Document No. 1 for the 2013 Annual General Meeting

Annual Work Report of the Company’s Board of Directors for 2013

Dear Shareholders:
In 2013, despite numerous adverse factors, the company took proactive measures to seize opportunities: externally, it vigorously expanded its market presence; internally, it rigorously strengthened foundational management, steadily advanced comprehensive transformation, and strived to achieve its business plan targets.
In 2013, the company recorded sales revenue of RMB 153,571 million, representing 95.39% of the 2013 operating plan target of RMB 161,000 million, a year-on-year increase of 0.9%. Total profit reached RMB 18,475 million; after deducting the gains from the acquisition and reversion of land-use rights for warehousing purposes, total profit amounted to RMB 14,299 million, or 105.92% of the 2013 operating plan target of RMB 13,500 million, reflecting a year-on-year increase of 7.29%.
I. Review of the Company’s Operating Performance
1. Overview of the Company’s Overall Operating Performance for the Reporting Year
During the reporting period, the Company undertook proactive and effective reforms and initiatives to refine its marketing management model, broaden sales channels, and adjust its marketing strategies. These efforts included presenting a unified corporate image at the China Refrigeration Exhibition, convening a national distributors’ conference, establishing ten regional sales director positions nationwide, reforming the sales personnel allocation system, and enhancing the after-sales maintenance and service system. In addition, the Company launched distinctive programs such as follow-up visits to key customers and training for key customer personnel, enabling it to respond effectively to market changes and strive to expand its market share.
During the reporting period, the Company implemented a series of transformative initiatives—including organizational restructuring and adjustments to middle-level management, the establishment of an OA-based foundational platform, the promotion of 5S activities, the rollout of new working models, and the refinement of the compensation and performance allocation system—to strengthen core management, enhance manufacturing capabilities, and improve efficiency and profitability.
During the reporting period, the company focused on developing new products and optimizing existing ones in the areas of next-generation environmentally friendly and high-efficiency refrigeration compressors, as well as intelligent and energy-saving solutions. A total of 16 new product development and technological innovation projects were completed, including the CO2 screw refrigeration compressor unit and a new type of small cold storage facility.
During the reporting period, the Company’s equity-participated subsidiary, Dalian Sanyo Compressor, a leading domestic manufacturer of scroll compressors, intensified its focus on the commercial air-conditioning market, further leveraging economies of scale to achieve sales revenue of RMB 2.4 billion, up 11% year on year, and net profit of RMB 167 million, up 36% year on year. Cumulative production of scroll compressors exceeded 10 million units.
During the reporting period, the Company’s equity-participated subsidiary, Dalian Sanyo Cold Chain, developed new products in response to the retail industry’s transformation needs, providing chain enterprises with more advanced, comprehensive cold-chain logistics solutions. The company also carried out in-depth production innovation initiatives, which enhanced production efficiency and reduced labor costs. However, due to insufficient orders in overseas markets and the depreciation of the Japanese yen, both sales revenue and net profit declined year on year.
During the reporting period, the Company’s equity-method affiliate, Dalian Sanyo Refrigeration, achieved optimal resource allocation in its large-scale air-conditioning business through integrated operations with Dalian Sanyo Air-Conditioner Co., Ltd., resulting in a 50% year-on-year increase in sales revenue. However, the depreciation of the Japanese yen led to a net foreign-exchange loss, which adversely affected the realization of net profit.
During the reporting period, the Company’s equity-participated subsidiary, Jingbin Oceania, made new progress in market development, and its Foshan branch officially commenced production, thereby localizing product supply to regional customers, enhancing the efficiency and quality of market services, and expanding the company’s scale.
During the reporting period, the Company’s equity-affiliated entity, Dalian Fuji Iceberg Vending Machine Co., Ltd., developed large-scale vending machines and filed 20 utility model patent applications. Meanwhile, the Second Factory was officially commissioned, thereby increasing the company’s production capacity.
