Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report March 2021 1 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section I Important Notes, Contents and Definitions The Board of Directors, Board of Supervisors, Directors, Supervisors and Senior Management of Zhejiang Sanhua Intelligent Controls Co., Ltd. (hereinafter referred to as the “Company”) hereby guarantee that the information presented in this report shall be authentic, accurate, complete and free from material misstatement whether due to false record, misleading statement or significant omission, and they will bear both individual and joint legal liabilities. Zhang Yabo, the Company's legal representative, Yu Yingkui, the person in charge of the accounting work, and Sheng Xiaofeng, the person in charge of accounting department (Accounting Officer) hereby declare and warrant that the financial statements in this report are authentic, accurate and complete. All directors attended the board meeting to review this report. The Company describes in detail concerning the possible risks and countermeasures in Section IX "Outlook for the Future Development of the Company" under Section IV " Management’s Discussion and Analysis of Operations". Please pay particular attention to relevant contents. The profit distribution proposal approved by the board of directors is as follows: With 3,581,818,372 as the base number, cash dividend of RMB 2.50 (including tax) will be distributed to all shareholders for every 10 shares. The Company will not distribute bonus shares or convert capital reserves to share capital. 2 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report CONTENTS Section I Important Notes, Contents and Definitions ..............................................................................................................................2 Section II Corporate Profile and Key Financial Indicators ......................................................................................................................5 Section III Corporate Business Overview..............................................................................................................................................12 Section IV Management’s Discussion and Analysis of Operations.....................................................................................................16 Section V Significant Events .................................................................................................................................................................47 Section VI Changes in Shares and Information about Shareholders ......................................................................................................85 Section VII Information of Preferred Shares .......................................................................................................................................103 Section VIII Information about Convertible Bonds .............................................................................................................................104 Section IX Information about Directors, Supervisors, Senior Management ........................................................................................105 Section X Corporate Governance ........................................................................................................................................................ 119 Section XI Corporate Bonds ................................................................................................................................................................128 Section XII Financial Report ...............................................................................................................................................................129 Section XIII Documents Available for Inspection ...............................................................................................................................272 3 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Definitions Items Refers to Definition The Company, Company Refers to Zhejiang Sanhua Intelligent Controls Co., Ltd. The Articles of Associations Refers to Articles of Associations for Zhejiang Sanhua Intelligent Controls Co., Ltd. The CSRC Refers to China Securities Regulatory Commission SZSE Refers to Shenzhen Stock Exchange Refers to Zhejiang Securities Regulatory Bureau of China Securities Regulatory Zhejiang Securities Regulatory Bureau Commission General Meeting Refers to General Meeting of Zhejiang Sanhua Intelligent Controls Co., Ltd. The Board of Directors Refers to The Board of Directors of Zhejiang Sanhua Intelligent Controls Co., Ltd. The Board of Supervisors Refers to The Board of Supervisors of Zhejiang Sanhua Intelligent Controls Co., Ltd. Yuan Refers to RMB 4 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section II Corporate Profile and Key Financial Indicators I. Corporate Information Stock abbreviation Sanhua Intelligent Controls Stock code 002050 Stock Exchange where the shares of the Company are Shenzhen Stock Exchange listed Name of the Company in 浙江三花智能控制股份有限公司 Chinese Abbr. of the Company name 三花智控 in Chinese (if any) Name of the Company in ZHEJIANG SANHUA INTELLIGENT CONTROLS CO., LTD. English (if any) Abbr. of the Company name SANHUA in English (if any) Legal representative Zhang Yabo Registered Address Xialiquan, Qixing Street, Xinchang, Zhejiang Post Code of Registered 312500 Address Office Address No. 219, Woxi Avenue, Meizhu, Xinchang, Zhejiang, China Post Code of Office Address 312532 Website http://www.zjshc.com E-mail shc@zjshc.com II. Contacts and Contact Information Board Secretary Securities Affairs Representative Name Hu Kaicheng Wang Yutong No. 12 St., No. 289 Xiasha Economic No. 219, Woxi Avenue, Meizhu, Xinchang Address Development, Hangzhou, Zhejiang, China. County, Zhejiang, China. Tel. 0571-28020008 0575-86255360 Fax 0571-28876605 0575-86563888-8288 E-mail shc@zjshc.com shc@zjshc.com 5 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report III. Information Disclosure and Place of the Report 1. Company’s contact information Newspaper designated by the Company for Securities Times, Shanghai Securities News information disclosure Website specified by CSRC for release of the Annual http://www.cninfo.com.cn Report Place where the Annual Report is available for Office of the Board of Directors of the Company inspection IV. Company Registration and Alteration Organization code 913300006096907427 Changes in principle business activities No change since the Company was listed (if any) Changes of controlling shareholders of the No change Company (if any) V. Other Relevant Information Accounting firm engaged by the Company Name of the accounting firm Pan-China Certified Public Accountants LLP Business address of the accounting Building B, China Resources Building, 1366 Qianjiang Road, Jianggan District, Hangzhou firm City, Zhejiang Province, China Name of accountants for writing Luo Xunchao, Ouyang Xiaoyun signature Sponsor institution engaged by the Company to continuously perform its supervisory function during the Reporting Period □ Applicable √ Not applicable Financial advisor engaged by the Company to perform the duties of continuous supervision during the reporting period □ Applicable √ Not applicable VI. Key Accounting Data and Financial Indicators Whether the Company performed a retrospective adjustment or restatement of previous accounting data □Yes √No 2020 2019 YoY Change 2018 Operating Revenue (RMB) 12,109,833,368.44 11,287,489,442.23 7.29% 10,835,990,677.51 Net Profit Attributable to 1,462,158,821.57 1,421,204,236.13 2.88% 1,292,349,782.17 Shareholders of the Listed 6 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Company (RMB) Net Profit Attributable to Shareholders of the Listed Company after Deducting 1,270,609,746.53 1,351,335,040.19 -5.97% 1,294,769,254.99 Non-recurring Gains and Losses (RMB) Net Cash Flow Generated by 2,087,343,783.11 1,900,163,604.60 9.85% 1,287,595,477.72 Operational Activities (RMB) Basic Earnings per Share 0.41 0.40 2.50% 0.36 (RMB/Share) Diluted Earnings per Share 0.41 0.40 2.50% 0.36 (RMB/Share) Weighted Average ROE 15.04% 16.08% -1.04% 15.65% At the End of 2020 At the End of 2019 YoY Change At the End of 2018 Total Assets (RMB) 17,032,530,730.18 14,790,190,170.64 15.16% 13,932,172,478.62 Net Assets Attributable to Shareholders of the Listed 10,064,794,519.57 9,291,632,928.45 8.32% 8,614,844,555.48 Company (RMB) The Company's net profit before and after deducting non-recurring profit and loss in the last three fiscal years, whichever is lower, is negative and the audit report of the last year shows that the Company's ability to continue as a going concern is uncertain □ Yes √ No The lower of the net profit before and after deducting the non-recurring profit and loss is negative □ Yes √ No VII. Differences in Accounting Data between Domestic and Overseas Accounting Standards 1. Difference in the financial report of net profits and net assets according to the disclosure of International Financial Reporting Standards and China Accounting Standards □ Applicable √ Not applicable There is no difference in the financial report of net profits and net assets according to the disclosure of International Financial Reporting Standards (IFRS) and China Accounting Standards in the reporting period. 2. Difference in the financial report of net profits and net assets according to the disclosure of Overseas Accounting Standards and China Accounting Standards □ Applicable √ Not applicable There is no difference in the financial report of net profits and net assets according to the disclosure of Overseas Accounting Standards and China Accounting Standards in the reporting period. 7 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report VIII. Key Quarterly Financial Indicators Unit: RMB 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Operating income 2,483,672,660.52 2,834,505,966.25 3,275,037,359.22 3,516,617,382.45 Net profit attributable to 211,359,665.77 432,122,051.58 448,766,825.92 369,910,278.30 shareholders of the Company Net profit attributable to shareholders of the Company 266,958,886.61 315,232,275.06 374,984,962.07 313,433,622.79 excluding non-recurring gains and losses Net cash flows from operating 519,305,066.00 585,346,383.42 465,557,608.32 517,134,725.37 activities Whether there is significant difference between the above individual or aggregate financial indicators and that of what disclosed in the quarterly report, half-year report □ Yes √ No IX. Items and Amounts of Non-recurring Gains and Losses √ Applicable □ Not applicable Unit: RMB Item 2020 2019 2018 Note Profit or loss from disposal of non-current assets (including the write-off for the -14,770,607.27 -6,087,268.05 -3,220,333.08 impairment provision of assets) The government subsidies included in the current profits and losses (excluding the government subsidy closely related to regular course of business of the Company 134,101,082.00 86,311,151.49 43,294,732.23 and government subsidy based on standard quota or quantitative continuous application according to the state industrial policy.) Capital occupation fees charged to non-financial enterprises included in 61,191.86 current profits and losses Profits and losses attributed to change in 1. The floating fair value for held-for-trading financial income generated assets, derivative financial assets, by futures hedging 91,394,679.61 563,966.95 -35,231,187.51 held-for-trading financial liabilities, and business is detailed derivative financial liabilities; and in "Notes to income investment income from disposal of from changes in fair 8 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report held-for-trading financial assets, value and derivative financial assets, investment income" held-for-trading financial liabilities, of this financial derivative financial liabilities and other report. According to debt investments, excluding the effective the Operation hedging business related to the regular Management business operation of the Company. Measures of Futures Hedging Business, the Company will continue to carry out the futures hedging business of raw materials such as copper, zinc, nickel and other raw materials in 2020, mainly for customer price and fixed price futures hedging business. As the number of contracts locked is consistent with the customer's orders, and the contract locked price is not higher than the customer's locked price. The Company can keep the stable profit margin of the above customer's business and achieve the purpose of hedging. The above clients who carry out futures hedging business are well-known domestic and foreign manufacturers, and have good historical credit. Since the 9 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report implementation of customer copper locking mechanism, there has been no breach of contract. 2. Floating income of foreign exchange forward contract is calculated as follows: In order to avoid exchange rate risk, the Company has signed a forward foreign exchange contract with the bank, which will be exercised at the appointed price when it matures in the future, and the settlement will be based on the difference between the forward exchange rate on the starting date of the contract and the spot exchange rate at the time of settlement. Reversal of the receivables and contract assets depreciation reserves for separate 81,318.50 impairment test Other non-operating income and expenditures except the items mentioned 620,065.25 5,445,213.46 -3,933,272.04 above Other gains and losses items that fit the definition of non-recurring gains and 1,246,912.65 92,329.55 losses Less: Impact of income tax 19,272,109.42 13,966,646.08 2,763,172.58 Impact of the minority interests (after 1,770,947.78 2,550,743.24 647,558.34 tax) 10 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Total 191,549,075.04 69,869,195.94 -2,419,472.82 -- The reasons for the non-recurring gains and losses items defined or listed in the Explanatory Announcement No. 1 of Information Disclosure of Listed Companies – Non-recurring Gains and Losses are defined as recurring gains and losses items □Applicable √ Not applicable In the reporting period, the Company did not define any non-recurring gains and losses items defined and listed in the Explanatory Announcement No. 1 of Information Disclosure of Listed Companies – Non-recurring Gains and Losses, as recurring gains and losses items. 11 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section III Corporate Business Overview I. The Principal Business of the Company during the Reporting Period 1. Main business The Company adheres to the "Focus on Leading, Innovation, Transcendence" business path, concentrating on the research and application of heat pump technology and thermal management system products, focusing on the development of environmental thermal management solutions for heat exchange and temperature intelligent control, and is committed to the professional operation in the fields of building HVAC, electrical equipment and automotive thermal management. According to the different stages and characteristics of strategic business and their development, the Company's business is mainly divided into refrigeration and air conditioning electrical components business and automotive components business. The main products of refrigeration and A/C electrical parts business include Four-way Reversing Valve, Electronic Expansion Valve, Solenoid Valve, Microchannel Heat Exchanger, Omega Pump, etc., which are widely used in A/C, refrigerator, cold chain logistics, dishwasher and other fields; the main products of automotive components business include Thermal Expansion Valve, Receiver Drier, Electronic Expansion Valve, Thermal Management Integrated Module for new energy vehicle, Electronic Water Pump, etc., which are widely used in both traditional fuel vehicles and new energy vehicle. During the reporting period, the Company's main business and its business model have not changed. 2. Industry development (1) Refrigeration and air conditioning electrical components industry China is the largest manufacturing base of A/C and refrigerators in the world, and its production and sales volume ranks first globally. In line with the trend of environmental protection in the world, energy-saving inverter and intelligent technology have become the trend, which puts forward a series of new requirements for the market of control components, and also brings new development opportunities. As a leading enterprise in the refrigeration control components industry, the Company will follow the trend, firmly seize this opportunity and develop steadily. (2) Automotive components industry The global automobile industry has been developing rapidly, which also drives the market demand of automotive A/C and thermal management products to continue to grow substantially. In recent years, the development of new energy vehicles has become a certain trend, which puts forward higher and more updated requirements for A/C and thermal management products no matter in hybrid, pure electric or hydrogen energy vehicles. Focusing on the in-depth research on A/C and thermal management system of new energy vehicles, the Company has gradually developed from components to module and subsystems, and has become the supplier of Valeo, Volkswagen, Mercedes Benz, BMW, Volvo, Toyota, GM, Geely, BYD, SAIC, NIO and other cooperative partners. 12 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 3. Industry status The Company is the world's largest manufacturer of refrigeration control components and the world's leading manufacturer of automotive A/C and thermal management system control components. "Sanhua" refrigeration intelligent control components have become a world-famous brand, and a strategic partner of many automobile enterprises and air-conditioning refrigeration appliance manufacturers in the world. After more than 30 years of development, the Company has established a leading position in the global market of refrigeration and automotive thermal management. The market share of the Company's Electronic Expansion Valve, Four-way Reversing Valve, Solenoid Valve, Microchannel Heat Exchanger, Automotive Electronic Expansion Valve, Thermal Management Integrated Module for new energy vehicle, Omega Pump ranks first globally. The market share of the Company's Service Valve, Vehicle Thermal Expansion Valve and Receiver Drier is in the leading position in the world. II. Significant Changes in Main Assets 1. Significant changes in main assets Major assets Explanation on Major Changes Increased by 459.80 million, +13.61%, compared with the beginning of the year, mainly Fixed Assets due to investment of raised funds and the transformation of automation equipment Increased by 147.77 million, +30.72%, compared with the beginning of the year, mainly Construction in Progress due to investment of raised funds and the transformation of automation equipment 2. Major overseas assets √Applicable □ Not applicable Proportion Whether Control of overseas there is Content of Size of Operation measures Income assets in Formation Location significant Assets Assets Mode of security Status net assets impairment assets of the risk Company R&D, Manufactur Sanhua Financial ing, Internation supervision Equity 1,351,516, The United Marketing 45,106,474 al Limited and No Investment 858.23 States and .68 (USA) external Investment (merger) audit Manageme nt Sanhua Equity 2,213,696, Singapore R&D, Financial 44,696,908 No 13 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Internation Investment 335.86 Manufactur supervision .08 al ing, and Singapore Marketing external PTE. Ltd. and audit (merger) Investment Manageme nt III. Core Competitiveness Analysis 1. Clear strategic layout The Company adheres to the " Focus on Leading, Innovation, Transcendence " business path, takes the research and application of heat pump technology and thermal management system products as the core, firmly grasps the development theme of energy conservation, environmental protection and intelligent control, upgrades from "mechanical parts development" to "system control technology solution development of electronic control integration". The Company’s product series are expanded from household A/C and refrigerator components to the field of commercial A/C and commercial refrigeration, and extending to the direction of inverter control technology and system integration and upgrading. Meanwhile, after the injection of automotive business, it gives full play to the synergy effect with the original business, continues to deepen the research and development of automobile A/C and new energy vehicle thermal management system components, and actively explores the deeper application of thermal management components and subsystems in the automotive field, so as to provide global customers with competitive environmental intelligent control solutions. 2. Technology leading, customer oriented As a national high-tech enterprise, the Company has always adhered to the technological route of independent development and innovation. For decades, it has focused on the field of intelligent control and vigorously cultivated core technologies with independent intellectual property rights. It has been granted 2379 patents both domestic and abroad, including 1168 invention patents. All products, services and quality of the Company are to meet the needs of customers as the first priority. 3. Quality assurance, scale economy effect The Company's products cover refrigeration A/C electrical components and automotive components industry. The market share of the Company's Electronic Expansion Valve, Four-way Reversing Valve, Solenoid Valve, Microchannel Heat Exchanger, Automotive Electronic Expansion Valve, Thermal Management Integrated Module for new energy vehicle, Omega Pump ranks first globally. The market share of Service Valve, Vehicle Thermal Expansion Valve and Receiver Drier is in the leading position in the world. The Company has established a complete and strict quality assurance system, achieved ISO9001, IATF16949, QC080000 quality system certification. The Company won the National Quality Award, Zhejiang Quality Award, and won the high comments from JCI, Daikin, Carrier, Gree, Midea, Haier, Toyota, Benz, Volkswagen, Valeo and other well-known enterprises at home and abroad. 4. Advantages of global marketing network and production base Since the 1990s, the Company has focused on expanding the international market, and has established overseas 14 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report subsidiaries in Japan, South Korea, Singapore, the United States, Mexico, Germany and other places to build a global marketing network. At the same time, it has established overseas production bases in the United States, Poland, Mexico, Vietnam and other places, and has preliminary ability to cope with globalization. And in practice, we have trained a number of management talents who can meet the needs of business development in different countries and regions. 15 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section IV Management’s Discussion and Analysis of Operations I. Overview In 2020, China and foreign countries were negatively affected by the COVID-19. Globally, the U.S. economy is cooling, Europe's economic recovery is slow, while China's epidemic situation is under better control and takes the lead in economic recovery. However, under the challengeable international background of looser monetary policy of Federal Reserve and rising commodity prices, external industry environment of the Company is under pressure. Specific to the industry in which the Company operates, the Company's refrigeration and air conditioning electrical components business is affected by the epidemic, and the overall performance is under pressure in the short term. However, with the inventory clearance of the industry and the release of new energy efficiency standards for air conditioning, the demand has gradually begun to recover, even reaching a new high point. The automotive components business has been greatly affected by the overall decline of the automobile industry, but new energy vehicles develop rapidly. During the reporting period, the operating revenue is RMB 12.11 billion, a year-on-year increase of 7.29%; the operating profit is RMB 1.70 billion, a year-on-year increase of 2.27%; the net profit attributable to shareholders of the listed Company is RMB 1.46 billion, a year-on-year increase of 2.88%. The operating revenue of refrigeration and air conditioning electrical components business is RMB 9.64 billion, a year-on-year increase of 0.04%; the operating revenue of automotive components business is RMB 2.47 billion, a year-on-year increase of 49.57%. The main works of the Company in the first half of 2020 are as follows: 1. Focus on operation and deepen industrial layout (1). Refrigeration and air conditioning electrical components business The Company's refrigeration and air conditioning electrical components business was negatively affected by the epidemic. Under the pressure of a sharp decline in the first quarter, the Company paid close attention to the market trend, actively adjusted the market strategy, further strengthened the strategic relationship with customers externally, seized orders, and steadily increased the market share. At the same time, with the release of new energy efficiency standards for air conditioning, we will actively seize market opportunities such as energy efficiency upgrading and refrigerant switching, and continue to promote more competitive products. Due to long term work of integration of Aweco business, its revenue has been turned to positive. In addition, the construction of Vietnam's factories has achieved initial results, and is able to effectively coping with the challenge of US tariff increase. (2). Automotive components business On the premise of epidemic prevention and control, the automotive components business actively built global marketing network and production capacity layout. Production capacity’s landing and climbing of a variety of products in Mexico factory has been realized, and steady expansion of Shaoxing Binhai factory actively responded to the delivery of orders from domestic and foreign customers. At the same time, Sanhua actively promoted integrated module projects among existing customers, so as to make products more standard, 16 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report integrated and platform oriented. With heat pump components and key components as the core business, the Company constantly improved the competitiveness of its products and actively developed new customers under guarantee of existing projects. In 2020, the Company achieved breakthroughs of many new customers and orders of many new projects, and became a tier 1 supplier of the top ten automobile manufacturers in the world, with the continuous rising in total life cycle value. 2. Unite as one and fight against the epidemic together After the outbreak of the epidemic, under guidance of government departments, the Company concentrated on the prevention and control of the epidemic on one hand and the resumption of production on the other hand. In each subsidiary around the world, timely implemented the anti-epidemic material reserve, overcame plenty of difficulties, implemented of resumption of work in batches, provided timely products and service for customers, and ensured the normal operation and production. Due to timely, stable and effective epidemic prevention measures, the Company's annual revenue has achieved positive growth. 3. Strengthen the creation of product strength and improve the patent layout of strategic products During the reporting period, the Company invested 518 million yuan in R & D, this continuous R & D investment is used to build the product strength. And the Company participated in market competition with new products and new technologies through continuous optimization iteration. In terms of patent layout, the main work is to "eliminate product patent risks and enhance patent rights" to sort out and summarize the patents of key products, so as to achieve resource sharing of each unit. By the end of the report period, 2379 patents have been authorized at home and abroad, including 1168 invention patents. 4. Pay attention to the construction of talent team and establish sustained and long-term incentive mechanism The Company continued to deepen the work of "strengthening the talents, streamlining and high efficiency", promote each business unit to optimize the talent development and elimination mechanism, and comprehensively apply the talent review results. At the same time, during the reporting period, the Company implemented the second phase of restricted stock incentive plan for directors, senior managers and other core talents, and further established and improved the Company's long-term incentive mechanism. 5. Attach great importance to the maintenance of investor relations, strengthen the awareness of service and return to shareholders During the reporting period, the Company strengthened and improved the construction of internal control system, standardized the operation of the three committees, improved the Company's information disclosure, investor relationship management and other aspects. And ensured smooth communication between investors and listed company through interactive platform, investor call answering, on-site reception and other means. In 2020, the Company's market value reached a new record. II. Main Business Analysis 1. Overview Please refer to details in “I. Overview” of “Section IV Management’s Discussion and Analysis of Operation” 2. Operating incomes and operating costs 17 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 1) Operating income structure 2020 2019 Proportion to Proportion to YoY Change Amount Amount operating income operating income Total Revenue 12,109,833,368.44 100% 11,287,489,442.23 100% 7.29% Classified by Industry General Equipment 12,109,833,368.44 100.00% 11,287,489,442.23 100.00% 7.29% Manufacturing Industry Classified by Products Refrigeration A/C Electrical 9,640,647,193.31 79.61% 9,636,588,706.35 85.37% 0.04% Components Automotive 2,469,186,175.13 20.39% 1,650,900,735.88 14.63% 49.57% Components Classified by Region Domestic 5,864,589,812.78 48.43% 5,594,651,760.03 49.57% 4.82% Overseas 6,245,243,555.66 51.57% 5,692,837,682.20 50.43% 9.70% 2) Industries, products or regions accounting for more than 10% of the Company’s operating income or operating profit √ Applicable □ Not applicable YoY Change YoY Change Operating YoY Change Operating cost Gross margin of operating of operating income of gross margin income cost Classified by Industry General Equipment 12,109,833,368 8,500,391,322. 29.81% 7.29% 6.97% 0.21% Manufacturing .44 27 Industry Classified by Products Refrigeration 9,640,647,193. 6,764,599,091. A/C Electrical 29.83% 0.04% -0.55% 0.41% 31 22 Components Automotive 2,469,186,175. 1,735,792,231. 29.70% 49.57% 51.58% -0.94% Components 13 05 Classified by Region 18 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 5,864,589,812. 4,214,522,983. Domestic 28.14% 4.82% 4.80% 0.02% 78 97 6,245,243,555. 4,285,868,338. Overseas 31.37% 9.70% 9.18% 0.32% 66 30 Adjusted statistics of principal business are based on the caliber at the end of the reporting period of last year, if the statistics caliber of principal business has been changed during the reporting period □ Applicable √ Not applicable 3) If revenue from physical products sales greater than revenue from providing services √ Yes □ No Industry Item Unit 2020 2019 YoY Change General Sales Yuan 12,109,833,368.44 11,287,489,442.23 7.29% Equipment Production Yuan 12,170,122,424.44 11,337,224,679.64 7.35% Manufacturing Industry Inventory Yuan 2,402,338,998.74 2,273,270,394.25 5.68% Explanation on why the related data varied by more than 30% on a YOY basis □Applicable √Not applicable 4) Fulfillment of signed significant sales contracts by the reporting period □ Applicable √ Not applicable 5) Operating cost structure Unit:Yuan 2020 2019 Industry Item Proportion to Proportion to YoY Change Amount Amount operating cost operating cost General Equipment 6,445,946,206. 6,022,623,114. Material 75.83% 75.79% 7.03% Manufacturing 35 62 Industry General Equipment 1,274,879,076. 1,176,641,430. Labor 15.00% 14.81% 8.35% Manufacturing 04 25 Industry General Equipment Depreciation 254,799,059.70 3.00% 224,908,694.23 2.83% 13.29% Manufacturing Industry General Equipment Energy Source 188,350,845.76 2.22% 194,227,590.85 2.44% -3.03% Manufacturing Industry General Other 336,416,134.42 3.96% 328,443,615.88 4.13% 2.43% 19 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Equipment Manufacturing Industry Unit:Yuan 2020 2019 Product Item Proportion to Proportion to YoY Change Amount Amount operating cost operating cost Refrigeration 5,186,890,211. 5,241,925,556. A/C Electrical Material 61.02% 65.96% -1.05% 38 58 Components Refrigeration 1,059,871,851. 1,045,010,795. A/C Electrical Labor 12.47% 13.15% 1.42% 73 00 Components Refrigeration A/C Electrical Depreciation 201,479,294.12 2.37% 189,097,669.75 2.38% 6.55% Components Refrigeration A/C Electrical Energy Source 140,848,963.04 1.66% 150,757,539.80 1.90% -6.57% Components Refrigeration A/C Electrical Other 175,508,770.95 2.06% 174,957,696.44 2.20% 0.31% Components Automotive 1,259,055,994. Material 14.81% 780,697,558.04 9.82% 61.27% Components 97 Automotive Labor 215,007,224.31 2.53% 131,630,635.25 1.66% 63.34% Components Automotive Depreciation 53,319,765.58 0.63% 35,811,024.48 0.45% 48.89% Components Automotive Energy Source 47,501,882.72 0.56% 43,470,051.05 0.55% 9.27% Components Automotive Other 160,907,363.47 1.89% 153,485,919.44 1.93% 4.84% Components 6) Any change in consolidation scope during the reporting period √Yes □ No 1. Disposal of subsidiaries Lose control due to disposal Name of subsidiary Equity disposal Equity disposal Equity disposal Date of losing control price ratio method Qingdao Debaiyi Refrigeration Equipment Co., 6,562,658.15 70% Transfer to 2020-12-02 20 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Ltd Minority shareholders (Continued) Determination fo losing The difference between the Proportion of Net assets on Net profit from the beginning control disposal price and remaining equity on disposal date of the period to the disposal corresponding net asset of the date of loss of date consolidated financial control statements Complete the registration -4,098,327.44 0.00 15,229,979.42 -1,609,483.26 procedures for industrial and commercial changes 2. Changes in the scope of consolidation due to other reasons 1) Increased scope of consolidation Name Method of Date of equity Actual contribution at Contribution ratio obtaining equity acquisition the end of the period Zhejiang Xianji Intelligent Technology Co., Ltd New investment 2020-09-10 34.6 million yuan 100% Sanhua Mexico Investment Co., Ltd New investment 2020-09-15 200000 pesos 100% Zhejiang Sanhua Commercial Refrigeration Co., New investment 2020-10-09 68.29 million yuan 100% Ltd Shaoxing Sanhua Automobile Thermal New investment 2020-12-03 0.00 100% Management Technology Co., Ltd 2) Decreased scope of consolidation Name Method of Date of disposal Net assets on Net profit from the disposal disposal date beginning of the period to the date of cancellation Hangzhou Sanhuajia Electric Heating Management Liquidation 2020-05-18 147,448.25 -78,092.41 System Co., Ltd cancellation Aweco Electrical Equipment (Shanghai) Co., Ltd Liquidation 2020-06-02 6,669.73 22,351.38 cancellation Ma'anshan Sanhua Intelligent Technology Co., Ltd Liquidation 2020-08-03 3,907,472.50 -478,491.11 cancellation 7) Significant change or adjustment of the Company’s business, products or services during the reporting period: □ Applicable √ Not applicable 8) Major customers and suppliers: Sales to major customers of the Company Sales to top five customers (RMB) 4,291,399,554.22 Total sales to top five customers as a percentage of the 35.43% total sales for the year (%) 21 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Total sales to the related parties in top five customers as 0.00% a percentage of the total sales of the year (%) Information on top five customers No. Name of Customer Sales Amount (RMB) Percentage of total sales for the year 1 First 1,157,466,943.06 9.56% 2 Second 946,329,101.54 7.81% 3 Third 815,461,250.85 6.73% 4 Fourth 809,814,087.88 6.69% 5 Fifth 562,328,170.89 4.64% Total -- 4,291,399,554.22 35.43% Other information of major customers □Applicable√ Not applicable Major suppliers of the Company Total purchases from top five suppliers (RMB) 946,674,947.40 Total purchases from top five suppliers as a percentage 15.37% of the total purchases for the year Total purchases from the related parties in the top five suppliers as a percentage of the total purchases for the 0.00% year Information on top five suppliers of the Company No. Name of Supplier Purchase Amount (RMB) Percentage of total purchase for the year 1 First 324,721,054.98 5.27% 2 Second 273,488,083.85 4.44% 3 Third 132,846,224.35 2.16% 4 Fourth 116,287,076.44 1.89% 5 Fifth 99,332,507.78 1.61% Total -- 946,674,947.40 15.37% Other information on major suppliers □ Applicable √ Not applicable 3. Expenses Unit: Yuan 2020 2019 YoY Change Note of significant change Sales expenses 602,954,759.17 588,547,454.16 2.45% 22 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report It is mainly due to the increase of Administrative 764,084,428.88 595,781,120.22 28.25% employee compensation and share expenses based payment in the current period. Mainly due to changes in gains and Financial expenses 128,860,093.64 -7,772,819.07 1,757.83% losses of exchange rate fluctuations R&D expenses 518,401,363.63 532,012,335.99 -2.56% 4. R&D Investment √Applicable □Not applicable 2020 2019 YoY Change Number of R & D personnel 1,576 1,279 23.22% Proportion of R & D 12.06% 12.03% 0.03% personnel Amount of R&D expenses 518,401,363.63 532,012,335.99 -2.56% (RMB) R&D investment as a percentage of operating 4.28% 4.71% -0.43% income Capitalized R&D expenses 0.00 0.00 0.00% (RMB) Capitalized R&D expenses as a percentage of R&D 0.00% 0.00% 0.00% expenses Reason of significant change of total R&D expenses as a percentage of operating income as compared to last year □ Applicable √ Not applicable Reason and explanation of its reasonableness of significant change of the capitalized R&D expenses □ Applicable √ Not applicable 5. Cash flow Item 2020 2019 YoY Change Subtotal of cash inflows from 12,367,638,678.57 12,520,735,302.40 -1.22% operating activities Subtotal of cash outflows 10,280,294,895.46 10,620,571,697.80 -3.20% from operating activities Net cash flows from 2,087,343,783.11 1,900,163,604.60 9.85% operating activities Subtotal of cash inflows from 644,636,918.39 1,123,706,197.07 -42.63% investing activities 23 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Subtotal of cash outflows 1,439,811,450.15 900,786,184.48 59.84% from investing activities Net cash flows from -795,174,531.76 222,920,012.59 -456.71% investing activities Subtotal of cash inflows from 2,163,516,795.02 2,283,952,930.77 -5.27% financing activities Subtotal of cash outflows 2,559,032,808.73 3,017,767,552.58 -15.20% from financing activities Net cash flows from -395,516,013.71 -733,814,621.81 46.10% financing activities Net increase in cash and 846,361,023.53 1,389,240,153.53 -39.08% cash equivalents Explanation of why the related data varied significantly on a YoY basis √ Applicable □ Not applicable 1. The net cash flow from investment activities decreased by 456.71%, mainly due to the decrease in redemption of bank financial products. 2. Net cash flow from financing activities increased by 46.10%, mainly due to the decrease of cash paid for debt. Explanation of reasons leading to the material difference between cash flow from operating activities during the reporting period and net profit for the year √Applicable □Not applicable It is mainly caused by changes in operating receivables and receivables. See the supplementary information of cash flow statement in the financial report for details. III. Non-Core Business Analysis √Applicable □Not applicable Unit: RMB Proportion to net Amount Note of Change Sustainability profit Gains and losses of futures contract settlement, foreign Investment 89,078,877.16 5.26% exchange forward contract No Income settlement, bank financial product, etc. Floating income of futures Gains and Losses contracts, foreign exchange from Change of 31,847,915.76 1.88% No forward contracts, bank Fair Value financial products, etc. Non-operating 5,055,479.82 0.30% Income from nonpayment, No 24 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Revenue compensation and liquidated damages, gains from retirement of fixed assets, etc. Loss on retirement of fixed Non-operating 14,843,633.18 0.88% assets, litigation No Expenditures compensation loss, etc. Credit -28,677,382.30 -1.69% Bad debt loss, etc. No Impairment Loss Assets Loss on impairment of -58,672,538.84 -3.47% No Impairment Loss inventories Gains on Gains on disposal of fixed Disposal of -486,378.33 -0.03% No assets Properties The government grants of Government subsidies, VAT refund of civil welfare value-added tax rebate for enterprises and software civil affairs and welfare Other Gains 151,555,896.45 8.96% product VAT exceeding tax enterprises, value-added tax burden are sustainable, rebate for software while the rest are not products, etc. sustainable IV. Analysis of Assets and Liabilities 1. Material changes of assets The Company implemented new income or lease standard and adjusted beginning balance of relevant items of financial statements for the first time in 2020. Applicable Unit: RMB December 31st 2020 January 1st 2020 YoY Note of significant change Percentage of Percentage of Change Amount Amount total assets total assets Mainly due to the increase of net cash Cash and Bank 3,489,687,568. 2,663,719,770. 20.49% 18.01% 2.48% flow generated by the Company's Balances 14 15 operating activities Account 2,355,613,299. 1,871,323,522. 13.83% 12.65% 1.18% Receivable 57 82 2,307,761,706. 2,180,838,596. Inventories 13.55% 14.75% -1.20% 46 07 25 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Investment 10,067,588.96 0.06% 27,025,974.05 0.18% -0.12% property Long-term Equity 15,219,616.68 0.09% 14,522,259.80 0.10% -0.01% Investment 3,839,408,059. 3,379,608,199. Fixed Assets 22.54% 22.85% -0.31% 45 26 Construction in 628,730,529.0 3.69% 480,959,262.46 3.25% 0.44% Progress 7 Short-term 383,088,296.6 1,295,610,572. 2.25% 8.76% -6.51% borrowings 0 07 Long-term 1,707,918,994. 10.03% 392,882,280.09 2.66% 7.37% borrowings 87 2. Assets and liabilities measured at fair value √ Applicable □ Not applicable Unit: RMB Profit and Cumulative loss of fair changes in Impairment Current Opening Current sale Other Closing Items value change fair value accrued in the purchase balance amount changes balance in the current included in current period amount period equity Financial Assets 1. Held-for-tradi ng financial assets 993,634,433.3 -241,409,571. 752,224,861 (Excluding 1 53 .78 Derivative Financial Assets) 2.Derivative 50,016,085.8 58,330,486. Financial 8,314,400.73 0 53 Assets Subtotal of 1,001,948,834 -191,393,485. 810,555,348 financial .04 73 .31 assets 1,001,948,834 -191,393,485. 810,555,348 Total .04 73 .31 26 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Financial 7,939,957.9 126,364.40 7,813,593.51 Liabilities 1 Whether there were any material changes on the measurement attributes of major assets of the Company during the reporting period: □ Yes √ No 3. Assets right restrictions as of the end of reporting period Items Closing Book value Reasons for being restricted 46,093,170.51 Deposits Cash and Bank Balances 32,327,359.09 Deposits in futures institutions 11,123,000.00 Litigation frozen funds Note Receivable 1,608,722,846.32 Pledge for financing Total 1,698,266,375.92 - V. Analysis of Investments 1. Overview √Applicable □ Not applicable Investment during the Reporting Period Investment over the Corresponding Period YoY Change (RMB) of Last Year (RMB) 277,394,000.00 11,038,318.85 2,413.01% 2. Significant equity investment during the reporting period □Applicable √Not applicable 3. Significant non-equity investment during the reporting period □Applicable √ Not applicable 4. Financial asset portfolio (1)Securities Investments □ Applicable √ Not applicable No such case in the reporting period. (2)Derivatives Investments □Applicable √Not applicable 27 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 5. Usage of raised funds √Applicable □Not applicable (1)Overall usage of raised fund √Applicable □Not applicable Unit: RMB in 10 thousand Proporti on of Total accumul Total amount Accumu ated Raised amount Accumu of raised lated amount Total Raised funds Total of raised lated funds amount of raised amount funds has not amount funds amount with use of raised funds of Year Method has not been of raised invested of raised alteratio funds with use unused been used for funds in the funds n during with use alteratio raised used two report invested the alteratio n to the funds years period reportin n total g period amount of raised funds Non-pub 35,105.6 11,471.7 2015 lic 39,400 536.6 29.12% - 4 6 offering Deposite d in the special account of raised Non-pub 43,306.9 125,424. 