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1. Annual Work Report of the Company’s Board of Directors for 2010
Document No. 1 for the 2010 Annual General Meeting
Annual Work Report of the Company’s Board of Directors for 2010
Dear Shareholders:
In 2010, the company placed quality and performance at the core of its operations, leveraged energy-saving, environmentally friendly, and high-efficiency products as its foundation, and harnessed continuous improvement as its driving force. It vigorously expanded both domestic and international markets, systematically enhanced production organization efficiency, carried out comprehensive cost-reduction initiatives, and strengthened cash-flow management, thereby achieving solid results in meeting all key financial targets. Specifically, in 2010 the company recorded sales revenue of RMB 149,553 million, representing 105.32% of the 2010 operating plan target of RMB 142,000 million and reflecting a year-on-year increase of 7.24%; total profit reached RMB 12,356 million, or 104.27% of the 2010 operating plan target of RMB 11,850 million, up 28.70% from the previous year.
I. Review of the Company’s Operating Performance
1. Overview of the Company’s Overall Operating Performance for the Reporting Year
(1) Principal Business
In 2010, in response to customers’ personalized needs, the company strengthened overall coordination among marketing, technology, and production, thereby enhancing its market responsiveness. The company intensified the promotion of energy-saving, high-efficiency new products; new product lines, such as screw compressors, were swiftly launched and gradually assumed a leading role in the market. Furthermore, the company achieved new breakthroughs in its approach to marketing turnkey projects to major clients and established strategic partnerships with several key accounts. Building on the strong performance achieved in 2009, marine compressor units once again recorded significant progress in 2010.
In 2010, the company further strengthened quality management, comprehensively implemented advanced processes such as argon arc welding, and expanded the scope of its quality assurance system, resulting in a significant improvement in product quality. The company successfully completed ASME certification renewal, ISO 9001:2008 certification, and the highly demanding Dow Chemical project. Following its receipt of the inaugural Liaoning Provincial Quality Management Award in 2003, the company was subsequently awarded the inaugural Liaoning Provincial Governor’s Quality Award.
In 2010, the company launched a new series of screw compressors featuring adjustable volumetric ratio and energy efficiency, achieving full product line commercialization and significantly advancing product upgrades and replacements. Over the year, more than 300 units were produced, more than doubling the previous year’s output, and the products gained increasing market acceptance. In terms of product mix adjustment, the company pursued simultaneous R&D and optimization, completing over 20 new product developments and optimizing the design of more than 40 existing screw compressor models. The company’s LSBLG175 model was awarded the China Energy-saving Product Certification by the China Quality Certification Center, and both the company and its products were officially included in the government’s long-term procurement catalog.
(2) Sino-foreign joint ventures
In 2010, the Company accounted for its portfolio of Sino-foreign joint ventures using the equity method, reporting sales revenue of RMB 714,996 million, up 15.88% year on year; the Company also recognized investment income of RMB 57.64 million, an increase of 31.96% year on year.
During the reporting period, three Sino-foreign joint ventures accounted for more than 10% of the company’s net profit.
During the reporting period, among the company’s equity-method investments in Chinese–foreign joint ventures, ten reported main-business revenue exceeding RMB 100 million, with three of them surpassing RMB 1 billion; five reported net profit exceeding RMB 10 million, including two that exceeded RMB 50 million.
In 2010, Dalian Sanyo Compressor leveraged technology to drive sales, achieving more than a 40% increase in revenue. Following the milestone of surpassing 1 million units in 2004, the 5-millionth scroll compressor rolled off the production line on March 1, 2010. The company also secured large-scale supply contracts for its new energy-efficiency models with leading domestic air-conditioner manufacturers such as Gree and Midea, while newly developed DC inverter scroll compressors entered small-batch production. In response to the rapid growth of emerging-market economies, the company focused on developing sales projects for Carrier Brazil.
In 2010, Dalian Sanyo Cold Chain focused intently on three key market segments—supermarket display cabinets, commercial kitchen equipment, and beverage display cabinets—continuing to increase its share of prime customer accounts and firmly maintaining its position as the industry leader in market share. It successfully achieved CO 2 The refrigerant product line has been upgraded, significantly enhancing product competitiveness. In December 2010, the fourth manufacturing plant commenced operations, further boosting the company’s production capacity.
In 2010, Dalian Sanyo Refrigeration positioned bromine absorption chillers as its core product and gas-fired heat pumps and vacuum boilers as high-potential growth products, securing energy-saving projects worth RMB 60 million across the four major industries of petroleum, chemicals, synthetic fibers, and steel. The company successfully manufactured the world’s largest single-unit direct-fired unit, and sales and marketing efforts for direct-fired units powered by low-calorific-value gases and solar-energy-compatible products began to gain significant momentum. Meanwhile, the company made new inroads in overseas markets: in addition to Southeast Asia and the Middle East, sales in developed countries in Europe and North America also increased steadily.
