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Iceberg Cold & Heat Technology Co., Ltd.

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1. Annual Work Report of the Company’s Board of Directors for 2012

 
	Document No. 1 for the 2012 Annual General Meeting 

 
	Annual Work Report of the Company’s Board of Directors for 2012 

 
	Dear Shareholders: 

 
	In 2012, amid a sluggish economy and declining demand, the company placed quality and profitability at the core of its operations, calmly addressing market challenges while proactively seizing emerging opportunities. With a focus on new-series screw compressors and other energy-saving, environmentally friendly products, as well as integrated technical solutions such as cold-storage air-conditioning systems, the company actively adjusted its sales strategy, continuously enhanced operational quality, and strived to achieve all key financial targets. In 2012, the company recorded sales revenue of RMB 152,198 million, representing 86.97% of the 2012 business plan target of RMB 175,000 million—a year-on-year decrease of 18.32%. Total profit reached RMB 13,328 million, or 102.52% of the 2012 plan target of RMB 13,000 million, reflecting a year-on-year increase of 2.30%. 

 
	I. Review of the Company’s Operating Performance 

 
	1. Overview of the Company’s Overall Operating Performance for the Reporting Year 

 
	(1) Principal Business 

 
	During the reporting period, the company’s undertaking of the National 863 Program project—“Development of a High-Capacity Brine-Based Fresh-Keeping Refrigeration System”—passed acceptance by the Ministry of Science and Technology and has been successfully deployed on China’s large-scale offshore tuna purse-seine vessels, thereby filling a domestic gap. 

 
	During the reporting period, the company focused on the R&D of new products, including single-unit two-stage screw compressor units, a new working-fluid formulation library, and novel air coolers. Notably, the φ16-tube high-efficiency air cooler features a compact design and reduced weight compared with conventional models, while delivering more than 30% higher heat-transfer efficiency. 

 
	During the reporting period, the company’s Foundry Division successfully completed its relocation and upgrade, with the new workshop—equipped with state-of-the-art facilities such as electric melting furnaces—officially put into operation. 

 
	During the reporting period, the company actively introduced key machining equipment, including five-axis simultaneous CNC turning and milling centers and high-end rotor grinding machines, further enhancing its equipment capabilities and production processing capacity. 

 
	During the reporting period, the Company’s subsidiary, Wuxin Refrigeration, rose to challenges and pursued continuous improvement. It optimized existing products, thereby reducing overall equipment manufacturing costs. The production-line upgrade was completed, resulting in a substantial increase in compressor assembly speed. In addition, the newly established complete-product business unit for panel and fan assemblies has commenced production, fully leveraging the region’s locational advantages in central China. 

 
	(2) Sino-foreign joint ventures 

 
	In 2012, the Company recognized sales revenue of RMB 581,655 million from its portfolio of equity-method investees in China–foreign joint ventures, representing a year-on-year decrease of 1.93% on a comparable basis. 

 
	During the reporting period, three Sino-foreign joint ventures accounted for more than 10% of the company’s net profit in investment income. 

 
	During the reporting period, among the company’s equity-method investments in Chinese–foreign joint ventures, seven reported main-business revenue exceeding RMB 100 million, with two of these exceeding RMB 1 billion; five reported net profit exceeding RMB 10 million, with two of these exceeding RMB 50 million. 

 
	During the reporting period, Dalian Sanyo Compressor, as a leading domestic manufacturer of scroll compressors, built on its strong position in high-efficiency fixed-speed units by aggressively promoting DC inverter scroll compressors. Leveraging its scale advantages and employing price adjustments and other measures, the company proactively expanded its market presence, with sales revenue once again surpassing RMB 2 billion and its market share further increasing. Meanwhile, through company-wide improvement initiatives and comprehensive cost-reduction efforts, both product quality and cost competitiveness were enhanced. 

 
	During the reporting period, Dalian Sanyo Cold Chain pursued green and innovative growth, earning the inaugural Dalian Mayor’s Quality Award; its share of shelf space in high-performing foreign-invested customer stores continued to rise, while exports to emerging markets such as India posted rapid growth; refined management initiatives effectively reduced costs, leading to an improvement in gross margin; the company obtained certification for pressure-pipe installation, further solidifying its position as an industry leader; and it developed more than 30 models, including CO2-based environmentally friendly refrigerators, significantly enhancing product energy efficiency. 