16,631.4 funds 2017 lic 132,231 9 14 5 and used offering for purchasi ng bank financial products 43,843.5 160,529. 11,471.7 16,631.4 Total -- 171,631 6.68% -- 0 9 78 6 5 Description of Overall Usage of Raised Funds The information in the above table includes the raised funds issued by the Company in 2015 and 2017. 28 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report (1) Year 2015 1. The actual amount of raised fund and date of transfer in Approved by China Securities Regulatory Commission (CSRC) [2015] No. 1454, the Company non-public offered 46,349,942 common shares, with a total raised fund of RMB 399,999,999.46. After deducting the issuance expenses of RMB 5,999,999.47, the net amount of raised funds is RMB 393,999,999.99. The raised funds were transferred in on December 21 st, 2015, and it has been verified by Tianjian accounting firm, which has issued the Capital Verification Report (TJY [2015] No. 531). As the principal body of the project is Hangzhou Sanhua Microchannel Heat Exchanger Co., Ltd. (hereinafter referred to as Sanhua Microchannel) and its subsidiary Sanhua Mexico Industry s. de.r.l.de C.V. (hereinafter referred to as Mexico Microchannel), the Company allocated RMB 393,999,999.99 of raised funds to Sanhua Microchannel in the form of capital increase on December 29th, 2015. 2. Usage and balance of raised funds The Company has used RMB 345.6904 million of raised funds in previous years. The amount of bank deposit interest and financial income net of bank charges received in previous years was RMB 12.2878 million. The surplus balance of raised funds amounted to RMB 26,100, all of which has been used to permanently replenish the Company's working capital. From January to December 2020, the actual use of raised funds is RMB 5.3660 million, the amount of bank deposit interest and financial income after deducting bank charges is RMB 444,100. The surplus balance of raised funds amounted to RMB 55.6494 million, all of which has been used to permanently replenish the Company's working capital. The accumulated amount of used raised funds was RMB 351.0564 million, the accumulated amount of bank deposits interest and financial income after deducting bank charges is RMB 12.7319 million. The accumulated surplus balance of raised funds amounted to RMB 55.6755 million, all of which has been used to permanently replenish the Company's working capital. After being deliberated and approved by the Company's 2019 shareholders' meeting on May19,2020, the surplus raised funds will supplement working capital permanently, and all regulatory accounts for storing the raised funds were cancelled. As of December 31, 2020, the balance of raised funds is RMB 0.000. (1) Year 2017 1. The actual amount of raised fund and date of transfer in With the approval of China Securities Regulatory Commission (CSRC) [2017] No. 1392, the Company non-public issued 88,154,000 common shares (A shares), with a total raised capital of RMB 1,322,310,000.00. After deducting the issuance expenses of RMB 13,078,480.00, the net amount of raised funds is RMB 1,309,231,520.00. The above-mentioned raised funds were transferred in on September 1st, 2017, and it has been verified by Tianjian accounting firm, which has issued the Capital Verification Report (TJY [2017] No. 327). Since Zhejiang Sanhua Automotive Components Co., Ltd. (hereinafter referred to as Sanhua Automotive) and its subsidiary Shaoxing Sanhua New Energy Automotive Components Co., Ltd. (hereinafter referred to as Shaoxing Automotive), the Company has allocated the raised funds of RMB 1,301,310,000.00 to Sanhua Automotive in the form of capital increase. Sanhua Automotive synchronously allocated the raised fund of RMB 503,620,000.00 to Shaoxing Automotive in the form of capital increase. 2. Usage and balance of raised funds 29 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report The Company has used RMB 821.1715 million of the raised funds in previous years, and the amount of bank deposit interest and financial income net of bank charges received in previous years was RMB 77.6239 million. In 2020, the actual usage of raised funds is RMB 433.0699 million, and the amount of bank deposit interest and financial income net of bank charges is RMB 20.62 million. The accumulated amount of used raised funds was RMB 1,254.2414 million, the accumulated amount of bank deposits interest and financial income after deducting bank charges is RMB 98.2459 million. As of December 31, 2020, the balance of raised funds is RMB 116.3145 million (including the net amount of accumulated bank deposit interest and financial income deducting bank charges, etc.), and the balance of raised funds actually used by the Company to purchase financial products is RMB 50 million. (2)Statement of Committed Investment Projects of Raised Funds √Applicable □Not applicable Unit: RMB in 10 thousand Invest Whethe Wheth Whethe Accum ment r er Total r Total ulative progres Date of Benefit feasibil project commit Invest expecte Committed invest invest s at the asset s ity of has ted ment in d investment projects ment ment at end of ready achieve project been invest the benefit and allocation of after the end the for d in the has (or ment of current s have over-raised funds alterati of the period intende current change partiall raised year been on (a) period (%) d use year d y) funds achieve (b) (d)=(b) signific altered d /(a) antly Committed investment projects Construction of Decem Microchannel Heat 11,739. ber Exchanger Yes 22,755 11,760 99.83% N/A Yes 6 31st, production line in 2017 Mexico Technical N/A No transformation project of heat June 100.00 exchanger with an No 7,996 7,996 7,996 30th, % annual output of 2017 additional 800,000 units Replenish working N/A No No 9,249 9,249 8,649 93.51% capital 30 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Automatic technical N/A No transformation Decem project of heat 11,471. 6,721.0 ber exchanger with an No 536.6 58.59% 76 4 31st, annual output of 2019 additional 700,000 units New energy auto N/A No Decem parts construction 18,903. 47,464. ber project with annual No 50,362 50,362 94.25% 69 86 31st, output of 11.5 2021 million sets Technical N/A No transformation project of Automotive thermal January 21,922. 47,150. 103.64 management system No 45,495 45,495 31st, 48 26 % module with an 2021 annual output of additional 7.3 million units Technical N/A No transformation project of March Automotive A/C 1,204.6 19,064. No 20,874 20,874 91.33% 31st, control components 9 52 2020 with an annual output of additional 12.70 million units Expansion of N/A No product testing room January 1,276.1 9,686.6 and auxiliary No 13,400 13,400 72.29% 31st, 3 5 production room 2019 project Payment of agents’ 2,057.8 N/A No No 2,100 2,100 97.99% fees 5 Subtotal of 172,23 172,70 43,843. 160,52 1,633.9 committed -- -- -- -- -- 1 7.76 59 9.78 3 investment projects Investment of excess proceeds -- 31 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 172,23 172,70 43,843. 160,52 1,633.9 Total -- -- -- -- -- 1 7.76 59 9.78 3 Funds raised in 2015: After deliberation and approval of the board of directors on August 6th, 2016, the date of asset ready for intended use of " Technical transformation project of heat exchanger with an annual output of additional 800,000 units " was extended from June 2016 to June 2017, and other contents of the project remained unchanged. This project has been completed. The specific reasons for postponement of the construction progress of the project are as follows: According to the medium and long-term development strategy, combined with the existing product structure, the Company adopted the strategy of prudent use and reasonable investment in the previous fund-raising. The new invested equipment tends to be more intelligent and systematic, and the equipment selection is carried out according to the latest technical requirements and product models. At the same time, due to the change of market demand, the production process needs to be improved, which leads to the equipment investment progress later than expected. In June 2017, the project has been completed. After deliberation and approval of the board of directors on November 30th, 2017, the Company made some changes to the purpose of the raised funds for the " Construction of Microchannel Heat Exchanger production line in Mexico", and transferred the remaining raised funds into " Automatic technical transformation project of heat exchanger with an annual output of additional 700,000 units". The new project plans to use RMB 114.7176 million of raised funds (including RMB 4.7676 million of bank The situation and deposit interest and financing income of raised funds), accounting for 29.12% of the net amount of funds reasons of not raised in 2015. Reasons for the change: In order to accelerate the development of Microchannel business, reaching the planned improve the level of technical equipment, realize the adjustment and upgrading of product structure, and schedule or expected give full play to the resource advantages of Sanhua Microchannel Hangzhou factory in R&D, income (by specific technology, equipment, and improve the utilization efficiency of raised funds. The Company postponed project) the investment in the third production line and other related supporting facilities of Mexico project. The investment of the third production line and other supporting facilities in Mexico project shall be arranged by the Company with own funding. " Automatic technical transformation project of heat exchanger with an annual output of additional 700,000 units " is implemented by Sanhua Microchannel, which is a technology transformation project with new production capacity, and the benefit of this project cannot be calculated separately. Funds raised in 2017: (1) After deliberation and approval by the board of directors of the Company on April 1 st, 2019, the date of asset ready for intended use of " Technical transformation project of Automotive thermal management system module with an annual output of additional 7.3 million units " and " Technical transformation project of Automotive A/C control components with an annual output of additional 12.70 million units " was extended from January 2019 to January 2021, the other contents of the project will remain unchanged. Reasons for the change: Combined with the existing product structure and market trend, the Company adopts the strategy of prudent use and reasonable investment for the raised funds. As the new equipment tends to be more intelligent and systematic, the Company selects the equipment according to the latest technical requirements and product models, so that the investment progress of new equipment of the project is later than expected. In March, 2020, " Technical transformation project of Automotive 32 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report A/C control components with an annual output of additional 12.70 million units " has been completed. In January 2021, the " Technical transformation project of Automotive thermal management system module with an annual output of additional 7.3 million units " has been completed. (2) After deliberation and approval by the board of directors on April 27th, 2020, the date of asset ready for intended use of " New energy auto parts construction project with annual output of 11.5 million sets" was extended from December 2019 to December 2021, and other contents of the project remained unchanged. Reasons for the change: Combined with the existing product structure and market trend, the Company adopts the strategy of prudent use and reasonable investment for the raised funds. In combination with customer feedback and production scheduling plan, the Company will gradually release the production capacity according to the actual customer demand. In order to ensure that the investment progress can meet the actual production demand, the Company will adjust the equipment procurement timing of the raised fund investment project according to the customer's actual requirements, thus extend the investment period of the raised fund investment project. Funds raised in 2015: 1. Basic information about the change of projects invested by raising funds After deliberation and approval of the board of directors on November 30th, 2017, the Company made some changes to the purpose of the raised funds for the " Construction of Microchannel Heat Exchanger production line in Mexico", and transferred the remaining raised funds into " Automatic technical transformation project of heat exchanger with an annual output of additional 700,000 units". The costs of this new project is around RMB 114.7176 million of raised funds (including RMB 4.7676 million of bank deposit interest and financing income of raised funds), accounting for 29.12% of the net amount of funds raised in 2015. 2. Reasons for the change of the project invested by raising funds In order to accelerate the development of Microchannel business, improve the level of technical equipment, realize the adjustment and upgrading of product structure, and give full play to the resource Significant changes advantages of Sanhua Microchannel Hangzhou factory in R&D, technology, equipment, and improve the in the feasibility of utilization efficiency of raised funds. The Company postponed the investment in the third production line projects and other related supporting facilities of Mexico project. The investment of the third production line and other supporting facilities in Mexico project shall be arranged by the Company with own funding. 3. Decision making procedures for the change of projects invested by raising funds The change of raised investment project was approved by the board of directors of the Company on November 30th, 2017. 4. Information disclosure of changes in projects invested by raised funds On December 2nd, 2017, the Company disclosed the Announcement on Changing the Usage of Part Raised Funds (Announcement No.: 2017-078). 5. " Automatic technical transformation project of heat exchanger with an annual output of additional 700,000 units " is implemented by Sanhua Microchannel, which is a technology transformation project 33 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report with new production capacity, and the benefit of this project cannot be calculated separately. Amount, usage and Not applicable use progress of over-raised Funds Change in Not applicable implementation location of investment projects of Raised Funds Adjustment to Not applicable implementation method of investment projects of Raised Funds Applicable Advance investment Raised funds in 2015: In 2016, the Company replaced the initial investment amount with raised funds of and replacement of RMB 72.6453 million. projects invested Funds raised in 2017: In 2017, the Company replaced the initial investment amount by raised funds of with raised funds RMB 140.5585 million. Temporary Not applicable supplement of working capital with idle raised funds Applicable Funds raised in 2015: After deliberation and approval of the board of directors on November 30th, 2017, the Company made some changes to the purpose of the raised funds for the " Construction of Microchannel Heat Exchanger production line in Mexico", and transferred the remaining raised funds into " Automatic technical transformation project of heat exchanger with an annual output of additional 700,000 units". The costs of The amount and this new project are around RMB 114.7176 million of raised funds (including RMB 4.7676 million of reasons of the bank deposit interest and financing income of raised funds), accounting for 29.12% of the net amount of balance of raised funds raised in 2015. funds in the project implementation In order to accelerate the development of Microchannel business, improve the level of technical equipment, realize the adjustment and upgrading of product structure, and give full play to the resource advantages of Sanhua Microchannel Hangzhou factory in R&D, technology, equipment, and improve the utilization efficiency of raised funds. The Company postponed the investment in the third production line and other related supporting facilities of Mexico project. The investment of the third production line and other supporting facilities in Mexico project shall be arranged by the Company with own funding. 34 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Funds raised in 2017: The project of " Technical transformation project of Automotive thermal management system module with an annual output of additional 7.3 million units " has been put into operation. The project was completed and checked before acceptance by the office of general manager on January 31, 2021. On January 31, 2021, the final payment of the project is about 52.7745 million yuan, which is paid with its own funds according to the contract, and the balance of the project is about 14.1079 million yuan. Use of unused raised Funds raised in 2017: funds It was deposited in the special account of raised funds and used to purchase bank financial products. Problems or other situations in the use No and disclosure of raised funds (3)Statement of Altered Investment Projects of Raised Funds √Applicable □Not applicable Unit: RMB in 10 thousand Total Raised Whether Funds to Investme Actual Actual Date of Benefits Whether feasibility be nt Project Project investmen accumulat asset achieved expected of project invested progress after before t in the ive ready for in the benefits has to the (%) alteration alteration current investmen intended current have been changed project (c)=(b)/(a year t (b) use year achieved significan after ) tly alteration (a) Automati c technical Construct transform ion of ation Microcha project of nnel Heat heat December Not Exchange 11,471.76 536.6 6,721.04 58.59% st No exchanger 31 , 2019 applicable r with an productio annual n line in output of Mexico additional 700,000 units 35 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Total -- 11,471.76 536.6 6,721.04 -- -- 0 -- -- 1. Basic information about the change of projects invested by raising funds After deliberation and approval of the board of directors on November 30th, 2017, the Company made some changes to the purpose of the raised funds for the " Construction of Microchannel Heat Exchanger production line in Mexico", and transferred the remaining raised funds into " Automatic technical transformation project of heat exchanger with an annual output of additional 700,000 units". The new project plans to use RMB 114.7176 million of raised funds (including RMB 4.7676 million of bank deposit interest and financing income of raised funds), accounting for 29.12% of the net amount of funds raised in 2015. 2. Reasons for the change of the project invested by raising funds In order to accelerate the development of Microchannel business, improve the level of technical equipment, realize the adjustment and upgrading of product structure, and give full play to the resource advantages of Sanhua Microchannel Hangzhou factory in R&D, technology, equipment, and improve the utilization efficiency of raised funds. The Alteration reason, decision making Company postponed the investment in the third production line and other related progress and information disclosure supporting facilities of Mexico project. The investment of the third production line and (of a specific project) other supporting facilities in Mexico project shall be arranged by the Company with own funding. 3. Decision making procedures for the change of projects invested by raising funds The change of raised investment project was approved by the board of directors of the Company on November 30th, 2017. 4. Information disclosure of changes in projects invested by raised funds On December 2nd, 2017, the Company disclosed the Announcement on Changing the Usage of Part Raised Funds (Announcement No.: 2017-078). 5. " Automatic technical transformation project of heat exchanger with an annual output of additional 700,000 units " is implemented by Sanhua Microchannel, which is a technology transformation project with new production capacity, and the benefit of this project cannot be calculated separately. The situation and reasons of not reaching the planned schedule or Not applicable expected income (by specific project) Description of significant changes in Not applicable the feasibility of the changed project 36 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report VI. Disposal of Significant Assets and Equity 1. Disposal of significant assets □ Applicable √ Not applicable During the reporting period, there was no disposal of significant assets 2. Sale of significant equity □ Applicable √ Not applicable VII. Analysis of Major Subsidiaries and Investees √ Applicable □ Not applicable Information about major subsidiaries, and investees that contribute above 10% of the Company’s net Profit Unit:RMB Company Company Principal Registered Total Operating Operating Net assets Net profit name type business capital assets revenue profit Refrigerati on and A/C Zhejiang electrical Sanhua component 250 3,422,167, 3,182,229, 1,190,814, 227,396,06 198,048,98 Refrigerati Subsidiary s million 038.05 394.09 030.28 8.39 0.66 on Group manufactur Co., Ltd. ing and marketing Refrigerati Hangzhou on and A/C Sanhua electrical Microchan component 360 1,631,228, 1,043,129, 1,277,658, 169,082,16 141,993,66 Subsidiary nel Heat s million 511.78 777.10 814.36 0.80 5.67 Exchanger manufactur Co., Ltd. ing and marketing Refrigerati Zhejiang on and A/C Sanhua electrical 2,481,484, 121,613,44 3,758,566, 10,935,839 6,595,425. Subsidiary 50 million Trading component 241.37 1.43 203.96 .37 66 Co., Ltd. s marketing Zhejiang Automotiv Subsidiary 1,460 4,371,825, 2,961,182, 2,469,186, 377,143,40 331,778,97 Sanhua e 37 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Automotiv component million 691.32 045.19 175.13 1.31 6.74 e s Componen manufactur ts Co., Ltd ing and marketing Refrigerati on and A/C electrical component Sanhua s Internation 37.55 manufactur 1,351,516, 255,307,74 2,472,709, 61,453,322 45,106,474 al Limited Subsidiary million ing 858.23 8.50 133.91 .54 .68 (USA) USD marketing (merger) and investment manageme nt Refrigerati on and A/C electrical Sanhua component Internation s al manufactur $105.5798 2,213,696, 604,832,01 3,428,049, 60,076,824 44,696,908 Subsidiary Singapore ing 33 million 335.86 0.57 807.50 .35 .08 PTE. Ltd. marketing (merger) and investment manageme nt Information about obtaining and disposal of subsidiaries during the reporting period √ Applicable □ Not applicable Equity acquisition and disposal method Impact on overall production results Company name during the reporting period Hangzhou Hangzhou Sanhua Household Thermal Liquidation cancellation No significant impact Management System Co., Ltd. AWECO Electric Equipment (Shanghai) Liquidation cancellation No significant impact Co., Ltd. Ma'anshan Sanhua Intelligent Liquidation cancellation No significant impact Technology Co., Ltd Qingdao Debaiyi Refrigeration Equity transfer No significant impact Equipment Co., Ltd 38 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Zhejiang Xianji Intelligent Technology New investment No significant impact Co., Ltd Sanhua Mexico Investment Limited New investment No significant impact Zhejiang Sanhua Commercial New investment No significant impact Refrigeration Co., Ltd Shaoxing Sanhua Automobile Thermal New investment No significant impact Management Technology Co., Ltd VIII. Structural Entities Controlled by the Company □ Applicable √ Not applicable IX. Outlook for the Future Development of the Company 1. Development strategy The Company adheres to the business strategy of "Focusing on leading, innovation and transcendence" and firmly grasps the product development theme of energy conservation, environmental protection and intelligent control. With the research and application of heat pump technology and thermal management system products as the core, we continuously deepen and expand the global business layout through continuous innovation of products and technologies. It transformed from "cost leading" to "technology leading", from "mechanical parts development" to "electronic control integrated system control technology solution development" in order to provide competitive environmental intelligent control solutions for global high-quality customers. As a result, it becomes a global leader in the climate intelligent control system industry. 2. Business plan for 2021 (1) Refrigeration air conditioning electrical parts business The refrigeration and air conditioning electrical parts business will seize the opportunities of energy efficiency upgrading, refrigerant switching, multi-line and other related business products, continue to expand the customer base, strengthen the acquisition and transformation of business opportunities, and improve operation sales. The Company promotes intelligent manufacturing and lean production, increases special procurement management, deeply promotes team building, and constantly improves product competitiveness. Continue to integrate and improve the operation and management of Aweco at home and abroad, increase the construction of overseas factories in Vietnam and Mexico, improve the overall operation efficiency of overseas manufacturing and marketing, and create greater benefits. At the same time, we will accelerate the planning of new factories in Daming City, and lay a solid foundation in various commercial fields of consumption upgrading and industrial upgrading of the Chinese market in the future. (2) Automotive components business Under the development opportunity of new energy vehicle thermal management industry, automotive components business should strengthen the direction of system integration, increase R & D investments, and maintain the leading technology of the industry. At the same time, in the process of rapid growth of new energy thermal management, we always pay attention to the changes of market demand and competition pattern, constantly 39 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report accelerate the construction of informatization and intelligence, increase the construction and management of supply chain, pay attention to cost control, actively respond to the needs of customers, and ensure the product quality and delivery of projects. In addition, in the process of global development, we will actively promote the construction of Mexico and Binhai, increase the layout of production capacity and the construction of talent team, so as to grow rapidly in global automotive electrification and intellectualization. 3. Main risks for future development (1) Risk of price fluctuation of raw materials The raw materials required by the Company are copper and aluminum, which account for a large proportion of the cost composition of the products. Therefore, the fluctuation of the market price of raw materials will bring large cost pressure to the Company. The Company will reduce the adverse impact of raw material price fluctuations through the establishment of linkage pricing mechanism, hedging operation of commodity futures, and timely negotiation with customers. (2) The risk of rising labor cost The labor costs are rising year by year, which reduces the profit margin of the Company to a certain extent. In the future, the Company will continue to improve the level of intelligent manufacturing by continuously promoting lean production, process improvement and technical transformation. (3) Trade and exchange rate risk The Company's export volume is large, involving North America, Europe, Japan, Southeast Asia and other regions. Due to the changes in regional trade policies, the Company's daily operation will be affected. The Company deals with interregional trade risks through transferring production capacity to foreign countries. In addition, the fluctuation of exchange rate will also have a certain impact on the profit. According to the actual situation, the Company deals with and reduces this risk by means of forward foreign exchange settlement and establishing overseas production bases in the United States, Poland, Mexico, India and other places. X. Reception of activities including research, communication and interviews during the report period √ Applicable □ Not applicable (1) Reception of research activities during the reporting period. Main contents of Time of Location of Method of Type of discussion and Index of basic situation Reception object reception reception reception reception object materials of the research provided Dongwu Introduction of Securities: Chai the company's Jiahui; Guangfa operation and http://irm.cninfo.com.c June 2, 2020 Hangzhou On-site research Institution Fund: Mo Jiao; reply to n/ssessgs/S002050 Dacheng Fund: investors' Cheng Xiang questions 40 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Introduction of CICC: Liu the company's Chang; Jingshun operation and http://irm.cninfo.com.c July 1, 2020 Hangzhou On-site research Institution Great Wall: Han reply to n/ssessgs/S002050 Ting, Zhang investors' Qingze questions E Fund: Feng Bo, Qi He, Cai Rongcheng, Lin Gaobang, Jia Jian, He Chongkai, Li Zhongyang, Hu Introduction of Yunfeng, Liu the company's Wu, Chen Lixin, operation and http://irm.cninfo.com.c July 8, 2020 Hangzhou On-site research Institution Zheng Xi, Wei reply to n/ssessgs/S002050 Yixi, Lin Sen, investors' Ge Qiushi, questions Wuyang, Ouyang Liangqi; Dongwu Securities: Feng Yanzhu, Zeng Duohong, Chai Jiahui Huitianfu Fund: Yuan Jianjun, Wang Xu, Lao Jienan, Hu Xinwei, Zhao Pengfei, Ma Xiang, Yang Introduction of Yican, Yang Fan, the company's Tan Zhiqiang, operation and http://irm.cninfo.com.c August 25, 2020 Hangzhou On-site research Institution Liu Weilin, Zhao reply to n/ssessgs/S002050 Jian, Zheng investors' Huilian, Zhang questions Peng, Weng Qiang, Bian Zheng, Rao Yunfei; Zheshang Securities: Wang 41 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Haiyang, Zhang Yuyuan Ping’an Asset Management: Xu Zhixiang; CICC Fund: Qiu Yanbing; Dingfeng Asset: Zhang Qijia; Anxin Securities: Li Yizhen; Baoxin Asset: Lin Haifeng; Everbright Asset Management: Ying Chao; Shenwan Appliance: Liu Yizhen Zheng; Shenwan Introduction of Appliance: Shi the company's August 27-28, Jinxing; GF operation and http://irm.cninfo.com.c Hangzhou On-site research Institution 2020 Securities: Wang reply to n/ssessgs/S002050 Chaoning; investors' Tianchong questions Capital: Fu Jiesong; Jiaoyin Kanglian: Wang Yaoyong; Shanghai Bank Fund: Wang Kexin; First Beijing: Li Ancheng; Yimu Assets: Jiang Yue; Zijin Insurance: Sang Yadong; Hua'an Securities: Ye Qun; Debang Fund: Tao Yutao; Panjing Investment: 42 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Wang Linsen; GF Securities: Zhang Xiujun; Tianchong Capital: Jiang Xiaodong; Hangyin Financial Management: Shen Jiexin Huatai Securities: Xing Chongyang, Wang Tao; Huishitong Investment: Bao Yunan; Chao Tiancheng: Fang Sixin; Qianrui Assets: Wang Yongqiang; Zheshang Securities: Li Introduction of Bohua; Pacific the company's November 9, Securities: Fan operation and http://irm.cninfo.com.c Hangzhou On-site research Institution 2020 Xiapei; Guotai reply to n/ssessgs/S002050 Yuanxin: Lu investors' Daming; questions Qiantou Finance: Zhou Wei, Chen Kai; Shangfeng Capital: Gu Jiahao; Shenghua Capital: Chai Shanshan; Ningju Investment: Luo Zhe E-Fund: Zhu Introduction of November 19, Yan; Ping’an the company's http://irm.cninfo.com.c Hangzhou On-site research Institution 2020 Asset operation and n/ssessgs/S002050 Management: reply to 43 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Liu Ruiyuan, investors' Ren Zheng, Han questions Yue, Zhang Ze, Cheng Zhucheng; Changjiang Securities: Wu Bohua Caitong Securities: Gong Siwen, Fu Zhenghao; Western Asset Management: Shuang Xing, Fu Yunchuan; Yipin Assets: Zhou Xin; Oriental Wealth Introduction of Securities: Wang the company's December 8, Ying, Yu Na; operation and http://irm.cninfo.com.c Hangzhou On-site research Institution 2020 Xinda reply to n/ssessgs/S002050 Securities: Wu investors' Hao, Chen Lei; questions Shibei Investment: Qin Xuefeng; Yanxin Assets: Shen Mengkai, Tang Qingqing, Huang Huaying; Hongcheng Investment: Ding Lijia CITIC Securities: Dong Yudan, Li Cong, Introduction of Li Jingtao, Wang the company's December Hao, Qian operation and http://irm.cninfo.com.c Hangzhou On-site research Institution 16-17, 2020 Xiangjin, Li reply to n/ssessgs/S002050 Hang; Kaiyin investors' Capital: Shen questions Lingna; Yihui Investment: 44 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Wang Zhen; Kaiji Securities: Wei Hongda; Changsheng Fund: Guo Kun; Guotou Ruiyin: Ye Qing; Zhongtai Securities: Chen Chuanhong; Zheshang Fund: Chai Ming; Nord Fund: Luo Shifeng; Xinyuan Investment: Wen Zuobei; Guantong Futures: Zhao Yan; Yibo Investment: Lv Guojin; Qinghe Capital: Dong Xinghua and Xiao Han; Hongshan Capital: Song Yahui; Tianchong Capital: Fu Jiesong; Dongfang Financial Holding: Chen Xiaohe; Nanhua Fund: Li Fangfang; China Europe Fund: Shen Shaobo; Zhongtai Securities: Suchen; Huatai Baoxing: Liu Tengfei; Nord 45 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Fund: Yan Anqi 46 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section V Significant Events I. Profit distribution of ordinary shares and capitalization of capital reserves Profit distribution policy of ordinary shares in the reporting period, especially the formulation, implementation and adjustment of cash dividend policy √ Applicable □ Not applicable 1.On April 30, 2020, The Company's 2019 Annual Profit Distribution Plan was approved in the 2019 Annual General Meeting of Shareholders. Based on 275,583,602 existing shares, excluding the repurchased shares, RMB 1.50 (including tax) was distributed to all shareholders for every 10 shares, with a total of RMB 413,337,540.30. Meanwhile, 3 shares were distributed for every 10 shares with capital reserve, with a total of 826,675,080 shares. After this, the total share increased to 3,592,041,778. The profit distribution plan has been completed on June 2, 2020. 2. Based on 3,582,258,682 shares of the Company, excluding the repurchased shares, RMB 1.00 (including tax) was distributed to all shareholders for every 10 shares, totaling of RMB 358,225,868.20. The profit distribution plan has been completed on September 16, 2020. The formulation and implementation of the Company's cash dividend policy has been in strict compliance with the relevant laws and regulations, normative documents and the articles of association, in line with the provisions of the articles of association or the requirements of the resolution of the general meeting of shareholders. The dividend standard and proportion are clear, the relevant decision-making procedures and mechanisms are complete, the independent directors perform their duties and play their due role, and minor shareholders have fully expressed their views. The legitimate rights and interests of them have been fully protected. Special Notes on Cash Dividend Policies Whether they comply with the requirements of the Company's articles of incorporation or the resolutions of the General Yes Meeting of Shareholders: Whether the dividend standards and proportions are distinct and Yes clear: Whether the relevant decision-making procedures and Yes mechanisms are complete: Whether the independent directors performed their duties and Yes played their due role: Whether the minority shareholders have the opportunity to fully express their opinions and appeals, and whether their legitimate Yes rights and interests have been fully protected: Whether relevant conditions and procedures are compliant and N/A transparent when the cash dividend policies are being adjusted or 47 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report changed: Profit distribution policy (proposal) and capitalizing of capital reserves policy (proposal) in last three years (including the current reporting period) 1. Profit distribution for the year 2018 (1) Profit distribution for the half year 2018:Based on the Company’s total share capital of 2,120,316,835, the Company distributed cash dividend of RMB 1.00 (tax inclusive) per each 10 shares to all shareholders with a total of RMB 212,031,683.50. (2) Profit distribution for the year 2018:Based on the Company’s total share capital of 2,116,703,682, the Company distributed cash dividend of RMB 2.5 (tax inclusive) and 3 shares dividend per each 10 shares to all shareholders with a total of RMB 529,175,920.50 and 635,011,063 shares. After this, the total share capital was increased to 2,765,657,898. 2. Profit distribution for the year 2019 Profit distribution for the year 2019: Based on the Company’s total share capital of 2,755,583,602, the Company distributed cash dividend of RMB 1.5 (tax inclusive) and 3 shares dividend per each 10 shares to all shareholders with a total of RMB 413,337,540.30 and 826,675,080 shares. After this, the total share capital was increased to 3,592,041,778. 3. Profit distribution proposal for the year 2020: (1) Profit distribution for the half year 2020:Based on the Company’s total share capital of 3,582,258,682, the Company distributed cash dividend of RMB 1.00 (tax inclusive) per each 10 shares to all shareholders with a total of RMB 358,225,868.20. (2) Profit distribution for the year 2020:Based on the Company’s total share capital of 3,581,818,372, the Company distributed cash dividend of RMB 2.50 (tax inclusive) per each 10 shares to all shareholders with a total of RMB 895,454,593. Cash dividend of ordinary shares in last 3 years (including the current reporting period) Unit: Yuan Net profit The proportion The ratio of The ratio of attributable to of cash total amount of cash dividends common stock dividends in cash dividends to the net profit shareholders of other ways to (including attributable to The amount of Total amount listed the net profit other ways) to Cash dividend ordinary cash dividends of cash companies in attributable to the net profit Year amount (tax shareholders of in other ways dividends the ordinary attributable to included) listed (such as share (including consolidated shareholders of ordinary companies in repurchase) other ways) financial listed shareholders of the statement of companies in listed consolidated the year for the companies in statements dividend consolidated the 48 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report distribution statements consolidated statements 1,253,680,461. 1,462,158,821. 1,253,680,461. 2020 85.74% 0.00 0.00% 85.74% 20 57 20 1,421,204,236. 2019 413,337,540.30 29.08% 274,375,830.00 19.31% 687,713,370.30 48.39% 13 1,292,349,782. 2018 741,207,604.00 57.35% 29,995,518.45 2.32% 771,203,122.45 59.67% 17 During the reporting period, the company was profitable and the distributable profits to ordinary shareholders of the parent company was positive, but the Company did not propose a cash dividend distribution plan of ordinary shares. □ Applicable √ Not applicable II. Profit distribution and capitalizing of capital reserves proposal for the current reporting period √ Applicable □Not applicable Bonus share issued per 10 shares (share) 0 Cash dividend per 10 shares (RMB) (tax 2.50 inclusive) Total capital share basis for the distribution 3,581,818,372 proposal (share) Total cash dividend (RMB) (tax inclusive) 895,454,593.00 Cash dividend amount in other ways (such as 0.00 share repurchase) (RMB) Total cash dividends (including other ways) 895,454,593.00 (RMB) Distributable profits (RMB) 1,089,748,875.88 Percentage of cash dividends in the total 100% distributed profit (%) Cash dividends Other Detailed description of profit distribution or capital reserves conversion plan With 3,581,818,372 as the base number, cash dividend of RMB 2.50 (including tax) will be distributed to all shareholders for every 10 shares. A total of RMB 895,454,593 will be distributed. There are no bonus shares. The remaining undistributed profits of the Company shall be carried forward to the next year, and there is no conversion of capital reserve to share capital. 49 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report III. Performance of commitments 1. Complete and incomplete commitments of the Company and its actual controller, shareholders, related parties, acquirers, and other related parties for the commitments by the end of the reporting period. √ Applicable □ Not applicable Giver of Date of Term of Commitments Nature Details of commitments Performance commitments commitments commitments Zhang Yabo, When the number of shares sold through listing controlling Other and trading in Shenzhen Stock Exchange shareholder commi reaches 1% of the total number of shares of the November 21st Strict Sanhua Long term tment Company, it shall make an announcement 2005 performance Holding within two working days from the date of the Group Co., occurrence of the fact. Ltd. Comm itment on horizo Zhang Daocai, ntal controlling compe Zhang Daocai and Sanhua holding group, the shareholder tition, controlling shareholder of the Company, January 5th, Strict Sanhua related promise that there will not be any competition Long term 2009 performance Holding party with Sanhua intelligent controls in the business Commitment Group Co., transac scope being or already carried out in the future. from Ltd. tions reformation of and shareholding capital occupa tion Comm Sanhua Holding Group promises: after the itment completion of this transaction, Sanhua Holding on Group and Sanhua intelligent controls will sign horizo an agreement according to law, perform legal Zhang Daocai, ntal procedures, fulfill the obligation of information controlling compe disclosure and handle significant matters for shareholder th tition, approval in accordance with relevant laws, January 5 , Strict Sanhua Long term related regulations, articles of association of Sanhua 2009 performance Holding party intelligent controls. In the process of Group Co., transac implementation of related party transactions, we Ltd. tions will follow the principle of legality and and reasonableness, ensure the fairness of prices and capital procedures, and make certain that the legitimate occupa interests of Sanhua intelligent controls and 50 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report tion other shareholders will not be damaged through related party transactions. In order to avoid horizontal competition with Sanhua intelligent controls, Zhang Daocai, Zhang Yabo, Zhang Shaobo, Sanhua Holding Group the controlling shareholder of the Company, and Sanhua Lvneng Industry, the trading partner made the following commitments: 1. I (or the Company) will not directly or indirectly engage in or participate in the business that constitutes potential direct or indirect competition with Sanhua Intelligent Controls and its subordinate enterprises; guarantee that legal and effective measures shall be taken to urge other enterprises controlled by Zhang Daocai, Comm me (or the Company) not to engage in or Zhang Yabo, itment participate in any business competing with Zhang on Sanhua Intelligent Controls and its subordinate Shaobo, horizo enterprises. controlling ntal 2. If Sanhua Intelligent Controls further shareholder compe expands its business scope, I (or the Company) Sanhua tition, and other controlled enterprises will not Strict Holding related July 24th, 2015 Long term compete with Sanhua Intelligent Controls' performance Group Co., party expanded business; if it is possible to compete Ltd., Zhejiang transac with Sanhua Intelligent Controls' business after Sanhua tions expansion, I (or the Company) and other Lvneng and controlled enterprises will withdraw from Industrial capital Sanhua Intelligent Controls in the following Group Co., occupa ways of competition: A. Stop the businesses that Ltd. tion compete or may compete with Sanhua Intelligent Controls; B. Inject the competitive business into Sanhua Intelligent Controls; C. Transfer the competitive business to an unrelated third party. 3. If I (or the Company) and other enterprises controlled by me (or the Company) have any business opportunities to engage in and participate in any activities that may compete with Sanhua Intelligent Controls' business operation, they shall immediately inform Sanhua Intelligent Controls of the above business opportunities. If Sanhua Intelligent Controls makes an affirmative reply to take 51 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report advantage of the business opportunity within a reasonable period specified in the notice, it shall do its best to give the business opportunity to Sanhua Intelligent Controls. 