To further enhance the overall competitiveness of Dalian Refrigeration Co., Ltd. (hereinafter referred to as “Dalian Refrigeration” or the “Company”), promote the Company’s transformation and upgrading, and strengthen its capacity for sustainable development, the 17th meeting of the 6th Session of the Board of Directors of the Company approved matters related to a non-public issuance of A-shares. The Company intends to issue, in a non-public offering to no more than 10 specific investors, up to 38,436,050 shares (inclusive) of Renminbi ordinary shares (hereinafter referred to as the “Current Non-Public Offering”). The feasibility analysis of the use of funds raised in the Current Non-Public Offering is set out below:

I. Plan for the Use of Funds Raised in This Offering

The proposed total proceeds from this non-public offering (including issuance expenses) shall not exceed RMB 580 million, and the net proceeds, after deducting issuance expenses, will be allocated to the following projects:

Project	Total project investment (in ten thousand yuan)	Proposed Use of Raised Funds (in RMB 10,000)
Company Relocation and Renovation Project	93,500	58,000

The net proceeds from this offering will not exceed the funding requirements of the projects. If the actual proceeds raised in this offering are insufficient to meet the investment needs of the aforementioned projects, the resulting funding shortfall will be financed by the Company through its own internal resources.

Prior to the receipt of the funds raised in this offering, the Company will finance the initial project expenditures on a self-funded basis in accordance with the actual progress of the projects. Upon receipt of the proceeds from the offering, such funds will be used, in compliance with applicable laws, regulations, and procedures, to pay the remaining project costs and to reimburse the previously incurred expenditures.

II. Feasibility Analysis of the Investment Projects Funded by This Offering

(1) Analysis of the Background for Implementing the Fund-Raising Investment Projects

1. In 2014, the overall performance of the economy remained stable, and economic development was transitioning to a new normal.

In 2014, China’s economy grew by 7.4% year on year, broadly achieving the approximately 7.5% target set at the beginning of the year. Quarterly growth rates were 7.4%, 7.5%, 7.3%, and 7.3%, respectively, indicating overall stable economic performance for the year. However, the continued deceleration in fixed-asset investment had a certain negative impact on economic growth, particularly as the real estate sector reached a turning point in its long-cycle adjustment, accelerating the decline in investment growth. Despite this, several economic indicators stabilized, providing support for mitigating downward pressure on the economy and optimizing its structure: on the one hand, total new urban employment in 2014 exceeded 13 million, reflecting a favorable employment situation that fostered steady income growth; on the other hand, the consumer price index rose by 2.1% in 2014, meeting the年初 target and ensuring steady consumption growth.

China’s comprehensive transition to the new normal in its economy not only signifies a shift in economic growth from high speed to medium-high speed, but also entails structural transformation, changes in the development model, and institutional reforms.

2. In 2014, the refrigeration and air-conditioning industry experienced a slowdown in growth, increasing pressure to undergo transformation.

In 2014, the refrigeration and air-conditioning industry continued the growth trend of 2013, with the impact of the new normal in economic development gradually becoming evident. While the overall growth rate of the industry slowed, efforts were made to adjust the industrial structure and promote transformation. Some enterprises intensified R&D to deepen the transformation and upgrading of their traditional businesses, enhanced their adaptability to changes in demand patterns, and sought new areas of growth. According to data from the National Bureau of Statistics, the refrigeration and air-conditioning industry for commercial and industrial applications recorded cumulative main-business revenue of RMB 266.235 billion for the full year of 2014, representing a year-on-year increase of 11.23%—a deceleration of 1.46 percentage points from the 12.69% year-on-year growth reported for the first three quarters of 2014.

3. The establishment of a cold-chain logistics system is urgently needed, further propelled by urbanization and food-safety strategies.

As national consumption levels continue to rise, the circulation of agricultural products in China is increasingly characterized by large scale, long distances, and off-season supply, placing higher demands on the scale and quality of logistics services—particularly in terms of cross-regional refrigerated transportation and low-temperature storage for preserving freshness. However, due to the low cold-chain penetration rate and the limited extent of end-to-end cold-chain coverage in China’s agricultural cold-chain logistics, coupled with severe deficiencies in cold-chain logistics infrastructure capacity, post-harvest losses of agricultural products amount to as much as RMB 100 billion annually, underscoring the urgent need to develop and strengthen the cold-chain logistics system.

