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Annual Work Report of the Company’s Board of Directors for 2014
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Document No. 1 for the 2014 Annual General Meeting
Annual Work Report of the Company’s Board of Directors for 2014
Dear Shareholders:
In 2014, despite numerous adverse factors, the company remained firmly committed to its business philosophy of “leading innovation and creating value.” It rallied its spirit, pursued concrete results through diligent execution, accelerated the optimization and upgrading of its industrial structure, intensified technological innovation, integrated and optimized internal resources, innovated its business models, streamlined management functions, refined its compensation system, implemented equity-based incentives, strengthened cash-flow management, and effectively mitigated operational risks. Internally, the company placed employees at the center; externally, it put customers first—delivering value to both customers and shareholders while enhancing employee well-being.
In 2014, the company recorded operating revenue of RMB 142.572 million, representing 84.36% of the annual target of RMB 169.000 million and a year-on-year decrease of 7.16%; total profit amounted to RMB 12.399 million, or 88.56% of the annual target of RMB 14.000 million, down 32.89% from the previous year. The primary reason for failing to meet the annual target was the insufficient demand in domestic industries such as steel, petrochemicals, cement, and coal, which led to a significant decline in valid orders for industrial refrigeration and general-purpose petrochemical equipment. Intensified industry competition further drove down contract prices for executed projects. The substantial year-on-year drop in total profit was mainly attributable to the fact that the company recognized a gain of RMB 41.76 million last year from the acquisition and storage of land used for warehousing.
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, in the face of a challenging market environment for industrial refrigeration and general petrochemical equipment, the company focused its efforts on capturing market opportunities in the food freezing and refrigeration sector. By providing customers with integrated solutions, it successfully secured its first CO 2 The refrigeration and cold-storage project, with orders nearing RMB 100 million, has filled a gap in the company’s CO 2 A market gap.
During the reporting period, the Company implemented a compensation reform and refined its remuneration system; introduced a new operational mechanism that streamlined organizational structures and enhanced operational efficiency; and launched its first equity incentive plan to align the interests of the core management team, thereby fostering a community of shared interests among the Company, its shareholders, and its employees.
During the reporting period, the company strengthened cash flow management. By conducting inventory counts and clearance, it optimized capital utilization and reduced the amount of capital tied up in inventory; meanwhile, by intensifying efforts to collect outstanding receivables, it mitigated operational risks.
During the reporting period, the company actively advanced informationization projects such as PDM and ERP, and the construction of a new performance testing laboratory was carried out in an orderly manner. In response to the safety upgrade of ammonia-based refrigeration systems, the company developed modular equipment specifically for retrofitting small-scale ammonia cold storage facilities. It also independently developed a lightweight, high-efficiency oil-separator screw refrigeration compressor unit, which now holds a leading position domestically. Notably, the “multi-functional icing wind tunnel icing-loop refrigeration system” has passed provincial-level appraisal, breaking through the long-standing hardware limitations of China’s wind-tunnel testing facilities and meeting the R&D needs of domestic aerospace wind-tunnel testing technologies.
During the reporting period, the Company achieved significant results in resource integration by establishing a centralized procurement platform for bulk materials, thereby reducing procurement costs; launching Bingshan Sales Company to consolidate the sales resources of the Company and Wuxin Refrigeration and create a unified sales platform; and, through standardized marketing and information sharing, enhancing the Company’s market presence and competitiveness while continuously strengthening its capability to deliver comprehensive solutions. In addition, the Company acquired the foreign equity interest in Bingshan Metal Processing, making it a wholly owned subsidiary, which expanded the Company’s business scope and enhanced its manufacturing capabilities.
During the reporting period, the Company proactively innovated its business model by establishing a wholly owned subsidiary—Bingshan Technical Services (Dalian) Co., Ltd.—to provide customers with specialized, end-to-end services. The Company has continuously enhanced its after-sales service, maintenance and repair services, safety and energy-saving services, and parts supply capabilities, gradually expanded the scope of its service offerings, and refined its service delivery system to meet the demands of future market competition.
During the reporting period, the Company’s subsidiary, Wuxin Refrigeration, revamped its production organization and established four production assembly lines for compressor assembly, heat exchangers, small pressure vessels, and the final assembly of small refrigeration units.
During the reporting period, the Company’s subsidiary, Bingshan Jiade, leveraged IoT technology to develop a SCADA remote monitoring system, which has already been deployed in projects such as Chongqing Mingpinfu, enabling customers to promptly access reliable on-site operational data for their refrigeration equipment.
During the reporting period, the Company’s associate, Dalian Sanyo Compressor, was renamed Panasonic Compressor (Dalian) Co., Ltd. While prioritizing the retention of traditional customers to ensure an increase in market share, the Company also seized opportunities in the electric bus air-conditioning compressor market, successfully securing major industry leaders such as BYD and Yutong as clients. Overseas sales of scroll compressors exceeded 400,000 units. Meanwhile, R&D on new-bore compressors and new-specification DC inverter compressors is progressing smoothly.