During the reporting period, the Company further optimized its external equity investments. To strengthen its core business, it transferred its entire equity interest in Dalian Jiale Vending Machine Operation Co., Ltd.; increased its investment in Wuhan New World Refrigeration Industry Co., Ltd. and Dalian Bingshan Group Import-Export Co., Ltd.; and established, through a joint venture, Lingzhong Bingshan Refrigeration (Dalian) Co., Ltd.
2. Company Financial Condition
(1) Changes in Major Asset and Liability Items (Unit: RMB 10,000)
Project Name End-2013 End-2012 Change
Amount as a percentage of total assets Amount as a percentage of total assets
Cash and cash equivalents 51,290 17.29% 53,190 18.11% -3.57%
Accounts receivable 36,971 12.46% 35,226 11.99% +4.96%
Inventory 32,553 10.97% 39,890 13.58% -18.39%
Long-term equity investments 102,195 34.44% 96,264 32.77% +6.17%
Fixed assets 39,527 13.32% 40,497 13.79% -2.39%
Construction in progress 6,846 2.31% 130 0.04% +5166.16%
Short-term borrowings 3,750 1.27% 2,950 1.01% +27.12%
Explanation:
① The decline in inventory was primarily attributable to a year-on-year reduction in ongoing turnkey engineering projects, the revitalization of inventory goods to reduce capital tied up, and accelerated turnover of raw materials to decrease capital occupancy.
② The increase in construction-in-progress is primarily attributable to the construction of new plant facilities, including the performance laboratory in the new plant area.
③ The increase in short-term borrowings was primarily due to a new working-capital loan obtained by the subsidiary, Wuxin Manufacturing.
(2) Expenses and Income Tax Situation (Unit: RMB 10,000)
Project Name Fiscal Year 2013 Fiscal Year 2012 Change情况
Selling expenses 12,022 12,042 -0.16%
Administrative Expenses 17,841 18,429 -3.19%
Financial expenses -583 -424 -37.50%
Income tax 2,578 724 +256.08%
Explanation:
① The decrease in financial expenses was due to an increase in the parent company’s time deposits during the reporting period, resulting in higher interest income.
② The increase in income tax is primarily attributable to the substantial gains recognized during the reporting period from the acquisition and repossession of the company’s land-use rights for warehousing purposes, which resulted in a correspondingly higher amount of income tax payable.
(3) Composition of Cash Flows (Unit: RMB 10,000)
Project Name Fiscal Year 2013 Fiscal Year 2012 Change情况
Net cash flow from operating activities 763 -6,686 +7,449
Net cash flow from investing activities 1,885 -4,060 +5,945
Net cash flow from financing activities -4,992 -4,782 -210

Explanation:
① The net cash flow from operating activities increased significantly year on year, primarily due to the company’s intensified efforts to collect accounts receivable during the reporting period and a substantial decrease in cash payments for purchases of goods and services compared with the same period last year.
② The net cash flow from investing activities increased significantly year on year, primarily due to the acquisition and repossession of land-use rights for the company’s warehousing land during the reporting period, resulting in substantial cash inflows, as well as a year-on-year decrease in investments in associates during the same period.

3. Operating conditions and performance of the holding company and its principal equity-method investees
(1) Holding Company
① Dalian Bingshan Group Refrigeration and Air-Conditioning Installation Company
Our company holds 100% equity in this entity. The company’s registered capital is RMB 20.04 million, and its principal business is the installation and commissioning of complete sets of refrigeration equipment. In 2013, its total assets amounted to RMB 65.58 million, its net assets to RMB 26.37 million, its sales revenue reached RMB 123.84 million, and its net profit was RMB 2.34 million.
② Dalian Bingshan Group Sales Co., Ltd.
Our company holds a 90% equity interest in the entity. The company’s registered capital is RMB 18 million, and its primary business is the sales of products manufactured by subsidiaries of Dalian Bingshan Group. In 2013, its total assets amounted to RMB 44.89 million, its net assets stood at RMB 24.98 million, it recorded sales revenue of RMB 31.41 million, and its net profit was RMB 530,000.
③ Dalian Bingshan Air-Conditioning Equipment Co., Ltd.