4. In case of breach of the above commitment, I (or the Company) is willing to bear all responsibilities arising therefrom and fully compensate all direct or indirect losses caused to Sanhua Intelligent Controls. In order to standardize the related party transactions with Sanhua Intelligent Controls, Zhang Daocai, Zhang Yabo, Zhang Shaobo, Sanhua Holding Group the controlling shareholder of the Company and Sanhua Lvneng Industrial the trading partner made the following commitments: 1. I (or the Company) and the controlled enterprises will reduce the related party transactions with Sanhua intelligent controls as Zhang Daocai, Comm far as possible, and will not use their own status Zhang Yabo, itment as shareholders of Sanhua intelligent controls to Zhang on seek for superior rights in terms of business Shaobo, horizo cooperation and other aspects compared with controlling ntal other third parties; shareholder compe 2. I (or the Company) will not take advantage of Sanhua tition, the right to enter into a transaction with Sanhua Strict Holding related July 24th, 2015 Long term intellectual controls using the position as a performance Group Co., party shareholder. Ltd., Zhejiang transac Sanhua tions 3. If there are necessary and unavoidable related Lvneng and party transactions, I (or the Company) and the Industrial capital controlled enterprises will sign agreements with Group Co., occupa Sanhua intelligent controls in accordance with Ltd. tion the principles of fairness, follow legal procedures, and perform the information disclosure obligations in accordance with the requirements of relevant laws, regulatory documents and the articles of association. It shall also perform relevant internal decision-making and approval procedures to ensure that it will not conduct transactions with Sanhua intelligent controls on terms that are obviously unfair compared with the market price, and will not use such transactions to 52 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report engage in any behavior that damages the legitimate rights and interests of Sanhua intelligent controls and other shareholders. Zhang Daocai, Zhang Yabo, Zhang Shaobo and Sanhua holding Group, the controlling Zhang Daocai, shareholder of the Company, made the Zhang Yabo, following commitments: after the completion of Zhang the transaction, Sanhua intelligent controls will Shaobo, continue to improve the corporate governance Other controlling structure and independent operation of the Strict Comm July 24th, 2015 Long term shareholder Company management system in accordance performance itment Sanhua with the requirements of relevant laws and Holding regulations and the articles of Association, and Group Co., continue to maintain the independence of Ltd. Sanhua intelligent controls in business, assets, finance, institutions, personnel, etc. to protect the interests of all shareholders. The shares acquired in this transaction shall not be transferred within 36 months from the listing date of new shares after the completion of the issuance; within 6 months after the completion Zhejiang Comm of the transaction, if the closing price of the Sanhua itment shares of the listed Company is lower than the Lvneng of September September Strict issue price of the shares to purchase assets for th th Industrial restrict 20 , 2017 19 , 2020 performance 20 consecutive trading days, or if the closing Group Co., ed price at the end of 6th month is lower than the Ltd. shares issue price of the shares to purchase assets, the locking period of the shares acquired by the Company due to this transaction will be automatically extended for at least 6 months. Zhang Daocai, Comm 1. I (or the Company) and the controlled Zhang Yabo, itment enterprises will reduce the related party Zhang on transactions with Sanhua intelligent controls as Shaobo, horizo far as possible, and will not use the position as a controlling ntal shareholder of Sanhua intellectual controls to shareholder compe seek the superior rights for business cooperation September Strict Sanhua tition, with Sanhua intelligent controls compared with th Long term 18 , 2017 performance Holding related other third parties; Group Co., party 2. I (or the Company) will not use my position Ltd., Zhejiang transac as a shareholder of Sanhua intellectual controls Sanhua tions to seek for the priority right to cooperate with Lvneng and Sanhua intellectual controls; Industrial capital 3. If there are necessary and unavoidable related 53 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Group Co., occupa party transactions, I (or the Company) and the Ltd. tion controlled enterprises will sign agreements with Sanhua intelligent controls in accordance with the principles of fairness, follow legal procedures, and perform the information disclosure obligations in accordance with the requirements of relevant laws, regulatory documents and the articles of association. It shall also perform relevant internal decision-making and approval procedures to ensure that it will not conduct transactions with Sanhua intelligent controls on terms that are obviously unfair compared with the market price, and will not use such transactions to engage in any behavior that damages the legitimate rights and interests of Sanhua intelligent controls and other shareholders. 1. I (or the Company) will not directly or indirectly engage in or participate in any business that may constitute potential direct or indirect competition with Sanhua intelligent controls and its subordinate enterprises; guaranteed that legal and effective measures Zhang Daocai, Comm will be taken to urge other enterprises Zhang Yabo, itment controlled by me (or the Company) not to Zhang on engage in or participate in any business that is Shaobo, horizo competitive with Sanhua intelligent controls controlling ntal and its subordinate enterprises Business. shareholder compe 2. If Sanhua intelligent controls further expands Sanhua tition, its business scope, I (or the Company) and other September Strict Holding related enterprises controlled by me (or the Company) th Long term 18 , 2017 performance Group Co., party will not compete with Sanhua intelligent Ltd., Zhejiang transac controls' expanded business; if it is possible to Sanhua tions compete with Sanhua intelligent controls' Lvneng and business after expansion, I (or the Company) Industrial capital and other enterprises controlled by me (or the Group Co., occupa Company) will withdraw from Sanhua Ltd. tion intelligent controls in the following ways of competition: A. stop the businesses that compete or may compete with Sanhua intelligent controls; B. inject the competitive business into Sanhua intelligent controls; C. transfer the competitive business to an unrelated third party. 54 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 3. If I (or the Company) and other enterprises controlled by me (or the Company) have any business opportunities to engage in and participate in any activities that may compete with Sanhua intelligent controls' business operation, they shall immediately inform Sanhua intelligent controls of the above business opportunities. If Sanhua intelligent controls makes an affirmative reply to take advantage of the business opportunity within a reasonable period specified in the notice, it shall do its best to give the business opportunity to Sanhua intelligent controls. 4. In case of breach of the above commitment, I (or the Company) is willing to bear all responsibilities arising therefrom and fully compensate all direct or indirect losses caused to Sanhua intelligent controls. Zhang Daocai, Zhang Yabo, Zhang After the completion of the transaction, the Shaobo, listed Company will continue to improve the controlling corporate governance structure and independent shareholder operation of the Company management system Sanhua Other in accordance with the requirements of relevant September Strict Holding commi laws and regulations and the articles of Long term 18th, 2017 performance Group Co., tment association, continue to maintain the Ltd., Zhejiang independence of the listed Company in Sanhua business, assets, finance, institutions, personnel Lvneng and other aspects, and effectively protect the Industrial interests of all shareholders. Group Co., Ltd. Comm The commitment made at the time of IPO, it itment shall not engage in the same production, Zhang Daocai, on operation or business as the Company in the controlling horizo future. In order to avoid business competition shareholder ntal with the Company and clarify the Strict Sanhua June 7th 2005 Long term compe non-competition obligations, Sanhua Holding performance Holding tition, Group, on behalf of itself and its subsidiaries Group Co., related with more than 50% equity, makes a Ltd. party commitment to Sanhua intelligent controls to transac avoid possible horizontal competition. 55 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report tions and capital occupa tion Are the commitments Yes fulfilled on time 2. Where any profit forecast was made for any of the Company’s assets or projects and the current reporting period is still within the forecast period, the Company shall explain whether the performance of the asset or project reaches the profit forecast and why: □ Applicable √ Not applicable IV. The Company’s funds used by the controlling shareholder or its related parties for non-operating purposes. □ Applicable √ Not applicable No such case during the reporting period. V. Explanation Given by the Board of Directors and Supervisory Committee Regarding the “Non-standard Auditor’s Report” Issued by the CPA Firm for the Reporting Period □ Applicable √ Not applicable VI. For changes in accounting policies, accounting estimates and accounting methods as compared to the financial report for the prior year √ Applicable □Not applicable The Company implemented the Accounting Standards for Business Enterprises No. 14 - Revenue (hereinafter referred to as the new revenue standards) revised by the Ministry of Finance from January 1, 2020. According to this standard, the information of the comparable period will not be adjusted. The cumulative impact of retained earning and other related items in financial statements, due to the implementation of the new standards, shall be retroactively adjusted to January 1, 2020. Since January 1, 2020, the implementation of the new revenue standards has no impact on the Company's retained earnings. Other affected items and amounts are shown in the following table: Item Balance sheet December 31, 2019 Impact of new revenue standard January 1, 2020 Advance 23,453,218.32 -23,453,218.32 payment Contract +23,453,218.32 23,453,218.32 liabilities 56 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report VII. Explanation for retrospective restatement of major accounting errors during the reporting period □ Applicable √ Not applicable No such case during the reporting period. VIII. Explanation for changes in scope of the consolidated financial statements as compared to the financial report for the prior year √ Applicable □ Not applicable 1. Disposal of subsidiaries Lose control due to disposal Name of subsidiary Equity disposal Equity disposal Equity disposal Date of losing control price ratio method Qingdao Debaiyi refrigeration equipment Co., 6,562,658.15 70% Transfer to 2020-12-02 Ltd Minority shareholders (Continued) Determination fo losing The difference between the Proportion of Net assets on Net profit from the beginning control disposal price and remaining equity on disposal date of the period to the disposal corresponding net asset of the date of loss of date consolidated financial control statements Complete the registration -4,098,327.44 0.00 15,229,979.42 -1,609,483.26 procedures for industrial and commercial changes 2. Changes in the scope of consolidation due to other reasons 1) Increased scope of consolidation Name Method of Date of equity Actual contribution at the Contribution ratio obtaining equity acquisition end of the period Zhejiang Xianji Intelligent Technology Co., Ltd New investment 2020-09-10 34.6 million yuan 100% Sanhua Mexico Investment Co., Ltd New investment 2020-09-15 200000 pesos 100% Zhejiang Sanhua Commercial Refrigeration Co., New investment 2020-10-09 68.29 million yuan 100% Ltd Shaoxing Sanhua Automobile Thermal New investment 2020-12-03 0.00 100% Management Technology Co., Ltd 2) Decreased scope of consolidation Name Method of Date of disposal Net assets on Net profit from the disposal disposal date beginning of the period 57 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report to the date of cancellation Hangzhou Sanhuajia Electric Heating Management Liquidation 2020-05-18 147,448.25 -78,092.41 System Co., Ltd cancellation Aweco Electrical Equipment (Shanghai) Co., Ltd Liquidation 2020-06-02 6,669.73 22,351.38 cancellation Ma'anshan Sanhua Intelligent Technology Co., Ltd Liquidation 2020-08-03 3,907,472.50 -478,491.11 cancellation IX. Engagement and disengagement of the CPA firm CPA firm engaged at present Name of the domestic CPA firm Pan-China Certified Public Accountants LLP Remuneration of domestic accounting firms (in 10,000 yuan) 245.28 Consecutive years of the audit service provided by the domestic 20 CPA firm Name of the certified public accountants from the domestic CPA Luo Xunchao, Ouyang Xiaoyun firm Consecutive years of the audit service provided by the certified 1 public accountants from the domestic CPA firm Whether the CPA firm was changed in the current period □ Yes √ No Engagement of internal control audit CPA firm, financial advisor or sponsor √Applicable □Not applicable During the reporting period, the Company did not change accounting firm. It continued to engage Tianjian accounting firm as the internal control audit accounting firm of the Company. X. Listing suspension and termination after disclosure of this annual report □ Applicable √ Not applicable XI. Bankruptcy and Restructuring □ Applicable √ Not applicable No such case during the reporting period. XII. Material Litigation and Arbitration □ Applicable √ Not applicable No such case during the reporting period. 58 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report XIII. Punishments and Rectifications □ Applicable √ Not applicable No such case during the reporting period. XIV. Integrity of the Company and Its Controlling Shareholders and Actual Controllers □ Applicable √ Not applicable XV. The Implementation of an Equity Incentive Plan, Employee Stock Incentive Plan, or Other Incentive Plans √Applicable □Not applicable In order to further improve the governance structure of the Company, establish and improve the incentive mechanism, attract and retain talents, and effectively mobilize core talents, the Company launched the second phase of equity incentive. 1. In 2018, the Company launched the 2018 restricted stock incentive plan and stock appreciation right incentive plan, granting 10.33 million restricted shares to 753 incentive objects and 355,000 stock appreciation rights to 22 incentive objects. The grant date of this equity incentive plan is September 18, 2018. The grant price of restricted shares and stock appreciation rights is RMB 8.37 per share, and the listing date is November 6, 2018. (1) On October 24, 2019, the Company held the 5th interim meeting of the sixth board of directors and the 5th interim meeting of the sixth board of supervisors respectively in which Resolution on adjusting the repurchase price and repurchase quantity of restricted stock incentive plan in 2018, Resolution on the achievement of exercise conditions, adjustment of exercise price, quantity and cancellation of some stock appreciation rights in the first exercise period of 2018 stock appreciation rights incentive plan, Resolution on repurchase and cancellation of some restricted stocks, Resolution on the achievement of the unlocking conditions of first restriction period of 2018 restricted stock incentive plan were approved. The unlocking date of the restricted shares is November 6, 2019, and the number of incentive objects qualified for unlocking is 720. A total of 3.9195 million shares have been released, accounting for 0.1417% of the Company's current total share capital. There were 19 incentive objects meeting the conditions for the exercise of the stock appreciation right, and the number of exercisable shares is 95,550. (2) On November 11, 2019, the first extraordinary general meeting of shareholders of 2019 was held, in which the Resolution on repurchase and cancellation of some restricted stocks was approved. The Company repurchased and cancelled all or part of the restricted stocks held by unqualified incentive objects in 2018 restricted stock incentive plan, totaling of 0.2912 million shares. (3) On October 20, 2020, the Company held the 13th interim meeting of the sixth board of directors and the 12th interim meeting of the sixth board of supervisors respectively in which Resolution on adjusting the repurchase price and repurchase quantity of restricted stock incentive plan in 2018, Resolution on the 59 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report achievement of exercise conditions, adjustment of exercise price, quantity and cancellation of some stock appreciation rights in the second exercise period of 2018 stock appreciation rights incentive plan, Resolution on repurchase and cancellation of some restricted stocks, Resolution on the achievement of the unlocking conditions of second restriction period of 2018 restricted stock incentive plan were approved. The unlocking date of the restricted shares is November 6, 2020, and the number of incentive objects qualified for unlocking is 702. A total of 4.9889 million shares have been released, accounting for 0.1389% of the Company's current total share capital. There were 18 incentive objects meeting the conditions for the exercise of the stock appreciation right, and the number of exercisable shares is 131,820. (4) On November 5, 2020, the fourth extraordinary general meeting of shareholders of 2020 was held, in which Resolution of repurchase and cancellation of some restricted stocks was approved. The Company repurchased and cancelled all or part of the restricted stocks held by unqualified incentive objects in the 2018 restricted stock incentive plan, totaling of 0.3363 million shares. 2. In 2020, the Company launched the 2020 restricted stock incentive plan, granting 12.04 million restricted shares to 914 incentive objects. The grant date of this equity incentive plan is February 24, 2020. The grant price of restricted shares is RMB 9.85 per share, and the listing date is March 20, 2020. On November 5, 2020, the fourth extraordinary general meeting of shareholders of 2020 was held, in which the Resolution on repurchase and cancellation of some restricted stocks was approved. The Company repurchased and cancelled all or part of the restricted stocks held by unqualified incentive objects in 2020 restricted stock incentive plan, totaling of 0.1040 million shares. XVI. Significant Related-party Transaction 1. Related-party transactions arising from routine operation □Applicable √Not applicable No such case in the reporting period. 2. Related-party transactions regarding purchase and disposal of assets or equity □Applicable √Not applicable No such case in the reporting period. 3. Significant related-party transactions arising from joint investments on external parties □Applicable √Not applicable No such case in the reporting period. 4. Related credit and debt transactions □ Applicable √Not applicable 60 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report No such case in the reporting period. 5. Other significant related party transactions □Applicable √Not applicable No such case in the reporting period. XVII. Significant Contracts and Their Execution 1. Matters on trusteeship, contracting, and leasing (1)Trusteeship □ Applicable √ Not applicable No such case in the reporting period. (2)Contracting □ Applicable √ Not applicable No such case in the reporting period. (3)Leasing √Applicable □ Not applicable Illustration of lease Aweco Polskas Appliance sp.z.o.o sp.k, a wholly-owned subsidiary of the Company, acquired 2 buildings through leasing. Items with profit and loss exceeding 10% of the total profit of the Company in the report period □ Applicable √ Not applicable During the reporting period, there is no leasing project with profit and loss of more than 10% of the total profit of the Company during the reporting period. 2. Significant guarantees √Applicable □ Not applicable (1) Guarantees Unit: RMB in 10 thousand External Guarantees from the Company and its Subsidiaries (Excluding Guarantees to the Subsidiaries) Announc Guarante Actual Actual Type of Term of Due or Guaran Guaranteed Party ement e Occurrence Guarantee Guarantee Guarantee Not tee for 61 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Date of Amount Date Amount Related Disclosur Parties e of the or Not Guarante e Amount Company's Guarantees to Subsidiaries Announc ement Guaran Date of Actual Actual tee for Guarante Type of Term of Due or Guaranteed Party Disclosur Occurrence Guarantee Related e Amount Guarantee Guarantee Not e of the Date Amount Parties Guarante or Not e Amount Sanhua AWECO Joint 2018.11.05 April 16, November 5, Appliance Systems 35,000 18,457.5 liability -2021.11.0 Y Y 2018 2018 GmbH guarantee 4 Sanhua AWECO Joint 2020.04.08 April 3, Appliance Systems 41,000 April 8, 2020 12,840 liability -2021.11.0 Y Y 2019 GmbH guarantee 4 Sanhua AWECO Joint 2020.06.05 April 29, Appliance Systems 52,000 June 5, 2020 8,827.5 liability -2021.11.0 Y Y 2020 GmbH guarantee 4 SANHUA Joint 2018.09.17 INTERNATIONAL April 16, September 17, liability 132,000 13,241.25 -2022.09.1 Y Y SINGAPORE PTE. 2018 2018 guarantee 6 LTD. SANHUA Joint 2019.07.29 INTERNATIONAL April 3, liability 132,000 July 29, 2019 8,482.37 -2020.01.3 Y Y SINGAPORE PTE. 2019 guarantee 0 LTD. SANHUA Joint 2019.09.23 INTERNATIONAL April 3, September 23, liability 132,000 6,524.9 -2020.09.2 Y Y SINGAPORE PTE. 2019 2019 guarantee 3 LTD. SANHUA Joint 2019.07.05 INTERNATIONAL April 3, liability 132,000 July 5, 2019 12,037.5 -2022.06.2 N Y SINGAPORE PTE. 2019 guarantee 0 LTD. SANHUA Joint 2019.12.09 April 3, December 9, INTERNATIONAL, 30,000 20,227.19 liability -2022.12.0 N Y 2019 2019 INC. guarantee 9 62 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report SANHUA Joint 2019.01.18 April 16, January 18, INTERNATIONAL, 30,000 9,787.35 liability -2020.01.2 Y Y 2018 2019 INC. guarantee 1 SANHUA Joint 2020.01.21 April 3, January 21, INTERNATIONAL, 30,000 9,787.35 liability -2020.07.0 Y Y 2019 2020 INC. guarantee 9 SANHUA Joint 2020.06.24 April 29, INTERNATIONAL, 50,000 June 24, 2020 9,787.35 liability -2021.06.2 N Y 2020 INC. guarantee 3 SANHUA Joint 2020.09.14 INTERNATIONAL April 29, September 14, liability 150,000 8,025 -2021.09.1 N Y SINGAPORE PTE. 2020 2020 guarantee 3 LTD. SANHUA Joint 2020.11.02 INTERNATIONAL April 29, November 2, liability 150,000 8,025 -2021.11.0 N Y SINGAPORE PTE. 2020 2020 guarantee 1 LTD. SANHUA Joint 2020.06.12 INTERNATIONAL April 29, liability 150,000 June 12, 2020 7,500 -2022.12.2 N Y SINGAPORE PTE. 2020 guarantee 5 LTD. SANHUA Joint 2020.02.10 INTERNATIONAL April 3, February 10, liability 132,000 10,432.5 -2021.02.0 N Y SINGAPORE PTE. 2019 2020 guarantee 9 LTD. Total Amount of Total Amount of Guarantees to Guarantees to Subsidiaries Approved during the 310,000 Subsidiaries Actually 75,224.7 Reporting Period (B1) Occurred during the Reporting Period (B2) Total Balance of Total Amount of Guarantees to Guarantees Actually Paid Subsidiaries Approved by the 352,697.19 to Subsidiaries at the End 76,034.54 End of the Reporting Period (B3) of the Reporting Period (B4) Subsidiaries' Guarantees to Subsidiaries Announc Guaran ement Guarante Actual Actual tee for Type of Term of Due or Guaranteed Party Date of e Occurrence Guarantee Related Guarantee Guarantee Not Disclosur Amount Date Amount Parties e of the or Not 63 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Guarante e Amount The total amount of the Company's guarantees (the total of the above three items) Total Amount of Total Amount of Guarantees Guarantees Actually Approved during the Reporting 310,000 Occurred during the 75,224.7 Period (A1+B1+C1) Reporting Period (A2+B2+C2) Total Balance of Total Amount of Guarantees Guarantees Actually Paid Approved by the End of the 352,697.19 at the End of the 76,034.54 Reporting Period (A3+B3+C3) Reporting Period (A4+B4+C4) Total Amount of Actual Guarantees (A4+B4+C4) as a 7.55% Percentage of the Company's Net Assets Of which: Balance of Debt Guarantees Directly or Indirectly Offered to Guaranteed Objects with Asset-liability Ratio Exceeding 70% 30,014.54 (E) Total Amount of the Above Three Guarantees (D+E+F) 30,014.54 (2) Illegal external guarantees □ Applicable √ Not applicable No illegal external guarantees during the reporting period. 3. Entrusted wealth management (1) Entrusted finances √Applicable □ Not applicable Unit: RMB in 10 thousand Balance before Overdue uncollected Specific types Capital source Amount maturity amount Bank financial The Company’s owned 163,871.5 75,048.5 0 products funds and raised funds Total 163,871.5 75,048.5 0 Specific situation of high-risk entrusted financial management with large single amount or low security, poor liquidity and without guarantee of principal √Applicable □ Not applicable 64 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Unit: RMB in 10 thousand Future Actual Amount entruste Referen Actual recover Event of Throug d Determi ce profit y of overvie Type Termina Capital Expecte provisio h legal financia Name of Product Amoun Capital Start nation annualiz and loss profit w and of tion investm d return n for procedu l trustee type t source date of ed rate in the and loss relevant trustee date ent (if any) impair res or manage return of reportin in the index ment (if not ment return g period reportin (if any) any) plan or g period not Shaoxing Floating Xinchang Bank income sub Cash Decemb January financia without branch of deposit Self-fun Bank 19,500 er 31, 15, l guarant 3.24% 25.99 25.99 Yes - Bank of (Company ds 2019 2020 product ee of Communi ) s principa cations l Co., Ltd Shaoxing Floating Xinchang Bank income sub Cash January January financia without branch of deposit Self-fun Bank 10,000 15, 21, l guarant 3.39% 5.56 5.56 Yes - Bank of (Company ds 2020 2020 product ee of Communi ) s principa cations l Co., Ltd Bank of "Tianlibao Self-fun January April Bank Floating Bank 10,000 4.00% 94.08 94.08 Yes - Hangzhou " ds 21, 21, financia income 65 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Xinchang structured 2020 2020 l with sub deposit product guarant branch products s ee of principa l Shaoxing Floating Xinchang Bank income sub Cash March financia without branch of deposit Self-fun March Bank 5,000 16, l guarant 3.09% 5.50 5.50 Yes - Bank of (Company ds 6, 2020 2020 product ee of Communi ) s principa cations l Co., Ltd Shaoxing Floating Xinchang Bank income sub Structured March Septem financia with branch of Self-fun Bank deposits 7,000 31, ber 23, l guarant 3.75% 119.41 119.41 Yes - Bank of ds 176 days 2020 2020 product ee of Communi s principa cations l Co., Ltd Floating Bank of "Tianlibao Bank income Hangzhou " March financia with Self-fun May 26, Xinchang Bank structured 20,000 26, l guarant 3.80% 119.82 119.82 Yes - ds 2020 sub deposit 2020 product ee of branch products s principa l ABC Bank Huilifeng 10,000 Self-fun April Decemb Bank Floating 3.70% 239.08 239.08 Yes - 66 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Xinchang issue ds 22, er 28, financia income sub 4840 of 2020 2020 l with branch 2020 product guarant customize s ee of d RMB principa structured l deposit products (250 days) Floating Bank of Bank income China Linked April financia with Self-fun May 29, Xinchang Bank structured 10,000 27, l guarant 3.60% 29.78 29.78 Yes - ds 2020 sub deposits 2020 product ee of branch s principa l Floating Bank of Bank income China Linked April financia with Self-fun May 29, Xinchang Bank structured 10,000 27, l guarant 3.60% 29.78 29.78 Yes - ds 2020 sub deposits 2020 product ee of branch s principa l Huilifeng Bank Floating ABC no.4917 April Decemb financia income Xinchang Self-fun Bank customize 10,000 29, er 28, l with 3.70% 232.39 232.39 Yes - sub ds d RMB 2020 2020 product guarant branch structured s ee of 67 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report deposit principa products l in 2020 (243 days) Shaoxing Floating Xinchang Bank income sub Cash financia without branch of deposit Self-fun May 26, June 15, Bank 6,000 l guarant 3.16% 10.37 10.37 Yes Bank of (Company ds 2020 2020 product ee of Communi ) s principa cations l Co., Ltd 97 days of Shaoxing Bank of Floating Xinchang Communi Bank income sub cations Septem financia with branch of Self-fun June 4, Bank Yuntong 10,000 ber 10, l guarant 3.27% 81.98 81.98 Yes - Bank of ds 2020 wealth 2020 product ee of Communi fixed term s principa cations structured l Co., Ltd deposit Huilifeng Floating no.5371 Bank income ABC customize Decemb financia with Xinchang Self-fun June 4, Bank d RMB 10,000 er 18, l guarant 3.40% 172.24 172.24 Yes - sub ds 2020 structured 2020 product ee of branch deposit s principa products l 68 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report in 2020 (196 days) Shaoxing Floating Xinchang Bank income sub Daily August Septem financia without branch of profit of Self-fun Bank 6,000 27, ber 15, l guarant 2.75% 8.59 8.59 Yes Bank of long-term ds 2020 2020 product ee of Communi pension s principa cations l Co., Ltd Xinchang Floating sub Corporate Bank income branch of "Tianlibao Decemb financia without Industrial " net Self-fun January Bank 20,000 er 30, l guarant 3.28% Yes and value ds 4, 2021 2020 product ee of Commerci financial s principa al Bank of products l China "E-Lingto Xinchang ng" net Floating sub value Bank income branch of corporate Decemb financia without Industrial Self-fun January Bank non fixed 5,000 er 30, l guarant 3.03% Yes and ds 4, 2021 term 2020 product ee of Commerci RMB s principa al Bank of financial l China products Guangfa Bank Xinjiaxin 5,500 Raised October January Bank Floating 3.95% 43.24 43.24 Yes - 69 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Bank No.16 funds 28, 13, financia income Hangzhou structured 2019 2020 l with Xiaoshan deposit product guarant sub s ee of branch principa l Floating Hangzhou Bank income Xiaoshan financia with sub Xinjiaxin Raised July 30, July 29, Bank 5,500 l guarant 4.05% 210.14 210.14 Yes - branch of No.16 funds 2019 2020 product ee of Guangfa s principa bank l Floating Hangzhou Bank income Xiaoshan April April financia with sub Xinjiaxin Raised Bank 10,000 29, 27, l guarant 4.10% 385.73 385.73 Yes - branch of No.16 funds 2019 2020 product ee of Guangfa s principa bank l Hangzhou Floating Xiaoshan Bank income sub Xinjiaxin January financia with branch of No.16 Raised July 13, Bank 5,500 14, l guarant 3.95% 101.07 101.07 Yes - Guangfa structured funds 2020 2020 product ee of bank deposit s principa (Shaoxing l ) Hangzhou Bank Structural 5,000 Raised Septem October Bank Floating 3.05% 15.12 15.12 Yes 70 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Xiaoshan deposit of funds ber 4, 13, financia income sub "Wuhua 2020 2020 l with branch of Tianbao" product guarant Guangfa W s ee of bank customize principa d personal l currency Floating Hangzhou Bank income Xiaoshan Septem financia with sub Xinjiaxin Raised July 29, Bank 5,000 ber 3, l guarant 3.25% 14.25 14.25 Yes branch of No.16 funds 2020 2020 product ee of Guangfa s principa bank l Floating Hangzhou Bank income Xiaoshan April financia with sub Xinjiaxin Self-fun January Bank 5,500 20, l guarant 3.90% 59.88 59.88 Yes branch of No.16 ds 3, 2020 2020 product ee of Guangfa s principa bank l Floating Hangzhou Bank income Xiaoshan financia with sub Xinjiaxin Raised July 30, July 29, Bank 8,000 l guarant 4.05% 305.66 305.66 Yes - branch of No.16 funds 2019 2020 product ee of Guangfa s principa bank l Hangzhou Bank Xinjiaxin 7,000 Raised April April Bank Floating 4.10% 270.01 270.01 Yes - 71 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Xiaoshan No.16 funds 29, 27, financia income sub 2019 2020 l with branch of product guarant Guangfa s ee of bank principa l Floating Heng Bank income Seng financia with Hengliyin Self-fun April 4, January Bank Bank 6,000 l guarant 4.10% 176.64 176.64 Yes - g ds 2019 6, 2020 Hangzhou product ee of Branch s principa l Floating Hangzhou Bank income Xiaoshan Xinjiaxin April Februar financia with sub No.16 Self-fun Bank 5,000 30, y 24, l guarant 4.10% 158.96 158.96 Yes - branch of structured ds 2019 2020 product ee of Guangfa deposit s principa bank l Floating Hangzhou Bank income Xiaoshan October October financia with sub Xinjiaxin Self-fun Bank 7,500 25, 26, l guarant 3.95% 281.01 281.01 Yes - branch of No.16 ds 2019 2020 product ee of Guangfa s principa bank l ICBC Self-fun January January Bank Floating Bank Tianlibao 5,000 3.30% 6.12 6.12 Yes - economic ds 3, 2020 22, financia income 72 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report developm 2020 l with ent sub product guarant branch s ee of principa l Floating ICBC Bank income economic Februar Februar financia with Self-fun developm Bank Tianlibao 5,000 y 24, y 26, l guarant 3.30% 0.85 0.85 Yes - ds ent sub 2020 2020 product ee of branch s principa l Floating ICBC Bank income economic March March financia without Self-fun developm Bank Tianlibao 5,000 26, 27, l guarant 3.10% 0.25 0.25 Yes - ds ent sub 2020 2020 product ee of branch s principa l Floating Hangzhou Bank income Xiaoshan April October financia without sub Xinjiaxin Self-fun Bank 5,500 21, 21, l guarant 3.90% 102.01 102.01 Yes - branch of No.16 ds 2020 2020 product ee of Guangfa s principa bank l Hangzhou April Bank Floating Xinjiaxin Raised June 2, Xiaoshan Bank 7,000 27, financia income 3.55% 23.43 23.43 Yes - No.16 funds 2020 sub 2020 l without 73 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report branch of product guarant Guangfa s ee of bank principa l Structural Floating Hangzhou deposit of Bank income Xiaoshan "Wuhua Septem October financia with sub Tianbao" Raised Bank 5,000 ber 4, 13, l guarant 3.05% 15.12 15.12 Yes branch of W funds 2020 2020 product ee of Guangfa customize s principa bank d personal l currency Floating ICBC Bank income economic financia without Self-fun June 9, June 10, developm Bank Tianlibao 6,000 l guarant 3.00% 0.39 0.39 Yes - ds 2020 2020 ent sub product ee of branch s principa l Floating ICBC Bank income economic financia without Self-fun June 10, June 24, developm Bank Tianlibao 8,000 l guarant 3.00% 8.42 8.42 Yes - ds 2020 2020 ent sub product ee of branch s principa l ICBC Bank Floating Self-fun July 30, August economic Bank Tianlibao 5,000 financia income 2.70% 1.85 1.85 Yes ds 2020 5, 2020 developm l with 74 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report ent sub product guarant branch s ee of principa l Floating ICBC Bank income economic October Decemb financia without Self-fun developm Bank Tianlibao 6,000 23, er 3, l guarant 2.58% 17.39 17.39 Yes ds ent sub 2020 2020 product ee of branch s principa l Floating ICBC Bank income economic October October financia without Self-fun developm Bank Tianlibao 6,000 26, 29, l guarant 2.59% 1.28 1.28 Yes ds ent sub 2020 2020 product ee of branch s principa l Floating Hangzhou Bank income Xiaoshan October January financia with sub Xinjiaxin Self-fun Bank 9,500 22, 22, l guarant 3.30% Yes branch of No.16 ds 2020 2021 product ee of Guangfa s principa bank l Heng Bank Floating October January Seng Henghuiyi Self-fun financia income Bank 5,000 23, 22, 3.35% Yes Bank ng ds l with 2020 2021 Hangzhou product guarant 75 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Branch s ee of principa l Floating ICBC Bank income economic August financia without Self-fun July 31, developm Bank Tianlibao 5,000 25, l guarant 2.80% 9.58 9.58 Yes ds 2020 ent sub 2020 product ee of branch s principa l Win win interest Floating China rate Bank income CITIC structure January January financia with Bank Raised Bank 31784 5,000 15, 31, l guarant 2.60% 5.38 5.38 Yes - Fengqi funds RMB 2020 2020 product ee of sub structured s principa branch deposit l products Floating China Bank income CITIC Decemb Februar financia with Bank Structured Self-fun Bank 5,000 er 31, y 1, l guarant 3.55% Yes Fengqi deposit ds 2020 2021 product ee of sub s principa branch l 342,00 3,413.5 Total [1] -- -- -- -- -- -- 0 -- -- -- -- 0 8 76 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Note: [1] During the reporting period, the accumulated financial management amount of the Company is RMB 6.33 billion, and the above information are the details of the Company's single significant financial management (single amount which is more than RMB 50 million). Entrusted financial management is expected to be unable to recover the principal or there are other situations that may lead to impairment □ Applicable √ Not applicable (2) Entrusted loans □ Applicable √ Not applicable No such case in the reporting period. 4. Significant contracts in operation □ Applicable √ Not applicable No such case in the reporting period. 5. Other significant contracts □ Applicable √ Not applicable No such case in the reporting period. XVIII. Social Responsibility 1. Fulfillment of social responsibilities During the reporting period, the Company actively fulfilled its social responsibilities. The Company takes "People-oriented, Continuous innovation, Employee satisfaction, Customer satisfaction, Supplier satisfaction, Shareholder satisfaction and Social satisfaction" as its core values. While continuously creating value for shareholders, it also actively undertakes the responsibility to employees, customers, society and other stakeholders. The Company fully respects and protects the legitimate rights and interests of relevant stakeholders, adheres to paying equal attention to economic benefits, social benefits and environmental benefits, and realizes the sustainable development of society and the Company. (1) Maintain the continuous and stable growth of revenue, care about the return of shareholders Since listing, the Company has established a corporate governance organization composed of the general meeting of shareholders, the board of directors and the board of supervisors, and formed a complete internal control system in strict accordance with the requirements of the Company Law, the Listing Rules of Shenzhen Stock Exchange and the Articles of Association. During the reporting period, the Company continuously improved the governance structure and internal control system to raise the standard operation level, and fully protected the legitimate rights and interests of all shareholders. The general meeting of shareholders, the board of directors and the board of supervisors exercise their functions and powers within the scope of relevant laws and regulations. The convening, proposal, notice and resolution procedures of previous meetings are in line with laws and regulations. There is no case of ultra vires approval or implementation before approval, so as to ensure that the rights of all shareholders are not infringed, especially minor shareholders. 77 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Information disclosure, the Company has been strictly in compliance with the relevant provisions of CSRC and Shenzhen Stock Exchange, and has fulfilled the obligation of truthfulness, accuracy, timeliness and completeness. The Company has been awarded A for 10 consecutive years which is not common among listed companies. The Company enhances the interaction with investors by means of investor hotline, interactive platform and reception of investors, so that investors can have a more in-depth understanding of the Company's development, production and operation. It promotes the Company to establish a long-term and stable relationship with investors, and safeguard the legitimate rights and interests of minor investors effectively. At the same time, the Company pays special attention to the management of insider information, and actively prevents the occurrence of insider trading. During the reporting period, the Company does not have insider trading or damage the interests of shareholders. The Company attaches great importance to the return to shareholders. According to the relevant provisions of China Securities Regulatory Commission on cash dividends and sustainable development, the Company has formulated and strictly implemented the continuous dividend return plan for shareholders since listing, and insisted on sharing the Company's operation achievements with shareholders. (2) Safeguard the legitimate rights and interests of employees and improve their comprehensive ability The Company always adheres to the people-oriented core values, takes improving the working environment of employees, realizing their self-worth, improving their quality of life and promoting their career growth which is also treated as the important part of the Company's development strategy. It regards employees as the Company's primary resources, earnestly protects their rights and interests, and strives to realize the common development of employees and the enterprise, so as to enhance the cohesion of the enterprise. Abiding by the Labor Law, Labor Contract Law, Law on the Protection of Women's Rights and Interests and other relevant laws and regulations, the Company establishes a series of labor management systems, signs labor contracts with employees according to law, pays employees' wages in full timely, and pays various social insurance for employees. The Company has a sound vacation system. Employees not only enjoy national statutory holidays according to law, but also enjoy gifts issued by the Company on various important public festivals such as Spring Festival, Mid-Autumn Festival, International Women's Day, etc. The Company has established a reasonable human resource management system and a scientific performance appraisal system. In order to implement the principle of equality between men and women, the Company links the performance appraisal of management cadres at all levels with the Company's business objectives. In order to motivate the employees, stimulate their sense of responsibility and mission, managements’ KPI aligned with the Company’s operation target and related income evaluation system was implemented. In addition, the Company has established a perfect staff training system, designed training courses for each employee, and encouraged employees to study in their spare time to improve their own quality and comprehensive ability. At the same time, the Company has always attached importance to and adhered to the construction of enterprise culture, creating a healthy, positive and cooperative working atmosphere. The Company actively cares for the life of employees, sends greetings to employees who have encounter sudden disasters. And it establishes the "Sanhua--One family" fund to help employees in difficulties and increase their sense of belonging to the enterprise. The Company also carries out sports, job skills competitions, festival parties and other recreational 78 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report activities to show the good spirit of employees, and it builds a communication platform for employees, which effectively stimulate the sense of collective honor and team cohesion. (3) Safeguard the rights and interests of suppliers and treat customers with integrity In line with the principle of "Communication with integrity and sharing value", the Company pays attention to the relationship with suppliers and customers, constantly strengthens the communication and cooperation with all parties, and earnestly protects their legitimate rights and interests. For suppliers, the Company always adheres to the business values of “Honesty, Fairness, Mutual Benefit, and Collaborative Development”, strictly complies with contracts signed with suppliers, establishes and strictly implements the procurement standards and evaluation system, carries out stable and effective management of procurement, so as to effectively protect the legitimate rights and interests of suppliers. The Company continues to strengthen the internal control and audit supervision of the supply chain, resolutely eradicate black box operation, commercial bribery and improper transactions, strive to provide a good competitive environment for suppliers, and promote the long-term and stable cooperation between the Company and suppliers. For customers, the Company always maintains the concept of "Customer first, grow together with customers", attaches great importance to customer relationship management, takes customers’ satisfaction as the standard to measure the Company's operation, and is committed to providing customers with high-quality products and services. Over the years, the Company has established a good corporate image and gained a good reputation from all walks of life. (4) Energy saving, innovative production and environmental protection The Company takes the vision of "Developing energy saving and low-carbon economy, creating a quality and green environment", while pursuing economic benefits. It pays attention to environmental protection and energy conservation and consumption reduction, takes the construction of resource saving and environment-friendly enterprises as an important part of sustainable development strategy, actively promotes the strategic transformation from "Cost leading" to "Technology leading", and continuously develops independent intellectual property rights, new products and new technologies, such as energy saving, environmental protection, material saving, consumption reduction. At the same time, the Company has successfully developed the inverter controller and other system solutions, which will further improve the energy conservation and environmental protection of air conditioning system. The Company emphasizes safety production and environmental protection, and adheres to the principle of "Prevention first, combination of prevention and control". While realizing its own development, it actively shoulders the social responsibility of environmental protection, and strives to promote the sustainable development of society and environment. The Company strictly abides by related national laws and regulations. On the one hand, the Company has established strict rules in effectively guiding the safety and environmental protection of each subsidiary company; on the other hand, the Company continuously optimizes the production process, continuously carries out the overhaul and technical transformation of environmental protection facilities, actively deepens the three wastes treatment and clean production level. In addition, the Company has prepared an effective comprehensive emergency plan for environmental risks and various specific emergency. Equipped with a sound emergency management team and various emergency facilities, equipment and materials, regular emergency training and drills are carried out, so as to minimize the occurrence of environmental pollution safety 79 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report accidents. (5) Shoulder social responsibility and participate in social charity The Company takes "Public welfare society, building a harmonious society" as an important responsibility. With its continuous development, it has also made positive contributions to the infrastructure construction, environmental protection, poverty alleviation and community construction of Shaoxing. During the reporting period, the Company actively undertakes its due responsibilities and obligations, and strives to create a good corporate image. 