In 2010, Dayang Showa Automotive Air Conditioning seized the opportunity presented by the rapid growth of China’s automotive market and proactively supplied a range of products—including TT evaporators and NRT condensers—tailored for energy-efficient and environmentally friendly vehicles to premium customers such as FAW-Volkswagen, Shanghai Volkswagen, and Guangzhou Honda. Building on the substantial sales growth achieved in 2009, the company recorded another year-on-year increase of 37% in 2010.
2. Analysis of the Company’s Principal Business
(1) Product and Geographical Segments of the Principal Business
All of the company’s main business revenue is derived from refrigeration and air-conditioning products.
The company’s products are manufactured in Dalian and Wuhan and sold throughout China. Overseas sales account for approximately 8% of the company’s main business revenue during the same period.
For details on the industry and geographic distribution of the company’s principal business revenue, please refer to Note 5-32 to the financial statements.
(2) Information on Major Suppliers and Major Customers
The company’s total procurement from its top five suppliers amounted to RMB 165.73 million, representing 14.35% of the annual total procurement.
The combined sales to the company’s top five customers totaled RMB 191.72 million, accounting for 12.83% of the company’s total sales.
3. Company Financial Condition
(1) Composition of Assets and Liabilities (Unit: RMB 10,000)
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Project Name
|
2010
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2009
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Changes
|
||
|
Amount
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Proportion of total assets
|
Amount
|
Proportion of total assets
|
||
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Accounts receivable
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43,599
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14.97%
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47,004
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17.37%
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-7.24%
|
|
Inventory
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34,702
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11.92%
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27,757
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10.26%
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+25.02%
|
|
Investment property
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0
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0.00%
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0
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0.00%
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0.00%
|
|
Long-term equity investments
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One hundred thousand five hundred twelve
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34.51%
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One hundred thousand three hundred seventy-nine
|
37.09%
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+0.13%
|
|
Fixed assets
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35,862
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12.31%
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36,601
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13.52%
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-2.02%
|
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Construction in progress
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2,097
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0.72%
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715
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0.26%
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+193.29%
|
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Short-term loans
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6,300
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2.16%
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6,000
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2.22%
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+5.00%
|
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Long-term borrowings
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One thousand twenty
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0.35%
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0
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0.00%
|
—
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Explanation:
① The increase in construction-in-progress is primarily attributable to higher expenditures on the relocation and renovation of the foundry workshop.
② The increase in long-term borrowings is attributable to the RMB 10.2 million in newly allocated treasury bond re-lending funds for the current period.
(2) Expenses and Income Tax Situation (Unit: RMB 10,000)
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Project Name
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Fiscal Year 2010
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Fiscal Year 2009
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Changes
|
|
Selling expenses
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10,124
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9,118
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+11.03%
|
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Administrative expenses
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16,073
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13,730
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+17.06%
|
|
Financial expenses
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356
|
840
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-57.62%
|
|
Income tax
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1,397
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829
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+68.52%
|
Explanation:
① The increase in selling expenses is primarily attributable to higher salaries for sales personnel, increased transportation costs, and higher travel expenses.
② The increase in administrative expenses is primarily attributable to higher expenditures on research and development and labor costs.
③ The decrease in financial expenses was due to a reduction in loans during the reporting period, resulting in lower interest expense.
④ The increase in income tax is primarily attributable to the rise in current-period taxable income.
(3) Composition of Cash Flows (Unit: RMB 10,000)
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Project Name
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Fiscal Year 2010
|
Fiscal Year 2009
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Changes
|
|
Net cash flow from operating activities
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17,192
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19,810
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-13.22%
|
|
Net cash flow from investing activities
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-3,005
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5,478
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-154.86%
|
|
Net cash flow from financing activities
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-5,332
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-16,208
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+67.10%
|
Explanation:
① The net cash flow from investing activities decreased, primarily due to the acquisition of land-use rights during the reporting period.
② The net cash flow from financing activities increased, primarily because the net amount of loan repayments for the current year exceeded that of the prior year.
4. 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
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 2010, its total assets amounted to RMB 49.71 million, its net assets were RMB 23.04 million, it recorded sales revenue of RMB 89.78 million, and its net profit was RMB 330,000.
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 the Dalian BingShan Group. In 2010, its total assets amounted to RMB 37.98 million, its net assets stood at RMB 21.53 million, it recorded sales revenue of RMB 41.76 million, and its net profit was RMB 440,000.
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 manufacture and sale of air-conditioning terminal equipment, including fan coil units and air handling units. In 2010, its total assets amounted to RMB 146.08 million, with net assets of RMB 74.71 million; it recorded sales revenue of RMB 118.00 million and a net profit of RMB 5.60 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 2010, its total assets amounted to RMB 27.94 million, with net assets of RMB 9.19 million; it recorded sales revenue of RMB 30.69 million and a net loss of RMB 0.46 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 2010, its total assets amounted to RMB 32.67 million, with net assets of RMB 21.30 million; it recorded sales revenue of RMB 42.03 million and a net profit of RMB 1.44 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 2010, its total assets amounted to RMB 13.07 million, with net assets of RMB 8.92 million; it recorded sales revenue of RMB 24.56 million and a net profit of RMB 4.06 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 2010, its total assets amounted to RMB 341.45 million, with net assets of RMB 118.87 million; it recorded sales revenue of RMB 312.20 million and a net profit of RMB 17.65 million.