Our company holds a 70% equity stake in the entity. The company has a registered capital of JPY 700 million and primarily engages in the manufacturing and sales of air-conditioning terminal equipment, including fan coil units and air handling units. In 2013, its total assets amounted to JPY 144.56 million, with net assets of JPY 72.23 million; it recorded sales revenue of JPY 125.68 million and a net profit of JPY 3.84 million.
④ Dalian Bingshan Lingse Quick-Freezing Equipment Co., Ltd.
Our company holds a 70% equity stake in the entity. The company’s registered capital is USD 1 million, and it primarily manufactures various types of quick-freezing equipment. In 2013, its total assets amounted to RMB 27.75 million, with net assets of RMB 6.90 million; it recorded sales revenue of RMB 30.28 million and a net loss of RMB 3.14 million.
⑤ Dalian Bingshan Metal Processing Co., Ltd.
Our company holds a 64.25% equity interest in the entity. The company’s registered capital is USD 2.35 million, and it primarily engages in the production of sheet metal and stamped parts as supporting components for our established joint ventures and for our own operations. In 2013, its total assets amounted to RMB 31.37 million, with net assets of RMB 25.08 million; it recorded sales revenue of RMB 40.82 million and a net profit of RMB 1.30 million.
⑥ Dalian Bingshan JiaDe Automation Co., Ltd.
Our company holds a 60% equity stake in the entity. The company’s registered capital is GBP 210,000, and it primarily engages in automatic control for the refrigeration and related industries. In 2013, its total assets amounted to RMB 19.76 million, with net assets of RMB 12.55 million; it recorded sales revenue of RMB 35.09 million and a net profit of RMB 5.15 million.
⑦ Wuhan New World Refrigeration Industry Co., Ltd.
Our company holds a 51% equity interest in the entity. The company’s registered capital is RMB 100 million, and it primarily manufactures and sells screw-type refrigeration compressors. In 2013, its total assets amounted to RMB 449.72 million, its net assets stood at RMB 140.11 million, it recorded sales revenue of RMB 373.65 million, and its net profit was RMB 10.68 million.
(2) Major equity-method investees (with an investment income share of 5% or more)
Major Equity-Participated Companies Leading Products Main Business Revenue (RMB 10,000) Net Profit
(Ten thousand yuan)
Dalian Sanyo Compressor Co., Ltd. Semi-hermetic reciprocating and scroll compressors 242,238 16,667
Jingbin Da Yang Heating and Cooling Industry (Dalian) Co., Ltd. Passenger Car Air Conditioning 55,787 4,919

II. Company Investment Situation
As of December 31, 2013, the company’s balance of long-term equity investments stood at RMB 102,195 million, an increase of RMB 59.31 million, or 6.17%, compared with the end of the previous year.
During the reporting period, the Company entered into a joint venture with Mitsubishi Heavy Industries, Ltd. of Japan to engage in the research and development, procurement, manufacturing, sales, and after-sales service of centrifugal chillers. The Company contributed RMB 36 million in cash and holds a 45% equity interest in the joint venture.
III. Daily Operations of the Board of Directors
1. Meetings of the Board of Directors and Resolutions Adopted During the Reporting Period
(1) 21st Meeting of the 5th Board of Directors
On January 18, 2013, the Fifth Board of Directors of the Company convened its 21st meeting in the Company’s Eighth-Floor Conference Room. At this meeting, the following resolutions were reviewed and adopted: a report on candidates for the Sixth Board of Directors; and matters relating to the convening of the First Extraordinary General Meeting of Shareholders for 2013. The announcement of the resolutions passed at this Board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on January 19, 2013.
(2) First Meeting of the Sixth Board of Directors
On February 5, 2013, the Sixth Session of the Company’s Board of Directors held its inaugural meeting in the Company’s Eighth-Floor Conference Room. At this meeting, the following resolutions were reviewed and adopted: election of the Chairman and Vice Chairmen of the Board; election of the members of the Audit Committee of the Board; election of the members of the Compensation and Assessment Committee of the Board; appointment of the General Manager; appointment of the Deputy General Managers and the Chief Financial Officer; appointment of the Company Secretary; and appointment of the Company’s Securities Affairs Representative. A public announcement regarding the resolutions passed at this Board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on February 6, 2013.