During the reporting period, the Company’s associate, Dalian Sanyo Cold Chain, was renamed Panasonic Cold Chain (Dalian) Co., Ltd. Building on its strong market share in the supermarket and commercial kitchen sectors, the Company actively promoted comprehensive, eco-friendly, energy-saving technology solutions and expanded its customer base in the beverage and low-temperature logistics businesses. In addition, the Company developed a range of innovative products that meet market demand and set industry trends, including self-service refrigerated fresh-delivery lockers, compact low-temperature logistics containers, square glass display cabinets, and high-efficiency inverter-driven commercial refrigeration units.
During the reporting period, the Company’s associate, Dalian Sanyo Refrigeration Co., Ltd., was renamed Panasonic Refrigeration (Dalian) Co., Ltd. Focusing on today’s key areas—energy conservation and emission reduction, waste heat recovery, and clean energy utilization—the Company vigorously promoted its two core product lines: central air-conditioning systems and commercial air-conditioning units. A successful implementation of a natural-gas–based trigeneration system at the Kempinski Hotel Beijing Yanqi Lake Sunrise East has established a benchmark project for distributed energy systems. In addition, the construction of an 80-horsepower enthalpy-difference laboratory has been completed, which will meet the development and testing needs of high-capacity new products.
During the reporting period, the Company’s associate, Dalian Fuji Iceberg, while ensuring stable development in the operator market, actively expanded into the beverage distributor market. In addition to Coca-Cola and Master Kong, it successfully onboarded several new customers, including Nongfu Spring and New Hope Dairy, with sales volume exceeding 15,000 units and a substantial increase in sales revenue. To support diversified payment options for vending machines, the product lineup was further refined and standardized, and a newly developed CO 2 The refrigerated and hot beverage vending machine has obtained global certification from Coca-Cola.
During the reporting period, the Company’s associate, Jingbin Dayang, completed the rectifier retrofit of Production Lines 1 and 2, resulting in a significant increase in product straight-through rate and a rise in daily output to over 5,000 units. Meanwhile, the Foshan Branch commenced mass production of several models of condensers and evaporators.
During the reporting period, the Company’s associate, Lingzhong BingShan, officially opened on December 17, and its first centrifugal chiller rolled off the production line.
2. Company Financial Condition
(1) Changes in Major Asset and Liability Items (Unit: RMB 10,000)
Explanation:
① The increase in accounts receivable is primarily attributable to the rise in non-matured accounts receivable.
② The decrease in construction-in-progress is primarily due to the completion of renovation projects for buildings and ancillary facilities, which have been brought into fixed asset accounting upon reaching their intended usable condition.
③ The increase in short-term borrowings is primarily attributable to a new working-capital loan obtained by the subsidiary, Wuxin Refrigeration.
(2) Expenses and Income Tax Situation (Unit: RMB 10,000)
Explanation:
① The reduction in financial expenses is primarily attributable to an increase in interest income.
② The decrease in income tax is primarily attributable to the substantial gain recognized in the same period last year from the acquisition and storage of the company’s warehousing land, which resulted in a higher taxable income. In addition, the company benefited from the 15% preferential tax rate for high-tech enterprises in 2014.
(3) Composition of Cash Flows (Unit: RMB 10,000)
Explanation:
① The net cash flow from operating activities increased significantly year on year, primarily because the notes payable for purchases of goods and services at the end of the reporting period rose substantially compared with the same period last year, resulting in a marked decrease in cash holdings versus the prior-year level.
② The net cash flow from investing activities decreased significantly year on year, primarily because the company’s land-use rights for warehousing land were acquired and reclaimed during the same period last year, resulting in a substantial inflow of cash.
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 Co., Ltd.
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 2014, its total assets amounted to RMB 94.28 million, its net assets to RMB 26.99 million, its sales revenue reached RMB 139.55 million, and its net profit was RMB 620,000.
② Dalian Bingshan Group Sales Co., Ltd.
Our company holds 100% equity in this entity. The registered capital of the company is RMB 18 million, and its principal business is the sales of our company’s and Wuxin Refrigeration’s products. In 2014, its total assets amounted to RMB 127.62 million, its net assets were RMB 23.63 million, it recorded sales revenue of RMB 168.81 million, and its net profit was RMB 0.81 million.
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 manufacture and sale of air-conditioning terminal equipment, including fan coil units and air handling units. In 2014, its total assets amounted to JPY 141.5 million, with net assets of JPY 73.19 million; it recorded sales revenue of JPY 118.87 million and a net profit of JPY 4.07 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 2014, its total assets amounted to RMB 24 million, with net assets of RMB 6.34 million; it recorded sales revenue of RMB 30.35 million and a net loss of RMB 0.56 million.