 
	During the reporting period, Dalian Sanyo Refrigeration achieved optimal allocation of resources in its large-scale air-conditioning business through integrated operations with Dalian Sanyo Air-Conditioner Co., Ltd., thereby strengthening its overall competitiveness in the face of market challenges. Focusing on energy conservation and emission reduction as well as the utilization of low-grade waste heat, the company vigorously advanced independent R&D and successfully piloted a ultra-low-temperature waste-water recovery unit, further expanding the application scope of its flagship product—the lithium bromide absorption chiller. In addition, the company refined its sales authorization management processes, resulting in year-on-year revenue growth of more than 20%, with GHP gas-fired heat pump performance increasing by 116% and engineering project performance growing several-fold. 

 
	During the reporting period, Dalian Fuji Iceberg achieved remarkable success in expanding its vending machine market, with sales exceeding 10,000 units, revenue increasing by more than 50% year on year, and net profit posting a substantial year-on-year rise. The company developed a range of models, including large-capacity and multi-functional units, promptly meeting the needs of key customers. Building on its strong foothold in Northeast China and focused expansion into major coastal cities in Southeast China, the company actively extended its presence to major cities in Western China, successfully entered the South Korean market, and further strengthened its sales network. Construction of the Phase II plant has commenced and is scheduled for full commissioning in the first half of 2013. 

 
	During the reporting period, Jingbin Danyang reduced the processing time for a single condenser from 28 minutes to 25 minutes; meanwhile, the Foshan branch was officially registered, enabling localized product supply to local customers and enhancing the efficiency and quality of market services. 

 
	During the reporting period, the Company undertook a streamlined and efficient restructuring and liquidation of certain corporate assets. Specifically, Dalian Sanyo Air-Conditioning was fully merged into Dalian Sanyo Refrigeration; contracts for Dayang Transportation & Refrigeration and Dalian Sanyo Home Appliances expired, leading to the liquidation of these non-core businesses; and Shenyang Sanyo Air-Conditioning was divested. 

 
	2. Company Financial Condition 

 
	(1) Changes in Major Asset and Liability Items (Unit: RMB 10,000) 

Project Name	2012		2011		Changes
Project Name	Amount	Proportion of total assets	Amount	Proportion of total assets	Changes
Accounts receivable	40,247	13.70%	41,335	13.54%	-2.63%
Inventory	39,890	13.58%	42,439	13.90%	-6.01%
Long-term equity investments	96,264	32.77%	Eighty-nine thousand seven hundred twenty	29.38%	+7.29%
Fixed assets	40,497	13.79%	34,564	11.32%	+17.17%
Construction in progress	130	0.04%	3,420	1.12%	-96.20%
Short-term loans	2,950	1.00%	1,300	0.43%	+126.92%

 
	Explanation: 

 
	① The decrease in construction-in-progress is primarily attributable to the completion of the relocation and renovation of the foundry workshop, with the newly constructed plant buildings and newly acquired equipment having been inspected and accepted as fixed assets. 

 
	② The increase in short-term borrowings was primarily due to a new working-capital loan of RMB 16.5 million obtained by the subsidiary, Wuhan New World Refrigeration Industry Co., Ltd. 

 
	(2) Expenses and Income Tax Situation (Unit: RMB 10,000) 

Project Name	Fiscal Year 2012	Fiscal Year 2011	Changes
Selling expenses	12,042	11,443	+0.11%
Administrative expenses	18,429	18,459	-0.16%
Financial expenses	-424	185	-329.19%
Income tax	724	3,682	-80.34%

 
	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 decrease in income tax is primarily attributable to the substantial gains from equity transfers in 2011, which resulted in a correspondingly higher amount of income tax payable. 