(2) Major Equity-Linked Subsidiaries
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Major Equity-Participated Companies
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Leading products
|
Principal business revenue
(Ten thousand yuan)
|
Net profit
(Ten thousand yuan)
|
|
Dalian Sanyo Compressor Co., Ltd.
|
Semi-hermetic piston and scroll compressors
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184,618
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14,492
|
|
Dalian Sanyo Cold Chain Co., Ltd.
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Commercial Freezing and Refrigeration Equipment
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173,059
|
4,938
|
|
Showa Automotive Air Conditioning (Dalian) Co., Ltd.
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Car air conditioning
|
52,084
|
7,580
|
II. Company Investment Situation
As of December 31, 2010, the company’s balance of long-term equity investments stood at RMB 100,512 million, an increase of RMB 1.33 million, or 0.13%, compared with the end of the previous year.
(1) During the reporting period, the Company did not raise any new funds, nor were there any instances in which the use of funds raised prior to the reporting period was carried over into the reporting period.
(2) Non-raise-of-funds investment activities of the company during the reporting period.
During the reporting period, the Company acquired the land-use rights for Plot No. -1 in the North Area of ShuangD Port in the Dalian Development Zone, using its own funds totaling RMB 71.36 million. This parcel will support the Company’s development objectives during the 12th Five-Year Plan period, including the expansion of large screw compressors and large seawater-source heat pump units, the establishment of a product-performance testing laboratory, and the relocation and upgrading of the Casting Division.
III. Daily Operations of the Board of Directors
1. Meetings of the Board of Directors and Resolutions Adopted During the Reporting Period
(1) Sixth Meeting of the Fifth Board of Directors
The fifth session of the Company’s Board of Directors convened its sixth meeting by facsimile on April 2, 2010. 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 3, 2010.
(2) The 7th Meeting of the 5th Board of Directors
The Fifth Board of Directors of the Company convened its seventh meeting on April 21, 2010, in the Company’s Eighth-Floor Conference Room. The announcement of the resolutions adopted at this board meeting was published in the China Securities Journal and the Hong Kong Commercial Daily on April 23, 2010.
(3) Eighth Meeting of the Fifth Board of Directors
On August 24, 2010, the Fifth Session of the Company’s Board of Directors convened its eighth meeting by facsimile. At this meeting, the Company’s 2010 Semi-Annual Report and its Summary were reviewed and approved.
(4) Ninth Meeting of the Fifth Board of Directors
On October 25, 2010, the Fifth Session of the Company’s Board of Directors held its ninth meeting by facsimile. At this meeting, the Company’s Third-Quarter Report for 2010 was reviewed and approved.
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 2009 Annual General Meeting.
The Company’s 2009 dividend distribution plan was fully implemented by the Board of Directors in July 2010.
3. Summary Report on the Performance of Duties by the Audit Committee of the Board of Directors
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 Company’s 2010 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 requiring attention during the audit period. 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 2010, 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 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 2010 audit engagement. Accordingly, the Audit Committee recommends that the Company re-engage Zhongzhun Certified Public Accountants as its auditor for the year 2011.
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 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 2010 Annual Report is true and accurate.
IV. 2011 Business Plan
2011 Corporate Business Plan Targets:
Sales revenue: RMB 158,100 million, representing a 5.72% increase compared with the RMB 149,553 million recorded in 2010;
Total profit: RMB 125 million, representing a 1.17% increase compared with the total profit of RMB 123.56 million achieved in 2010.
1. Vigorously develop both domestic and international markets, consolidate traditional markets, tap into emerging markets, proactively respond to changes in the global economic landscape, expand market reach and service offerings, and enhance market influence and control.
2. Vigorously promote management innovation to achieve institutionalization, standardization, simplification, and efficiency in management, thereby enhancing the company’s operational performance. It is essential to fully implement the requirements for internal control, establish and refine the enterprise’s internal control system, improve operational quality, and mitigate operational risks.
3. Vigorously promote technological innovation, enhance our capacity for independent innovation, and strengthen the company’s core competitiveness. Focus on market demand to develop new energy-saving, environmentally friendly, and high-efficiency products. Work closely with our joint venture partners to accelerate product upgrades and expedite the market penetration of energy-efficient products.
4. Vigorously advance institutional innovation and scientifically allocate and manage human resources. Further reform and innovate people-oriented compensation and staffing mechanisms, and effectively implement position-based staffing and establishment management, as well as pay-for-work and pay-for-performance systems.
Please review the above report.
May 12, 2011
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Dalian Bingshan Group Co., Ltd.
Address: No. 106, Liaohe East Road, Dalian Economic & Technological Development Zone
Phone:
0411-87968888 (Main Line)
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