⑤ Dalian Bingshan Metal Processing Co., Ltd.
At the end of 2014, our company held a 64.25% equity interest in this entity; currently, we hold 100% of its equity. The entity’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 2014, its total assets amounted to RMB 33.22 million, its net assets to RMB 26.42 million, its sales revenue reached RMB 43.18 million, and its net profit was RMB 1.47 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 2014, its total assets amounted to RMB 21.45 million, with net assets of RMB 11.80 million; it recorded sales revenue of RMB 39.57 million and a net profit of RMB 4.44 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 2014, its total assets amounted to RMB 451.53 million, with net assets of RMB 135.68 million; it recorded sales revenue of RMB 271.22 million and a net loss of RMB 3.07 million.
(2) Major equity-method investees (with an investment income share of 5% or more)
II. Company Investment Situation
As of December 31, 2014, the company’s balance of long-term equity investments stood at RMB 103,923 million, an increase of RMB 5,996 million, or 6.12%, compared with the end of the previous year.
During the reporting period, the Company, together with Dalian Bingshan International Trade Co., Ltd., established Bingshan Technical Services (Dalian) Co., Ltd. The Company contributed RMB 12 million in cash and holds a 60% equity interest in the company.
III. Daily Operations of the Board of Directors
1. Meetings of the Board of Directors and Resolutions Adopted During the Reporting Period
(1) Eighth Meeting of the Sixth Board of Directors
On March 10, 2014, the Sixth Board of Directors of the Company convened its eighth meeting by facsimile. At this meeting, the following resolutions were reviewed and adopted: a report on candidates for the Company’s board of directors; and matters relating to the convening of the First Extraordinary General Meeting of Shareholders for 2014. The announcement of the resolutions passed at this board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on March 11, 2014.
(2) Ninth Meeting of the Sixth Board of Directors
On March 27, 2014, the Sixth Session of the Company’s Board of Directors convened its ninth meeting in the Company’s Eighth-Floor Conference Room. At this meeting, the following resolutions were reviewed and adopted: the election of the Chairman and Vice Chairmen of the Board; the election of the members of the Audit Committee of the Board; and the election of the members of the Compensation and Assessment Committee of the Board. 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 March 28, 2014.
(3) The 10th Meeting of the 6th Board of Directors
On April 22, 2014, the Sixth Session of the Company’s Board of Directors convened its tenth meeting in the Company’s Eighth-Floor Conference Room. At this meeting, the following resolutions were reviewed and adopted: the Board’s Work Report for 2013; the Company’s 2013 Financial Final Accounts and 2014 Financial Budget Report; the Proposed Profit Distribution Plan for 2013; the Company’s 2013 Annual Report; the Company’s First-Quarter Report for 2014; the Company’s 2013 Internal Control Evaluation Report; the Company’s 2013 Corporate Social Responsibility Report; the Independent Directors’ 2013 Performance Reports; the Report on Making Provisions for Asset Impairment in 2013; the Report on Writing Off Bad Debts; the Report on Authorizing the Chairman and Management to Apply for Bank Credit Lines and Loan Limits for 2014; the Report on the Company’s 2013 Routine Related-Party Transactions and the Estimated Routine Related-Party Transactions for 2014; the Report on Engaging an Audit Firm for 2014; the Report on Amending the Company’s Articles of Association; the Report on Increasing the Allowance Rates for Independent Directors; the Report on Adjusting the Responsibilities of Members of the Board’s Specialized Committees; and the Report on the Basic Matters Pertaining to the Convening of the 2013 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, 2014.
(4) The 11th Meeting of the 6th Board of Directors
On August 19, 2014, the Sixth Board of Directors of the Company convened its eleventh meeting by facsimile. At this meeting, the following resolutions were adopted: the Company’s 2014 Semi-Annual Report and its Summary; approval of the Company’s acquisition, at a price of RMB 2.281 million, of a 10% equity interest in Dalian Bingshan Group Sales Co., Ltd. held by Dalian Bingshan Group Co., Ltd.; and approval of the Company’s transfer, on the basis of the aforementioned acquisition of the 10% equity interest, of a 30% equity interest in Dalian Bingshan Group Sales Co., Ltd. to Wuhan New World Refrigeration Industry Co., Ltd. for a consideration of RMB 6.843 million. 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 21, 2014.
(5) The 12th Meeting of the 6th Board of Directors
On October 21, 2014, the Sixth Board of Directors of the Company convened its twelfth meeting by facsimile. At this meeting, the following resolutions were reviewed and adopted: the Company’s Third-Quarter Report for 2014; a report on changes in accounting policies; a report on the acquisition of equity in Dalian Bingshan Metal Processing Co., Ltd.; and a report on the capital contribution to establish Bingshan Technical Services (Dalian) 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 23, 2014.
