, the compressor technology center is a national recognized enterprise technology center, the company has set up a post doctoral workstation, Academician workstation and established the research and development center in Europe and The United States. The company has the compressor product technology to meet high or medium or low back pressure and high efficiency compressor type under different working fluids requirements, also, the company has more than 200 items of patents, and the company filed patent application in the foreign countries. Soon after successfully developed the high-efficient, high-level VFL series, the company has successfully developed mini VFA series. The VFA frequency conversion products have been greatly favored by the customers because of the features of "small shape, high efficiency, low noise and high reliability". Mass sales in March 2017, In October 2017, the VFX series of low-speed and high-efficiency inverter compressors successfully held a press conference. 2. The world's advanced compressor production line The company has successively established three manufacturing bases, and it has the world top compressor production line, which can produce R600a, R134a, R22, R404A, R290 and other types refrigerant compressor, with the products having 7 series and 200 specs, and the annual production capacity is 33 million units. Through the tandem-effect of each platform, the products have been sold to more than 30 countries and regions, like China, Asia, Europe and America, and the company's market share has been increased year by year. 3.Frank two-way communication The company’s leaders understand that the effective communication and practice is an effective way to accelerate the staff and the related party to recognize and accept the culture of the company, and the company, through the worker’s congress, special forum and so forth communication platforms, communicated with its employees. Each month, the company holds regular staff recognition conference of ―People-oriented, glory in hard-working‖ for the purpose of motivating the team. 4. Encourage innovation mechanisms The company has established a comprehensive mechanism of innovation management, which mainly includes three parts that are innovation management, technology innovation and daily improvement, and it's a great innovation mode begins from Innovation concept-innovation mechanism-innovation system-innovation category-innovation level -innovation tools to final 9 / 139 2017 Annual Report achievements. The company's innovation work will focus on the long-term planning, thus to ensure the orderly conduct of the work. Furthermore, the company has set up the incentive mechanism of innovation, which will put the innovation work into the daily work system and the appraisal system. It has revised the Innovation Incentive System and the Reward and Punishment System, which better clarified the project establishment, implementation, following-up, evaluation, inspection, assessment, rewards and punishment method and standard for the innovation work, and it adopts a variety of measures in terms of material rewards, spiritual encouragements and job promotions to carry out the incentives. 5. Market expansion According to the customer satisfaction, customer distribution, customer desire and change of market demand for refrigeration compressor in the world, the company carries out the whole-process service of pre-sales, sales and after-sales. Combined with the global economic development and changes in the industry, the company greatly promoted the frequency-conversion matching products and the sales, thus to better adapt to the direction of the industry development; the overseas sales focus on the progress of the project of users in blank part of the market, thus to achieve full coverage of the entire area; the commercial products will par with the top-brand of the industry, with layout of the sales channels and setting up large customer management unit to centre on customers of Pearl River Delta and Yangtze River Delta, thus to realize the gradual increase both in sales and profits. IV. Management’s Discussion and Analysis I.Management’s Discussion and Analysis In 2017, under the background of deepening structural reforms in the supply side in China and facing the severe challenges posed by the unfavorable factors, the Company well managed to meet the needs of users by virtue of the technical advantages, customer advantages, quality advantages, and scale advantages. Via continuous R & D investment and technological innovation, the Company continuously promoted the product technology upgrading, boosted the product structure adjustment and enhanced the profitability of the Company. 1. Precise market positioning and timely adjustment of product structure Facing with the fierce market competition, the Company proceeded from various aspects such as products, markets and marketing, and sought ways to find the breakthrough points to gain the market initiative. Firstly, the company positively adapted to the market trend, adjusted the product structure in a timely manner, strived to seize the market share of the frequency-conversion products, implemented the ―One user, one strategy‖ policy, and fully promoted the VFA and VFL frequency conversion products to enter the market, therefore the annual sales of frequency-conversion compressors soared. Secondly, the Company innovated the customer management model, enhanced the market development capability, implemented the market segmentation strategy for the new sector, carried out the zone-type customer 10 / 139