(3) Second Meeting of the Sixth Board of Directors
On April 11, 2013, the Sixth Session of the Company’s Board of Directors convened its second meeting by facsimile. At this meeting, the report on the centrifuge joint venture project was reviewed and approved. A notice of the resolutions passed at this board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on April 13, 2013.
(4) Third Meeting of the Sixth Board of Directors
On April 18, 2013, the Sixth Board of Directors of the Company convened its third meeting in the Company’s Sixth-Floor Conference Room. At this meeting, the following resolutions were reviewed and adopted: the Report on the Work of the Board of Directors for the Year 2012; the Report on the Final Accounts for the Year 2012 and the Budget for the Year 2013; the Proposed Plan for the Distribution of Profits for the Year 2012; the Report on the Company’s Routine Related-Party Transactions in 2012 and the Estimated Routine Related-Party Transactions for 2013; the Report on the Appointment of the Audit Firm for 2013; the Annual Report for 2012; the First-Quarter Report for 2013; the Report on the Evaluation of Internal Controls for 2012; the Annual Performance Report of the Independent Directors for 2012; the Report on Authorizing the Company’s Management to Apply for Bank Credit Lines and Loan Facilities; the Report on the Capital Increase in Dalian Bingshan Group Import & Export Co., Ltd.; the Report on the Write-Off of Bad Debts; and the Matters Relating to the Convening of the 2012 Annual General Meeting of Shareholders. The announcement of the resolutions passed at this Board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on April 20, 2013.
(5) Fourth Meeting of the Sixth Board of Directors
On July 18, 2013, the Sixth Session of the Company’s Board of Directors held its fourth meeting by facsimile. At this meeting, the following resolutions were reviewed and adopted: a report on increasing capital investment in Wuhan New World Refrigeration Industry Co., Ltd.; and a report on the acquisition and reservation of certain land-use rights held by the Company. The announcement regarding the resolutions passed at this board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on July 19, 2013.
(6) Fifth Meeting of the Sixth Board of Directors
On August 20, 2013, the Sixth Board of Directors of the Company convened its fifth meeting in the Company’s sixth-floor conference room. At this meeting, the following resolutions were reviewed and adopted: the Company’s 2013 Semi-Annual Report and its Summary; and a report on the write-off of bad debts at a subsidiary. The announcement regarding the resolutions passed at this board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on August 22, 2013.
(7) Sixth Session of the Sixth Board of Directors
The sixth session of the Company’s Board of Directors was convened by fax on October 22, 2013. At this meeting, the following resolutions were reviewed and adopted: the Company’s Third-Quarter Report for 2013; and a report on the transfer of the Company’s 50% equity interest in Dalian Jiale Vending Machine Operation Co., Ltd. The announcement regarding the resolutions passed at this board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on October 24, 2013.
(8) Seventh Meeting of the Sixth Board of Directors
On December 12, 2013, the Sixth Board of Directors of the Company convened its seventh meeting by facsimile. At this meeting, the following resolutions were reviewed and adopted: a report on the replacement of the Company’s Deputy General Manager; a report on the reappointment of the Company’s auditor for the year 2013; a report on the joint venture project for refrigeration equipment management consulting and energy-saving services; and matters relating to the convening of the Second Extraordinary Shareholders’ Meeting of 2013. The announcement of the resolutions passed at this Board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on December 13, 2013.
2. Implementation of Resolutions Adopted by the Shareholders’ Meeting by the Board of Directors
The Company’s Board of Directors has effectively implemented all resolutions passed at the 2012 Annual General Meeting.
The Company’s 2012 dividend distribution plan was fully implemented by the Board of Directors in June 2013.
3. Performance of the Board Audit Committee
The Audit Committee under the Company’s Board of Directors performs its duties in accordance with the Company’s “Detailed Rules for the Implementation of the Board of Directors’ Audit Committee” and the “Annual Report Working Procedures of the Audit Committee,” overseeing the Company’s internal audit system and its implementation, reviewing the Company’s financial information and related disclosures, and evaluating the work of external auditing firms.