 
	(3) Composition of Cash Flows (Unit: RMB 10,000) 

Project Name	Fiscal Year 2012	Fiscal Year 2011	Changes
Net cash flow from operating activities	-6,686	16,836	-139.71%
Net cash flow from investing activities	-4,060	14,066	-128.86%
Net cash flow from financing activities	-4,782	-11,988	+60.11%

 
	Explanation: 

 
	① The net cash flow from operating activities decreased, primarily due to a year-on-year decline in cash receipts from sales during the reporting period, coupled with increases in tax payments, payroll expenses, and related surcharges. 

 
	② The net cash flow from investing activities decreased, primarily due to the company’s 2011 disposal of its equity interest in Dalingwang Transportation Refrigeration Co., Ltd., as well as the substantial cash proceeds received from the sale of available-for-sale financial assets; additionally, investments in associates increased during the reporting period. 

 
	③ The net cash flow from financing activities increased, primarily because the amount of borrowings this year exceeded last year’s, while last year saw substantial repayments. 

 
	3. Operating Conditions and Performance of Major Holding Companies and Equity-Participated Companies 

 
	(1) Major Holding Companies 

 
	① Dalian Bingshan Group Refrigeration and Air-Conditioning Installation Company 

 
	The Company holds 100% equity in this entity. The entity’s registered capital is RMB 20.04 million, and its principal business is the installation and commissioning of complete sets of refrigeration equipment. In 2012, its total assets amounted to RMB 67.26 million, its net assets to RMB 23.89 million, its sales revenue reached RMB 102.91 million, and its net profit was RMB 0.42 million. 

 
	② Dalian Bingshan Group Sales Co., Ltd. 

 
	The Company holds a 90% equity interest in the entity. The entity’s registered capital is RMB 18 million, and its principal business is the sales of products manufactured by member enterprises of the Dalian BingShan Group. In 2012, its total assets amounted to RMB 47.19 million, its net assets stood at RMB 22.52 million, it recorded sales revenue of RMB 24.17 million, and its net loss was RMB 200,000. 

 
	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 2012, its total assets amounted to JPY 141.53 million, with net assets of JPY 71.68 million; it recorded sales revenue of JPY 122.74 million and a net profit of JPY 2.64 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 a wide range of quick-freezing equipment. In 2012, its total assets amounted to RMB 27.76 million, net assets stood at RMB 10.04 million, sales revenue reached RMB 28.08 million, and net profit was RMB 90,000. 

 
	⑤ Dalian Bingshan Metal Processing Co., Ltd. 

 
	The Company holds a 64.25% equity interest in the entity. 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 established joint ventures and for the Company itself. In 2012, its total assets amounted to RMB 32.95 million, its net assets to RMB 23.91 million, its sales revenue reached RMB 44.07 million, and its net profit was RMB 1.31 million. 

 
	⑥ Dalian Bingshan Jiade Automation Co., Ltd. 

 
	Our company holds a 60% equity interest 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 2012, its total assets amounted to RMB 16.15 million, with net assets of RMB 11.59 million; it recorded sales revenue of RMB 32.90 million and a net profit of RMB 5.18 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 30 million, and it primarily manufactures and sells screw-type refrigeration compressors. In 2012, its total assets amounted to RMB 463.82 million, with net assets of RMB 136.19 million; it recorded sales revenue of RMB 386.40 million and a net profit of RMB 16.62 million. 

 
	(2) Major Equity-Linked Subsidiaries 

Major Equity-Participated Companies	Leading products	Main Business Revenue (in ten thousand yuan)	Net profit (Ten thousand yuan)
Dalian Sanyo Compressor Co., Ltd.	Semi-hermetic piston and scroll compressors	218,129	12,280
Dalian Sanyo Cold Chain Co., Ltd.	Commercial Freezing and Refrigeration Equipment	178,793	3,940
Keihin Ocean Heating and Cooling Industry (Dalian) Co., Ltd.	Car air conditioning	54,411	6,060

 
	II. Company Investment Situation 

 
	As of December 31, 2012, the company’s balance of long-term equity investments stood at RMB 962.64 million, an increase of RMB 65.44 million, or 7.29%, compared with the end of the previous year. 

 
	During the reporting period, the Company did not raise any new capital, nor were there any instances of the utilization of funds raised prior to the reporting period that extended into the current reporting period. 