In 2011, China’s urbanization rate exceeded 50%, reaching 54.77% in 2014; that same year, per capita GDP reached US$7,458. Drawing on the experience of developed countries and taking into account the current state of cold-chain logistics development in China, it is anticipated that demand for cold-chain food will soon reach an inflection point, driving rapid growth in the market for food freezing and refrigeration equipment. The State Council has issued the National New Urbanization Plan (2014–2020) as a guiding document, encouraging the establishment of a cold-chain logistics system that covers all stages of agricultural product collection, storage, processing, transportation, and sales. The revision of the Food Safety Law signifies that the food industry—crucial to both national economic development and people’s livelihoods—is now at the forefront of government-led reform initiatives and has become an integral component of the national security strategy. Consequently, the development of food cold-chain logistics constitutes a key element of China’s food safety strategy.

4. Deep integration of information technology enhances cold-chain transportation efficiency, while intelligent solutions create high-value-added opportunities.

The new normal of China’s economic development has led to the optimization and upgrading of the economic structure, as well as the deep integration of industrialization and informatization, making the transition from a factor- and investment-driven economy to an efficiency- and innovation-driven economy an inevitable trend. In documents such as the “Medium- and Long-Term Plan for the Development of the Logistics Industry (2014–2020)” issued by the State Council in 2014 and the “Guiding Opinions on Further Promoting the Healthy Development of Cold-Chain Transportation and Logistics Enterprises” issued by the National Development and Reform Commission, the application of advanced information technologies—including the Internet of Things, cloud computing, and big data—in the cold-chain transportation and logistics sector is encouraged and supported. These measures aim to achieve end-to-end monitoring and information sharing for both goods and cold-chain transport vehicles, optimize resource allocation, and enhance the overall efficiency of cold-chain transportation across society.

As traditional manufacturing enterprises undertake IT-driven reforms of their internal operations, they are also repositioning themselves from mere manufacturers and equipment suppliers to service providers and solution vendors. Leveraging advanced information technologies such as the Internet of Things and big data, unmanned, automated refrigeration systems and remote monitoring, data acquisition, and processing solutions for refrigeration equipment are poised to become the mainstream market trend, with enormous growth potential in the industry going forward.

5. “Made in China 2025” Creates Favorable Opportunities for the Company’s Transformation and Upgrading

To address the current situation in China’s manufacturing sector—large in scale but lacking in strength—the State Council issued “Made in China 2025” in May 2015 as the first ten-year action plan for implementing the national strategy of building a manufacturing powerhouse. The initiative underscores that China’s economic development has entered a new normal, posing fresh challenges to the manufacturing sector, and emphasizes the urgent need to adjust the industrial structure, promote transformation and upgrading, and enhance quality and efficiency.

As China’s largest manufacturer of industrial refrigeration equipment, the company operates a facility that was originally built in the 1950s and 1960s. However, its current production processes, manufacturing capacity, and product mix can no longer fully meet market demands. The company urgently needs to achieve a deep integration of information technology and manufacturing technology, as well as a seamless convergence of products and services, in order to shift from a cost-based competitive advantage to one driven by quality and efficiency, and to transition from a production-oriented manufacturing model to a service-oriented manufacturing model.

(II) Outlook for the Implementation of Fund-Raising Investment Projects

According to preliminary statistics from the China Association of Refrigeration and Air-Conditioning Industries, the total output value of commercial and industrial refrigeration and air-conditioning equipment and their accessories in China was approximately RMB 268 billion in 2013 and RMB 290 billion in 2014, representing year-on-year growth of 7.37% and 8.21%, respectively. It is expected that in 2015 the market for commercial and industrial refrigeration and air-conditioning equipment in China will continue the growth trend observed in 2013 and 2014, with promising prospects. Upon completion of the relocation and upgrading project, the company’s production capacity will be significantly enhanced, reaching an annual output of 35,628 units of various commercial and industrial refrigeration and air-conditioning equipment and related components, thereby better meeting the market demand in the refrigeration equipment industry.