2. Fulfillment of the social responsibility of targeted poverty alleviation Not applicable 3. Environmental protection Whether the Company or the Company’s subsidiaries are critical pollutant enterprises disclosed by National Environmental Protection Department Yes Name of main Name of Distribution Emission Approved Over pollutants Emission Number of Emission Total Company or of emission concentratio total standard and mode outlets standards emissions subsidiary outlets n emission emission characteristi c pollutants The limitation of COD in Zhejiang GB8978-19 Sanhua Not 96 61.867 T Intelligent COD Nanotube 1 North ≦500mg/L 32.81 T exceeding Integrated /year Controls the standard Wastewater Co., Ltd Emission Standard is 500mg / L The limitation listed in Zhejiang DB33/887-2 Sanhua Not Ammonia 013 Indirect 6.186 T Intelligent Nanotube 1 North ≦35mg/L 3.281 T exceeding Nitrogen Emission /year Controls the standard Limits of Co., Ltd Nitrogen and Phosphorus 80 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Pollutants from Industrial Wastewater is 35mg / L The limitation listed in Zhejiang GB13271-2 Sanhua 014 Not Direct Intelligent SO2 1 North ≦50mg/m3 Emission 0.99 T 2.15 T /year exceeding emission Controls Standard of the standard Co., Ltd Air Pollutants for Boilers is 50mg/m3 According to the low Nitrogen emission Zhejiang requirement Sanhua Not Nitrogen Direct s of local 10.06 T Intelligent 1 North ≦50mg/m3 4.64 T exceeding Oxide emission government /year Controls the standard , the limit Co., Ltd value of gas-fired boiler is 50mg / m3 The Zhejiang limitation Sanhua Not from 9.205 T Refrigeratio COD Nanotube 1 South ≦500mg/l 2.864 T exceeding GB8979-19 /year n Group the standard 96 is 500mg Co., Ltd /L The Zhejiang limitation Sanhua Not Total from Refrigeratio Nanotube 1 South ≦2.0mg/l 0.047 T / exceeding Copper GB8979-19 n Group the standard 96 is Co., Ltd 2.0mg/l Construction and operation of pollution control facilities Adhering to the advanced management concept, the Company takes "developing energy-saving and low-carbon economy, creating a green quality environment" as its own responsibility, constantly surpasses, and becomes an 81 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report important creator and contributor of human green quality living environment with limited resources and unlimited wisdom. 1. In terms of waste water treatment, the Company responded to the construction of "five water treatment", "eliminating inferior V-type water" and "zero direct discharge of sewage" in the whole province. The Company renovated the rainwater and sewage outlets in the factory area, implemented the separation of rainwater and sewage, and installed cut-off valves and video monitoring equipment at the Company's rainwater discharge outlets, and collected and treated the early rainwater. There are two wastewater treatment stations in the factory. The sewage treatment stations have been equipped with standardized sewage outlets and set up discharge outlet signs. Online monitoring device, solenoid valve flowmeter and card swiping sewage system are installed at the discharge outlet, which has been connected with the environmental protection department. The monitoring indicators include pH, COD, total copper, total zinc and flow. Wastewater treatment: The Company has entrusted a third-party professional treatment unit for treatment. The discharge indicators of the Company's internal control wastewater are stricter than the environmental discharge standard. The final treated wastewater is discharged into the sewage collection pipe network of the industrial zone and sent to Shengxin sewage treatment plant for retreatment. 2. Waste gas treatment: The Company has acid pickling, electroplating waste gas, welding dust, ultrasonic cleaning and other waste gas. All kinds of waste gas discharge cylinders are equipped with corresponding waste gas treatment devices. The acid pickling and electroplating waste gas absorption and treatment tower is installed with automatic dosing system, and the waste gas is discharged to air after treatment. At the same time, in order to win the blue-sky defense activity, the Company carried out low Nitrogen emission transformation of the Company's gas boilers in accordance with the requirements of relevant official departments in 2019. 3. Solid waste and soil treatment: all kinds of hazardous waste of the Company are entrusted to the third qualified party for disposal, the general solid waste with utilization value is recycled, the domestic waste is cleared and transported by the environmental sanitation station, and the construction waste is cleaned and transported by the construction unit. The Company also tests the soil and groundwater every year and publishes them on the corresponding website In March 2020, Sanhua Refrigeration Group carried out a special site investigation on soil and groundwater in Xialiquan plant area, and prepared an investigation report. No pollution was found. In July 2020, the Company became one of the first "waste free factories" in Shaoxing City. 4. Noise control: The Company's existing main noise is workshop production noise, air compressor room, waste gas and waste water treatment equipment noise. Equipment layout is reasonable, and trees are planted around the workshop. Noise at factory meets the standard. 5. The "three wastes" pollution control facilities of the Company are in normal and stable operation, the pollutants are discharged based on the standard, and there is no environmental pollution event. Environmental Impact Assessment (EIA) of construction projects and other administrative permits for environmental protection 82 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 1. Since 2010, the Company has invested in the construction of Meizhu Sanhua Industrial Estate in Xinchang County, and has obtained 23 EIA replies. All the projects have passed. In August 2020, the Company obtained the national emission permit. 2. Zhejiang Sanhua Refrigeration Group Co., Ltd. has invested in Xialiquan of Xinchang County since 2013, and has obtained 6 EIA replies. All the projects have passed. Emergency Response Plan 1. The Company re-prepared the Emergency Response Plan in November 2017, and filed with Xinchang Environmental Protection Bureau on January 25, 2018 (Record No. 3306242018001). 2. In order to manage environmental emergencies and reduce the environmental hazards caused by sudden environmental pollution accidents, Zhejiang Sanhua Refrigeration Group Co., Ltd. re-compiled Emergency Response Plan for Environmental Pollution Accidents of Zhejiang Sanhua Refrigeration Group Co., Ltd. (simplified version) in October 2018, which was filed with Xinchang County Environmental Protection Bureau on October 29, 2018 (Record No. 3306242018013). Environmental self-monitoring program The Company formulated Self-monitoring Scheme of Zhejiang Sanhua Intelligent Control Co., Ltd. according to the requirements of the superior environmental protection department, combined with the actual production situation and the actual needs of environmental management of the Company. The sewage station of the Company is equipped with a laboratory, and the detection is conducted by a specially assigned person. On line automatic monitoring equipment such as pH, COD, TOC, total copper, total zinc, flow rate etc. are installed at the Company's total wastewater discharge outlet, so as to achieve the combination of automatic monitoring and manual testing. For the pollution factors such as suspended matters, total Phosphorus, Ammonia Nitrogen, total Iron and Petroleum, the Company entrusts a third-party testing agency to carry out regular monitoring. The monitoring results are published regularly on the enterprise self-monitoring information disclosure platform of Zhejiang Province. Zhejiang Sanhua Refrigeration Group Co., Ltd. has good pollutant emission monitoring and management ability, and can timely inform the environmental protection administrative department and the public of the monitoring information. According to the actual production situation and the actual needs of environmental management, the environmental protection laboratory of wastewater treatment station is set up, and the detection is carried out by specially assigned person daily. On line automatic monitoring equipment such as pH, COD, TOC, total copper and flow rate are installed at the total wastewater discharge outlet of the Company. The combination of automatic monitoring and manual testing effectively ensures the timeliness and effectiveness of monitoring. At the same time, a third-party testing Company is entrusted to carry out regular monitoring. The monitoring results are published regularly on the enterprise self-monitoring information disclosure platform of Zhejiang Province. Other environmental information that should be disclosed Not applicable 83 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Other environmental information Not applicable XIX. Other Significant Events √ Applicable □ Not applicable During the 13th meeting of the 6th board of directors and the 4th interim general meeting of shareholders in 2020, the Company approved Proposal on the Plan of Publicly Issuing Convertible Corporate Bonds, Proposal on Feasibility Analysis Report on the Use of Raised Funds of Convertible Corporate Bonds. The total amount of convertible bonds planned to be issued shall not exceed RMB 3 billion, with a term of 6 years, which will be used for the Company's subsequent operation. For more details, please refer announcements disclosed on CNINFO (http://www.cninfo.com.cn), October 21, 2020. The Company's application for public issuance of convertible corporate bonds has been deliberated and approved by China Securities Regulatory Commission. The board of directors will handle the relevant matters of the public issuance of convertible corporate bonds within the specified period, and fulfill the obligation of information disclosure in a timely manner, in accordance with the requirements of relevant laws and regulations, the approval documents of China Securities Regulatory Commission and the authorization of the general meeting of shareholders of the Company. XX. Significant Events of the Company’s Subsidiaries □ Applicable √ Not applicable 84 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section VI Changes in Shares and Information about Shareholders I. Changes in Shares 1. Changes in shares Unit: Share Before the change Changes in the period (+, -) After the change Share New transferred Bonus Shares Ratio Shares from Others Sub-total Shares Ratio share Issued capital reserve 1. Shares subject to 346,976,7 107,619,1 -383,274,0 -275,654,9 71,321,88 12.55% 1.99% conditional restriction(s) 85 76 79 03 2 346,931,2 107,514,0 -383,553,7 -276,039,7 70,891,58 3) Other domestic shares 12.55% 1.98% 85 26 29 03 2 Of which: Shares held by 299,892,7 89,967,81 -389,860,5 -299,892,7 10.84% 0 0.00% domestic legal person 03 1 14 03 Shares held by domestic 46,993,08 17,546,21 23,853,00 70,891,58 1.70% 6,306,785 1.98% natural person 2 5 0 2 4)Foreign shares 45,500 0.00% 105,150 279,650 384,800 430,300 0.01% Shares held by foreign 45,500 0.00% 105,150 279,650 384,800 430,300 0.01% natural person 2. Shares without 2,418,681, 719,055,9 382,542,5 1,101,598, 3,520,279 87.45% 98.01% restriction 113 04 69 473 ,586 2,418,681, 719,055,9 382,542,5 1,101,598, 3,520,279 1) RMB ordinary shares 87.45% 98.01% 113 04 69 473 ,586 2,765,657, 826,675,0 825,943,5 3,591,601 3. Total 100.00% -731,510 100.00% 898 80 70 ,468 Reason for the changes in share capital √ Applicable □ Not applicable 1. At the beginning of each year, the number of locked shares of the executives is re-calculated according to 75% of the total number of shares held by the executives. 2. The Company repurchased and cancelled 291,200 restricted shares held by unqualified incentive objects but not yet unlocked. After this, the total share capital of the Company will be reduced from 2,765,657,898 shares to 2,765,366,698 shares. 85 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 3. The Company granted 12.045 million restricted shares to 914 incentive objects under the Company's restricted stock incentive plan in 2020, and those shares came from the Company's repurchase account. 4. During reporting period, the Company implemented the profit distribution plan for the year of 2019: The plan of converting capital reserve into share capital took 2,755,583,602 shares of capital stock as the base, and distributed 3 shares for every 10 shares of all shareholders, with a total of 826,675,080 shares. After the conversion, the total share capital was increased from 2,765,366,698 to 3,592,041,778 shares. 5. On September 21, 2020, the Company's non-public offering of shares were unlocked, and released 389,860,514 restricted shares. 6. On November 6, 2020, the second phase of the restricted stock incentive plan in 2018 matured, and 4.9888 million restricted shares of 702 incentive objects meeting the conditions were released. 7. The total number of restricted shares held by the unqualified incentive objects but not yet unlocked is 440,310 shares. After the repurchase and cancellation, the total share capital will be reduced from 3,592,041,778 shares to 3,591,601,468 shares. Approval for changes in share capital √ Applicable □ Not applicable 1. On November 11th, 2019, the first interim general meeting of shareholders was held, in which the proposal on repurchases and cancellation of partial restricted shares was approved. The Company conducted repurchase and cancellation of 291,200 restricted shares held by the incentive objects that are not qualified and not yet unlocked. 2. The incentive plan of restricted stock in 2020 plans to grant 12.045 million restricted shares to 914 incentive objects, with the grant price of 9.85 yuan per share, and the grant date is February 24, 2020. (1) On January 21, 2020, the 7th interim meeting of the sixth board of directors and the 7th interim meeting of the sixth board of supervisors of the Company approved the "Resolution on the 2020 restricted stock incentive plan of Zhejiang Sanhua Intelligent Controls Co., Ltd. (Draft) and its abstract "and the" Resolution on the implementation assessment management of the 2020 restricted stock incentive plan of Zhejiang Sanhua Intelligent Controls Co., Ltd "and" Resolution on requesting the general meeting of shareholders to authorize the board of directors to handle matters related to the 2020 restricted stock incentive plan ". The independent directors expressed clear independent opinions on the relevant issues of the incentive plan. The board of supervisors checked the list of the incentive objects of the incentive plan and expressed its opinions. (2) On February 4th, 2020, the Company announced Publicity and verification opinions on the list of incentive objects granted in the 2020 restricted stock incentive plan of the board of supervisors. (3) On February 10, 2020, the Company held the first extraordinary general meeting of shareholders in 2020, approved the "Resolution on the incentive plan for restricted shares of Zhejiang Sanhua Intelligent Controls Co., Ltd. in 2020 (Draft) and its abstract ", " Resolution on implementation of assessment of the 2020 restricted stock incentive plan of Zhejiang Sanhua Intelligent Controls Co., Ltd ", " Resolution on requesting the general meeting of shareholders to authorize the board of directors to handle matters related to the 2020 restricted stock incentive plan " (4) On February 24, 2020, the eighth interim meeting of the sixth board of directors and the eighth interim meeting of the sixth board of supervisors deliberated and passed the "Resolution on adjusting matters related to 86 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report the 2020 restricted stock incentive plan" and "Resolution on granting restricted stocks to the incentive objects of the 2020 restricted stock incentive plan". The independent directors expressed their independent opinions on the above adjustment and grant items; the board of supervisors checked the relevant adjustment items and the list of incentive objects granted with restricted shares. 3. The 2019 annual general meeting of shareholders held on May 19, 2020, deliberated and approved the Company's profit distribution plan for 2019. It took 2,755,583,602 shares as the base, and distributed 3 shares for every 10 shares to all shareholders, with a total of 826,675,080 shares. After the conversion, the total share capital was increased from 2,765,366,698 shares to 3,592,041,778 shares. 4. On October 20, 2020, the 13th interim meeting of the sixth board of directors and the 12th interim meeting of the sixth board of supervisors was held to deliberate and pass the Resolution on the achievement of the second lifting of the restricted stock incentive plan for 2018. There are 702 incentive objects eligible for unlocking this plan, and the number of shares to be released is 4.9888 million shares. 5. On November 5, 2020, the fourth extraordinary general meeting of shareholders in 2020 was held to review and pass the Resolution on repurchase and cancellation of partial restricted shares. The Company repurchased and cancelled 440,310 shares held by the incentive objects that are not qualified and not yet unlocked. Transfer of shares √ Applicable □ Not applicable 1.The Company repurchased 291,200 shares that were not qualified for unlocking. After cancellation, its share capital was reduced from 2,765,657,898 to 2,765,366,698. 2.On February 24, 2020, the Company granted 12.045 million restricted shares to 914 incentive objects under the Company's restricted stock incentive plan in 2020. 3. On June 2, 2020, after the implementation of the profit distribution plan in 2019, the Company's share capital increased from 2,765,366,698 shares to 3,592,041,778 shares. 4. The Company repurchased 440,310 shares that were not qualified for unlocking. After cancellation, its share capital was reduced from 3,592,041,778 to3,591,601,468. Information about the implementation of share repurchase √Applicable □Not applicable 1.On June 16, 2020, the Announcement about Halfway Through the Buyback Plan is not yet Implemented was published in Securities Times, Shanghai Securities News and CNINFO (www.cninfo.com.cn). 2.According to the Announcement on expiration of repurchase period and implementation disclosed on December 16, 2020, the Company did not repurchase its shares within the validity period of the repurchase plan. The reason is: Since the disclosure of the Repurchase Report, the Company's share price has shown an upward trend. As of December 15, 2020, the trading price lower than 15.95 yuan / share (adjusted for dividend distribution) are limited. 87 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report In addition, according to Article 17 of the detailed rules for the implementation, the Company has fewer trading days to repurchase shares due to the influence of the window period of seasonal reports and other major events. Therefore, the Company failed to carry out share repurchase plan. Please refer CNINFO (www.cninfo.com.cn), Securities Times, Shanghai Securities News for more detail. The progress on reduction of re-purchase shares by means of centralized bidding □Applicable √Not applicable Effects of changes in share capital on the basic earnings per share ("EPS"), diluted EPS, net assets per share attributable to common shareholders of the Company, and other financial indexes over the last year and last period √Applicable □Not applicable Please refer to the financial report for details. Other contents that the Company considers necessary or required by the securities regulatory authorities to disclose □ Applicable √ Not applicable 2. Changes in restricted shares √ Applicable □ Not applicable Unit: Share Opening balance Closing balance Name of Vested in current Unlock shares in Note for of restricted of restricted Date of unlocking shareholder period current period restricted shares shares shares Non public offering of shares Due to the implementation of the equity distribution plan Zhejiang Sanhua of 2019 on June September 18 Lvneng Industrial 299,892,703 89,967,811 389,860,514 0 2, 2020, the 2020 Group Co., Ltd capital reserve was converted to share capital, and 89,967,811 shares of restricted shares were added. Executive locked According to the Zhang Yabo 37,518,000 11,255,400 48,773,400 shares relevant 88 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Due to the provisions of implementation executives shares of the equity management distribution plan of2019 on June 2, 2020, the capital reserve was converted into share capital, and the number of restricted shares was increased by 1,125,540 shares. (1) 100,000 restricted shares were granted in 2020. (2) Due to the implementation of the equity distribution plan of 2019 on June According to the 2, 2020, the relevant capital reserve provisions of was converted equity incentive Wang Dayong 97,500 159,250 50,700 256,750 into share capital, and executives and the number shares of restricted management shares was increased by 59,250 shares. (3) Comply with relevant provisions of equity incentive and executive shares management. (1) 100,000 According to the restricted shares relevant were granted in provisions of Ni Xiaoming 97,500 159,250 50,700 256,750 2020. (2) Due to equity incentive the and executives implementation shares 89 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report of the equity management distribution plan of 2019 on June 2, 2020, the capital reserve was converted into share capital, and the number of restricted shares was increased by 59,250 shares. (3) Unlock share is 50,700 on November 6, 2020. (4) Comply with relevant provisions of equity incentive and executive shares management. (1) 100,000 restricted shares were granted in 2020. (2) Due to the implementation of the equity distribution plan According to the of 2019 on June relevant 2, 2020, the provisions of capital reserve equity incentive Chen Yuzhong 97,500 159,250 50,700 256,750 was converted and executives into share capital, shares and the number management of restricted shares was increased by 59,250 shares. (3) Unlock share is 50,700 on November 6, 2020. (4) Comply 90 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report with relevant provisions of equity incentive and executive shares management. (1) 100,000 restricted shares were granted in 2020. (2) Due to the implementation of the equity distribution plan of 2019 on June 2, 2020, the capital reserve According to the was converted relevant into share capital, provisions of and the number equity incentive Hu Kaicheng 97,500 159,250 50,700 256,750 of restricted and executives shares was shares increased by management 59,250 shares. (3) Unlock share is 50,700 on November 6, 2020. (4) Comply with relevant provisions of equity incentive and executive shares management. (1) 100,000 restricted shares According to the were granted in relevant 2020. (2) Due to provisions of the equity incentive Yu Yingkui 121,582 166,475 50,700 288,057 implementation and executives of the equity shares distribution plan management of 2019 on June 2, 2020, the 91 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report capital reserve was converted into share capital, and the number of restricted shares was increased by 66,475 shares. (3) Unlock share is 50,700 on November 6, 2020. (4) Comply with relevant provisions of equity incentive and executive shares management. According to the According to the relevant relevant Chen Xiaoming 0 8,325 8,325 regulations of regulations of executives shares executives shares management management (1) 11,545,000 restricted shares were granted in 2020 equity incentive plan; (2) Due to the implementation of the equity distribution plan According to the of 2019 on June relevant Incentive objects 9,054,500 17,637,490 4,735,380 21,225,100 2, 2020, the provisions of capital reserve equity incentive was converted management. into share capital, and the number of restricted shares was increased by 6,092,490; (3) Comply with relevant 92 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report provisions of equity incentive management. Total 346,976,785 119,672,501 394,849,394 71,321,882 -- -- II. Issuance and Listing of Securities 1. Securities (exclude preferred share) issued during the reporting period □ Applicable √ Not applicable 2. Explanation on changes in share capital & the structure of shareholders, the structure of assets and liabilities √Applicable □ Not applicable 1. The first extraordinary general meeting of shareholders in 2019 was held on November 11, 2019, and the Proposal on repurchase and cancellation of some restricted shares was deliberated and passed. The Company repurchased and cancelled 291200 restricted shares held by unqualified incentive objects but not yet unlocked. After the repurchase and cancellation, the total share capital of the company was reduced from 2,765,657,898 shares to 2,765,366,698 shares 2. During the reporting period, the Company has carried out the profit distribution plan for 2019: It took 2,755,583,602 shares as the base, distributed 3 shares for every 10 shares to all shareholders, and increased by 826,675,080 shares in total. After the conversion, the total share capital was increased from 2,765,366,698 shares to 3,592,041,778 shares. 3. On November 5, 2020, the fourth extraordinary general meeting of shareholders in 2020 was held, and the Resolution on repurchase and cancellation of some restricted stocks was deliberated and passed. The Company repurchased and cancelled 440,310 shares of restricted stocks held by unqualified incentive objects but not yet unlocked. After this, the total share capital of the Company will be reduced from 3,592,041,778 shares to 3,591,601,468 shares. 3. Existent shares held by internal staff of the Company □ Applicable √ Not applicable III. Particulars about the shareholders and actual controller 1. Total number of shareholders and their shareholdings Unit: Share Total Total number Total Total number Number of of common Number of of preferred 78,206 97,396 0 0 Common shareholders Preferred shareholders Shareholder at the end of Shareholders (if any) (refer 93 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report s at the End previous (If Any) to Note 8) of the month before (Refer to with resumed Reporting the disclosure Note 8) voting rights Period date of the Whose at the end of annual report Voting Rights previous Have Been month before Recovered at the disclosure the End of date of the the Reporting annual report Period Particulars about shares held by shareholders with a shareholding percentage over 5% or the Top 10 of them The Pledged or frozen Total number of The number Increase/ Share-holdi shares common of shares decrease Name of Nature of ng held at the shares held during the shareholder shareholder percentage end of the held with without Status Amount reporting (%) reporting trading trading period period restriction restrictions s Sanhua Domestic Holding 1,069,5 172,686,4 1,069,537 non-state-owned 29.78% Pledged 240,420,000 Group Co., 37,580 42 ,580 corporation Ltd. Zhejiang Sanhua Domestic Lvneng 742,747 171,403,3 742,747,9 non-state-owned 20.68% Industrial ,954 74 54 corporation Group Co., Ltd Hong Kong Central Overseas 285,173 27,359,02 285,173,1 7.94% Clearing corporation ,115 0 15 Limited Domestic 52,031, 48,773, Zhang Yabo 1.45% 2,007,200 3,257,800 Individual 200 400 China Construction Bank 31,976, 17,640,17 31,976,32 Corporation - Others 0.89% 323 7 3 Bank of Communicati ons Schroder 94 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report alpha core hybrid securities investment fund Industrial and Commercial Bank of China Limited-E fund 30,736, 30,736,56 30,736,56 emerging Others 0.86% 564 4 4 growth flexible allocation hybrid securities investment fund CITIC Bank Co., Ltd. - Bank of Communicati ons Schroeder 26,604, 11,674,95 26,604,38 new vitality Others 0.74% 389 6 9 flexible allocation of hybrid securities investment funds China Merchants Bank Co., Ltd. – E fund innovative 25,526, 25,526,68 25,526,68 Others 0.71% growth 687 7 7 hybrid securities investment fund 95 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report National Social 23,658, 23,658,18 Others 0.66% 7,593,186 Security 180 0 Fund-111 Central Domestic Huijin Asset 23,183, 23,183,42 state-owned 0.65% 5,350,020 Management 420 0 corporation Co., Ltd Information about Strategic Investors’ or General Legal Persons’ Becoming Top Ten No Common Shareholders for Placement of New Shares (If Any) (Refer to Note 3) Among the above shareholders, Sanhua Holding Group Co., Ltd., Zhejiang Sanhua Lvneng Explanation on Associated Industrial Group Co., Ltd. and Zhang Yabo are the persons acting in concert. The Company Relationship or Concerted does not know whether there is any related relationship between other shareholders, or Actions among the whether they belong to the persons acting in concert stipulated in the Administrative Above-Mentioned Shareholders Measures for the Acquisition of Listed Companies. Particulars about Shares Held by Top Ten Common Shareholders Holding Shares That Are Not Subject to Trading Restrictions Number of Common Shares Held without Type of shares Name of Shareholder Restrictions at the End of the Reporting Period Type Amount RMB common Sanhua Holding Group Co., Ltd. 1,069,537,580 1,069,537,580 stock Zhejiang Sanhua Lvneng RMB common 742,747,954 742,747,954 Industrial Group Co., Ltd stock Hong Kong Central Clearing RMB common 285,173,115 285,173,115 Limited stock China Construction Bank Corporation - Bank of RMB common Communications Schroder alpha 31,976,323 31,976,323 stock core hybrid securities investment fund Industrial and Commercial Bank of China Limited-E fund RMB common emerging growth flexible 30,736,564 30,736,564 stock allocation hybrid securities investment fund CITIC Bank Co., Ltd. - Bank of RMB common Communications Schroeder new 26,604,389 26,604,389 stock vitality flexible allocation of 96 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report hybrid securities investment funds China Merchants Bank Co., Ltd. RMB common – E fund innovative growth 25,526,687 25,526,687 stock hybrid securities investment fund National Social Security RMB common 23,658,180 23,658,180 Fund-111 stock Central Huijin Asset Management RMB common 23,183,420 23,183,420 Co., Ltd stock Industrial and Commercial Bank of China Limited - Bank of Communications Schroeder RMB common 22,846,399 22,846,399 advantage industry flexible stock allocation of hybrid securities investment fund Explanation of Associated Relationship or Concerted Among the above shareholders, Sanhua Holding Group Co., Ltd.and Zhejiang Sanhua Actions among Top Ten Common Lvneng Industrial Group Co., Ltd. are the persons acting in concert. The Company does not Shareholders without Trading know whether there is any related relationship between other shareholders, or whether they Restrictions, and among Top Ten belong to the persons acting in concert stipulated in the Administrative Measures for the Common Shareholders without Acquisition of Listed Companies. Trading Restrictions and Top Ten Common Shareholders Explanation of Top Ten Common Shareholders’ Participation in No Securities Margin Trading (If Any) (Refer to Note 4) Any of the Company’s top 10 common shareholders or top 10 non-restricted common shareholders conducted any agreed buy-back in the reporting period? □ Applicable √ Not applicable No such cases during the current reporting period. 2.Particulars about controlling shareholder of the Company Nature of the controlling shareholder: Domestic non-state-owned corporation Type of the actual controller: Corporation Name of controlling Legal Representative Date of establishment Organization code Business scope shareholder /People in charge Industrial investment; Manufacturing and sales: refrigeration control Sanhua Holding Group Zhang Daocai July 11, 2000 911330624720002522J components, auto parts, Co., Ltd electronic products; sales: metal materials (excluding precious and 97 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report rare metals), chemical raw materials (except dangerous chemicals and precursor chemicals), gold and silver jewelry, rubber; export of products and related technologies produced by the enterprise and its member enterprises. It is engaged in the export business of raw and auxiliary materials, machinery and equipment, instruments and meters, spare parts and related technologies needed by the enterprise and its member enterprises for production and scientific research; it is engaged in the processing of imported materials and the business of "three supplies and one supplement". Technical consultation, technical service, financial consultation and investment consultation. Shares held by the controlling shareholder in other listed companies N/A through controlling or holding during the reporting period Change of the controlling shareholder during the reporting period □ Applicable √ Not applicable The Company's controlling shareholder has not changed during the reporting period. 3.Particulars about the Company’s actual controller & concerted parties Nature of the actual controller: Domestic natural person 98 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Type of the actual controller: Natural person Whether he/she has obtained Name of the actual Relationship with the actual Nationality the right of residence in another controller controller country or region Zhang Daocai Himself China No Zhang Yabo Himself China No Zhang Shaobo Himself China No Mr. Zhang Daocai: Chinese nationality, born in 1950, senior economist, and special supervisor of MBA graduate student of Zhejiang University. He is honorary chairman of the Company and chairman of the board of directors of Sanhua Holding Group Co., Ltd. He was elected as the representative of the 8th, 9th, 10th, 11th and 12th National People's Congress of Zhejiang Province and vice president of the China Enterprise Federation and the Chinese Entrepreneurs Association. Vice president of Zhejiang small and medium sized Enterprises Association, vice president of Zhejiang Business Management Research Association and vice president of Asia Pacific Chinese Leaders Association, and won the National Labor Medal of May 1st, national excellent entrepreneur, master of Chinese management, most creative Chinese business leader in Asia Pacific, Model worker of Zhejiang Province, meritorious entrepreneur of implementing the "eight eight strategy" in Zhejiang Province, lifelong leader entrepreneur of Zhejiang Province, leading figures of Zhejiang Manufacturing and other honors. Mr. Zhang Yabo: Chinese nationality, CPC member, born in February 1974, graduated from Shanghai Jiaotong University, received a master's degree in Business Administration from CEIBS. At present, he is the chairman of the board of the Company, Secretary of the Party committee of Main occupation and position Sanhua holding group, vice chairman and director of the board of Sanhua Holding Group Co., Ltd. he has successively won Zhejiang outstanding young private entrepreneurs, Zhejiang operation and management masters, Shaoxing labor model, Shaoxing top ten outstanding young people, Shaoxing mayor award, Changjiang River Delta top ten outstanding young businessmen, Fengyun Zhejiang businessmen, Zhejiang outstanding entrepreneurs, glorious Zhejiang businessman, etc. He served as member of the 12th Zhejiang Provincial Committee of the Chinese people's Political Consultative Conference, deputy to the 5th, 6th and 7th Shaoxing people's Congress, vice chairman of Zhejiang Youth Federation, President of Zhejiang Youth Entrepreneurs Association, vice chairman of Shaoxing Youth Federation, President of Shaoxing Youth Entrepreneurs Association, director of China Youth Entrepreneurs Association, and director of Zhejiang Youth Entrepreneurship foundation. Mr. Zhang Shaobo: Chinese nationality, born in 1979, master's degree, graduated from CEIBS. He serves as a director of the Company, director of Sanhua Holding Group Co., Ltd., CEO of Hangzhou Sanhua International Building Co., Ltd., and executive director and CEO of Zhejiang Sanhua Zhicheng Real Estate Development Co., Ltd. Domestic and foreign listed N/A companies controlled in the past 99 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 10 years Change of the actual controller during the reporting period □ Applicable √ Not applicable No such change during the reporting period. The ownership and controlling relationship between the actual controller of the Company and the Company is detailed as follows: 33% Daocai Zhang Qingjuan Yu 31% Yabo Zhang 6% Shaobo Zhang 30% 64.07% Xinchang Huaqing Investment Co., Ltd. Xinchang Huaxin Investment Co., Ltd. 10.85% 27.27% 11.81% 12.88% Sanhua Holding Group Co., Ltd. 100% 1.45% Haoyide International Limited OF Hong Kong 100% 62.11% Fuxun Co., Ltd. 37.89% 29.78% Zhejiang Sanhua Lvneng Industry Group Co., Ltd. 20.68% Zhejiang Sanhua Intelligent Controls Co., Ltd. 100 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report The actual controller controls the Company via trust or other ways of asset management □ Applicable √ Not applicable 4. Particulars about other corporate shareholders with shareholding proportion over 10% √ Applicable □ Not applicable Date of Name of corporate shareholder Legal representative Registered capital Main business incorporation Manufacturing and sales: air suspension assembly, general equipment, electromechanical equipment, technology development, technical service, technical consultation, achievement transfer: electromechanical technology, environmental protection technology, biotechnology (except for human stem cells, gene diagnosis and treatment technology development and application); electronic and electrical products, metal materials (excluding Zhejiang Sanhua Lvneng September 30, Zhang Shaobo 483 million yuan precious metals), chemical Industrial Group Co., Ltd 2001 raw materials (except chemical dangerous goods and precursor chemicals) Wholesale, retail and import and export business of gold and silver jewelry, rubber, mineral products, machinery and equipment, instruments and accessories; services: enterprise management consulting, property management (operating by qualification certificate), self-owned house leasing, industrial investment management, consulting management (except for securities and goods, 101 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report without approval of financial supervision departments, shall not engage in deposit, financing guarantee, agency for public financing Financial services such as customer finance), power supply, development and construction of distributed solar energy projects, and contract energy management. (except for those involving the implementation of special management measures for access stipulated by the state). (for projects that need to be approved according to law, business activities can only be carried out with the approval of relevant departments.) 5. Particulars on shareholding decrease restrictions for the controlling shareholders, actual controller, restructurer or other committing parties □ Applicable √ Not applicable 102 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section VII Information of Preferred Shares □ Applicable √ Not applicable No existed preferred shares for the Company during the current reporting period. 103 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section VIII Information about Convertible Bonds □ Applicable √ Not applicable No existed Convertible bonds for the Company during the current reporting period. 104 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section IX Information about Directors, Supervisors, Senior Management I. Shareholding changes of directors, supervisors, senior management √ Applicable □ Not applicable Shares held at Shares Shares Shares Terminati the increased decreased Other held at Tenure Commencement on of Name Title Gender Age beginning during the during the changes the end of status of term of office term of of the Period Period (Shares) the Period office Period (Shares) (Shares) (Shares) (Shares) Director, Zhang Incumb December 13, December 50,024,00 12,007,20 10,000,00 52,031,20 chairman, Male 47 Yabo ent 2012 6, 2021 0 0 0 0 CEO Wang Director, Incumb December 13, December Male 52 130,000 169,000 42,250 256,750 Dayong President ent 2012 6, 2021 Incumb December Yu Shuli Director Male 73 April 28, 2006 ent 6, 2021 Ni Incumb December Director Male 53 May 6, 2011 130,000 169,000 42,250 256,750 Xiaoming ent 6, 2021 Director, Chen Incumb November 29, December chief Male 55 130,000 169,000 42,250 256,750 Yuzhong ent 2011 6, 2021 engineer Zhang Incumb December Director Male 42 May 18, 2015 Shaobo ent 6, 2021 Independ Incumb May 17, Ji Hua ent Male 53 May 18, 2015 ent 2021 director Independ Shen Resigne June 7, ent Male 64 June 8, 2014 Yuping d 2020 director Independ Zhang Resigne June 7, ent Female 64 June 8, 2014 Yaping d 2020 director Shi Independ Incumb Male June 8, 2020 December 105 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Jianhui ent ent 6, 2021 director Independ Zhu Resigne February ent Male June 8, 2020 Hongjun d 25, 2021 director Independ Incumb December Pan Yalan ent Female February 26, 2021 ent 6, 2021 director Convener of the Weng Incumb December board of Male 55 June 8, 2014 Weifeng ent 6, 2021 superviso rs Zhao superviso Incumb November 29, December Male 50 Yajun r ent 2011 6, 2021 Chen superviso Incumb December Male 52 March 26, 2011 0 11,100 11,100 Xiaoming r ent 6, 2021 Vice president, Hu Secretary Incumb December Male 46 January 26, 2015 130,000 169,000 42,250 256,750 Kaicheng of the ent 6, 2021 board of directors Vice Yu Incumb September 30, December president, Male 47 162,110 178,633 52,686 288,057 Yingkui ent 2011 6, 2021 CFO 50,706,11 12,872,93 10,221,68 53,357,35 Total -- -- -- -- -- -- 0 3 6 7 Note: Mr. Zhu Hongjun, the independent director, resigned on December 28, 2020 and continued to perform the duties as the independent director and the member of audit committee of the board of directors. On February 26, 2021, the general meeting of shareholders approved the proposal to appoint Ms. pan Yalan as an independent director of the Company. II. Changes of Directors, Supervisors and Senior Management √Applicable □Not applicable Name Position Type Date Reasons Leave the Independent position when Shen Yuping June 8, 2020 Leave the position when six-year term of office expires Director term of office expires Zhang Yaping Independent Leave the June 8, 2020 Leave the position when six-year term of office expires 106 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Director position when term of office expires Independent February 25, Zhu Hongjun Resigned Not qualified to be a director Director 2021 III. Positions and Incumbency Mr. Zhang Yabo: Born in 1974, master of Business Administration of CEIBS. Graduated from Shanghai Jiao Tong University in July, 1996. From May 2007 to September 2009, he served as the vice president of Sanhua Holding Group Co., Ltd.; from May 2007 up to present, he has been appointed as the director and vice chairman of the board of directors of Sanhua Holding Group Co., Ltd.; from September 2009 to December 2012, he served as the general manager of the Company; from October 2009 up to present, he has been appointed as the director of the Company; from December 2012 up to present, he has served as the chairman and CEO of the Company. Mr. Wang Dayong: Born in 1969, senior manager, master of Business Administration (EMBA), senior economist and engineer. He served as chief of planning section, Secretary of general manager, director of manufacturing department, director of refrigeration valve business department, assistant to general manager, assistant to President, vice president and director of Sanhua Holding Group. He served as a supervisor of the Company from December 2001 to April 2006, a director of the Company from April 2006 to May 2011. He currently serves as a director of Sanhua Holding Group, and a director and President of the Company since December 2012. Mr. Yu Shuli: Born in 1948, graduated from the Department of economics of Shanghai University of Finance and Economics in 1983. He used to be the chief accountant and factory director of Shanghai Xinxin machinery factory, deputy factory director of Shanghai automobile air conditioner factory, director of the first board of directors of Shanghai Aerospace electromechanical Co., Ltd., general manager of Shanghai Deerfu Automobile Air Conditioning System Co., Ltd., and factory director of Shanghai automobile air conditioner factory. He has been a director of the Company since April 2006. Mr. Ni Xiaoming: Born in 1968, master’s degree, economist. From November 2005 to July 2009, he served as the general manager of Sanhua International (USA) Co., Ltd. and the deputy general manager of sales of Zhejiang Sanhua Refrigeration Group Co., Ltd.; August 2009, he served as the deputy general manager of Sanhua Danfoss (Hangzhou) Microchannel Heat Exchanger Co., Ltd.; since May 2010, he has served as the general manager of Hangzhou Sanhua Microchannel Heat Exchanger Co., Ltd., as well as the director of Sanhua Holding Group Co., Ltd.; He has been a director of the Company since May, 2011. Mr. Chen Yuzhong: Born in 1966, master’s degree, engineer. He was the chief engineer of the Company from December 2001 to May 2011; he was the deputy general manager of the Company from May 2011 to December 2012; he has been the chief engineer of the Company since December 2012; he has been the general manager of Zhejiang Sanhua Refrigeration Group Co., Ltd. since August 2015; he is also the director of Sanhua Holding Group Co., Ltd.; and he has been the director of the Company since November 2011. Mr. Zhang shaobo: Born 1979, master’s degree, graduated from the China Europe Institute of Business School. 