During the process of re-engaging the audit firm for the 2013 fiscal year, the Audit Committee closely monitored the matter, conducted effective communication with both the incumbent and the proposed new accounting firm, and, based on a reasonable assessment of the professional quality of both firms, formulated a dedicated opinion recommending that the matter be submitted to the seventh meeting of the sixth session of the Board of Directors for consideration.
In the company’s internal control evaluation process, the Audit Committee has actively fulfilled its organizational, leadership, and oversight responsibilities. In accordance with the company’s criteria for identifying internal control deficiencies, the Committee reviewed and validated the consolidated table of internal control deficiency identifications prepared by the Internal Control Evaluation Team, examined the Company’s 2013 Internal Control Evaluation Report, and engaged Deloitte Touche Tohmatsu Certified Public Accountants to conduct an internal control audit. The audit concluded that the current state of the Company’s internal control system complies with applicable requirements, is aligned with the Company’s actual operations, and has been effectively implemented; moreover, the Company’s 2013 Internal Control Evaluation Report accurately reflects these findings.
During the Company’s 2013 audit, the Audit Committee maintained active communication and effective coordination with the auditing firm, Dahuа Certified Public Accountants. Prior to the auditors’ on-site engagement, the Committee discussed and reached consensus with the engagement partner of the auditing firm on matters such as the audit plan, schedule, and key issues to be addressed during the audit. Throughout the audit process, the Committee kept abreast of progress and repeatedly urged the auditing firm to carry out the audit in a timely manner while maintaining high quality and ensuring that all deliverables met the required standards. Upon completion of the audit, the Committee conducted a thorough review of the Company’s annual financial statements and annual report, concluding that the financial statements are comprehensive and accurate, and that the financial information disclosed to external parties is objective, truthful, and faithfully reflects the Company’s annual financial performance.
The Audit Committee is of the view that, in providing audit services for the Company for the year 2013, Dahuа Certified Public Accountants adhered to the professional standards of independence, objectivity, and impartiality; conducted the audit in strict accordance with the new accounting standards; demonstrated meticulous planning and adequate staffing; proactively communicated with the Audit Committee and the independent directors; exercised due diligence and responsibility; and thereby successfully completed the Company’s 2013 audit engagement. The Committee therefore proposes that the Company re-engage Dahuа Certified Public Accountants as its auditor for the year 2014.
4. Performance of the Board’s Compensation and Assessment Committee
The Compensation and Assessment Committee under the Company’s Board of Directors has performed its duties in accordance with the Company’s Implementing Rules for the Board of Directors’ Compensation and Assessment Committee, reviewing the annual compensation of the Company’s directors, supervisors, and senior management. The Committee concludes that the decision-making procedures and remuneration standards for the aforementioned individuals are in compliance with applicable laws and regulations as well as the Company’s internal policies, and that the compensation information disclosed in the Company’s 2013 Annual Report is true and accurate.
IV. 2014 Business Plan
2014 Corporate Business Plan Targets:
Sales revenue: RMB 169,000 million, representing an approximate 10% increase compared with the RMB 153,571 million in sales revenue achieved in 2013.
Total profit: RMB 140 million, essentially unchanged from the total profit achieved in 2013 after deducting the gains from the acquisition and repossession of land-use rights for warehousing land.
In 2014, the company will fully implement a value-based management philosophy, continuously enhance its core competitiveness, aggressively expand into new markets, and strive to achieve its revenue and profit targets.
In 2014, priority will be given to the following tasks:
1. Enhance comprehensive proposal development capabilities and system integration expertise to deliver end-to-end services and create value for clients.
2. Centered on core product planning, strengthen technological innovation, refine intellectual property management, optimize the product portfolio, and clarify the industrial value chain.
3. Enhance the internal control system, strengthen cash flow management, and bolster risk prevention capabilities.
4. Accelerate the advancement of information technology development and make effective use of Internet technologies and remote monitoring technologies.
5. Actively promote strategic joint ventures and collaborations in line with the industrial chain’s development plan.
6. Strengthen corporate culture development to enhance employee well-being.
Please review the above report.

May 20, 2014