Through this relocation and renovation project, the company will further optimize its product mix and strengthen its core competitiveness. At the same time, taking “Made in China 2025” as an opportunity and leveraging next-generation information technologies, the company will make all-out efforts to build a digitally transformed new plant, elevate its design and R&D capabilities, process technology, and equipment standards, and drive the intelligent transformation of all manufacturing processes—including design, production, management, and service—thereby fostering deep integration between IT application and industrialization and propelling the transformation of traditional manufacturing toward the mid- to high-end market.

The company plans to relocate to the Dalian Jinpu New Area. As the only national-level new area in Northeast China, the Dalian Jinpu New Area will receive robust support from relevant national authorities in areas such as planning formulation, policy implementation, project deployment, institutional innovation, and opening-up, thereby providing a reliable guarantee for the company’s strategic initiative to achieve industrial upgrading and innovative transformation through the new plant site. The Jinpu New Area encompasses the Dalian Economic and Technological Development Zone, the Bonded Zone, and the Puyan New Area, boasting a superior geographic location and a strong economic foundation. Leveraging the existing public resources within the zone, the company will be able to accelerate the construction of the relocation and renovation project while reducing capital expenditures. Upon completion of this relocation and renovation project, the company’s current plant site will also provide ample room for internal resource integration and the development of innovative business models.

(III) Basic Information on Fund-Raising Investment Projects

1. Project Implementing Entity, Site Selection, and Building Scale

The implementing entity of the project is our company.

The project is located at No. 106 Liaohe East Road, Dalian Economic and Technological Development Zone, with Land Use Certificate No. Da Kai Guo Yong (2013) No. 372. The project covers a land area of 254,826 square meters and has a total floor area of 165,922.89 square meters.

2. Project Capacity Planning

Upon completion of this project, the Company’s headquarters will increase its production capacity to 35,628 units (sets) per year of various commercial and industrial refrigeration and air-conditioning equipment and related components.

(4) Project Implementation Schedule and Investment Estimate

The total investment for this project amounts to RMB 935 million. To expedite the completion and commissioning of the project, the Company has commenced the relocation and renovation works using its own funds. As of the date of the Board Resolution announcement regarding this non-public offering, RMB 133.3445 million has been invested in the project. The Company expects the relocation and renovation works to be completed in 2016.

(5) Approval Status Related to the Project

The Company has obtained the Enterprise Investment Project Filing Confirmation issued by the Dalian Economic and Technological Development Zone Bureau of Economy and Trade, as well as the Environmental Impact Assessment Approval issued by the Dalian Economic and Technological Development Zone Environmental Protection Bureau.

(6) Evaluation of the Project’s Economic Benefits

The project’s after-tax internal rate of return is 13.5%, and the after-tax payback period is 5.2 years (excluding the construction period).

III. Impact of This Offering on the Company’s Operations, Management, and Financial Condition

(1) Impact of this non-public offering on the company’s operations and management

Following the implementation of the investment projects financed by this fundraising, the Company will achieve significant improvements in product technology, production processes, and operational efficiency through business process reengineering, organizational optimization, and refined strategic positioning during the relocation and renovation phase, as well as through the adoption of new technologies, processes, and equipment. Consequently, manufacturing capacity and product quality will be markedly enhanced, management practices will become more precise and transparent, and financial performance will continue to improve.

(II) Impact of this Non-public Offering on the Company’s Financial Position

Upon completion of this non-public offering, the Company’s capital base, integration capabilities, and risk resilience will be further strengthened. This non-public offering will also improve the Company’s financial position and enhance its financial soundness.

In summary, the Company’s plan to allocate the proceeds from this non-public offering to the relocation and renovation project is in line with national industrial policies and the Company’s development needs. The proposed investment project boasts strong profitability and promising growth prospects, thereby aligning with the overall interests of the shareholders. The implementation of this project will further refine the Company’s product mix, optimize its industrial value chain, and enhance its solution offerings, driving upgrades in the Company’s product, management, and quality capabilities and fostering its long-term, sustainable development.

Board of Directors, Dalian Refrigeration Co., Ltd.

June 24, 2015