(6) 13th Meeting of the 6th Board of Directors
On December 9, 2014, the Sixth Session of the Board of Directors of the Company convened its 13th meeting in person. At this meeting, the following resolutions were reviewed and adopted: the “Draft Restricted Stock Incentive Plan of Dalian Refrigeration Co., Ltd.”; the “Administrative Measures for the Assessment and Management of the Restricted Stock Incentive Plan of Dalian Refrigeration Co., Ltd.”; and a proposal to submit to the General Meeting of Shareholders of Dalian Refrigeration Co., Ltd. for authorization of the Board of Directors to handle matters related to the Company’s restricted stock incentive plan. The announcement regarding the resolutions passed at this Board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on December 11, 2014.
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 2013 Annual General Meeting.
The Company’s 2013 dividend distribution plan was fully implemented by the Board of Directors in June 2014.
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.
In the course of the company’s internal control evaluation, 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 2014 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 2014 Internal Control Evaluation Report accurately reflects these findings.
During the Company’s 2014 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, the schedule, and key issues requiring attention during the audit period. Throughout the audit process, the Committee kept abreast of progress, repeatedly urging the auditing firm to carry out the audit in a timely manner while ensuring both quality and quantity. 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 all externally disclosed financial reports and related information are objective, truthful, and faithfully reflect the Company’s annual financial condition.
The Audit Committee is of the view that, in providing audit services for the Company for the year 2014, Dahuа Certified Public Accountants has adhered to the professional standards of independence, objectivity, and impartiality; conducted the audit in strict accordance with the new accounting standards; demonstrated rigorous and well-structured 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 2014 audit engagement. The Committee therefore proposes that the Company re-engage Dahuа Certified Public Accountants as its auditor for the year 2015.
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 2014 Annual Report is true and accurate.
IV. 2015 Business Plan
2015 Corporate Business Plan Targets:
Sales revenue: RMB 165,000 million, compared with RMB 142,572 million in 2014. , representing an approximate increase of 16%.
Total profit: RMB 150 million, representing an approximate 21% increase compared with the total profit of RMB 123.99 million achieved in 2014.
In 2015, the company will operate in a lawful and orderly manner under the theme of “Intelligent Integration and Precision Management”; shift its development model and optimize its structure to advance the industrialization of services; cultivate new growth drivers and enhance core competitiveness; integrate resources and intensify technological innovation; leverage capital operations to expand business development; continue to strengthen cash flow management and improve operational quality; and tighten performance evaluation to ensure the achievement of 2015 revenue and profit targets.
In 2015, the following key tasks shall be prioritized:
1. Operate in a lawful and orderly manner to mitigate business risks. Firmly implement the new Work Safety Law, clearly define safety responsibilities, and strengthen preventive management; strictly adhere to the company’s articles of association and operational rules, and further improve the corporate governance structure; enhance internal control management to mitigate financial, operational, and legal risks.
2. Accelerate industrial restructuring and innovate business models. Focus on upgrading and transforming products to elevate traditional industries toward the mid- to high-end; take full advantage of the company’s relocation to build information-based and intelligent factories; and vigorously develop producer services to gradually strengthen the supporting role of the service sector.
3. Cultivate new growth drivers and enhance core competitiveness. Leverage internet technologies to develop energy management services; build the company’s core competencies in comprehensive turnkey solutions for refrigeration and cold storage systems, central air-conditioning systems, and engineering projects; and explore new business areas.
4. Integrate resources and intensify efforts in technological innovation. Guided by the product roadmap, accelerate the pace of product and technology innovation; integrate talent and R&D resources from Daling and Wuling to build a robust technology platform and concentrate resources on developing new products; strengthen intellectual property protection; establish mechanisms for cultivating, attracting, and incentivizing technical talent; increase investment in R&D; and, with safety, energy efficiency, and environmental protection as key objectives, further leverage technology-driven innovation.
5. Expand business development through capital operations. Proactively align with national strategies, optimize the spatial layout of industrial development, and refine industrial positioning; simultaneously attract investment and pursue outbound investment to facilitate the international expansion of industries where we have competitive advantages.
6. Continue to strengthen cash flow management and enhance the quality of corporate operations. Specifically, reinforce cash flow management, improve accounts receivable and inventory management, and boost the company’s operational efficiency; intensify performance assessments for growth-oriented metrics, increasing the weighting assigned to return on equity and sales profit margin, thereby continuously improving the company’s profitability, growth potential, and operational capabilities.
Please review the above report.
May 20, 2015
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Dalian Bingshan Group Co., Ltd.
Address: No. 106, Liaohe East Road, Dalian Economic & Technological Development Zone
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