 
	III. Daily Operations of the Board of Directors 

 
	1. Meetings of the Board of Directors and the contents of their resolutions during the reporting period 

 
	(1) The 14th Meeting of the 5th Board of Directors 

 
	On March 6, 2012, the Fifth Board of Directors of the Company convened its 14th meeting in the Company’s Eighth-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 2011; the Financial Final Accounts for the Year 2011 and the Financial Budget for the Year 2012; the Proposed Profit Distribution Plan for the Year 2011; the Report on the Company’s Routine Related-Party Transactions in 2011 and the Estimated Routine Related-Party Transactions for 2012; the Report on the Appointment of the Audit Firm for 2012; the Company’s Annual Report for 2011; the Company’s Report on the Evaluation of Internal Controls for 2011; the Annual Performance Reports of the Independent Directors for 2011; the Report on Authorizing the Company’s Management to Apply for Bank Credit Lines and Loan Facilities; the Report on Increasing Capital Investment in Dalian Sanyo Refrigeration Co., Ltd.; the Report on the Transfer of Equity in Dalian Sanyo Air-Conditioning Equipment Co., Ltd.; and the Matters Relating to the Convening of the 2011 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 March 8, 2012. 

 
	(2) The 15th Meeting of the 5th Board of Directors 

 
	On March 29, 2012, the Fifth Board of Directors of the Company convened its fifteenth meeting by facsimile. At this meeting, the report on the provision for inventory write-downs for the year 2011 was reviewed and approved. 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 30, 2012. 

 
	(3) The 16th Meeting of the 5th Board of Directors 

 
	On April 23, 2012, the Fifth Board of Directors of the Company convened its Sixteenth Meeting by facsimile. At this meeting, the Company’s Report for the First Quarter of 2012 was reviewed and approved. 

 
	(4) The 17th Meeting of the 5th Board of Directors 

 
	On May 16, 2012, the Fifth Board of Directors of the Company convened its Seventeenth Meeting by facsimile. At this meeting, the following resolutions were reviewed and adopted: approval was granted for the liquidation of Dalian Sanyo Home Appliances Co., Ltd.; and approval was granted for Sanyo Electric Co., Ltd. to make a sole capital increase in Dalian Sanyo Home Appliances 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 May 18, 2012. 

 
	(5) The 18th Meeting of the 5th Board of Directors 

 
	On August 20, 2012, the Fifth Board of Directors of the Company convened its eighteenth meeting by facsimile. At this meeting, the Company’s 2012 Semi-Annual Report was reviewed and approved. 

 
	(6) The 19th Meeting of the 5th Board of Directors 

 
	On October 22, 2012, the Fifth Session of the Company’s Board of Directors convened its nineteenth meeting by facsimile. At this meeting, the Board reviewed and approved the Company’s Third Quarter Report for 2012 and the Report on Writing Off Bad Debts Related to Accounts Receivable and Other Receivables. The announcement of the resolutions passed at this Board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on October 24, 2012. 

 
	(7) The 20th Meeting of the 5th Board of Directors 

 
	On December 24, 2012, the Company’s Fifth Board of Directors convened its twentieth meeting by facsimile. At this meeting, the following resolution was adopted: to approve the transfer of the Company’s 10% equity interest in Shenyang Sanyo Air-Conditioning Co., Ltd. to Sanyo Electric 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 December 26, 2012. 

 
	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 2011 Annual General Meeting. 

 
	The Company’s 2011 dividend distribution plan was fully implemented by the Board of Directors in May 2012. 

 
	3. Summary Report on the Performance of Duties by the Audit Committee of the Board of Directors 

 
	The Audit Committee of the Company’s Board of Directors performs its duties in accordance with the Company’s Implementing Rules for the Board Audit Committee and the Audit Committee Annual Report Work Procedures, overseeing the Company’s internal audit system and its implementation, reviewing the Company’s financial information and disclosures, and evaluating the work of external auditing firms. 

 
	In the development and evaluation of the company’s internal control framework, 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 2012 Internal Control Evaluation Report, and engaged Zhongzhun 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 2012 Internal Control Evaluation Report accurately reflects these findings. 