107 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Since November 2012, he has served as general manager of Sanhua Real Estate Group and Zhejiang Sanhua Real Estate Co., Ltd.; since July 2013, he has served as general manager of Hangzhou Sanhua International Building Co., Ltd.; since May 2017, he has served as executive director and general manager of Zhejiang Sanhua Zhicheng Real Estate Development Co., Ltd.; he currently serves as a director of Sanhua Holding Group Co., Ltd.; from May 2015 up to present, he has served as the director of the Company. Mr. Ji Hua: Born in 1968, master’s degree, graduated from Peking University, majoring in finance. From October 2004 to October 2008, he was the general manager of Guangzhou Jinri Yihua Food and Beverage Co., Ltd.; from August 2009 to June 2014, he served as the chief researcher and partner of the Research Institute of the board of directors of Hong Kong; from August 2014 to February 2017, he served as the executive director of Hangzhou Ron Investment Management Co., Ltd.; from March 2017 up to present, he has served as the partner of Guangzhou Wisteria Stone Business Consulting Co., Ltd. He has been appointed as an independent director of the Company since May 2015. Mr. Shi Jianhui, Born in 1972, he achieved a master's degree in EMBA from Changjiang Business School and Shanghai Advanced Finance College. He used to be the chairman / CEO of Minshi Group Co., Ltd. and he currently serves as the CEO of Xiaozhi Investment Management Partnership in Meishan Bonded Port Area, Ningbo, Zhejiang Province. He has been appointed as an independent director of the Company since June 2020. Ms. Pan Yalan: Born in 1965, master degree, a member of the League of Civil Society. She participated in work in August 1987. She is professor of Accounting College of Hangzhou University of Electronic Technology, tutor of graduate students, and "151" talents in Zhejiang Province in the new century (third level). Currently she is a member of the CPPCC of Zhejiang Province, member of the Zhejiang Provincial Committee of the Democratic League, a member of the Zhejiang Provincial Finance Association, a standing director of Zhejiang Provincial Taxation Society and a special auditor of Zhejiang Audit Department. She has been appointed as an independent director of the Company since February 2021. Mr. Weng Weifeng: Born in 1966, bachelor degree, graduated from Shanghai Jiao Tong University, electrical engineering. From November 2008 to March 2009, he served as deputy director of human resources and director of industrial operation management department of Sanhua Holding Group Co., Ltd.; from April 2009 to September 2009, he served as general manager of Shanghai Kangbasaite Technology Development Co., Ltd. and general manager of Shanghai Clean Automobile Energy System Co., Ltd.; from January 2010 to September 2020, he served as director of human resources of Sanhua Holding Group Co., Ltd. In February 2019, he served as the director of Sanhua Holding Group Co., Ltd. From December 2019 up to present, he has served as chairmen of Ningbo Fulda Intelligent Technology Co., Ltd. From November 2011 up to present, he has been a supervisor of the Company. Mr. Zhao Yajun: Born in 1971, master’s degree, graduated from school of Business Administration of Zhejiang University, with senior accountant title. From 1996 to 2003, he worked in Zhejiang Tianjian accounting firm; from January 2004 to February 2011, he served as deputy director of Finance Department of Sanhua Holding Group Co., Ltd.; from February 2011 to February 2014, he served as director of Finance Department of Sanhua Holding Group Co., Ltd.; from March 2014 up to present, he has served as deputy director of finance of Sanhua Holding Group Co., Ltd. He has been a supervisor of the Company since November 2011. 108 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Mr. Chen Xiaoming: From October 2008 to October 2011, he served as director of quality management department of Zhejiang Sanhua Intelligent Controls Co., Ltd.; in November 2011, he served as management representative and director of Quality Department of Changzhou Ranco four-way valve Co., Ltd.; in August 2013, he served as director of quality department and vice director of four-way valve business department of Wuhu Sanhua Automatic Control Components Co., Ltd.; in January 2016, he served as director of Quality Department of Wuhu Sanhua Automatic Control Components Co., Ltd; in December 2016, he served as director of four-way valve department and stop valve department of Wuhu Sanhua Automatic Control Components Co., Ltd.; from August 2017 up to present, he has served as Manufacturing Director of Wuhu Sanhua Automatic Control Components Co., Ltd., since March 2011, he has been appointed as supervisor of the Company. Mr. Hu Kaicheng: Born in 1975, master's degree, bachelor's degree of Tongji University, SAIF EMBA of Shanghai Jiao Tong University. From August 2006 to August 2009, he served as the director of supplier management, procurement director of Zhejiang Sanhua Refrigeration Group Co., Ltd.; from September 2009 to December 2010, he served in Sanhua Holding Group Co., Ltd.; from January 2011 to October 2014, he served as the procurement director of the Company; from October 2014 up to present, he served as the vice president of the Company; from January 2015 up to present, he served as the Secretary of the board of directors of the Company. Mr. Yu Yingkui: Born in 1974, bachelor degree, accounting major of Shanghai University of Finance and Economics. From April 2001 to December 2003, he successively served as the chief accountant of the financial department of Zhejiang Sanhua Holding Group Co., Ltd. and Zhejiang Sanhua Refrigeration Group Co., Ltd.; from December 2003 to November 2007, he served as the deputy general manager of Shenyang Durui Wheel Hub Co., Ltd.; from November 2007 up to present, he has been the director of the financial department of the Company; from September 2011 up to present, he has been the chief financial officer of the Company; from January 2016 up to present, he has been the vice president of the Company. Position held in shareholders’ entities √Applicable □ Not applicable Position in Compensation and Commencemen Termination of Name Shareholder's entity shareholders’ allowance from the t of the term the term entities shareholders' entity Vice February 26, February 25, Zhang Yabo Sanhua Holding Group Co., Ltd chairman 2019 2022 No (director) February 26, February 25, No Wang Dayong Sanhua Holding Group Co., Ltd Director 2019 2022 February 26, February 25, No Ni Xiaoming Sanhua Holding Group Co., Ltd Director 2019 2022 February 26, February 25, Zhang Shaobo Sanhua Holding Group Co., Ltd Director Yes 2019 2022 Zhejiang Sanhua lvneng Industrial Group Director, July 1, 2019 No Zhang Shaobo Co., Ltd general 109 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report manager February 26, February 25, No Chen Yuzhong Sanhua Holding Group Co., Ltd Director 2019 2022 February 26, February 25, No Weng Weifeng Sanhua Holding Group Co., Ltd Director 2019 2022 Deputy chief Zhao Yajun Sanhua Holding Group Co., Ltd financial March 1, 2014 Yes officer Zhejiang Sanhua Lvneng Industrial Group Zhao Yajun Supervisor July 1, 2019 No Co., Ltd Description of the position in No shareholders’ entities Positions held in other entities √Applicable □ Not applicable Compensation Position in and allowance Commencemen Termination of Name Shareholder's entity shareholders’ from the t of the term the term entities shareholders' entity Hangzhou Sanhua Research Institute Co., February 10, Zhang Yabo Chairman No Ltd 2017 Zhang Yabo Hangzhou Fumo New Material Technology No Director July 1st, 2016 Co., Ltd Zhang Yabo Xinchang Huaxin Investment Co., Ltd Chairman March 16, 2016 No Zhang Yabo February 3, No Wuhu Erda Technology Co., Ltd Director 2016 Zhang Yabo Executive No Hangzhou Zhicheng Investment director and July 23, 2007 Management Co., Ltd general manager Zhang Yabo Hangzhou Zhishen Investment Management No Supervisor July 23, 2007 Co., Ltd Zhang Yabo Zhejiang Haoyuan Technology Co., Ltd Director May 4, 2018 No Zhang Yabo Director October 13, No Sanhua trading Singapore Pte Ltd 2017 110 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Wang Dayong Zhejiang Huateng Investment Co., Ltd Chairman April 19, 2010 No Wang Dayong Hangzhou Fufan Investment Management Director No April 28, 2016 Co., Ltd Wang Dayong Guochuang energy Internet Innovation Director August 20, No Center (Guangdong) Co., Ltd 2019 Convener of Yu Shuli Ningbo Huaxiang Electronics Co., Ltd the board of March 5, 2020 Yes supervisors Ni Xiaoming Sanhua Houston Technology Center Director August 2, 2017 No Executive No Zhang Shaobo Shanghai Sanhua Electric Co., Ltd April 10, 2017 director Zhang Shaobo Hangzhou zhiwo Investment Management General No June 16, 2014 Co., Ltd manager Zhang Shaobo Executive No Hangzhou Zhishen Investment Management director, July 23, 2007 Co., Ltd general manager Zhang Shaobo Hangzhou Fuxiang Property Management Chairman No January 3, 2016 Co., Ltd Zhang Shaobo Xinchang Sanhua Property Management Chairman No March 29, 2011 Co., Ltd Zhang Shaobo Executive No Tianjin Minghao Management Consulting director, May 25, 2017 Co., Ltd general manager Zhang Shaobo Executive No Hangzhou Sanhua International Building director, July 31, 2013 Co., Ltd general manager Zhang Shaobo Xinchang Private Financing Service Center No Director March 26, 2014 Co., Ltd Zhang Shaobo September 11, No Inner Mongolia Xiqi Mining Co., Ltd Supervisor 2012 Zhang Shaobo Executive No Zhejiang Sanhua Zhicheng Real Estate director, May 31, 2017 Development Co., Ltd general manager Zhang Shaobo Hangzhou Fufan Investment Management No Chairman July 9, 2010 Co., Ltd 111 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Zhang Shaobo Xinchang United Investment Management December 31, No Director Co., Ltd 2008 Zhang Shaobo Executive No Hangzhou Kaisida Technology Co., Ltd June 15, 2020 director Zhang Shaobo Executive No Tianjin Sanhua Industrial Park Management director, May 9, 2019 Co., Ltd general manager Zhang Shaobo Hangzhou Huaqin Investment Management Supervisor December 25, No Co., Ltd 2006 Zhang Shaobo Hangzhou Mifeng Catering Management Supervisor No March 31, 2015 Co., Ltd Zhang Shaobo Director September 26, No Shanghai Tihu catering Co., Ltd 2017 Zhang Shaobo Ningbo Fulda Intelligent Technology Co., Director December 26, No Ltd 2019 Zhang Shaobo Executive No Zhejiang Sanhua Ecological Agriculture director, September 11, Co., Ltd general 2018 manager Zhang Shaobo Hangzhou Zhicheng Investment General November 4, No Management Co., Ltd manager 2020 Zhang Shaobo Executive No Hangzhou Zhiyong Enterprise Management director, April 27, 2018 Co., Ltd general manager Executive Yes Guangzhou Wisteria Stone Business director, Ji Hua March 1, 2017 Consulting Co., Ltd general manager Zhejiang Ningbo Meishan free trade port Yes Shi Jianhui Xiaozhi investment management CEO August 1, 2017 partnership Shi Jianhui September 1st, Yes Ningbo Jifeng Auto Parts Co., Ltd Adviser 2017 Shi Jianhui Shanghai Nan'en Automobile Technology Adviser November 1, Yes Co., Ltd 2018 Shi Jianhui Changzhou New Energy Automobile Co., Adviser Yes July 1, 2019 Ltd Pan Yalan Hangzhou University of Electronic Science Teacher August 1, 1987 Yes 112 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report and Technology Independent December 1, Yes Pan Yalan Lin'an Rural Commercial Bank Co., Ltd director 2019 General Weng Weifeng Shanghai Sanhua Electric Co., Ltd April 12, 2011 Yes manager Weng Weifeng Chairman、 No Hangzhou Tongchan Machinery Co., Ltd general March 22, 2017 manager Weng Weifeng Shenyang Sanhua Daika wheel Hub Co., Director No June 4, 2013 Ltd Weng Weifeng Shenyang Durui Wheel Hub Co., Ltd Director May 10, 2013 No Weng Weifeng Hangzhou Sanhua Research Institute Co., General No May 10, 2018 Ltd manager Weng Weifeng Ningbo Fulda Intelligent Technology Co., Chairman December 26, No Ltd 2019 Weng Weifeng Shanghai fuyulong Automobile Technology Chairman December 26, No Co., Ltd 2019 Weng Weifeng Shanghai futailong Automotive Electronic Chairman No July 15, 2020 Technology Co., Ltd Weng Weifeng Tianjin Sanhua Industrial Park Management October 10, No Supervisor Co., Ltd 2018 Weng Weifeng Tianjin Sanhua Fuda Intelligent Technology November 2, No Chairman Co., Ltd 2018 Weng Weifeng Director、 No Xinchang Huaxin Investment Co., Ltd general March 21, 2017 manager Zhao Yajun Shanghai Sanhua Electric Co., Ltd Supervisor April 12, 2011 No Zhao Yajun Hangzhou Tongchan Machinery Co., Ltd Supervisor May 31, 2011 No Zhao Yajun Xinchang Private Financing Service Center Supervisor No March 26, 2014 Co., Ltd Zhao Yajun Xinchang United Investment Management Supervisor No January 1, 2012 Co., Ltd Zhao Yajun Zhejiang Xiezhong automobile new energy No Supervisor May 25, 2018 technology development Co., Ltd Zhao Yajun Wuhu Erda Technology Co., Ltd Supervisor July 31, 2018 No Zhao Yajun Zhejiang Haoyuan Technology Co., Ltd Supervisor May 4, 2018 No Zhao Yajun Xinchang Huaxin Investment Co., Ltd Director March 21, 2017 No Zhao Yajun Shanghai fuyulong Automobile Technology Supervisor December 26, No 113 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Co., Ltd 2019 Zhao Yajun Tianjin Sanhua Fuda Intelligent Technology Supervisor November 2, No Co., Ltd 2018 Zhao Yajun Nanjing Xiezhong automobile new energy Supervisor February 28, No technology development Co., Ltd 2019 Yu Yingkui Zhejiang Huateng Investment Co., Ltd Director April 19, 2010 No Yu Yingkui Director December 8, No Chongqing Tainuo Machinery Co., Ltd 2016 Yu Yingkui Nanchang Sanhua jinlifeng Machinery Co., Director No July 12, 2017 Ltd Yu Yingkui Qingdao Sanhua jinlifeng Machinery Co., Director No July 25, 2017 Ltd Yu Yingkui Xinchang Private Financing Service Center Director October 23, No Co., Ltd 2015 Yu Yingkui Ningbo Jinlifeng Machinery Co., Ltd Director July 2, 2020 No Yu Yingkui October 13, No Sanhua Trading Singapore Pte Ltd Director 2017 Description of the position in No shareholders’ entities Incumbent and resigned directors, supervisors and senior management personnel during the reporting period that have been imposed administrative penalties by the CSRC during the last three years. □ Applicable √ Not applicable IV. Remuneration of directors, supervisors and senior management personnel The remuneration of senior managers shall be assessed by the remuneration and assessment committee of the board of directors according to the job responsibilities and the performance assessment standards and procedures. After completion of the main business performance indicators, the annual remuneration of the senior managers shall be proposed. The amount of remuneration for this year shall be within the range determined by the board of directors. The Company shall bear the travel expenses incurred by the independent directors for attending meetings. The amount of remuneration of directors and supervisors in this year is within the remuneration range determined by the general meeting of shareholders. Remuneration of directors, supervisors and senior management personnel Total Remuneration Name Title Gender Age Tenure status remuneration from related 114 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report from the parties (Y/N) Company (RMB'0,000) Director, Zhang Yabo Male 47 Incumbent 172.39 N Chairman、CEO Director, Male Incumbent N Wang Dayong 52 71.22 President Yu Shuli Director Male 73 Incumbent 7.53 N Ni Xiaoming Director Male 53 Incumbent 95.75 N Director、chief Male Incumbent N Chen Yuzhong 55 63.13 engineer Zhang Shaobo Director Male 42 Incumbent 0Y Independent Male Incumbent N Ji Hua 53 10.97 director Independent Male N Shen Yuping 64 Resigned 5.78 director Independent N Zhang Yaping Female 64 Resigned 5.78 director Independent Male Incumbent N Shi Jianhui 49 5.2 director Independent Male Incumbent Zhu Hongjun 45 0N director Convener of the Male Incumbent Weng Weifeng board of 55 0Y supervisors Zhao Yajun Supervisor Male 50 Incumbent 0Y Chen Xiaoming Supervisor Male 52 Incumbent 29.1 N Secretary of the Male Incumbent board of Hu Kaicheng 46 59.74 N directors, vice president Yu Yingkui CFO, VP Male 47 Incumbent 68.47 Total -- -- -- -- 595.06 -- Share incentives for directors, supervisors and senior executives in the Reporting Period √ Applicable □ Not applicable Restricted Shares Shares Price for Restricted Name Title Number of Number of Exercise Market Shares vested in newly restricted Shares 115 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report exercisable exercised price of price at the held at the the current granted in shares held at shares in shares in exercised end of the beginning period the current granted period-end the the shares report of the period (RMB per reporting reporting during the period period share) period period reporting (yuan / period share) (yuan / share) Wang Chairman 24.65 91,000 42,250 157,300 9.85 197,600 Dayong Ni Director 24.65 91,000 42,250 157,300 9.85 197,600 Xiaoming Director、 Chen chief 24.65 91,000 42,250 157,300 9.85 197,600 Yuzhong engineer Vice president, Hu Secretary 24.65 91,000 42,250 157,300 9.85 197,600 Kaicheng of the board of directors Vice Yu president, 24.65 91,000 52,686 157,300 9.85 197,600 Yingkui CFO Total -- 0 0 -- -- 455,000 221,686 786,500 -- 988,000 1. At the beginning of each year, the number of locked shares of senior executives is recalculated according to 75% of the total number of shares held by the them, and the number of unlocked shares in current period is 25% of the circulating shares. Note (if any) 2. On November 6, 2020, when second phase of the 2018 restricted stock incentive plan matured, 50,700 restricted shares of each above-mentioned directors and senior managers will be unlocked, with a total of 253,500 shares. However, due to the lock-in restriction of senior executives, the shares will be directly included in the lock-in shares of senior executives. V. Staff in the Company 1. Statistics of employees, professional structure of the staff, and educational background Number of incumbent employees in the parent company 4,570 Number of incumbent employees in major subsidiaries 8,503 Number of incumbent employees 13,073 Number of employees receiving salaries in current period 13,073 Number of retired employees requiring the parent Company and 0 116 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report its subsidiaries to bear costs Professional structure Tier Number of employees Production staff 8,848 Sales staff 503 Engineers 1,576 Financial staff 233 Administrative Staff 1,913 Total 13,073 Educational background Education background Number of employees Master and/or doctor/or above 546 Bachelor 2,317 Junior College (professional training) 2,607 Other 7,603 Total 13,073 2. Staff remuneration policy According to the business development plan and the incentive needs of human resource, the Company has established a comprehensive compensation system based on post value, standard of personnel ability and evaluation of performance, and formed relevant incentive systems, such as Performance Management Measures, Management Measures for Evaluation of Professional Talents, Management Measures for Compensation and Assessment of College Students and Incentive Policy for Purchasing Real Estate, etc. It balances the contribution of talents and their return and income, forms an effective salary rise mechanism, and motivates their enthusiasm and innovation. Every year, the Company carries out the estimation of college students and professional talents, which has played an important role in motivating new college students and employees at all levels. And regular review market compensation to ensure competitiveness of the Company's overall salary system. In addition, in the professional system, the Company will carry out patent award, quality award, management effectiveness award, lean improvement award and other management evaluation every year, which effectively encourage talents’ innovation. In 2018, the Company launched the first equity incentive plan, and in 2020, the Company launched the restricted stock incentive plan, which played an incentive and retention role for the Company's key talents and laid a foundation for sustainable development. 3. Staff training plans Based on the development plan from 2021 to 2025, the Company implements the talents strategy of “Internal training first and external recruitment second”, which will be dedicated to the development of staff at all levels. According to the requirements of competency development, we build a learning organization, which would improve personal ability and create greater value, through the cultivation of talents and the construction of cadre echelon. Staff training plans are mainly on the technical system, marketing system, quality system, production planning system, financial system and other backbone departments so as to improve their professional skills and 117 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report management level. We will continue to strengthen talent echelons training, manager training, management training, and new college students training, and reserve of talents. The Company continues to carry out the work of "Retain excellent talents" to identify and develop high potential talents. In order to build an international, professional and young backbone team, we strengthen the cultivation and recruitment of international talents, pay attention to the cultural publicity of overseas employees, enhance the sense of cultural identity and influence of culture. 4. Labor outsourcing □ Applicable √ Not applicable 118 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section X Corporate Governance I. Basic situation of corporate governance During the reporting period, the Company strictly abided by the Company Law, Securities Law, Code of Corporate Governance for Listed Companies in China, Stock Listing Rules of the Shenzhen Stock Exchange, Guidelines of the Shenzhen Stock Exchange for the Standard Operation of Listed Companies and other applicable laws and regulations of China Securities Regulatory Commission and Shenzhen Stock Exchange. We continue to improve the corporate governance structure, establish and improve the internal control system, strengthen the management of information disclosure, actively carry out the activities of investor relations, standardize the operation of the Company, and improve the level of corporate governance. During the reporting period, the Company revised the Articles of Association and further planned the corporate governance system. As of the end of the report period, the actual situation of corporate governance conforms to the regulatory documents of CSRC on the governance of listed companies. 1. Shareholders and general meeting of shareholders The Company convenes the general meeting of shareholders in strict accordance with the requirements of the Normative Opinions of the General Meeting of Shareholders, the Articles of Association and the Rules of Procedure of the Shareholders' Meeting. When the shareholders' meeting deliberates related matters, the related shareholders shall avoid voting. The related transactions shall be fair and reasonable without any damage to the interests of shareholders. Treat all shareholders equally, ensure that all shareholders, especially minor shareholders, have equal status and fully exercise their rights. The shareholders' meetings held during the reporting period were convened by the board of directors and lawyers were invited to attend the meeting on site. 2. Directors and the board of directors The Company elect directors in strict accordance with the Articles of Association and Rules of Procedure for the Board of Directors; the number and composition of the board of directors meet the requirements of laws and regulations and the Articles of Association. The board of directors convenes meetings in accordance with the Company Law and the Rules of Procedure of the Board of Directors. All directors exercise their rights diligently, attend the board of directors and shareholders' meeting and actively participate in relevant training. 3. Supervisors and board of supervisors The board of supervisors elects the supervisors in strict accordance with the Company Law and the Articles of Association; the composition and number of the board of supervisors meet the requirements of laws and regulations. The Company's supervisors conscientiously perform their duties in accordance with the Rules of Procedure of the Board of Supervisors, and effectively supervise and express their opinions on the Company's major issues, related party transactions, financial situation, and the legality and compliance of the Company's directors and senior managers in performing their duties. 4. Relationship between controlling shareholders and listed companies The controlling shareholders can strictly regulate their own behaviors. There is no direct or indirect intervention 119 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report beyond the provisions of general meeting of shareholders. The Company and its controlling shareholders are mutually independent of each other in personnel, assets, finance, institutions and business. The board of directors, board of supervisors and internal institutions of the Company operate independently. There is no such situation that the controlling shareholders occupy the funds of the listed company for non-operating purposes. 5. Information disclosure and investor relationship management During the reporting period, the Company designated Securities times, Shanghai Securities News and CNINFO as the information disclosure media, and disclosed information truthfully, accurately and timely in strict accordance with relevant laws and regulations, so as to ensure that all shareholders of the Company have fair access to the relevant information. In addition, the Company designated the secretary of the board of directors as the person in charge of investor relationship management. Daily management of investor relations includes answering investors' questions through telephone, email, interactive platform etc., strengthening the communication with investors so as to fully guarantee the investors' right to know. 6. Performance evaluation and incentive mechanism The Company has established a comprehensive employee performance evaluation and incentive mechanism. The appointment of senior managers is open and transparent, and conforms to the relevant laws, regulations and the Articles of Association. In the future, the Company will explore more forms of incentive methods, form a multi-level incentive mechanism, improve the performance evaluation standards, better mobilize the work enthusiasm of management personnel, and attract and stabilize excellent management talents and technical and business backbones. 7. Stakeholders The Company can fully respect and safeguard the legitimate rights and interests of stakeholders, and realize the coordination and balance of interests of shareholders, employees and society. The Company adheres to the relevant laws and regulations, constantly improves the corporate governance system, and effectively protects the interests of investors. Any significant incompliance for the relevant regulatory documents issued by China Securities Regulatory Commission in respect of corporate governance: □ Yes √ No II. Company’s Independence in Businesses, Management, Assets, Institutions and Finance from Controlling Shareholders The Company is separated from the controlling shareholder, the actual controller and the controlled enterprises in business, personnel, assets, institutions and finance, and has the ability of independent operation. 1. Business independence The main business of the Company is outstanding, and it has its own corresponding system in production, procurement and sales. It is independent of the controlling shareholder, has a complete business structure, and does not rely on the shareholders or any other related parties. The shareholders exercise their right through participating in the general meeting of shareholders in accordance with the law. There is no such situation that the shareholders interfere in the operation beyond the provision of general meeting. 120 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 2. Personnel independence The directors, supervisors and senior management of the Company are elected or appointed in accordance with the legal election procedure stipulated in the Company Law and the Articles of Association. The Company's personnel, labor and wages are completely independent. The salary payment, welfare expenses and other expenses of the staff are strictly separated from the controlling shareholder. 3. Asset completeness The Company has tangible assets, such as land, buildings, machinery and equipments, vehicles, office facilities, test facilities and intangible assets, such as trademarks, patents. It has an independent procurement and sales system and an independent and complete asset structure. 4. Institution independence In accordance with the relevant provisions of the Company Law and the Articles of Association, the Company has established the institutions like general meeting of shareholders, the board of directors, the board of supervisors and other authorities, and formulated the corresponding rules of procedure. The Company's production and operation sites are separated from the controlling shareholders, and a comprehensive organizational system has been established. The board of directors, the board of supervisors and other internal institutions operate independently. There is no such situation that the controlling shareholder interferes in the business activities in the name of the listed company. 5. Finance independence The Company has an independent financial department, equipped with full-time financial personnel, established an independent accounting system and financial management system that can independently make financial decisions. The Company has separate accounts and pays taxes independently. III. Horizontal competition □ Applicable √ Not applicable IV. Annual General Meeting and Extraordinary General Meetings convened during the Reporting Period 1. Annual General Meeting convened during the reporting period Proportion of Meeting Nature participating Convened Date Disclosure Date Disclosure Index investors Announcement of the 1st The 1st Extraordinary extraordinary General Meeting Interim general general meeting of 63.72% February 10, 2020 February 11, 2020 of Shareholders in meeting shareholders in 2020 (2020-014) 2020 was published in the Securities Times, Shanghai 121 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Securities News and CNINFO. Announcement of the Annual General Meeting Annual general of Shareholders in meeting of Annual General 2019 (2020-044) 67.08% May 19, 2020 May 20, 2020 shareholders in Meeting was published in 2019 the Securities Times, Shanghai Securities News and CNINFO. Announcement of the 2nd Extraordinary The 2nd General Meeting extraordinary of Shareholders in Interim general general meeting of 67.25% June 22, 2020 June 23, 2020 2020 (2020-055) meeting shareholders in was published in 2020 the Securities Times, Shanghai Securities News and CNINFO. Announcement of the 3rd Extraordinary The 3rd General Meeting extraordinary of Shareholders in Interim general general meeting of 65.07% August 28, 2020 August 29, 2020 2020 (2020-066) meeting shareholders in was published in 2020 the Securities Times, Shanghai Securities News and CNINFO. Announcement of the 4th The 4th Extraordinary extraordinary General Meeting Interim general general meeting of 65.72% November 5, 2020 November 6, 2020 of Shareholders in meeting shareholders in 2020 (2020-089) 2020 was published in the Securities Times, Shanghai 122 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Securities News and CNINFO. 2. Extraordinary general meetings convened at the request of preferred shareholders with resumed voting rights: □ Applicable √ Not applicable V. Performance of duties by independent directors during the reporting period 1. Attendance of independent directors in board meetings and general meetings Attendance of independent directors in board meetings and general meetings Board Board Board Board Presence of meeting meeting not Board meeting meeting Board independent Name of presence attend in meeting presence by presence meeting directors in Independent required in person for presence on telecom- through a absence general Director the reporting two site (times) communicati proxy (times) meetings period consecutive on (times) (times) (times) (times) times Ji Hua 7 1 6 0 0 No 0 Shen Yuping 4 0 4 0 0 No 0 Zhang Yaping 4 0 4 0 0 No 0 Shi Jianhui 3 1 2 0 0 No 0 Zhu Hongjun 3 1 2 0 0 No 0 2. Objections from independent directors on related issues of the Company Were there any objections on related issues of the Company from independent directors? □ Yes √ No 3. Other details about the performance of duties by independent directors Were there any suggestions from independent directors accepted by the Company? √ Yes □ No During the reporting period, the independent directors strictly complied with the relevant laws, regulations and the Articles of Association, performed their duties conscientiously, paid close attention to the Company's operation, regularly reviewed the Company's announcements, got access to the information of operation and development periodically, deeply discussed the opportunities and challenges in the operation and development, and timely prompted risks. Independent directors put forward reasonable opinions and suggestions from their professional perspectives, enhanced the rationality of the board of directors’ decision-making, and provided independent and fair opinions on related transactions, profit distribution, equity incentive and convertible bonds during the reporting period. In order to improve the supervision mechanism of the Company and safeguard the legal rights of all shareholders, the Company shall adopt the opinions of independent directors. VI. Performance of duties by special committees under the Board during the Reporting Period The board of directors has five special committees, strategic committee, audit committee, nomination committee, remuneration and assessment committee and executive committee. In 2020, based on the principle of diligence, the committees carried out their work in accordance with the relevant laws and regulations, normative documents 123 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report and working rules of the special committees. Committees put forward opinions and suggestions, and provide reference for the decision-making of the board of directors. 1. Performance of the Strategic Committee The strategic committee is mainly responsible for the feasibility study of the Company's long-term development strategic planning and major strategic investment. During the reporting period, the strategy committee mainly carried out the following work:(1) Put forward reasonable suggestions for various potential risks that may appear in production and operation, such as response to changes in international trade environment, response to global epidemic situation, etc. (2) Deeply analyzes the Company's operation status and development prospects, discusses the Company's operation strategy and strategic investment matters, and put forward constructive suggestions. It plays an important role in strengthening the scientific decision-making and improving the efficiency and quality of decision-making. 2. Performance of Audit Committee The audit committee is mainly responsible for communication, supervision and verification of internal and external audit of the Company. The audit committee mainly carried out the following work:(1) Guide and supervise the implementation of internal audit system;(2) Review the internal audit summary and audit work plan submitted by the audit department;(3) In the process of annual audit work, communicate with audit institutions on annual audit work arrangement and ensure that the audit work is carried out as planned;(4) Objectively evaluates the audit work of the accounting firm in this year. On the basis of understanding and evaluating the work of the current accounting firm, put forward some suggestions for the Company to continue to engage the accounting firm. It plays the role of audit and supervision. 3. Performance of Nomination Committee The nomination committee conscientiously performs its duties in accordance with the Detailed Rules for the Implementation of the Nomination Committee of the Board of Directors. During the reporting period, the nomination committee mainly carried out the following work:(1) Make suggestions on the selection criteria and procedures of directors and senior managers of the Company;(2) The qualification and ability of relevant directors and senior managers were examined carefully to further promote the stability of the Company's management team. 4. Performance of Remuneration and Assessment Committee The remuneration and assessment committee of the board of directors perform its duties in accordance with the relevant requirements of the Rules of Procedure of the Remuneration and Assessment Committee of the Board of Directors. During the reporting period, the remuneration committee mainly carried out the following work:(1) Put forward suggestions on assessment and evaluation standards to promote the standardized operation of the Company, improve the rationality of salary assessment and ensure the performance of the Committee. (2) Review the performance of employees who were qualified for unlocking in phase II of 2018 equity incentive plan. (3) Review the draft of restricted stock in 2020 and assessment management measures. 5. Performance of the Executive Committee The executive committee is a special work organization established by the board of directors, which is mainly responsible for monitoring of the major strategies, major investment decisions and major business activities of the Company. During the reporting period, the executive committee mainly carried out the following work:(1) 124 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Discuss and make suggestions on major issues that may affect the future development of the Company. (2) Effectively monitor the major investments approved by the general meeting of shareholders and the board of directors. VII. Performance of duties by the Supervisory Committee Were there any risks to the Company identified by Supervisory Committee when performing its duties during the Reporting Period? □ Yes √ No VIII. Assessment and incentive mechanism for the senior management In order to make senior managers better perform their duties and clarify their rights and obligations, the Company has established a fairly sophisticated performance evaluation standard and remuneration system, in which senior managers’ performance and annual business indicators are assessed. The senior managers of the Company are responsible to the board of directors and undertake the business objectives issued by the board. The remuneration and assessment committee of the board formulate the remuneration plan based on evaluation of senior managers’ work ability, performance and completion of business targets. IX. Evaluation report on internal control 1. Any significant internal control deficiencies during the reporting period □ Yes √ No 2. Self-evaluation report on internal control Disclosure date of full text of March 27, 2021 self-evaluation report on internal control Disclosure index of full text of Self-evaluation Report on Internal Control of the Company in 2020 self-evaluation report on internal control http://www.cninfo.com.cn Proportion of assets evaluated in total 100.00% assets Proportion of revenue evaluated in total revenue per consolidated financial 100.00% statement Recognition standard of deficiencies Nature Financial report level Non-financial report level Significant deficiency: Significant deficiency: 1. Fraud of directors, supervisors and The possibility of defects is high, senior managers;2. Major misstatement in which will significantly reduce the the current financial report found by the work efficiency or effect, or Qualitative criteria CPA but not identified by the internal significantly increase the uncertainty control of the Company;3. The Company of the effect, or make it significantly has major violations of laws and deviate from the expected goal. regulations in financial accounting, asset Important defects:Defects are more management, capital operation, likely to occur, which will seriously 125 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report information disclosure, product quality, reduce the work efficiency or effect, or safety production, environmental seriously increase the uncertainty of protection and other aspects, causing the effect, or make it seriously deviate major losses and adverse effects to the from the expected goal. General Company, or subject to major defects:The probability of defects is administrative supervision and small, which will reduce the efficiency punishment;4. Supervision of the audit or effect, increase the uncertainty of committee and internal control department the effect, or make it deviate from the is ineffective on the Company's external expected goal. financial report and internal control. Significant deficiency:(1). Failure to select and apply accounting policies in accordance with GAAP;(2). Failure to establish anti-fraud procedures and control measures;(3). It cannot reasonably guarantee the truthfulness and completeness of the financial statements due to one or more defects in control process;(4). There is no corresponding control mechanism or no compensatory control for the accounting treatment of non-routine or special transactions. General deficiency:General defects other than the above-mentioned. The quantitative standard is based on the percentage of potential The quantitative standard is based on the misstatements of pre-tax profit. percentage of potential misstatements of Significant deficiency:This defect pre-tax profit. Significant deficiency:This alone or together with other defects defect alone or together with other defects may cause the misstatement of may cause the misstatement of financial financial report to exceed 10% of the report to exceed 10% of the profit before profit before tax. Important defects: tax. Important defects:This defect alone or Quantitative criteria This defect alone or together with together with other defects may cause the other defects may cause the misstatement of financial report to exceed misstatement of financial report to 5% but less than 10% of the profit before exceed 5% but less than 10% of the tax. General defects:This defect alone or profit before tax. General defects:This together with other defects may cause the defect alone or together with other misstatement of financial report less than defects may cause the misstatement of 5% of the profit before tax. financial report less than 5% of the profit before tax. Number of significant deficiencies in 0 financial report level 126 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Number of significant deficiencies in 0 non-financial report level Number of important deficiencies in 0 financial report level Number of important deficiencies in 0 non-financial report level X. Audit report or assurance report on internal control Internal Control Audit Report Comments of Internal Control Audit Report We believe that, as of December 31, 2020, Sanhua has maintained effective internal control over financial reporting in all major matters in accordance with Guidelines for Standardized Operation of Listed Companies of Shenzhen Stock Exchange (revised in 2020) and other relevant regulations. Disclosure of internal control Disclosure audit report Date of full disclosure of internal March 27, 2021 control audit report Index of full disclosure of Assurance Report on the Company's Internal Control(http://www.cninfo.com.cn) internal control audit report Types of opinions of internal Standard Unqualified Opinion control audit report Major defects in non-financial No report or not Accounting firm issues internal control audit report with non-standard opinions or not □ Yes √ No The internal control audit report of the external accounting firm is in line with the self-assessment report of the Board of Directors or not √ Yes □ No 127 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section XI Corporate Bonds Whether the Company has publicly issued corporate bonds on Stock Exchange, which has not terminated or terminated but fail to collect the full payment before the annual report authorized disclosure date. □Yes √No 128 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Section XII Financial Report I. Audit report Type of audit opinion Standard Unqualified opinion Date of signing of audit report March 25, 2021 Name of audit firm Pan-China Certified Public Accountants LLP Document number of audit report PCCPAAR [2021] No. 1098 Name of the certified accountants Luo Xunchao 、Ouyang Xiaoyun Auditor’s Report To the Shareholders of Zhejiang Sanhua Intelligent Controls Co., Ltd.: 1. Audit Opinion We have audited the accompanying financial statements of Zhejiang Sanhua Intelligent Controls Co., Ltd. (the “Company”), which comprise the consolidated and parent company balance sheets as at December 31, 2020, the consolidated and parent company income statements, the consolidated and parent company cash flow statements, and the consolidated and parent company statements of changes in equity for the year then ended, as well as notes to financial statements. In our opinion, the attached financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020, and of its financial performance and its cash flows for the year then ended in accordance with China Accounting Standards for Business Enterprises. 2. Basis for Audit Opinion We conducted our audit in accordance with China Standards on Auditing. Our responsibilities under those standards are further described in the Certified Public Accountant’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the China Code of Ethics for Certified Public Accountants, and we have fulfilled other ethical responsibilities. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 3. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not express a separate opinion on these matters. (I) Revenue recognition 1. Matters description Please refer to section Ⅲ (22), Ⅴ (2) 1and XIV (2) of the notes to the financial statements for details. The majority of the company's revenue comes from controlling components and components for home appliances and automobiles. In 2020, the amount of operating income items as shown in the financial statements of the Company is RMB 12.1098334 billion. Income from domestic sales of products shall be confirmed after 129 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report delivery inspection and acquisition of receipt vouchers. Export sales revenue is confirmed after export declaration and bill of lading is obtained. As operating revenue is one of the key performance indicators of the Company, there might be inherent risks that the Company’s management adopts inappropriate revenue recognition to achieve specific goals or expectations. We have identified revenue recognition as a key audit matter. 2. Responsive audit procedures Our main audit procedures for revenue recognition are as follows: (1) We obtained understandings of key internal controls related to revenue recognition, assessed the design of these controls, determined whether they had been executed, and tested the effectiveness of the operation; (2) We checked sale contracts, obtained understandings of main contractual terms or conditions, and assessed whether the revenue recognition method was appropriate; (3) We performed analysis procedure on operating revenue and gross margin by month, product, client, etc., so as to identify whether there are significant or abnormal fluctuations and find out the reason of fluctuations; we performed cut-off tests on the operating revenue recognized around the balance sheet date, and assessed whether the operating revenue was recognized in the appropriate period; (4) For revenue from domestic sales,we checked supporting documents related to revenue recognition by sampling method,including sales contracts, orders, sales invoices, delivery lists, delivery orders, shipping documents, client acceptance receipts, etc.; for revenue from overseas sales, we obtained information from Electron Port and checked it with accounting records, and checked supporting documents including sales contracts, bills of clearance, waybills, sales invoices, etc. by sampling method; (5) We performed confirmation procedures on current sales amount by sampling method in combination with confirmation procedure of accounts receivable; (6) We checked whether information related to operating revenue had been presented appropriately in the financial statements. (II) Impairment of accounts receivable 1. Matters description Please refer to section Ⅲ (9) and Ⅴ (1) 5 of the notes to the financial statements for details. As of December 31, 2020, the book balance of the Company's accounts receivable amounted to RMB 2.4811294 billion, with provision for bad debt was RMB 125.5161 million, and the carrying amount amounted to RMB2.3556133 billion. The Company measures accounts receivable with expected credit losses primarily on a collective basis.The Management classifies portfolios on the basis of ages, adjusts them based on historical credit risk loss experience and forward-looking estimations, prepares the comparison table of ages and expected credit loss rate of accounts receivable, so as to calculate the provision for bad debts to be accrued. As the amount of accounts receivable is significant and the impairment involves significant judgment of the Management, we have identified impairment of accounts receivable as a key audit matter. 2. Responsive audit procedures Our main audit procedures for impairment of accounts receivable are as follows: (1) We obtained understandings of key internal controls related to impairment of accounts receivable, assessed the design of these controls, determined whether they had been executed, and tested the effectiveness of their operation; (2) We reviewed the accounts receivable with provision for bad debts made in previous periods for their subsequent write-off or reversal, and assessed the accuracy of historical estimations made by the Management; (3) We reviewed the consideration of the Management on credit risk assessment and objective evidence, and assessed whether the credit risk features of accounts receivable had been appropriately identified by the 130 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Management; (4) For accounts receivable with expected credit losses measured on a collective basis, we assessed the reasonableness of portfolio classification on the basis of credit risk features; we assessed the reasonableness of the comparison table of ages and expected credit loss rate of accounts receivable prepared by the Management based on the historical credit loss experience of portfolios with similar credit risk features and forward-looking estimations; we tested the accuracy and completeness of data used by the Management (including ages, historical loss rate, migration rate, etc.) and whether the calculation of provision for bad debts was accurate; (5) We checked the subsequent collection of accounts receivable and assessed the reasonableness of provision for bad debts made by the Management; (6) We checked whether information related to impairment of accounts receivable had been presented appropriately in the financial statements. 4. Other Information The Company’s management (the “Management”) is responsible for the other information. The other information comprises the information included in the Company’s annual report, but does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are required to report that fact. We have nothing to report in this regard. The Management is responsible for other information. Other information includes the information covered in the A-share annual report, but does not include the financial statements and our auditor’s report thereon. We have obtained the A-share annual report prior to the audit report date. 5. Responsibilities of the Management and Those Charged with Governance for the Financial Statements The Management is responsible for preparing and presenting fairly the financial statements in accordance with China Accounting Standards for Business Enterprises, as well as designing, implementing and maintaining internal control relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Company’s financial reporting process. 6. Certified Public Accountant’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with China Standards on Auditing will always detect a material misstatement when it exists. Misstatement can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. 131 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report We exercise professional judgment and maintain professional skepticism throughout the audit performed in accordance with China Standards on Auditing. We also: (I) Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. (II) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. (III) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management. (IV) Conclude on the appropriateness of the Management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statement or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern. (V) Evaluate the overall presentation, structure and content of the financial statements, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. (VI) Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain sole responsibility for our audit opinion. We communicate with those charged with governance regarding the planned audit scope, time schedule and significant audit findings, including any deficiencies in internal control of concern that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Pan-China Certified Public Accountants LLP Chinese Certified Public Accountant (Engagement Partner) Luo Xun chao Hangzhou China Chinese Certified Public Accountant Ouyang Xiaoyun Date of Report: March 25, 2021 132 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report II. Financial Statements Units of financial reports in the notes: RMB 1.Consolidated balance sheet Prepared by: Zhejiang Sanhua Intelligent Controls Co., Ltd. December 31, 2020 Unit: RMB Items December 31,2020 December 31,2019 Current asset: Cash and Bank Balances 3,489,687,568.14 2,663,719,770.15 Settlement funds Loans to other banks Held-for-trading financial assets 752,224,861.78 993,634,433.31 Derivative financial assets 58,330,486.53 8,314,400.73 Notes receivable 2,323,934,781.53 2,097,159,908.40 Accounts receivable 2,355,613,299.57 1,871,323,522.82 Receivable financing Advances paid 69,404,326.45 62,871,924.30 Premium receivable Reinsurance accounts receivable Reinsurance reserves receivable Other receivables 76,935,495.05 97,394,782.97 Including: Interest receivable Dividends receivable Repurchasing of financial assets Inventories 2,307,761,706.46 2,180,838,596.07 Contract assets Assets held for sales Non-current assets due within one year Other current assets 150,460,488.01 75,933,253.28 Total current assets 11,584,353,013.52 10,051,190,592.03 Non-current assets: Loans and advances paid 133 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Debt investments Other debt investments Long-term receivable 2,074,750.00 2,145,963.27 Long-term equity investments 15,219,616.68 14,522,259.80 Other equity instrument investments Other non-current financial assets Investment property 10,067,588.96 27,025,974.05 Fixed assets 3,839,408,059.45 3,379,608,199.26 Construction in progress 628,730,529.07 480,959,262.46 Productive biological assets Oil & gas assets Right-of-use assets Intangible assets 507,693,672.93 525,867,518.75 Development expenditures Goodwill 31,959,091.60 31,959,091.60 Long-term prepayments 23,706,401.61 8,720,120.64 Deferred tax assets 137,808,879.28 88,952,931.69 Other non-current assets 251,509,127.08 179,238,257.09 Total non-current assets 5,448,177,716.66 4,738,999,578.61 Total assets 17,032,530,730.18 14,790,190,170.64 Current liabilities: Short-term borrowings 383,088,296.60 1,295,610,572.07 Central bank loans Loans from other banks Held-for-trading financial liabilities Derivative financial liabilities 7,939,957.91 126,364.40 Notes payable 1,238,574,463.73 1,130,668,415.32 Accounts payable 2,279,661,755.97 1,587,763,752.62 Advances received 10,000,000.00 23,453,218.32 Contract liabilities 42,581,607.67 Selling of repurchased financial assets 134 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Absorbing deposit and interbank deposit Deposit for agency security transaction Deposit for agency security underwriting Employee benefits payable 289,305,913.99 228,997,483.82 Taxes and rates payable 75,008,142.06 58,192,607.75 Other payables 270,888,400.58 161,237,214.88 Including: Interest Payable Dividends Payable 1,772,750.00 Handling fee and commission payable Reinsurance accounts payable Liabilities classified as held for sale Non-current liabilities due 130,553,923.87 222,228,097.22 within one year Other current liabilities Total current liabilities 4,727,602,462.38 4,708,277,726.40 Non-current liabilities: Insurance policy reserve Long-term borrowings 1,707,918,994.87 392,882,280.09 Bonds payable Including: Preferred shares Perpetual bonds Lease liabilities Long-term payables 90,336,083.27 94,235,857.77 Long-term employee benefits payable Provisions 2,638,000.00 Deferred income 140,105,336.43 82,537,550.43 Deferred tax liabilities 130,778,184.48 65,049,361.71 Other non-current liabilities 80,398,897.72 81,788,928.52 Total non-current liabilities 2,152,175,496.77 716,493,978.52 Total liabilities 6,879,777,959.15 5,424,771,704.92 135 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Equity: Share capital 3,591,601,468.00 2,765,657,898.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserve 315,417,434.22 1,090,800,022.06 Less: Treasury shares 281,483,741.34 363,781,151.34 Other comprehensive income -89,624,962.61 -39,332,748.50 Special reserve Surplus reserve 637,967,613.47 559,896,619.39 General risk reserve Undistributed profit 5,890,916,707.83 5,278,392,288.84 Total equity attributable to the parent 10,064,794,519.57 9,291,632,928.45 Company Non-controlling interest 87,958,251.46 73,785,537.27 Total equity 10,152,752,771.03 9,365,418,465.72 Total liabilities & equity 17,032,530,730.18 14,790,190,170.64 Legal representative:Zhang Yabo Officer in charge of accounting:Yu Yingkui Head of accounting department:Sheng Xiaofeng 2. Parent Company Balance Sheet Unit: RMB Items December 31,2020 December 31,2019 Current assets: Cash and bank balances 1,848,930,095.07 1,039,915,005.31 Held-for-trading financial assets 323,000,000.00 195,000,000.00 Derivative financial assets 8,856,174.56 2,069,850.00 Notes receivable 773,393,944.74 161,946,880.21 Accounts receivable 729,906,676.91 1,135,299,895.98 Receivables financing Advances paid 6,803,910.27 6,076,163.25 Other receivables 348,897,078.11 603,257,516.95 Including: Interest Receivable Dividends Receivable Inventories 553,388,303.73 519,241,847.99 136 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Contract assets Assets classified as held for sale Non-current assets due within one year Other current assets 46,083,837.26 21,333,811.35 Total current assets 4,639,260,020.65 3,684,140,971.04 Non-current assets: Debt investments Other debt investments Long-term receivable Long-term equity investments 4,528,546,229.37 4,256,633,941.06 Other equity instrument investments Other non-current financial assets Investment property Fixed assets 1,565,826,802.57 1,460,855,506.39 Construction in progress 71,862,243.72 44,135,844.65 Productive biological assets Oil & gas assets Right-of-use assets Intangible assets 156,335,743.52 189,181,593.94 Development expenditures Goodwill Long-term prepayments 625,318.03 Deferred tax assets 7,336,345.87 17,068,063.08 Other non-current assets 36,566,524.79 109,659,279.90 Total non-current assets 6,366,473,889.84 6,078,159,547.05 Total assets 11,005,733,910.49 9,762,300,518.09 Current liabilities: Short-term borrowings 20,012,527.78 730,799,542.65 Held-for-trading financial liabilities Derivative financial liabilities Notes payable 381,631,833.96 Accounts payable 1,566,994,944.07 1,431,862,681.89 Advances received 92,676.29 137 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Contract liabilities 1,155,759.09 Employee benefits payable 93,150,785.46 65,680,254.82 Taxes and rates payable 10,811,341.50 1,576,623.72 Other payables 1,355,955,388.81 1,252,808,472.44 Including: interest payable Dividends Payable 1,772,750.00 Liabilities classified as held for sale Non-current liabilities due within 220,225,194.44 one year Other current liabilities Total current liabilities 3,429,712,580.67 3,703,045,446.25 Non-current liabilities: Long-term borrowings 1,381,428,522.65 Bonds payable Including: Preferred shares Perpetual bonds Lease liabilities Long-term payables Long-term employee benefits payable Provisions 2,638,000.00 Deferred income 35,908,399.54 30,895,817.00 Deferred tax liabilities 48,177,657.42 31,296,603.88 Other non-current liabilities Total non-current liabilities 1,468,152,579.61 62,192,420.88 Total liabilities 4,897,865,160.28 3,765,237,867.13 Equity: Share capital 3,591,601,468.00 2,765,657,898.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserve 1,198,721,706.52 2,005,303,119.53 Less: treasury shares 281,483,741.34 363,781,151.34 Other comprehensive income Special reserve 138 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Surplus reserve 509,280,441.15 431,209,447.07 Undistributed profit 1,089,748,875.88 1,158,673,337.70 Total equity 6,107,868,750.21 5,997,062,650.96 Total liabilities & equity 11,005,733,910.49 9,762,300,518.09 3. Consolidated Income statement Unit: RMB Items Year2020 Year2019 I. Total operating revenue 12,109,833,368.44 11,287,489,442.23 Including: Operating revenue 12,109,833,368.44 11,287,489,442.23 Interest income Premium earned Revenue from handling charges and commission II. Total operating cost 10,592,665,388.40 9,747,723,876.16 Including: Operating cost 8,500,391,322.27 7,946,844,445.83 Interest expenses Handling charges and commission expenditures Surrender value Net payment of insurance claims Net provision of insurance policy reserve Premium bonus expenditures Reinsurance expenses Taxes and surcharges 77,973,420.81 92,311,339.03 Selling expenses 602,954,759.17 588,547,454.16 Administrative expenses 764,084,428.88 595,781,120.22 R&D expenses 518,401,363.63 532,012,335.99 Financial expenses 128,860,093.64 -7,772,819.07 Including: Interest expenses 64,733,993.15 54,050,078.51 Interest income 52,233,256.57 29,496,046.87 Add: Other income 151,555,896.45 101,972,467.86 Investment income (or less: 89,078,877.16 25,335,547.44 losses) Including: Investment income 2,199,442.47 1,418,182.87 139 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report from associates and joint ventures Gains from derecognition of -4,369,430.89 -2,407,426.89 financial assets at amortized cost Gains on foreign exchange (or less: losses) Gains on net exposure to hedging risk (or less: losses) Gains on changes in fair value 31,847,915.76 27,906,347.18 (or less: losses) Credit impairment loss (or less: -28,677,382.30 -3,374,126.64 losses) Assets impairment loss (or less: -58,672,538.84 -27,895,239.50 losses) Gains on asset disposal (or less: -486,378.33 278,783.69 losses) III. Operating profit (or less: losses) 1,701,814,369.94 1,663,989,346.10 Add: Non-operating revenue 5,055,479.82 6,792,283.12 Less: Non-operating expenditures 14,843,633.18 7,713,121.40 IV. Profit before tax (or less: total loss) 1,692,026,216.58 1,663,068,507.82 Less: Income tax expense 218,702,864.60 229,253,469.06 V. Net profit (or less: net loss) 1,473,323,351.98 1,433,815,038.76 (I) Categorized by the continuity of operations 1. Net profit from continuing 1,473,323,351.98 1,433,815,038.76 operations (or less: net loss) 2. Net profit from discontinued operations (or less: net loss) (II) Categorized by the portion of equity ownership 1. Net profit attributable to owners of parent Company (or less: net 1,462,158,821.57 1,421,204,236.13 loss) 2. Net profit attributable to non-controlling shareholders (or 11,164,530.41 12,610,802.63 less: net loss) VI. Other comprehensive income after -50,292,214.11 -28,841.85 tax Items attributable to the owners of -50,292,214.11 -28,841.85 the parent Company (I) Not to be reclassified subsequently to profit or loss 1.Changes in remeasurement on the net defined benefit plan 2. Items under equity method that will not be reclassified to profit or loss 140 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 3. Changes in fair value of other equity instrument investments 4. Changes in fair value of own credit risk 5. Others (II) To be reclassified subsequently to -50,292,214.11 -28,841.85 profit or loss 1. Items under equity method that may be reclassified to profit or loss 2. Changes in fair value of other debt investments 3. Profit or loss from reclassification of financial assets into other comprehensive income 4. Provision for credit impairment of other debt investments 5.Cash flow hedging reserve 6. Translation reserve -50,292,214.11 -28,841.85 7. Others Items attributable to non-controlling shareholders VII. Total comprehensive income 1,423,031,137.87 1,433,786,196.91 Items attributable to the owners of 1,411,866,607.46 1,421,175,394.28 the parent Company Items attributable to non-controlling 11,164,530.41 12,610,802.63 shareholders VIII. Earnings per share (EPS): (I) Basic EPS (yuan per share) 0.41 0.40 (II) Diluted EPS (yuan per share) 0.41 0.40 Legal representative:Zhang Yabo Officer in charge of accounting:Yu Yingkui Head of accounting department:Sheng Xiaofeng 4. Income statement of the Parent Company Unit: RMB Items Year2020 Year2019 I. Operating revenue 4,516,583,047.45 4,463,396,527.84 Less: Operating cost 3,383,660,538.43 3,402,597,635.57 Taxes and surcharges 27,452,644.93 33,339,374.49 Selling expenses 51,140,200.18 56,513,307.16 Administrative expenses 187,763,288.96 156,768,224.49 R&D expenses 188,357,821.51 209,650,329.67 Financial expenses 85,010,110.29 25,674,611.42 141 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Including: Interest expenses 41,141,318.78 63,621,572.43 Interest income 25,340,320.97 18,055,499.73 Add: Other income 62,733,688.49 21,417,817.55 Investment income (or less: 189,487,259.99 584,187,850.64 losses) Including: Investment income 2,298,930.50 2,100,652.42 from associates and joint ventures Gains from derecognition of financial assets at amortized cost Gains on net exposure to hedging (or less: losses) Gains on changes in fair value (or 4,086,324.56 2,767,102.00 less: losses) Credit impairment loss (or less: -631,899.35 -1,678,820.26 losses) Assets impairment loss (or less: -1,496,468.86 -368,640.74 losses) Gains on asset disposal (or less: 70,090.31 387,439.68 losses) II. Operating profit (or less: losses) 847,447,438.29 1,185,565,793.91 Add: Non-operating revenue 1,907,081.98 1,657,122.13 Less: Non-operating expenditures 8,389,545.94 1,068,851.00 III. Profit before tax (or less: total 840,964,974.33 1,186,154,065.04 loss) Less: Income tax expense 60,255,033.57 76,819,516.64 IV. Net profit (or less: net loss) 780,709,940.76 1,109,334,548.40 (I) Net profit from continuing 780,709,940.76 1,109,334,548.40 operations (or less: net loss) (II) Net profit from discontinued operations (or less: net loss) V. Other comprehensive income after tax (I) Not to be reclassified subsequently to profit or loss 1.Changes in remeasurement on the net defined benefit plan 2. Items under equity method that will not be reclassified to profit or loss 3. Changes in fair value of other equity instrument investments 4. Changes in fair value of own credit risk 5. Others (II) To be reclassified subsequently to profit or loss 1. Items under equity method that may be reclassified to profit or loss 142 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 2. Changes in fair value of other debt investments 3. Profit or loss from reclassification of financial assets into other comprehensive income 4. Provision for credit impairment of other debt investments 5. Cash flow hedging reserve (profit or loss on cash flow hedging) 6. Translation reserve 7. Others VI. Total comprehensive income 780,709,940.76 1,109,334,548.40 5. Consolidated Cash Flow Statement Unit: RMB Items Year 2020 Year 2019 I. Cash flows from operating activities: Cash receipts from sale of goods or 11,849,284,665.68 12,114,467,691.73 rendering of services Net increase of client deposit and interbank deposit Net increase of central bank loans Net increase of loans from other financial institutions Cash receipts from original insurance contract premium Net cash receipts from reinsurance Net increase of policy-holder deposit and investment Cash receipts from interest, handling charges and commission Net increase of loans from others Net increase of repurchase Net cash receipts from agency security transaction Receipts of tax refund 264,818,602.07 231,573,740.65 Other cash receipts related to operating 253,535,410.82 174,693,870.02 activities Subtotal of cash inflows from operating 12,367,638,678.57 12,520,735,302.40 143 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report activities Cash payments for goods purchased and 7,545,742,409.64 8,017,585,235.57 services received Net increase of loans and advances to clients Net increase of central bank deposit and interbank deposit Cash payments for insurance indemnities of original insurance contracts Net increase of loans to others Cash payments for interest, handling charges and commission Cash payments for policy bonus Cash paid to and on behalf of employees 1,677,941,014.69 1,540,342,983.64 Cash payments for taxes and rates 363,999,449.11 440,322,058.66 Other cash payments related to operating 692,612,022.02 622,321,419.93 activities Subtotal of cash outflows from operating 10,280,294,895.46 10,620,571,697.80 activities Net cash flows from operating activities 2,087,343,783.11 1,900,163,604.60 II. Cash flows from investing activities: Cash receipts from withdrawal of investments Cash receipts from investment income 49,339,043.29 57,236,631.61 Net cash receipts from the disposal of fixed assets, intangible assets and other 18,788,012.61 10,529,127.90 long-term assets Net cash receipts from the disposal of 290,189.18 subsidiaries & other business units Other cash receipts related to investing 576,219,673.31 1,055,940,437.56 activities Subtotal of cash inflows from investing 644,636,918.39 1,123,706,197.07 activities Cash payments for the acquisition of fixed assets, intangible assets and other 1,149,361,450.15 869,135,748.97 long-term assets Cash payments for investments 1,250,000.00 1,800,000.00 Net increase of pledged borrowings 144 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Net cash payments for the acquisition of subsidiaries & other business units Other cash payments related to investing 289,200,000.00 29,850,435.51 activities Subtotal of cash outflows from investing 1,439,811,450.15 900,786,184.48 activities Net cash flows from investing activities -795,174,531.76 222,920,012.59 III. Cash flows from financing activities: Cash receipts from absorbing 118,643,250.00 investments Including: Cash received by subsidiaries from non-controlling shareholders as investments Cash receipts from borrowings 2,020,339,244.88 2,220,988,305.90 Other cash receipts related to financing 24,534,300.14 62,964,624.87 activities Subtotal of cash inflows from financing 2,163,516,795.02 2,283,952,930.77 activities Cash payments for the repayment of 1,705,455,347.51 2,123,117,631.60 borrowings Cash payments for distribution of dividends or profits and for interest 842,824,941.43 595,166,284.01 expenses Including: Cash paid by subsidiaries to non-controlling shareholders as dividend or 4,007,833.39 20,917,800.72 profit Other cash payments related to financing 10,752,519.79 299,483,636.97 activities Subtotal of cash outflows from financing 2,559,032,808.73 3,017,767,552.58 activities Net cash flows from financing activities -395,516,013.71 -733,814,621.81 IV. Effect of foreign exchange rate changes -50,292,214.11 -28,841.85 on cash & cash equivalents V. Net increase in cash and cash 846,361,023.53 1,389,240,153.53 equivalents Add: Opening balance of cash and cash 2,553,783,015.01 1,164,542,861.48 equivalents VI. Closing balance of cash and cash 3,400,144,038.54 2,553,783,015.01 equivalents 145 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 6. Cash Flow Statement of the Parent Company Unit: RMB Items Year 2020 Year 2019 I. Cash flows from operating activities: Cash receipts from sale of goods and 3,591,777,322.35 3,268,467,818.85 rendering of services Receipts of tax refund 72,901,445.17 78,890,701.50 Other cash receipts related to operating 93,832,945.34 56,268,951.89 activities Subtotal of cash inflows from operating 3,758,511,712.86 3,403,627,472.24 activities Cash payments for goods purchased and 1,965,431,440.25 1,962,621,401.88 services received Cash paid to and on behalf of employees 391,589,764.85 319,581,376.43 Cash payments for taxes and rates 91,135,303.51 99,864,714.09 Other cash payments related to operating 153,131,340.36 117,818,085.89 activities Subtotal of cash outflows from operating 2,601,287,848.97 2,499,885,578.29 activities Net cash flows from operating activities 1,157,223,863.89 903,741,893.95 II. Cash flows from investing activities: Cash receipts from withdrawal of 19,217,446.05 10,109,000.00 investments Cash receipts from investment income 225,498,714.94 587,278,422.76 Net cash receipts from the disposal of fixed assets, intangible assets and other long-term 5,013,171.60 3,038,824.89 assets Net cash receipts from the disposal of 2,119,122.19 subsidiaries & other business units Other cash receipts related to investing 271,933,366.03 565,660,872.93 activities Subtotal of cash inflows from investing 523,781,820.81 1,166,087,120.58 activities Cash payments for the acquisition of fixed assets, intangible assets and other long-term 235,141,413.93 261,503,279.24 assets Cash payments for investments 236,348,684.83 238,971,418.85 146 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Net cash payments for the acquisition of subsidiaries & other business units Other cash payments related to investing 149,070,741.05 35,371,356.82 activities Subtotal of cash outflows from investing 620,560,839.81 535,846,054.91 activities Net cash flows from investing activities -96,779,019.00 630,241,065.67 III. Cash flows from financing activities: Cash receipts from absorbing investments 118,643,250.00 Cash receipts from borrowings 1,519,811,000.00 930,000,000.00 Other cash receipts related to financing 83,377,450.00 76,225,498.75 activities Subtotal of cash inflows from financing 1,721,831,700.00 1,006,225,498.75 activities Cash payments for the repayment of 1,069,811,000.00 780,000,000.00 borrowings Cash payments for distribution of 844,817,849.02 586,298,249.58 dividends or profits and for interest expenses Other cash payments related to financing 39,333,154.61 458,353,614.78 activities Subtotal of cash outflows from financing 1,953,962,003.63 1,824,651,864.36 activities Net cash flows from financing activities -232,130,303.63 -818,426,365.61 IV. Effect of foreign exchange rate changes on cash and cash equivalents V. Net increase in cash and cash equivalents 828,314,541.26 715,556,594.01 Add: Opening balance of cash and cash 974,923,339.25 259,366,745.24 equivalents VI. Closing balance of cash and cash 1,803,237,880.51 974,923,339.25 equivalents 7. Consolidated Statement of Changes in Owners' Equity Amount of this period 147 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Unit: RMB Year 2020 Equity Attributable to parent Company Other equity instruments Gene Other Speci Non-contr Items Less: ral Capital comprehe al Surplus Undistribut Othe olling Total equity Prefer Subtotal Share Capital Perpet Othe treasury risk reserve nsive reser ed profit rs interest red ual reserve rs shares reser bonds income ve shares ve I. Balance at the end 2,765,657,89 1,090,800, 363,781,1 -39,332,7 559,896,6 5,278,392, 9,291,632,9 73,785,53 9,365,418,465. of prior 8.00 022.06 51.34 48.50 19.39 288.84 28.45 7.27 72 year Add: Cumulativ e changes of accounting policies Error correction of prior period Business combinati on under common control 148 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Others II. Balance at the 2,765,657,89 1,090,800, 363,781,1 -39,332,7 559,896,6 5,278,392, 9,291,632,9 73,785,53 9,365,418,465. beginning 8.00 022.06 51.34 48.50 19.39 288.84 28.45 7.27 72 of current year III. Current period 825,943,570. -775,382,5 -82,297,41 -50,292,2 78,070,99 612,524,41 773,161,59 14,172,71 787,334,305.31 increase 00 87.84 0.00 14.11 4.08 8.99 1.12 4.19 (or less: decrease) (I) Total comprehen -50,292,2 1,462,158, 1,411,866,6 11,164,53 1,423,031,137. sive 14.11 821.57 07.46 0.41 87 income (II) Capital contribute 54,313,350 -82,297,41 135,879,25 d or -731,510.00 135,879,250.39 .39 0.00 0.39 withdrawn by owners 1. Ordinary shares -49,264,05 -167,907,3 118,643,250 118,643,250.00 contribute 0.00 00.00 .00 d by owners 2. Capital 149 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report contribute d by holders of other equity instrument s 3. Amount of share-base 107,029,81 89,793,81 17,236,000. 17,236,000.39 d payment 4.39 4.00 39 included in equity -3,452,414. -4,183,924 4. Others -731,510.00 00 .00 (III) Profit 78,070,99 -849,634,4 -771,563,40 -4,007,833 -775,571,241.8 distributio 4.08 02.58 8.50 .39 9 n 1. Appropriat 78,070,99 -78,070,99 ion of 4.08 4.08 surplus reserve 2. Appropriat ion of general risk 150 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report reserve 3. Appropriat -771,563,4 -771,563,40 -4,007,833 -775,571,241.8 ion of 08.50 8.50 .39 9 profit to owners 4. Others (IV) Internal 826,675,080. -826,675,0 carry-over 00 80.00 within equity 1. Transfer of capital 826,675,080. -826,675,0 reserve to 00 80.00 capital 2. Transfer of surplus reserve to capital 3. Surplus reserve to cover losses 4. Changes in defined benefit plan carried over to retained earnings 151 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 5. Other comprehen sive income carried over to retained earnings 6. Others (V) Special reserve 1. Appropriat ion of current period 2. Applicatio n of current period (VI) -3,020,858. -3,020,858. 7,016,017. 3,995,158.94 Others 23 23 17 IV. Balance at 10,064,794, 3,591,601,46 315,417,43 281,483,7 -89,624,9 637,967,6 5,890,916, 87,958,25 10,152,752,771 the end of 519.57 8.00 4.22 41.34 62.61 13.47 707.83 1.46 .03 current period Amount of Previous Period Unit: RMB Year 2019 Items Equity Attributable to parent Company Non-controll Total equity 152 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report ing interest Other equity Other Spec Less: Gene Share instruments Capital comprehe ial Surplus ral Undistributed Oth treasury risk profit Subtotal Capital Prefer Perpet reserve nsive reser reser ers Oth reserve red ual shares ve ers income ve shares bonds I. Balance at the end 2,130,646,8 1,702,234,4 116,457,6 -39,303,9 448,843,0 4,488,881,7 8,614,844,5 85,232,11 8,700,076,6 of prior 35.00 09.35 18.45 06.65 76.37 59.86 55.48 6.46 71.94 year Add: Cumulativ e changes 120,088.1 8,359,634.1 8,479,722.3 8,479,722.3 of 8 9 7 7 accountin g policies Error correction of prior period Business combinati on under common control Others II. Balance at 2,130,646,8 1,702,234,4 116,457,6 -39,303,9 448,963,1 4,497,241,3 8,623,324,2 85,232,11 8,708,556,3 the 35.00 09.35 18.45 06.65 64.55 94.05 77.85 6.46 94.31 beginning 153 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report of current year III. Current period 635,011,06 -611,434,38 247,323,5 -28,841.8 110,933,4 781,150,89 668,308,65 -11,446,57 656,862,07 increase 3.00 7.29 32.89 5 54.84 4.79 0.60 9.19 1.41 (or less: decrease) (I) Total comprehe -28,841.8 1,421,204,2 1,421,175,3 12,610,80 1,433,786,1 nsive 5 36.13 94.28 2.63 96.91 income (II) Capital contribute 24,566,413. 247,323,5 -222,757,11 -222,757,11 d or 46 32.89 9.43 9.43 withdrawn by owners 1. Ordinary shares -27,008,30 27,008,300. 27,008,300. contribute 0.00 00 00 d by owners 2. Capital contribute d by holders of other equity instrument s 154 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 3. Amount of share-base 24,566,413. 24,566,413. 24,566,413. d payment 46 46 46 included in equity 274,331,8 -274,331,83 -274,331,83 4. Others 32.89 2.89 2.89 (III) Profit 110,933,4 -640,053,34 -529,119,88 -20,917,8 -550,037,68 distributio 54.84 1.34 6.50 00.72 7.22 n 1. Appropria 110,933,4 -110,933,45 tion of 54.84 4.84 surplus reserve 2. Appropria tion of general risk reserve 3. Appropria -529,119,88 -529,119,88 -20,917,8 -550,037,68 tion of profit to 6.50 6.50 00.72 7.22 owners 4. Others (IV) 635,011,06 -635,011,06 Internal 3.00 3.00 carry-over 155 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report within equity 1. Transfer 635,011,06 -635,011,06 of capital reserve to 3.00 3.00 capital 2. Transfer of surplus reserve to capital 3. Surplus reserve to cover losses 4. Changes in defined benefit plan carried over to retained earnings 5. Other comprehe nsive income carried over to retained earnings 6. Others (V) Special reserve 1. 156 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Appropria tion of current period 2. Applicatio n of current period (VI) -3,139,58 -4,129,318. -989,737.75 -989,737.75 Others 1.10 85 IV. Balance at 2,765,657,8 1,090,800,0 363,781,1 -39,332,7 559,896,6 5,278,392,2 9,291,632,9 73,785,53 9,365,418,4 the end of 98.00 22.06 51.34 48.50 19.39 88.84 28.45 7.27 65.72 current period 8. Statement of Changes in Owners' Equity of the Parent Company Amount of this period Unit: RMB Year 2020 Other equity instruments Specia Items Other Other Less: treasury l Surplus Undistributed Share Capital Other Capital reserve comprehensi Total equity Preferre Perpetu shares reserv reserve profit s s ve income d shares al bonds e I. Balance at 2,765,657,898. 2,005,303,119. 363,781,151.3 431,209,447. 1,158,673,337. 5,997,062,650. the end of 00 53 4 07 70 96 prior year 157 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Add: Cumulative changes of accounting policies Error correction of prior period Others II. Balance at the beginning 2,765,657,898. 2,005,303,119. 363,781,151.3 431,209,447. 1,158,673,337. 5,997,062,650. of current 00 53 4 07 70 96 year III. Current period -806,581,413.0 -82,297,410.0 78,070,994.0 increase (or 825,943,570.00 -68,924,461.82 110,806,099.25 less: 1 0 8 decrease) (I) Total comprehensi 780,709,940.76 780,709,940.76 ve income (II) Capital contributed -82,297,410.0 -731,510.00 20,093,666.99 101,659,566.99 or withdrawn 0 by owners 1. Ordinary shares -167,907,300. -49,264,050.00 118,643,250.00 contributed 00 by owners 2. Capital contributed by holders of other equity instruments 3. Amount of share-based 72,810,130.99 89,793,814.00 -16,983,683.01 payment 158 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report included in equity 4. Others -731,510.00 -3,452,414.00 -4,183,924.00 (III) Profit 78,070,994.0 -849,634,402.5 -771,563,408.5 distribution 8 8 0 1. Appropriatio 78,070,994.0 -78,070,994.08 n of surplus 8 reserve 2. Appropriatio -771,563,408.5 -771,563,408.5 n of profit to 0 0 owners 3. Others (IV) Internal -826,675,080.0 carry-over 826,675,080.00 within equity 0 1.Transfer of capital -826,675,080.0 826,675,080.00 reserve to 0 capital 2.Transfer of surplus reserve to capital 3.Surplus reserve to cover losses 4. Changes in defined benefit plan carried over to retained earnings 5. Other comprehensi ve income carried over 159 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report to retained earnings 6. Others (V) Special reserve 1. Appropriatio n of current period 2. Application of current period (VI) Others IV. Balance at the end of 3,591,601,468. 1,198,721,706. 281,483,741.3 509,280,441. 1,089,748,875. 6,107,868,750. current 00 52 4 15 88 21 period Amount of Previous Period Unit: RMB Year 2019 Other equity instruments Specia Items Other Other Less: treasury l Surplus Undistributed Share Capital Preferre Perpetu Other Capital reserve comprehensi Total equity shares reserv reserve profit s ve income d shares al bonds s e I. Balance at 2,130,646,835. 2,621,241,593. 116,457,618.4 320,155,904.0 5,643,898,050. the end of 688,311,336.98 00 01 5 5 59 prior year Add: Cumulative changes of 120,088.18 1,080,793.66 1,200,881.84 accounting policies 160 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Error correction of prior period Others II. Balance at the beginning 2,130,646,835. 2,621,241,593. 116,457,618.4 320,275,992.2 5,645,098,932. 689,392,130.64 of current 00 01 5 3 43 year III. Current period -615,938,473.4 247,323,532.8 110,933,454.8 increase (or 635,011,063.00 469,281,207.06 351,963,718.53 less: 8 9 4 decrease) (I) Total 1,109,334,548. 1,109,334,548. comprehensi ve income 40 40 (II) Capital contributed 247,323,532.8 -228,250,943.3 19,072,589.52 or withdrawn 9 7 by owners 1. Ordinary shares -27,008,300.0 27,008,300.00 contributed 0 by owners 2. Capital contributed by holders of other equity instruments 3. Amount of share-based payment 19,072,589.52 19,072,589.52 included in equity 274,331,832.8 -274,331,832.8 4. Others 9 9 (III) Profit 110,933,454.8 -640,053,341.3 -529,119,886.5 161 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report distribution 4 4 0 1. Appropriatio 110,933,454.8 -110,933,454.8 n of surplus 4 4 reserve 2. Appropriatio -529,119,886.5 -529,119,886.5 n of profit to 0 0 owners 3. Others (IV) Internal -635,011,063.0 carry-over 635,011,063.00 within equity 0 1.Transfer of capital -635,011,063.0 635,011,063.00 reserve to 0 capital 2.Transfer of surplus reserve to capital 3.Surplus reserve to cover losses 4. Changes in defined benefit plan carried over to retained earnings 5. Other comprehensi ve income carried over to retained earnings 6. Others (V) Special reserve 162 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 1. Appropriatio n of current period 2. Application of current period (VI) Others IV. Balance at the end of 2,765,657,898. 2,005,303,119. 363,781,151.3 431,209,447.0 1,158,673,337. 5,997,062,650. current 00 53 4 7 70 96 period III. Company profile The Company was established by the original Sanhua Fuji Koki Co., Ltd. The Company currently holds a business license with a unified social credit code of 913300006096907427 registered and issued by Zhejiang Administration of Industry and Commerce, with headquarter in Shaoxing City, Zhejiang Province. The registered capital of 3,591,601,468.00 yuan, total share of 3,591,601,468 shares (each with par value of one yuan). The Company’s shares were listed at Shenzhen Stock Exchange. The Company operates in the machinery manufacturing industry. Business scope includes production and marketing of Service Valve, Electronic Expansion valve, Drainage Pump, Solenoid Valve, One-way Valve, Compressor Parts, Pressure Pipeline Components, Electromechanical Hydraulic Control Pump and other electromechanical hydraulic control components, undertaking services of inspection, test and analysis of refrigeration accessories, and engaging in import and export business. Main products include control components and parts of household appliances and automobile A/C. The financial statements have been approved by the board of directors of the Company and disclosed on March 25, 2021. Zhejiang Sanhua Climate and Appliance Controls Group Co., Ltd. and other subsidiaries are included in the scope of consolidated financial statements in the current period. For further details, please refer to the change of consolidation scope in the notes to the financial report and the description of equity in other entities. 163 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report IV. Preparation basis of the financial statements 1. Preparation basis The financial statements have been prepared on the basis of going concern. 2. Going concern The Company has no events or conditions that may cast significant doubts upon the Company’s ability to continue as a going concern within the 12 months after the balance sheet date. V. Significant accounting policies and estimates Notes to specific accounting policies and accounting estimates: 1.Statement of compliance with China Accounting Standards for Business Enterprises The financial statements have been prepared in accordance with the requirements of China Accounting Standards for Business Enterprises (CASBEs), and present truly and completely the financial position, results of operations and cash flows of the Company. 2.Accounting period The accounting period of the Company is from 1 January to 31 December of each calendar year. 3.Operating cycle The Company has a relatively short operating cycle for its business, an asset or a liability is classified as current if it is expected to be realized or due within 12 months. 