 
	During the Company’s 2012 audit, the Audit Committee maintained active communication and effective coordination with the auditing firm, Zhongzhun 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 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. Following 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 2012, Zhongzhun 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 and well-structured planning; ensured adequate staffing; proactively communicated with the Audit Committee and the independent directors; exercised due diligence and responsibility; and thereby successfully completed the Company’s 2012 audit engagement. The Committee therefore proposes that the Company re-engage Zhongzhun Certified Public Accountants as its auditor for the year 2013. 

 
	4. Summary Report on the 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 personnel 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 2012 Annual Report is true and accurate. 

 
	IV. 2013 Business Plan 

 
	2013 Corporate Business Plan Targets: 

 
	Sales revenue: RMB 16.1 billion, representing an approximate 6% increase compared with the RMB 15.2198 billion recorded in 2012. 

 
	Total profit: RMB 135 million, essentially unchanged from the RMB 133.28 million recorded in 2012. 

 
	In 2013, the company will adopt “pragmatism, transformation, and sustainability” as its development philosophy, with a strong focus on expanding its core business, enhancing the competitiveness of its flagship products, driving innovation in technology, management, and marketing, strengthening the synergy between product operations and asset management, achieving steady growth through strategic adjustments, and simultaneously scaling up while improving operational quality and efficiency. 

 
	To ensure the achievement of revenue and profit targets, the following key tasks will be prioritized in 2013: 

 
	1. Advance the marketing business by refining the marketing system, marketing management model, and marketing policies, and by developing comprehensive marketing plans. Enhance the organization’s agility in responding to market dynamics, and further improve pricing policies, dealer collaboration policies, and the management mechanisms for marketing personnel. Strengthen information management across business processes and enhance the governance of internal collaboration systems to ensure that market intelligence is swiftly and effectively translated into action. Elevate the quality and efficiency of sales and after-sales service, fully leverage market capacity, intensify monitoring and collection of accounts receivable, strengthen performance assessments for receivables recovery, bolster the development of the after-sales service team, and drive continuous improvement in after-sales service delivery. 

 
	2. Strengthen R&D efforts to enhance our ability to meet market demands and to gain a competitive edge through technological innovation. Intensify the coordination between technology development and marketing. Fully leverage the role of design as the primary driver of cost reduction, and develop products with competitive pricing and performance in line with a customer-centric design philosophy. 

 
	3. Strengthen quality assurance. Effectively implement the quality assurance system and effectively control quality costs. Enhance control over outsourcing, procurement, and the production process. Strengthen the quality assurance team to ensure the effective implementation of the quality assurance system. 

 
	4. Enhance integrated production planning and coordination. Ensure product quality at every stage of the manufacturing process and prevent defective items from advancing to subsequent operations. Improve the alignment between manufacturing capabilities and market demand by systematically analyzing information provided by the marketing department, meticulously preparing for and organizing production, and thereby providing robust support to marketing teams in meeting market needs. Reduce costs across all stages of manufacturing by minimizing waste associated with process handoffs, processing time, inter-process transfers, and non-productive downtime. 

 
	5. Strengthen financial management. Further enhance and refine cost control, and formulate corresponding policies to incentivize sales personnel to prioritize high-value sales opportunities. Intensify financial oversight and performance evaluation across all cost-related processes. Establish a price approval system, augment staffing and clarify responsibilities, and further improve processes and the overall management framework. 

 
	6. Strengthen human resources and information management. Rectify and enhance personnel management practices to better leverage talent and optimize resource allocation, thereby boosting labor productivity. Advance the development of IT systems to facilitate company-wide information sharing, enable rapid responses to production changes, and improve overall efficiency. 

 
	7. Promote the sustainable development of invested enterprises. Introduce market-competitive products from various invested enterprises, accelerate efforts to import, digest, absorb, and re-innovate technologies, and thereby establish new product competitive advantages. Strengthen the development of energy-saving and environmentally friendly products, expedite the R&D of refrigeration units using new refrigerants such as carbon dioxide, and promptly develop market-competitive commercial offerings. 