4.Functional currency The Company’s functional currency is Renminbi (RMB) Yuan. 5.Accounting treatments of business combination under and not under common control 1. Accounting treatment of business combination under common control Assets and liabilities arising from business combination are measured at carrying amount of the combined party included in the consolidated financial statements of the ultimate controlling party at the combination date. Difference between carrying amount of the equity of the combined party included in the consolidated financial statements of the ultimate controlling party and that of the combination consideration or total par value of shares 164 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report issued is adjusted to capital reserve, if the balance of capital reserve is insufficient to offset, any excess is adjusted to retained earnings. 2. Accounting treatment of business combination not under common control When combination cost is in excess of the fair value of identifiable net assets obtained from the acquiree at the acquisition date, the excess is recognized as goodwill; otherwise, the fair value of identifiable assets, liabilities and contingent liabilities, and the measurement of the combination cost are reviewed, then the difference is recognized in profit or loss. 6.Compilation method of consolidated financial statements The parent company brings all its controlled subsidiaries into the consolidation scope. The consolidated financial statements are compiled by the parent company according to “CASBE 33 – Consolidated Financial Statements”, based on relevant information and the financial statements of the parent company and its subsidiaries. 7.Recognition criteria of cash and cash equivalents Cash as presented in cash flow statement refers to cash on hand and deposit on demand for payment. Cash equivalents refer to short-term, highly liquid investments that can be readily converted to cash and that are subject to an insignificant risk of changes in value. 8.Foreign currency translation 1. Translation of transactions denominated in foreign currency Transactions denominated in foreign currency are translated into RMB yuan at the spot exchange rate/ the beginning of the month exchange rate at the transaction date at initial recognition. At the balance sheet date, monetary items denominated in foreign currency are translated at the spot exchange rate at the balance sheet date with difference, except for those arising from the principal and interest of exclusive borrowings eligible for capitalization, included in profit or loss; non-cash items carried at historical costs are translated at the spot exchange rate at the transaction date, with its RMB amount unchanged; non-cash items carried at fair value in foreign currency are translated at the spot exchange rate at the date when the fair value was determined, with difference included in profit or loss or other comprehensive income. 2. Translation of financial statements measured in foreign currency The assets and liabilities in the balance sheet are translated into RMB at the spot rate at the balance sheet date; the equity items, other than undistributed profit, are translated at the spot rate at the transaction date; the revenues and expenses in the income statement are translated into RMB at the approximate exchange rate similar to the systematically and rationally determined spot exchange rate at the transaction date. The difference arising from foreign currency translation is included in other comprehensive income. 9.Financial instruments Financial instruments refer to contracts that form one party’s financial assets into other parties’ financial liabilities or equity instruments. 1. Classification of financial assets and financial liabilities 165 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report The Company's financial assets fall into two main categories: (1) financial assets at amortized cost; (2) financial assets at fair value through profit or loss. Financial liabilities are classified into the following two categories: (1) financial liabilities at amortized cost; (2) financial liabilities at fair value through profit or loss. 2. Recognition criteria, measurement method and derecognition condition of financial assets and financial liabilities (1) Recognition criteria and measurement method of financial assets and financial liabilities When the Company becomes a party to a financial instrument, it is recognized as a financial asset or financial liability. The financial assets and financial liabilities initially recognized by the Company are measured at fair value; for the financial assets and liabilities at fair value through profit or loss, the transaction expenses thereof are directly included in profit or loss; for other categories of financial assets and financial liabilities, the transaction expenses thereof are included into the initially recognized amount. However, at initial recognition, for accounts receivable that do not contain a significant financing component or contracts in which the financing components with associated period less than one year are not considered, the Company measures at their transaction price. (2) Subsequent measurement of financial assets The Company measures its financial assets at the amortized costs using effective interest method. Gains or losses on financial assets that are measured at amortized cost and are not part of hedging relationships shall be included into profit or loss when the financial assets are derecognized, reclassified, through the amortization process or in order to recognize impairment gains or losses. The Company measures its financial assets at fair value. Gains or losses arising from changes in fair value (including interests and dividends) shall be included into profit or loss, except for financial assets that are part of hedging relationships. (3) Subsequent measurement of financial liabilities The Company measures its financial liabilities at amortized cost using effective interest method. Gains or losses on financial liabilities that are measured at amortized cost and are not part of hedging relationships shall be included into profit or loss when the financial liabilities are derecognized and through the amortization process. Financial liabilities designated as at fair value through profit or loss. The Company measures such kind of liabilities at fair value. Other gains or losses on those financial liabilities shall be included into profit or loss, except for financial liabilities that are part of hedging relationships. (4) Derecognition of financial assets and financial liabilities 1) Financial assets are derecognized when: a. the contractual rights to the cash flows from the financial assets expire; or b. the financial assets have been transferred and the transfer qualifies for derecognition in accordance with “CASBE 23 – Transfer of Financial Assets”. 2) Only when the underlying present obligations of a financial liability are relieved totally or partly may the financial liability be derecognized accordingly. 3. Recognition criteria and measurement method of financial assets transfer Where the Company has transferred substantially all of the risks and rewards related to the ownership of the financial asset, it derecognizes the financial asset, and any right or liability arising from such transfer is recognized independently as an asset or a liability. If it retained substantially all of the risks and rewards related to the ownership of the financial asset, it continues recognizing the financial asset. Where the Company does not transfer or retain substantially all of the risks and rewards related to the 166 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report ownership of a financial asset, it is dealt with according to the circumstances as follows respectively: (1) if the Company does not retain its control over the financial asset, it derecognizes the financial asset, and any right or liability arising from such transfer is recognized independently as an asset or a liability; (2) if the Company retains its control over the financial asset, according to the extent of its continuing involvement in the transferred financial asset, it recognizes the related financial asset and recognizes the relevant liability accordingly. If the transfer of an entire financial asset satisfies the conditions for derecognition, the difference between the amounts of the following two items are included in profit or loss: (1) the carrying amount of the transferred financial asset as of the date of derecognition; (2) the sum of consideration received from the transfer of the financial asset. 4. Fair value determination method of financial assets and liabilities The Company use valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value. 5. Impairment of financial instruments (1) Measurement and accounting treatment The Company, on the basis of expected credit loss, recognizes loss allowances of financial assets at amortized cost. The Company considers reasonable and evidence-based information about past events, current conditions, and forecasts of future economic conditions, and uses the risk of default as the weight to calculate the difference between the contractual cash flow receivable and the expected cash flow Probability-weighted amount of the present value to confirm expected credit losses. The Company separately measures the expected credit losses of financial instruments at different stages on the balance sheet date. The first stage, if the credit risk of a financial instrument has not increased significantly since the initial recognition, and the loss provision is measured according to the expected credit loss in the next 12 months. The second stage, if the credit risk of a financial instrument has increased significantly since its initial recognition but no credit impairment has occurred, and the loss provision is measured based on the expected credit loss for the entire duration. The third stage, if a financial instrument has been credit-impaired since its initial recognition, and the loss provision is measured based on the expected credit loss for the entire duration. Considering reasonable and supportable forward-looking information, the Company compares the risk of a default occurring on the financial instrument as at the balance sheet date with the risk of a default occurring on the financial instrument as at the date of initial recognition, so as to assess whether the credit risk on the financial instrument has increased significantly since initial recognition. The Company may assume that the credit risk on a financial instrument has not increased significantly since initial recognition if the financial instrument is determined to have low credit risk on the balance sheet date. The Company measures the loss provision according to the expected credit loss in the next 12 months Regarding the accounts receivable (including bills receivable and accounts receivable) stipulated in the "CASBE14 –Revenue", regardless of whether it contains significant financing components (including financing in contracts not exceeding one year) Component), the Company measures the loss provision based on the expected credit loss for the entire duration. For financial instruments in the first and second stages and with lower credit risk, the interest income is calculated based on the book balance and the effective interest rate without deducting the provision for impairment. For financial instruments in the third stage, the interest income is calculated based on the amortized cost and the actual interest rate after the book balance minus the provision for impairment. If the "credit risk-related information" of a single instrument has been known or is relatively easily available, the Company assesses expected credit risk and measures expected credit losses on the basis of a single financial 167 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report instrument. Such financial instruments usually include accounts receivable from related parties, deposit deposits receivable from government units or public utility units, and financial instruments with solid evidence that credit impairment has occurred. If sufficient evidence of “credit risk-related information” cannot be obtained at a reasonable cost at the level of individual instruments, the Company assesses expected credit risk and measures expected credit losses based on a combination of financial instruments. The Company combines financial instruments based on the same or similar credit risk characteristics, including but not limited to aging combinations. If the availability of "credit risk-related information" of a single tool changes from being difficult to obtain to being available, the Company will change from a combination-based assessment measurement to a single tool-based assessment measurement. The Company remeasures expected credit losses on each balance sheet date, and the resulting increase in loss reserves or the amount of reversal is included in the current profits and losses as impairment losses or gains. For financial assets measured at amortized cost, the loss allowance shall be deducted from the book value of the financial assets listed in the balance sheet. (2) Financial instruments with expected credit risk assessed and expected credit losses measured on a collective basis For other receivables that are difficult to be evaluated and measured by a single tool, the Company mainly combines aging as a credit risk feature, refers to historical credit loss experience, combines current conditions and forecasts of future economic conditions, and adopts default risk exposure and The expected credit loss rate in the next 12 months or the entire duration is used to calculate the expected credit loss. (3) Accounts receivable with expected credit losses measured on a collective basis Regarding the accounts receivable specified in the "CASBE14 –Revenue", regardless of whether it contains significant financing components (including financing components in contracts not exceeding one year), refer to historical credit loss experience and combine current The situation and the forecast of future economic conditions, through the default risk exposure and the entire duration of the expected credit loss rate, calculate the expected credit loss. For accounts receivable that are difficult to be evaluated and measured by a single tool, the Company divides the accounts receivable into several combinations based on credit risk characteristics, and calculates the expected credit loss on the basis of the combination. The basis for determining the combination and the specific accrual method are shown below table: Basis for determination of Portfolio Name Method for measuring expected credit loss portfolio Notes receivable—Bank Accepted by financial No provision acceptance bill institutions Notes receivable— Commercial Not accepted by financial 5% acceptance bill institutions Accounts receivable—Ages receivable with provision made on a collective basis based on the Ages portfolios comparison table of age and expected credit loss rate Accounts receivable – comparison table of ages and lifetime expected credit loss rate Ages Expected credit loss rate Within 1 year 5% 1-2 years 10% 2-3years 30% 168 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Over 3 years 50% 6. Offsetting financial assets and financial liabilities Financial assets and financial liabilities are presented separately in the balance sheet and are not offset. However, the Company offsets a financial asset and a financial liability and presents the net amount in the balance sheet when those who meet the corresponding conditions at the same time. 10.Inventories 1. Classification of inventories Inventories include material, work in process in the process of production and finished goods etc. 2. Accounting method for dispatching inventories Inventories dispatched from storage at actual cost are accounted with weighted average method at the end of each month; Inventories dispatched from storage according to the plan, the cost difference will be carried forward at the same time at the end of the month. 3. Basis for determining net realizable value At the balance sheet date, inventories are measured at the lower of cost or net realizable value; provisions for inventory write-down are made on the excess of its cost over the net realizable value. Inventory used directly for sale, in the course of normal production and operation, the net realizable value of the inventory shall be determined by the estimated selling price minus the estimated selling expenses and related taxes; Inventories that require processing, in the course of normal production and operation, the net realizable value of the finished product shall be determined by the estimated selling price of the finished product minus the estimated cost to be incurred at the time of completion, the estimated selling expenses and the relevant taxes and fees. On the balance sheet date, where a part of the same inventory has a contract price and other parts do not have a contract price, the net realizable value thereof shall be determined separately, and compare with the corresponding cost to determine the amount of the provision for inventory depreciation or the amount of the reversal. 4. Inventory system The perpetual inventory system is adopted. 5. Revolving materials are amortized with one-off method. 11. Contract assets, contract liabilities The Company presents contract assets or contract liabilities in the balance sheet based on the relationship between its performance obligations and customers’ payments. Contract assets and contract liabilities under the same contract shall offset each other and be presented on a net basis. The Company presents an unconditional right to consideration (i.e., only the passage of time is required before the consideration is due) as a receivable, and presents a right to consideration in exchange for goods that it has transferred to a customer (which is conditional on something other than the passage of time) as a contract asset. 12.Long-term equity investments 1. Judgment of joint control and significant influence Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of these policies. 169 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 2. Determination of investment cost (1) For business combination under common control, if the consideration of the combining party is that it makes payment in cash, transfers non-cash assets, assumes its liabilities or issues equity securities, on the date of combination, it regards the share of the carrying amount of the equity of the combined party included the consolidated financial statements of the ultimate controlling party as the initial cost of the investment. The difference between the initial cost of the long-term equity investments and the carrying amount of the combination consideration paid or the par value of shares issued offsets capital reserve; if the balance of capital reserve is insufficient to offset, any excess is adjusted to retained earnings. (2) For business combination not under common control, investment cost is initially recognized at the acquisition-date fair value of considerations paid. (3) Long-term equity investments obtained through ways other than business combination: the initial cost of a long-term equity investment obtained by making payment in cash is the purchase cost which is actually paid. 3. Subsequent measurement and recognition method of profit or loss For long-term equity investments with control relationship, it is accounted for with cost method; for long-term equity investments with joint control or significant influence relationship, it is accounted for with equity method. 13. Investment property Investment property measurement model Measurement by cost method Depreciation or amortization method 1. Investment property includes land use right of rent-out property and of property held for capital appreciation and buildings that have been leased out. 2. The initial measurement of investment property is based on its cost, and subsequent measurement is made using the cost model, the depreciation or amortization method is the same as that of fixed assets and intangible assets. 14. Fixed assets (1)Recognition principles of fixed assets Fixed assets are tangible assets held for use in the production of goods or rendering of services, for rental to others, or for administrative purposes, and expected to be used during more than one accounting year. Fixed assets are recognized if, and only if, it is probable that future economic benefits associated with the assets will flow to the Company and the cost of the assets can be measured reliably. (2)Depreciation method of different categories of fixed assets Categories Estimated residual value Annual depreciation rate Depreciation method Useful life (years) proportion (%) (%) Buildings and Straight-line method 20-30 0%、5% 3.17%~5% structures Machinery and Straight-line method 5-12 0%、5% 7.92%~20% equipment 170 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Measurement analysis Straight-line method 5-10 5% 9.50%~19% equipment Vehicle Straight-line method 5-8 0%、5% 11.88%~20% Office equipment and Straight-line method 5-8 0%、5% 11.88%~20% others 15.Construction in progress 1. Construction in progress is recognized if, and only if, it is probable that future economic benefits associated with the item will flow to the Company, and the cost of the item can be measured reliably. Construction in progress is measured at the actual cost incurred to reach its designed usable conditions. 2. Construction in progress is transferred into fixed assets at its actual cost when it reaches the designed usable conditions. When the auditing of the construction in progress was not finished while reaching the designed usable conditions, it is transferred to fixed assets using estimated value first, and then adjusted accordingly when the actual cost is settled, but the accumulated depreciation is not to be adjusted retrospectively. 16.Borrowing costs Where the borrowing costs incurred to the Company can be directly attributable to the acquisition and construction or production of assets eligible for capitalization, it is capitalized and included in the costs of relevant assets; other borrowing costs are recognized as expenses on the basis of the actual amount incurred, and are included in profit or loss. 17.Intangible assets (1) Valuation method, service life, impairment test Intangible assets include land use right, land ownership, application software, patent right and non-patented technology etc. The initial measurement of intangible assets is based on its cost. Intangible assets are amortized by the straight-line method with details as follows: Categories Amortization method Amortization period (years) Land use rights Straight-line method Contractual service life Intellectual Property of Air Conditioning Controller Straight-line method 5-10 Patented technology of electronic expansion valve controller of Straight-line method 10 Dotech Application software Straight-line method 1-4 Intangible assets with indefinite useful life are not amortized, but their useful life is reviewed annually. The indefinite land ownership held by overseas subsidiaries abroad is not amortized due to uncertain service life. (2)Accounting policy for internal R&D expenditure Expenditures on the research phase of an internal project are recognized as profit or loss when it is incurred. An intangible asset arising from the development phase of an internal project is recognized if the Company can 171 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report meet the corresponding conditions. 18.Impairment of part of long-term assets Long-term assets, such as long-term equity investment, investment properties, fixed assets, construction in progress, intangible assets that measured at cost are tested for impairment if there is any indication that an asset may be impaired at the balance sheet date. Impairment test to goodwill and the intangible assets whose using life is not certain shall be carried out at least at the end of each year. Goodwill shall be tested for impairment in combination with its related asset group or combination of asset groups. If the recoverable amount of the aforementioned long-term assets is lower than its book value, the asset impairment provision shall be recognized according to the difference and included in the current profit and loss. 19.Long-term prepayments Long-term prepayments are expenses that have been recognized but with amortization period over one year (excluding one year). They are recorded with actual cost, and evenly amortized within the beneficiary period or stipulated period. If items of long-term prepayments fail to be beneficial to the following accounting periods, residual values of such items are included in profit or loss. 20.Employee benefits (1) Short-term employee benefits The Company recognizes, in the accounting period in which an employee provides service, short-term employee benefits actually incurred as liabilities, with a corresponding charge to profit or loss or the cost of a relevant asset. (2) Post-employment benefits The Company classifies post-employment benefit plans as either defined contribution plans or defined benefit plans. The Company recognizes in the accounting period in which an employee provides service the contribution payable to a defined contribution plan as a liability, with a corresponding charge to profit or loss or the cost of a relevant asset. (3) Termination benefits Termination benefits provided to employees are recognized as an employee benefit liability for termination benefits, with a corresponding charge to profit or loss at the earlier of the following dates: a. when the Company cannot unilaterally withdraw the offer of termination benefits because of an employment termination plan or a curtailment proposal; or b. when the Company recognizes cost or expenses related to a restructuring that involves the payment of termination benefits. (4) Other long-term employee benefits When other long-term employee benefits provided to the employees satisfied the conditions for classifying as a defined contribution plan, those benefits are accounted for in accordance with the requirements relating to defined contribution plan, while other benefits are accounted for in accordance with the requirements relating to defined benefit plan. To simplify the relevant accounting treatment, the Company recognizes the cost of employee benefits arising from other long-term employee benefits as service cost. Net interest on the net liability or net assets of other long-term employee benefits and changes as a result of remeasurement of the net liability or net assets of other long-term employee benefits .The net total of the aforesaid amounts is recognized in profit or loss 172 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report or included in the cost of a relevant asset. 21.Provisions 1. Provisions are recognized when fulfilling the present obligations arising from contingencies such as providing guarantee for other parties, litigation, products quality guarantee, onerous contract, etc., may cause the outflow of the economic benefit and such obligations can be reliably measured. 2. The initial measurement of provisions is based on the best estimated expenditures required in fulfilling the present obligations, and its carrying amount is reviewed at the balance sheet date. 22.Share-based payment 1. Types of share-based payment Share-based payment consists of equity-settled share-based payment and cash-settled share-based payment. 2. Accounting treatment for settlements, modifications and cancellations of share-based payment terms and conditions (1) Equity-settled share-based payment For equity-settled share-based payment transaction with employees, if the equity instruments granted vest immediately, the fair value of those equity instruments is measured at grant date and recognized as transaction cost or expense, with a corresponding adjustment in capital reserve; if the equity instruments granted do not vest until the counterparty completes a specified period of service, at the balance sheet date within the vesting period, the fair value of those equity instruments measured at grant date based on the best estimate of the number of equity instruments expected to vest is recognized as transaction cost or expense, with a corresponding adjustment in capital reserve. For equity-settled share-based payment transaction with parties other than employees, if the fair value of the goods or services received can be measured reliably, the fair value is measured at the date the Company obtains the goods or the counterparty renders service; if the fair value of the goods or services received cannot be measured reliably, the fair value of the equity instruments granted measured at the date the Company obtains the goods or the counterparty renders service is referred to, and recognized as transaction cost or expense, with a corresponding increase in equity. (2) Cash-settled share-based payment For cash-settled share-based payment transactions with employees, if share appreciation rights vest immediately, the fair value of the liability incurred as the acquisition of goods or services is measured at grant date and recognized as transaction cost or expense, with a corresponding increase in liabilities; if share appreciation rights do not vest until the employees have completed a specified period of service, the liability is measured, at each balance sheet date until settled, at the fair value of the share appreciation rights measured at grant date based on the best estimate of the number of share appreciation right expected to vest. (3) Modifications and cancellations of share-based payment terms and conditions If the modification increases the fair value of the equity instruments granted, measured immediately before and after the modification, the Company includes the incremental fair value granted in the measurement of the amount recognized for services received as consideration for the equity instruments granted; similarly, if the modification increases the number of equity instruments granted, the Company includes the fair value of the additional equity instruments granted, measured at the date of the modification, in the measurement of the amount recognized for services received as consideration for the equity instruments granted; if the Company modifies the 173 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report vesting conditions in a manner that is beneficial to the employee, the Company takes the modified vesting conditions into account. If the modification reduces the fair value of the equity instruments granted, measured immediately before and after the modification, the Company does not take into account that decrease in fair value and continue to measure the amount recognized for services received as consideration for the equity instruments based on the grant date fair value of the equity instruments granted; if the modification reduces the number of equity instruments granted to an employee, that reduction is accounted for as a cancellation of that portion of the grant; if the Company modifies the vesting conditions in a manner that is not beneficial to the employee, the Company does not take the modified vesting conditions into account. If the Company cancels or settles a grant of equity instruments during the vesting period (other than a grant cancelled by forfeiture when the vesting conditions are not satisfied), the Company accounts for the cancellation or settlement as an acceleration of vesting, and therefore recognizes immediately the amount that otherwise would have been recognized for services received over the remainder of the vesting period. 23.Revenue Accounting policies used in revenue recognition and measurement 1. Revenue recognition principles At contract inception, the Company shall assess the contracts and shall identify each performance obligation in the contracts, and determine whether the performance obligation should be satisfied over time or at a point in time. The Company satisfies a performance obligation over time if one of the following criteria is met, otherwise, the performance obligation is satisfied at a point in time: (1) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as the Company performs; (2) the customer can control goods or services as they are created by the Company’s performance; (3) the Company’s performance does not create goods or services with an alternative uses and the Company has an enforceable right to payment for performance completed to date. For each performance obligation satisfied over time, the Company shall recognize revenue over time by measuring the progress towards complete satisfaction of that performance obligation. In the circumstance that the progress cannot be measured reasonably, but the costs incurred in satisfying the performance obligation are expected to be recovered, the Company shall recognize revenue only to the extent of the costs incurred until it can reasonably measure the progress. To determine whether the customer has obtained control of goods, the Company shall consider the following indicators: (1) the Company has a present right to payment for the goods, i.e., the customer is presently obliged to pay for the goods; (2) the Company has transferred the legal title of the goods to the customer, i.e., the customer has legal title to the goods; (3) the Company has transferred physical possession of the goods, i.e., the customer has physically possessed the goods; (4) the Company has transferred significant risks and rewards of ownership of the goods, i.e., the customer has obtained significant risks and rewards of ownership of the goods; (5) the customer has accepted the goods; (6) other indicators showing the customer has obtained control over the goods. 2. Revenue measurement principle (1) Revenue is measured at the amount of the transaction price that is allocated to each performance obligation. The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding amounts collected on behalf of third parties and those expected to be refunded to the customer. 174 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report (2) If the consideration promised in a contract includes a variable amount, the Company shall confirm the best estimate of variable consideration at expected value or the most likely amount. However, the transaction price that includes the amount of variable consideration only to the extent that it is high probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. (3) In the circumstance that the contract contains a significant financing component, the Company shall determine the transaction price based on the price that a customer would have paid for if the customer had paid cash for obtaining control over those goods or services. The difference between the transaction price and the amount of promised consideration is amortized under effective interest method over contractual period. (4) For contracts containing two or more performance obligations, the Company shall determine the stand-alone selling price at contract inception of the distinct good underlying each performance obligation and allocate the transaction price to each performance obligation on a relative stand-alone selling price basis. 3. Revenue recognition method (1) The Company mainly sells control components and parts for household appliances and automobile air conditioners. Due to continuous batch supply, product sales revenue is confirmed after delivery inspection and receipt of payment receipts. Export sales revenue is recognized after customs declaration and export and obtaining the bill of lading. (2) Recognition of income from the sale of scrap metal after weighing and taking delivery and obtaining receipts. Differences in revenue recognition accounting policies caused by different business models of similar businesses 24.Government grants 1. Government grants shall be recognized if, and only if, the following conditions are all met: (1) the Company will comply with the conditions attaching to the grants; (2) the grants will be received. Monetary government grants are measured at the amount received or receivable. Non-monetary government grants are measured at fair value, and can be measured at nominal amount in the circumstance that fair value can’t be assessed. 2. Government grants related to assets Government grants related to assets are government grants with which the Company construct or otherwise acquire long-term assets under requirements of government. In the circumstances that there is no specific government requirement, the Company shall determine based on the primary condition to acquire the grants and government grants related to assets are government grants whose primary condition is to construct or otherwise acquire long-term assets. They offset carrying amount of relevant assets or recognized as deferred income. If recognized as deferred income, they are included in profit or loss on a systematic basis over the useful lives of the relevant assets. Those measured at notional amount is directly included into profit or loss. For assets sold, transferred, disposed or damaged within the useful lives, balance of unamortized deferred income is transferred into profit or loss of the year in which the disposal occurred. 3. Government grants related to income Government grants related to income are government grants other than those related to assets. For government grants that contain both parts related to assets and parts related to income, in which those two parts are blurred and thus collectively classified as government grants related to income. For government grants related to income used for compensating the related future cost, expenses or losses of the Company are recognized as deferred income and are included in profit or loss or offset relevant cost during the period in which the relevant cost, expenses or losses are recognized; for government grants related to income used for compensating the 175 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report related cost, expenses or losses incurred to the Company, they are directly included in profit or loss or directly offset relevant cost. 4. Government grants related to the ordinary course of business shall be included into other income or offset relevant cost based on business nature, while those not related to the ordinary course of business shall be included into non-operating revenue or expenditures. 25.Deferred tax assets/Deferred tax liabilities 1. Deferred tax assets or deferred tax liabilities are calculated and recognized based on the difference between the carrying amount and tax base of assets and liabilities (and the difference of the carrying amount and tax base of items not recognized as assets and liabilities but with their tax base being able to be determined according to tax laws) and in accordance with the tax rate applicable to the period during which the assets are expected to be recovered or the liabilities are expected to be settled. 2. A deferred tax asset is recognized to the extent of the amount of the taxable income, which it is most likely to obtain and which can be deducted from the deductible temporary difference. At the balance sheet date, if there is any exact evidence that it is probable that future taxable income will be available against which deductible temporary differences can be utilized, the deferred tax assets unrecognized in prior periods are recognized. 3. At the balance sheet date, the carrying amount of deferred tax assets is reviewed. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow the benefit of the deferred tax asset to be utilized. Such reduction is subsequently reversed to the extent that it becomes probable that sufficient taxable income will be available. 4. The income tax and deferred tax for the period are treated as income tax expenses or income through profit or loss, excluding those arising from the following circumstances: (a) business combination; and (b) the transactions or items directly recognized in equity. 26.Leases 1. Accounting of operating lease When the Company is the lessee, during each period of the lease term, the rent is included in the relevant asset cost or recognized as the current profit and loss according to the straight-line method, and the initial direct expenses incurred are directly included in the current profit and loss. Contingent rents are included in the current profits and losses when they actually occur. When the Company is the lessor, during each period of the lease term, the rent is recognized as the current profit and loss according to the straight-line method, and the initial direct expenses incurred are directly included in the current profit and loss except for the larger amount which is capitalized and included in the profit and loss in installments. Contingent rents are included in the current profits and losses when they actually occur. 2. Accounting of finance lease When the Company is the lessee, on the start date of the lease term, the Company uses the lower of the fair value of the leased asset on the lease start date and the present value of the minimum lease payment as the entry value of the leased asset, and the minimum lease payment as the long-term payable For the recorded value of the loan, the difference is the unrecognized financing cost, and the initial direct cost incurred is included in the value of the leased asset. In each period of the lease period, the actual interest rate method is used to calculate and confirm the current financing costs. When the Company is the lessor, at the beginning of the lease period, the Company uses the sum of the 176 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report minimum lease payment on the lease start date and the initial direct cost as the entry value of the financial lease receivable, and records the unsecured residual value at the same time; collects the minimum lease payment The difference between the sum of initial direct costs and the sum of unguaranteed residual value and the sum of its present value is recognized as unrealized financing income. In each period of the lease period, the actual interest rate method is used to calculate and confirm the current financing income. 27.Other significant accounting policies and estimates Segment reporting Reportable segments are identified based on operating segments which are determined based on the structure of the Company’s internal organization, management requirements and internal reporting system. An operating segment is a component of the Company that: 1. Engages in business activities from which it may earn revenues and incur expenses; 2. Whose financial performance are regularly reviewed by Management to make decisions about resource to be allocated to the segment and assess its performance; and 3. For which financial information regarding financial position, financial performance and cash flows is available. 28. Changes in significant accounting policies and accounting estimates (1) Changes in significant accounting policies √ Applicable □ Not applicable The Company has adopted “CASBE 14 - Revenue” revised by Ministry of Finance of PRC (hereinafter referred to as the “New Revenue Standards”) since January 1, 2020. According to the convergence of the old and new standards, the information of the comparable period will not be adjusted. The cumulative impact of the implementation of the new standards on the first implementation date will be retroactively adjusted to the retained earnings and other relevant items in the financial statements as at January 1, 2020. On January 1, 2020, the new revenue standards have no adjustment impact on the company's retained earnings, other affected financial statement items and amounts are shown below table: Balance sheet Items adjustment impact of new revenue December 31, 2019 January 1, 2020 standards Advance receipts 23,453,218.32 -23,453,218.32 contract liabilities +23,453,218.32 23,453,218.32 (2)Changes in significant accounting estimates □ Applicable √ Not applicable 177 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report (3)Since 2020 , Adjustments to the relevant items of financial statements at the beginning of the year at the first implementation of new revenue and lease standards . Applicable Whether it is necessary to adjust the balance sheet accounts at the beginning of the year √ Yes □ No Consolidated balance sheet Unit: RMB Items December 31, 2019 January 1, 2020 Amount adjusted Current asset: Cash and Bank Balances 2,663,719,770.15 2,663,719,770.15 Settlement funds Loans to other banks Held-for-trading financial assets 993,634,433.31 993,634,433.31 Derivative financial assets 8,314,400.73 8,314,400.73 Notes receivable 2,097,159,908.40 2,097,159,908.40 Accounts receivable 1,871,323,522.82 1,871,323,522.82 Receivable financing Advances paid 62,871,924.30 62,871,924.30 Premium receivable Reinsurance accounts receivable Reinsurance reserves receivable Other receivables 97,394,782.97 97,394,782.97 Including: Interest receivable Dividends receivable Repurchasing of financial assets Inventories 2,180,838,596.07 2,180,838,596.07 Contract assets Assets held for sales Non-current assets due within one year Other current assets 75,933,253.28 75,933,253.28 Total current assets 10,051,190,592.03 10,051,190,592.03 Non-current assets: Loans and advances paid Debt investments Other debt investments 178 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Long-term receivable 2,145,963.27 2,145,963.27 Long-term equity investments 14,522,259.80 14,522,259.80 Other equity instrument investments Other non-current financial assets Investment property 27,025,974.05 27,025,974.05 Fixed assets 3,379,608,199.26 3,379,608,199.26 Construction in progress 480,959,262.46 480,959,262.46 Productive biological assets Oil & gas assets Right-of-use assets Intangible assets 525,867,518.75 525,867,518.75 Development expenditures Goodwill 31,959,091.60 31,959,091.60 Long-term prepayments 8,720,120.64 8,720,120.64 Deferred tax assets 88,952,931.69 88,952,931.69 Other non-current assets 179,238,257.09 179,238,257.09 Total non-current assets 4,738,999,578.61 4,738,999,578.61 Total assets 14,790,190,170.64 14,790,190,170.64 Current liabilities: Short-term borrowings 1,295,610,572.07 1,295,610,572.07 Central bank loans Loans from other banks Held-for-trading financial liabilities Derivative financial liabilities 126,364.40 126,364.40 Notes payable 1,130,668,415.32 1,130,668,415.32 Accounts payable 1,587,763,752.62 1,587,763,752.62 Advances received 23,453,218.32 -23,453,218.32 Contract liabilities 23,453,218.32 23,453,218.32 Selling of repurchased financial assets Absorbing deposit and interbank deposit Deposit for agency security transaction Deposit for agency security underwriting Employee benefits payable 228,997,483.82 228,997,483.82 Taxes and rates payable 58,192,607.75 58,192,607.75 179 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Other payables 161,237,214.88 161,237,214.88 Including: Interest Payable Dividends Payable 1,772,750.00 1,772,750.00 Handling fee and commission payable Reinsurance accounts payable Liabilities classified as held for sale Non-current liabilities due within one year 222,228,097.22 222,228,097.22 Other current liabilities Total current liabilities 4,708,277,726.40 4,708,277,726.40 Non-current liabilities: Insurance policy reserve Long-term borrowings 392,882,280.09 392,882,280.09 Bonds payable Including: Preferred shares Perpetual bonds Lease liabilities Long-term payables 94,235,857.77 94,235,857.77 Long-term employee benefits payable Provisions Deferred income 82,537,550.43 82,537,550.43 Deferred tax liabilities 65,049,361.71 65,049,361.71 Other non-current liabilities 81,788,928.52 81,788,928.52 Total non-current liabilities 716,493,978.52 716,493,978.52 Total liabilities 5,424,771,704.92 5,424,771,704.92 Equity: Share capital 2,765,657,898.00 2,765,657,898.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserve 1,090,800,022.06 1,090,800,022.06 Less: Treasury shares 363,781,151.34 363,781,151.34 Other comprehensive income -39,332,748.50 -39,332,748.50 Special reserve Surplus reserve 559,896,619.39 559,896,619.39 180 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report General risk reserve Undistributed profit 5,278,392,288.84 5,278,392,288.84 Total equity attributable to the parent Company 9,291,632,928.45 9,291,632,928.45 Non-controlling interest 73,785,537.27 73,785,537.27 Total equity 9,365,418,465.72 9,365,418,465.72 Total liabilities & equity 14,790,190,170.64 14,790,190,170.64 Adjustment statement On January 1, 2020, the new revenue standards have no adjustment impact on the company's retained earnings, other affected financial statement items and amounts are shown below table: Balance sheet Items adjustment impact of new revenue December 31, 2019 January 1, 2020 standards Advance receipts 23,453,218.32 -23,453,218.32 contract liabilities +23,453,218.32 23,453,218.32 Balance Sheet of the Parent Company Unit: RMB Items December 31, 2019 January 1, 2020 Amount adjusted Current assets: Cash and bank balances 1,039,915,005.31 1,039,915,005.31 Held-for-trading financial assets 195,000,000.00 195,000,000.00 Derivative financial assets 2,069,850.00 2,069,850.00 Notes receivable 161,946,880.21 161,946,880.21 Accounts receivable 1,135,299,895.98 1,135,299,895.98 Receivables financing Advances paid 6,076,163.25 6,076,163.25 Other receivables 603,257,516.95 603,257,516.95 Including: Interest Receivable Dividends Receivable Inventories 519,241,847.99 519,241,847.99 Contract assets Assets classified as held for sale Non-current assets due within one year Other current assets 21,333,811.35 21,333,811.35 Total current assets 3,684,140,971.04 3,684,140,971.04 181 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Non-current assets: Debt investments Other debt investments Long-term receivable Long-term equity investments 4,256,633,941.06 4,256,633,941.06 Other equity instrument investments Other non-current financial assets Investment property Fixed assets 1,460,855,506.39 1,460,855,506.39 Construction in progress 44,135,844.65 44,135,844.65 Productive biological assets Oil & gas assets Right-of-use assets Intangible assets 189,181,593.94 189,181,593.94 Development expenditures Goodwill Long-term prepayments 625,318.03 625,318.03 Deferred tax assets 17,068,063.08 17,068,063.08 Other non-current assets 109,659,279.90 109,659,279.90 Total non-current assets 6,078,159,547.05 6,078,159,547.05 Total assets 9,762,300,518.09 9,762,300,518.09 Current liabilities: Short-term borrowings 730,799,542.65 730,799,542.65 Held-for-trading financial liabilities Derivative financial liabilities Notes payable Accounts payable 1,431,862,681.89 1,431,862,681.89 Advances received 92,676.29 -92,676.29 Contract liabilities 92,676.29 92,676.29 Employee benefits payable 65,680,254.82 65,680,254.82 Taxes and rates payable 1,576,623.72 1,576,623.72 Other payables 1,252,808,472.44 1,252,808,472.44 Including: interest payable Dividends Payable 1,772,750.00 1,772,750.00 182 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Liabilities classified as held for sale Non-current liabilities due within one year 220,225,194.44 220,225,194.44 Other current liabilities Total current liabilities 3,703,045,446.25 3,703,045,446.25 Non-current liabilities: Long-term borrowings Bonds payable Including: Preferred shares Perpetual bonds Lease liabilities Long-term payables Long-term employee benefits payable Provisions Deferred income 30,895,817.00 30,895,817.00 Deferred tax liabilities 31,296,603.88 31,296,603.88 Other non-current liabilities Total non-current liabilities 62,192,420.88 62,192,420.88 Total liabilities 3,765,237,867.13 3,765,237,867.13 Equity: Share capital 2,765,657,898.00 2,765,657,898.00 Other equity instruments Including: Preferred shares Perpetual bonds Capital reserve 2,005,303,119.53 2,005,303,119.53 Less: treasury shares 363,781,151.34 363,781,151.34 Other comprehensive income Special reserve Surplus reserve 431,209,447.07 431,209,447.07 Undistributed profit 1,158,673,337.70 1,158,673,337.70 Total equity 5,997,062,650.96 5,997,062,650.96 Total liabilities & equity 9,762,300,518.09 9,762,300,518.09 Adjustment statement On January 1, 2020, the new revenue standards have no adjustment impact on the company's retained earnings, Other affected financial statement items and amounts are shown below table: Items Balance sheet 183 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report December 31, 2019 adjustment impact of new revenue standards January 1, 2020 Advance receipts 92,676.29 -92,676.29 contract liabilities +92,676.29 92,676.29 (4)Since 2020 , the statements of first implementation of new revenue and lease standards to trace and adjust previous comparative data. □ Applicable √ Not applicable Ⅵ. Taxes 1. Major categories of taxes and tax rates Tax Type Taxation basis Tax rate The output tax calculated based on the revenue from sales of goods or rendering of VAT services in accordance with the tax law, net of the input tax that is allowed to be deducted 13% in the current period Urban maintenance and The sum of turnover tax payable and value-added tax exemption 5%,7% construction tax Enterprise income tax Taxable income 15%,25% Different enterprise income tax rates applicable to different taxpayers: Taxpayers Income tax rate Zhejiang Sanhua Intelligent Controls Co., Ltd 15% Zhejiang Sanhua Climate and Appliance Controls Group Co., Ltd 15% Wuhu Sanhua Auto-control Components Co., Ltd 15% Zhejiang Sanhua Automotive Components Co., Ltd. 15% Sanhua (hangzhou) Micro Channel Heat Exchanger Co., Ltd 15% Hangzhou Leaderway Electronics Co. Ltd 15% Zhuhai Hengtu Electronics Co., Ltd. 15% Wuhu Sanhua Refrigeration Fittings Co. Ltd 15% Sanhua (Jiangxi) Self - control Components Co., Ltd. 15% Wuhan Sanhua Refrigeration Parts Co., Ltd 15% Sanhua AWECO Appliance Systems (Wuhu) Co., Ltd. 15% Domestic taxpayers other than the above-mentioned 25% 184 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 2. Tax preferential policies 1.Enterprise income tax Being categorized as high-tech enterprises, the income tax of the Company and several subsidiaries for 2020 are temporarily calculated at a preferential tax rate of 15%, and the final income tax settlement shall prevail. 2.Value-added tax Several subsidiaries are welfare enterprises and can enjoy the preferential policy of "VAT refund". The exceeding portion over the 3% VAT payable of the certified software products enjoy the immediate refund policy. Export goods enjoy the VAT exemption and refund policy. 3. Others The overseas subsidiary shall be subject to the tax regulations of its host country. Ⅶ. Notes to Items in the Consolidated Financial Statements 1. Cash and bank balances Unit: RMB Items Closing balance Opening balance Cash on hand 232,265.51 417,814.58 Cash in bank 3,411,034,773.03 2,553,365,200.43 Other cash and bank balances 78,420,529.60 109,936,755.14 Total 3,489,687,568.14 2,663,719,770.15 Including: Deposited overseas 370,754,548.72 488,694,193.85 The total amount of the cash and bank balances that are limited by 89,543,529.60 109,936,755.14 mortgage, pledge or freeze Other remarks: As of December 31, 2020, bank deposits containing large deposit certificates with fixed interest rates amounted to 1,629 million yuan. 2. Held-for-trading financial assets Unit: RMB Items Closing balance Opening balance Financial assets at fair value through 752,224,861.78 993,634,433.31 profit or loss Including: Bank financial products 752,224,861.78 993,634,433.31 185 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Including: Total 752,224,861.78 993,634,433.31 Other remarks: 3. Derivative Financial Assets Unit: RMB Items Closing balance Opening balance Foreign exchange tool 49,339,961.11 3,371,510.40 Futures tools 8,990,525.42 4,942,890.33 Total 58,330,486.53 8,314,400.73 Other remarks: 4. Notes receivable (1)Categories of notes receivable Unit: RMB Items Closing balance Opening balance Bank acceptance 2,190,368,328.70 1,981,778,291.59 Trade acceptance 133,566,452.83 115,381,616.81 Total 2,323,934,781.53 2,097,159,908.40 Unit: RMB Closing balance Opening balance Provision for bad Provision for bad Book balance Book balance debt debt Categories Provisi Carrying Amount Propor Amount Provisi Carrying Propor on amount tion on amount Amount Amount tion propor propor tion tion Including: Notes receivable with 2,330,9 provision 100.00 7,029,81 2,323,934,7 2,103,232,6 100.00 6,072,71 2,097,159,9 64,594. 0.30% 0.29% for bad debt % 3.30 81.53 25.08 % 6.68 08.40 83 made on a collective basis 186 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Including: 2,190,3 Bank 93.97 2,190,368,3 1,981,778,2 94.23 1,981,778,2 68,328. acceptance % 28.70 91.59 % 91.59 70 Trade 140,596 7,029,81 133,566,45 121,454,33 6,072,71 115,381,61 6.03% 5.00% 5.77% 5.00% acceptance ,266.13 3.30 2.83 3.49 6.68 6.81 2,330,9 100.00 7,029,81 2,323,934,7 2,103,232,6 100.00 6,072,71 2,097,159,9 Total 64,594. 0.30% 0.29% % 3.30 81.53 25.08 % 6.68 08.40 83 Provision for bad debt made on a collective basis: Unit: RMB Closing balance Items Book balance Provision for bad debt Provision proportion (%) Bank acceptance portfolio 2,190,368,328.70 Trade acceptance portfolio 140,596,266.13 7,029,813.30 5.00% Total 2,330,964,594.83 7,029,813.30 -- Remarks on the determination basis of portfolio: If the provision for bad debt of notes receivable is in accordance with the general expected credit loss model, please refer to the disclosure of the bad debt provision for other receivables: √ Applicable □ Not Applicable Provision for bad debt Phase I Phase II Phase III Subtotal 12 month expected credit Lifetime expected credit losses Lifetime expected credit losses (credit losses (credit not impaired) impaired) Balance on January 1, 6,072,716.68 6,072,716.68 2020 The balance as of —— —— —— —— January 1, 2020 is in the current period --Transferred to phase II --Transferred to phase III --Reversed to phase II --Reversed to phase I Provision made in the 957,096.62 957,096.62 current period Provision recovered in current period 187 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Provision reversed in current period Provision written off in current period Other changes Balance on December 7,029,813.30 7,029,813.30 31, 2020 (2)Provision for bad debt accrued, recovered or reversed in current period Provision for bad debt accrued in current period: Unit: RMB Changed amount of this period Opening Closing Categories Recovered or balance Accrual Write off Others balance reversed Trade acceptance 6,072,716.68 957,096.62 7,029,813.30 Total 6,072,716.68 957,096.62 7,029,813.30 Including significant provision for bad debt recovered or reversed amount: □ Applicable √ Not Applicable (3)Pledged notes at the balance sheet date Unit: RMB Items Closing balance of pledged notes Bank acceptance 1,608,722,846.32 Total 1,608,722,846.32 (4)Endorsed or discounted but undue notes at the balance sheet date Unit: RMB Items Closing balance derecognized Closing balance not yet derecognized Bank acceptance 36,221,098.39 Trade acceptance 101,893,140.59 17,493,416.00 Total 138,114,238.98 17,493,416.00 5. Accounts receivable (1)Disclosure of accounts receivable by categories Unit: RMB 188 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Closing balance Opening balance Provision for bad Provision for bad Book balance Book balance debt debt Categor Amount Propor Amount Accru Carrying Amount Propor Amount Accru Carrying ies tion ed amount tion ed amount propor propor tion tion Receiva bles with provisi on 100.00 447,139. 100.00 57,335.28 0.00% 57,335.28 0.00 447,139.67 0.02% 0.00 made % 67 % on an individ ual basis Includi ng: Receiva bles with provisi 2,481,072, 100.00 125,458,7 2,355,613, 1,970,386, 99.98 99,063,4 1,871,323, on 5.06% 5.03% 027.67 % 28.10 299.57 982.39 % 59.57 522.82 made on a collecti ve basis Includi ng: 2,481,129, 100.00 125,516,0 2,355,613, 1,970,834, 100.00 99,510,5 1,871,323, Total 5.06% 5.05% 362.95 % 63.38 299.57 122.06 % 99.24 522.82 Provision made on an individual basis: Unit: RMB Closing balance Debtors Book balance Provision for bad debts Accrued proportion Reasons MAHLE BEHR MEXICO S. DE R.L. 57,335.28 57,335.28 100.00% DE .C.V. Total 57,335.28 57,335.28 -- -- 189 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Provision made on a collective basis: Unit: RMB Closing balance Items Book balance Provision for bad debt Accrued proportion Within 1 year 2,460,804,171.04 123,040,285.50 5.00% 1 to 2 years 18,791,491.28 1,879,149.13 10.00% 2 to 3 years 994,446.02 298,333.81 30.00% Over 3 years 481,919.33 240,959.66 50.00% Total 2,481,072,027.67 125,458,728.10 -- Remarks on the determination basis of portfolio: If the provision for bad debt of accounts receivable is in accordance with the general expected credit loss model, please refer to the disclosure of bad debt provision for other receivables: √Applicable □ Not Applicable Provision for bad debt Phase I Phase II Phase III Subtotal 12 month expected Lifetime expected credit losses Lifetime expected credit losses (credit credit losses (credit not impaired) impaired) Balance on January 1, 2020 99,063,459.57 447,139.67 99,510,599.24 The balance as of January 1, 2020 —— —— —— —— is in the current period --Transferred to phase II --Transferred to phase III --Reversed to phase II --Reversed to phase I Provision made in the current 27,590,321.86 27,590,321.86 period Provision recovered in current 3,965.64 3,965.64 period Provision reversed in current period 1,195,053.33 385,838.75 1,580,892.08 Provision written off in current period Other changes Balance on December 31, 2020 125,458,728.10 57,335.28 125,516,063.38 Disclosure by aging Unit: RMB Aging Book balance Within 1 year 2,460,804,171.04 1 to 2 years 18,791,491.28 2 to 3 years 994,446.02 190 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Over 3 years 539,254.61 Total 2,481,129,362.95 (2)Provision for bad debt accrued, recovered or reversed in current period Provision for bad debt accrued in current period: Unit: RMB Changed amount of the current period Opening Closing Categories Recovered or balance Accrued Write off Others balance reversed Receivables with provision 447,139.67 3,965.64 385,838.75 57,335.28 made on an individual basis Receivables with provision 99,063,459.57 27,590,321.86 1,195,053.33 125,458,728.10 made on a collective basis Total 99,510,599.24 27,590,321.86 3,965.64 1,580,892.08 125,516,063.38 (3)Details of the top 5 debtors with largest balances Closing balance of top 5 debtors totaled 932,049,433.02 yuan(Customer controlled by the same actual controller shall be combined to calculate accounts receivable), accounting for 37.57% of the total closing balance of accounts receivable, and provision for bad debts made thereon totaled 46,602,471.64 yuan. Other remarks: In current period, the Company write-off a total of small sporadic accounts 1,580,892.08 yuan. 6. Advances paid (1)Advances paid by aging Unit: RMB Closing balance Opening balance Aging Amount Percentage Amount Percentage Within 1 year (including 1 year) 61,348,884.20 88.39% 59,688,137.51 94.94% 1 to 2 years 6,712,609.39 9.67% 1,274,082.94 2.03% 2 to 3 years 64,117.70 0.09% 1,799,865.58 2.86% Over 3 years 1,278,715.16 1.84% 109,838.27 0.17% Total 69,404,326.45 -- 62,871,924.30 -- Remarks on reasons for unsettled significant advances paid with aging over one year: 191 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report (2)Top 5 debtors with the largest advances paid balances Closing balance of top 5 debtors totaled 17,243,886.66 yuan, accounting for 24.85% of the total closing balance of advances paid. Other remarks: 614,646.44 yuan of Advances paid written off in current period. 7. Other receivables Unit: RMB Items Closing balance Opening balance Other receivables 76,935,495.05 97,394,782.97 Total 76,935,495.05 97,394,782.97 (1)Other receivables 1)Other receivables categorized by nature Unit: RMB Items Closing balance Opening balance Tax refund receivable 36,628,075.87 46,670,909.67 Guarantee deposits 30,801,053.14 30,166,732.62 Others 11,700,014.42 23,292,984.90 Total 79,129,143.43 100,130,627.19 2)Provision of bad debt Unit: RMB Phase I Phase II Phase III 12 month Provision for bad debt Lifetime expected credit Lifetime expected credit Subtotal expected credit losses (credit not impaired) losses (credit impaired) losses Balance on January 1, 1,439,293.10 1,296,551.12 2,735,844.22 2020 The balance as of January 1, 2020 is in —— —— —— —— the current period Provision made in the 40,686.78 40,686.78 current period Provision recovered in 582,882.62 582,882.62 current period 192 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Balance on December 856,410.48 1,337,237.90 2,193,648.38 31, 2020 Loss provisions for significant changes in book balances in current period □ Applicable √ Not Applicable Disclose by aging Unit: RMB Aging Closing balance Within 1 year (including 1 year) 856,410.48 1 to 2 years 257,412.63 2 to 3 years 458,330.02 Over 3 years 621,495.25 Total 2,193,648.38 3)Provision for bad debt accrued, recovered or reversed in current period Provision for bad debt accrued in current period: Unit: RMB Changed amount of the current period Opening Closing Categories Recovered or Write balance Accrued Others balance reversed off Receivables with provision made on a 2,735,844.22 40,686.78 582,882.62 2,193,648.38 collective basis Total 2,735,844.22 40,686.78 582,882.62 2,193,648.38 4)Details of the top 5 debtors with largest balances Unit: RMB Proportion to the Provision for bad Nature of Items Closing balance Ages total balance of debt at the end of receivables other receivables the period Tax refund Tax refund 36,628,075.87 1 to 2 years 46.29% receivables Finance Bureau of Performance bond 6,971,285.00 1 to 3 years 8.81% Xinchang County Shaoxing Binhai Performance bond New City for land and 5,410,000.00 2 to 4 years 6.84% Management project Committee construction Xinchang County Deposit of 3,774,000.00 4 to 8 years 4.77% 193 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Land Reserve construction Development projects Center Wuhu Yijiang Deposit of District Finance construction 3,751,000.00 2 to 4 years 4.74% Bureau projects Total -- 56,534,360.87 -- 71.45% 5)Other receivables related to Government grants Unit: RMB Estimated receipt time, Items Government grant Closing balance Ages amount and basis From January to April, Local finance and VAT refund of civil Within 1 1,929,944.96 2021, Tax refund taxation departments welfare enterprises year(including 1 year) return 8. Inventories Whether the Company needs to comply with the disclosure requirements of the real estate industry No (1)Categories of inventories Unit: RMB Closing balance Opening balance Provision for Provision for decline in decline in value of value of inventories or inventories or Items Book balance provision for Carrying amount Book balance provision for Carrying amount impairment of impairment of contract contract performance performance costs costs Raw materials 530,578,235.34 38,591,465.21 491,986,770.13 402,017,918.68 29,042,388.91 372,975,529.77 Work-in-progress 377,607,984.60 661,948.94 376,946,035.66 312,143,395.71 4,759,164.75 307,384,230.96 Finished goods 1,488,998,382.81 55,323,878.13 1,433,674,504.68 1,558,291,038.03 58,630,244.52 1,499,660,793.51 Others 5,154,395.99 5,154,395.99 818,041.83 818,041.83 Total 2,402,338,998.74 94,577,292.28 2,307,761,706.46 2,273,270,394.25 92,431,798.18 2,180,838,596.07 194 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report (2)Provision for decline in value of inventories and Provision for impairment of contract performance costs Unit: RMB Increase in current period Decrease in current period Items Opening balance Closing balance Accrued Others Reversal or write off Others Raw materials 29,042,388.91 18,516,287.33 381,887.15 9,349,098.18 38,591,465.21 Work-in-progress 4,759,164.75 425,935.69 31,395.32 4,554,546.82 661,948.94 Finished goods 58,630,244.52 39,730,315.82 33,833.49 43,070,515.70 55,323,878.13 Others 92,431,798.18 58,672,538.84 447,115.96 56,974,160.70 94,577,292.28 The determination of the net realizable value of the excess & obsolete inventories of metal materials at the end of the period is the scrap metal recovery price. The determination of the net realizable value of the excess & obsolete inventories of electronic components is RMB 0. 9. Other current assets Unit: RMB Items Closing balance Opening balance Deductible input tax 100,377,659.11 41,622,415.21 Prepaid Enterprise income tax 49,911,203.33 33,856,030.95 Others 171,625.57 454,807.12 Total 150,460,488.01 75,933,253.28 Other remarks: 10. Long-term receivable (1)Long-term receivable Unit: RMB Closing balance Opening balance Range of Items Book Provision for Carrying Book Provision for Carrying discount rate balance bad debt amount balance bad debt amount Employee home 2,074,750.00 2,074,750.00 2,145,963.27 2,145,963.27 loan Total 2,074,750.00 2,074,750.00 2,145,963.27 2,145,963.27 -- Impairment of provision for bad debt Unit: RMB Phase I Phase II Phase III Provision for bad debt Lifetime expected credit Total 12 month Lifetime expected credit losses (credit not impaired) 195 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report expected credit losses (credit impaired) losses The balance as of January 1, 2020 is in —— —— —— —— the current period Loss provisions for significant changes in book balances in current period □ Applicable √ Not Applicable 11. Long-term equity investments Unit: RMB Increase/decrease in current period Openin Investm Cash Closing Closing g ent Adjust dividen balance balance balance Investm Investm income ment in Change ds or Provisi of Investe (Carryi (Carryi ent ent recogni other s in profit on for provisi es Others ng ng increas decreas zed compre other declare impair on for amount amount ed ed under hensive equity d to ment impair ) ) equity income distribu ment method tion Ⅰ. Joint ventures Ⅱ.Associates Guochu ang Energy Internet Innovat 1,493,7 31,533. 1,525,2 ion 18.98 78 52.76 Center (Guang dong) Co., Ltd. Chongq ing Tainuo 8,847,7 2,049,1 1,500,0 9,396,9 Machin 28.00 76.73 00.00 04.73 ery Co., Ltd. Nancha 2,335,2 431,89 1,250,0 1,517,1 ng 42.16 6.79 00.00 38.95 Sanhua 196 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Jinlifen g Machin ery Co., Ltd. Zhongs han Sanhua 27,971. -27,971 Tainuo 57 .57 Machin ery Co., Ltd. Ningbo Jinlifen g 1,250,0 -187,79 1,062,2 Machin 00.00 0.82 09.18 ery Co., Ltd. Qingda o Sanhua Jinlifen 0.00 0.00 g Machin ery Co., Ltd. Zhongs han Xuanyi Pipe 1,817,5 -99,488 1,718,1 Manufa 99.09 .03 11.06 cturing Co., Ltd. Xincha ng zhejian g energy 0.00 sanhua compre hensive energy 197 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report co. LTD Subtota 14,522, 1,250,0 2,197,3 2,750,0 15,219, l 259.80 00.00 56.88 00.00 616.68 14,522, 1,250,0 2,197,3 2,750,0 15,219, Total 259.80 00.00 56.88 00.00 616.68 Other remarks: Zhongshan Sanhua Tainuo Machinery Co., Ltd. has been liquidated and cancelled in May 2020; Qingdao Sanhua Jinlifeng Machinery Co., Ltd. has been insolvent, the equity investment has been reduced to zero yuan; As of December 31, 2020, the Company has not paid capital contribution to Xinchang zhejiang energy sanhua comprehensive energy co. LTD. 12. Investment property (1)Investment property measured by cost method √ Applicable □ Not Applicable Unit: RMB Land use right and Buildings and Construction in Items Overseas land Total structures progress ownership Ⅰ. Original Carrying amount 1.Opening balance 36,137,499.11 10,455,622.00 46,593,121.11 2.Increase in current 496,203.06 92,389.50 588,592.56 period (1)Acquisition (2)Transferred in from inventory\fixed assets\ construction in progress (3)Acquisition (4)Converted difference in Foreign 496,203.06 92,389.50 588,592.56 Currency Statements 3.Decrease in current 23,990,274.63 7,008,986.50 30,999,261.13 period (1)Disposal (2)Other transfer out 23,990,274.63 7,008,986.50 30,999,261.13 198 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report 4.Closing balance 12,643,427.54 3,539,025.00 16,182,452.54 Ⅱ. Accumulated depreciation and amortization 1.Opening balance 17,507,685.84 2,059,461.22 19,567,147.06 2. Increase in current 2,022,581.60 152,000.96 2,174,582.56 period (1)Accrual or 1,868,715.21 152,000.96 2,020,716.17 amortization (2)Converted difference in Foreign 153,866.39 153,866.39 Currency Statements 3.Decrease in current 13,415,403.86 2,211,462.18 15,626,866.04 period (1)Disposal (2)Other transfer out 13,415,403.86 2,211,462.18 15,626,866.04 4.Closing balance 6,114,863.58 0.00 6,114,863.58 Ⅲ. Provision for impairment 1.Opening balance 2. Increase in current period (1)Accrual 3.Decrease in current period (1)Disposal (2)Other transfer out 4.Closing balance Ⅳ. Carrying amount 1.Closing balance 6,528,563.96 3,539,025.00 10,067,588.96 2.Opening balance 18,629,813.27 8,396,160.78 27,025,974.05 199 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report (2)Investment property measured by fair value measurement model □Applicable √ Not Applicable 13. Fixed assets Unit: RMB Items Closing balance Opening balance Fixed assets 3,839,408,059.45 3,379,608,199.26 Total 3,839,408,059.45 3,379,608,199.26 (1)Fixed assets Unit: RMB Measurement Office and Buildings and Machinery and Transportation Items analysis other Total structures equipment vehicles equipment equipment Ⅰ. Original book value: 1.Opening 2,157,358,358.56 3,050,563,131.59 77,768,081.99 40,349,952.76 224,254,779.28 5,550,294,304.18 balance 2. Increase in 179,894,850.42 630,215,430.99 45,114,238.58 4,138,500.40 23,166,682.85 882,529,703.24 current period (1) 288,029,626.86 47,886,534.10 3,941,780.75 24,414,404.42 364,272,346.13 Acquisition (2) Transferred in from 156,700,627.31 355,635,406.70 512,336,034.01 construction in progress (3)Business combination (4) Transferred in from 23,990,274.63 23,990,274.63 investment property (5)Converted difference in -796,051.52 -13,449,602.57 -2,772,295.52 196,719.65 -1,247,721.57 -18,068,951.53 Foreign 200 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Currency Statements 3. Decrease in current 1,502,733.97 41,528,655.81 7,430,735.15 4,134,274.16 10,482,475.03 65,078,874.12 period (1)Disposal 1,502,733.97 41,528,655.81 7,430,735.15 4,134,274.16 10,482,475.03 65,078,874.12 or scrap 4.Closing 2,335,750,475.01 3,639,249,906.77 115,451,585.42 40,354,179.00 236,938,987.10 6,367,745,133.30 balance Ⅱ. Accumulated depreciation 1.Opening 509,863,544.24 1,443,454,422.50 32,773,108.28 30,515,107.61 150,112,811.87 2,166,718,994.50 balance 2. Increase in 101,917,323.57 268,939,442.23 10,667,330.59 3,737,219.17 20,793,012.83 406,054,328.39 current period (1)Accrual 88,427,646.32 273,088,826.33 10,986,039.75 3,683,051.46 20,383,788.57 396,569,352.43 (2)Transferred in from 13,415,403.86 13,415,403.86 investment property (3) Converted difference in Foreign 74,273.39 -4,149,384.10 -318,709.16 54,167.71 409,224.26 -3,930,427.90 Currency Statements 3. Decrease in current 33,917,352.83 3,341,088.05 3,848,249.47 7,023,889.37 48,130,579.72 period (1)Disposal 33,917,352.83 3,341,088.05 3,848,249.47 7,023,889.37 48,130,579.72 or scrap 4.Closing 611,780,867.81 1,678,476,511.90 40,099,350.82 30,404,077.31 163,881,935.33 2,524,642,743.17 balance Ⅲ. Provision for impairment 1.Opening 3,967,110.42 3,967,110.42 201 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report balance 2. Increase in current period (1)Accrual 3. Decrease in current 272,779.74 272,779.74 period (1)Disposal 272,779.74 272,779.74 or scrap 4.Closing 3,694,330.68 3,694,330.68 balance Ⅳ. Carrying amount 1.Closing 1,723,969,607.20 1,957,079,064.19 75,352,234.60 9,950,101.69 73,057,051.77 3,839,408,059.45 balance 2.Opening 1,647,494,814.32 1,603,141,598.67 44,994,973.71 9,834,845.15 74,141,967.41 3,379,608,199.26 balance (2)Fixed assets leased through financial leasing Unit: RMB Original book Provision for Items Accumulated depreciation Carrying amount value impairment Buildings and structures 146,648,653.71 27,861,243.95 118,787,409.76 (3)Fixed assets with certificate of titles being unsettled Unit: RMB Items Carrying amount Reasons for unsettlement New assets, the certificate of title to be Finished goods warehouse in Meizhu 21,125,640.86 processed uniformly after the overall North district completion New assets, the certificate of title to be 13# factory in Meizhu North district 75,558,844.91 processed uniformly after the overall completion New assets, the certificate of title to be Staff dormitory in Meizhu (Phase II) 22,741,997.90 processed uniformly after the overall 202 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report completion New assets, the certificate of title to be 14# factory in Meizhu North district 24,243,958.39 processed uniformly after the overall completion New assets, the certificate of title to be 15# factory in Meizhu North district 59,110,510.38 processed uniformly after the overall completion New assets, the certificate of title to be Shaoxing new energy plant (PhaseⅠ) 156,481,398.95 processed uniformly after the overall completion Subtotal 359,262,351.39 Other remarks 14. Construction in progress Unit: RMB Items Closing balance Opening balance Construction in progress 628,730,529.07 480,959,262.46 Total 628,730,529.07 480,959,262.46 (1)Details of construction in progress Unit: RMB Closing balance Opening balance Provision Book balance Provision Carrying Items Carrying Book balance for for amount amount impairment impairment Annual production of 7.3 million sets of new energy 145,885,533.67 145,885,533.67 78,050,708.13 78,050,708.13 vehicle thermal management system components project Annual production of 12.7 million sets of automotive air 50,740,941.36 50,740,941.36 conditioning control components project Annual production of 11.5 million sets of new energy 78,290,263.60 78,290,263.60 100,809,231.62 100,809,231.62 auto parts project Annual production of 65 25,812,948.25 25,812,948.25 13,815,107.62 13,815,107.62 million sets of commercial 203 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report refrigeration and air conditioning intelligent control components construction project Annual production of 1.5 million sets of new energy 88,939,186.18 88,939,186.18 thermal management components project Annual production of 1 million sets of new energy 3,772,038.19 3,772,038.19 2,877,561.33 2,877,561.33 vehicle air-conditioning thermal sensors project Annual output of 50.5 million sets of high efficiency and energy saving refrigeration 11,841,050.00 11,841,050.00 and air conditioning control components technology transformation projects Vietnam industrial plant 80,569,043.24 80,569,043.24 32,155,560.02 32,155,560.02 project Others 193,620,465.94 193,620,465.94 202,510,152.38 202,510,152.38 Total 628,730,529.07 628,730,529.07 480,959,262.46 480,959,262.46 (2)Changes of significant construction in progress in current period 204 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Unit: RMB Other Including Transferred Accumulat Completio Accumulat Capitalizati amounts : Increased in to fixed ed n ed amount on rate for Fund Opening decrease Closing capitalize Items Budget current assets in investment percentag of interest in sourc balance d in balance d interest period the current to budget e capitalized current e current in current period (%) (%) interest period period period Annual production of 7.3 million sets of new energy Raise 78,050,708.1 193,044,503. 125,209,677. 145,885,533. vehicle 468,600,000.00 72.65% d 3 01 47 67 thermal funds management system components project Annual production of 12.7 million sets of Raise automotive 50,740,941.3 40,996,513.0 91,737,454.3 215,000,000.00 84.92% d air 6 0 6 funds conditioning control components project 205 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report Annual production of Raise 11.5 million 100,809,231. 204,228,155. 226,747,123. 78,290,263.6 528,800,000.00 77.62% d sets of new 62 29 31 0 funds energy auto parts project Annual production of 65 million sets of commercial refrigeration 1,780,550,000. 13,815,107.6 35,354,907.1 23,357,066.4 25,812,948.2 and air 2.76% Other 00 2 2 9 5 conditioning intelligent control components construction project Annual production of 1.5 million sets of new 89,223,942.5 88,939,186.1 energy 500,000,000.00 284,756.33 17.84% Other 1 8 thermal management components project Annual 44,786,000.00 2,877,561.33 3,134,251.83 2,239,774.97 3,772,038.19 45.81% Other 206 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report production of 1 million sets of new energy vehicle air-conditioni ng thermal sensors project Annual output of 50.5 million sets of high efficiency and energy saving refrigeration 11,984,150.0 11,841,050.0 785,570,000.00 143,100.00 1.53% Other and air 0 0 conditioning control components technology transformatio n projects Vietnam 28 million 32,155,560.0 50,790,156.7 80,569,043.2 industrial 2,376,673.48 43.04% Other dollars 2 0 4 plant project 278,449,110. 628,756,579. 472,095,626. 435,110,063. Total -- -- -- 08 46 41 13 207 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 15. Intangible Assets (1)Details of intangible assets Unit: RMB Patent RANCO Intellectu technolo AWECO intellect al gy of Pate Non-pa Overseas intellectua ual property Dotech Land use nt tent land l property property right of electroni Items Software Total right righ technol ownershi and and air c t ogy p business business condition expansio resources resource er n s controller controlle r Ⅰ. Original Carrying amount 1.Openin 553,075,8 29,413,80 103,486,7 1,758,47 42,150,17 6,634,36 27,892,66 764,412,1 g 49.31 1.81 89.02 9.45 5.56 4.80 1.59 21.54 balance 2.Increas 3,549,435. -468,175. 5,340,843 8,422,104. ed in 90 30 .60 20 current period (1) 5,092,556 5,092,556. Acquisiti .73 73 on (2) Internal research and develop ment (3) 208 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Business combinat ion (4) Transferr ed in 7,008,986. 7,008,986. from 50 50 investme nt property (5) Effect of Foreign -3,459,550 -468,175. 248,286.8 -3,679,439 Currency .60 30 7 .03 Translati on 3.Decrea 4,205,497. 103,486,7 1,758,47 109,450,7 sed in 60 89.02 9.45 66.07 current period 4,205,497. 103,486,7 1,758,47 109,450,7 (1) 60 89.02 9.45 66.07 Disposal 4.Closin 552,419,7 28,945,62 42,150,17 6,634,36 33,233,50 663,383,4 g 87.61 6.51 5.56 4.80 5.19 59.67 balance Ⅱ. Accumul ated amortiza tion 1.Openin 86,030,55 205,745.3 103,485,8 363,239. 21,257,29 552,863. 22,519,43 234,414,9 g 9.93 7 54.20 45 5.24 70 8.24 96.13 balance 13,422,24 108,835.5 1,395,24 3,895,017 663,436. 3,340,113 22,825,82 2.Increas 934.82 4.12 9 0.00 .60 44 .70 2.27 ed in 209 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. current period 11,210,78 129,122.4 1,395,24 3,895,017 663,436. 3,111,730 20,406,26 (1) 934.82 1.94 5 0.00 .60 44 .16 3.41 Accrual (2) Transferr ed in 2,211,462. 2,211,462. from 18 18 investme nt property (3) Converte d differenc -20,286.8 228,383.5 208,096.6 e in 6 4 8 Foreign Currency Statemen ts 3. Decrease 168,219.9 103,486,7 1,758,47 105,413,4 d in 0 89.02 9.45 88.37 current period 168,219.9 103,486,7 1,758,47 105,413,4 (1) 0 89.02 9.45 88.37 Disposal 4.Closin 99,284,58 314,580.9 25,152,31 1,216,30 25,859,55 151,827,3 g 4.15 6 2.84 0.14 1.94 30.03 balance Ⅲ. Provisio n for impairm ent 4,129,606 4,129,606. 210 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 1.Openin .66 66 g balance 2. Increase -267,149. -267,149.9 d in 95 5 current period (1) Accrual (2) Converte d differenc -267,149. -267,149.9 e in 95 5 Foreign Currency Statemen ts 3. Decrease d in current period (1) Disposal 4.Closin 3,862,456 3,862,456. g .71 71 balance Ⅳ. Carrying amount 1.Closin 453,135,2 24,768,58 16,997,86 5,418,06 7,373,953 507,693,6 g 03.46 8.84 2.72 4.66 .25 72.93 balance 467,045,2 25,078,44 934.82 1,395,24 20,892,88 6,081,50 5,373,223 525,867,5 211 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 2.Openin 89.38 9.78 0.00 0.32 1.10 .35 18.75 g balance At the balance sheet date, intangible assets formed from internal R&D account for 0.00% of total closing balance of intangible assets. 16. Goodwill (1)Original Carrying amount of goodwill Unit: RMB Decreased in current Increased in current period Investee or events resulting in Opening period Closing goodwill balance Due to business balance Disposal combination R-Squared Puckett Inc. 31,959,091.60 31,959,091.60 Total 31,959,091.60 31,959,091.60 (2)Provision for goodwill impairment Unit: RMB Investee or Increased in current period Decreased in current period Opening Closing events resulting balance Provision made … Disposal … balance in goodwill Total Related information of asset group or asset group portfolios which include goodwill Impairment test process, the key parameters(Such as expected future cash flow when the present value of the forecast period growth rate, stable period growth rate, profit margin, discount rate, forecast period) , and conclusion of goodwill impairment loss: Based on December 31, 2020, the Company performed an impairment test on the value of the microchannel asset group portfolio. The recoverable amount of the asset group portfolio is estimated by the income method. Pre-tax free cash flow for the next five years is based on projections,It's been stable over the years,the pre-tax discount rate is determined to be13.80%. After testing, the recoverable amount of the microchannel asset group portfolio is greater than the carrying amount,the management of the company believes that there is no sign of impairment of goodwill and there is no need to make provision for impairment losses. Impact of goodwill impairment tests Other remarks 17. Long-term prepayments Unit: RMB 212 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Increased in Items Opening balance Amortization Other decreases Closing balance current period Plant renovation 7,223,760.94 20,684,610.31 4,201,969.64 23,706,401.61 expenditure Compensated use fee for emission 968,938.03 968,938.03 rights Tools 527,421.67 527,421.67 Total 8,720,120.64 20,684,610.31 5,698,329.34 23,706,401.61 Other remarks 18. Deferred tax assets / deferred tax liabilities (1)Deferred tax assets before offset Unit: RMB Closing balance Opening balance Items Deductible Deferred tax Deductible Deferred tax temporary difference assets temporary difference assets Unrealized profit from internal transactions 180,209,650.54 17,242,885.11 223,604,977.62 25,040,965.45 Deductible losses 153,097,367.85 32,871,988.62 72,228,904.20 13,514,908.45 Provision for bad debt 78,915,609.30 15,835,440.18 71,519,997.24 14,114,166.19 Provision for inventory write-down 67,642,565.60 11,282,463.93 69,518,382.06 11,230,078.81 Deferred income: government grants 140,105,328.43 22,782,106.08 82,537,550.43 12,800,632.56 Provision for fixed assets impairments 3,694,330.68 554,149.61 3,898,415.90 584,762.39 Floating loss on derivatives 300,000.00 45,360.00 126,364.40 18,954.66 The share-paid remuneration without pre-tax deduction calculated according to the 70,222,810.23 11,050,883.17 12,577,025.65 1,993,619.83 accounting standard The expected additional deductible share-based remuneration in the future period calculated 139,395,300.30 22,008,772.76 34,658,546.38 5,493,823.94 according to the tax standard Provisional cost estimate 27,565,532.12 4,134,829.82 27,740,129.55 4,161,019.41 Total 861,148,495.05 137,808,879.28 598,410,293.43 88,952,931.69 (2)Deferred tax liabilities before offset Unit: RMB 213 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Closing balance Opening balance Items Taxable temporary Taxable temporary Deferred tax liabilities Deferred tax liabilities difference difference Depreciation and 770,755,369.92 128,446,514.86 396,585,435.74 62,347,023.15 amortization expense Floating gain on 13,804,602.36 2,070,690.35 2,906,246.02 435,936.90 derivatives Floating gain on 1,739,861.78 260,979.27 12,526,390.31 2,266,401.66 financial products Total 786,299,834.06 130,778,184.48 412,018,072.07 65,049,361.71 (3)Deferred tax assets or liabilities after offset shown on a net offsetting basis Unit: RMB Deferred tax assets and Deferred tax assets and Closing balance of liabilities offset Opening balance of liabilities offset Items deferred tax assets or amount at the deferred tax assets or amount at the end of liabilities after offset beginning of the liabilities after offset the balance amount balance amount Deferred tax assets 137,808,879.28 88,952,931.69 Deferred tax liabilities 130,778,184.48 65,049,361.71 (4)Details of unrecognized deferred tax assets Unit: RMB Items Closing balance Opening balance Provision for bad debt 55,823,915.76 36,799,162.90 Provision for inventory write-down 26,934,726.68 22,913,416.12 Deductible losses of subsidiaries 24,790,389.63 97,583,268.62 Provision for fixed assets impairments 68,694.52 Provision for intangible assets impairments 3,862,456.71 4,129,606.66 Floating loss on derivatives 7,639,957.91 The share-paid remuneration without pre-tax deduction calculated 11,139,485.50 1,840,976.14 according to the accounting standard Investment losses recognized by the equity method 4,319,616.68 3,322,259.80 Total 134,510,548.87 166,657,384.76 214 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. (5)Deductible losses of unrecognized deferred tax assets will expire in the following years Unit: RMB Maturity years Closing balance Opening balance Remarks Year 2020 770,856.07 Year 2021 14,131,496.37 Year 2022 23,008,626.48 Year 2023 24,053,673.84 Year 2024 17,510,655.24 Year 2025 445,585.90 Year 2028 10,478,078.42 10,478,078.42 Year 2029 7,488,066.67 7,629,882.20 Year 2030 6,378,658.64 Total 24,790,389.63 97,583,268.62 -- Other remarks: 19. Other non-current assets Unit: RMB Closing balance Opening balance Items Provision for Carrying Provision for Carrying Book balance Book balance impairment amount impairment amount Advanced payment for assets 251,509,127.08 251,509,127.08 179,238,257.09 179,238,257.09 purchasing Total 251,509,127.08 251,509,127.08 179,238,257.09 179,238,257.09 Other remarks: 20. Short-term borrowings (1)Categories of short-term borrowings Unit: RMB Items Closing balance Opening balance Guaranteed borrowings 730,000,000.00 Credit borrowings 20,000,000.00 Overseas loan under domestic guarantee 362,698,500.00 562,083,652.90 Accrued interest 389,796.60 3,526,919.17 215 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Total 383,088,296.60 1,295,610,572.07 Remarks on categories of short-term borrowings: 21. Derivative financial liabilities Unit: RMB Items Closing balance Opening balance Foreign exchange tool 7,939,957.91 126,364.40 Total 7,939,957.91 126,364.40 Other remarks: 22. Notes payable Unit: RMB Categories Closing balance Opening balance Bank acceptance bill 1,238,574,463.73 1,130,668,415.32 Total 1,238,574,463.73 1,130,668,415.32 At the balance sheet date, balances due but unpaid totaled RMB 0. 23. Accounts payable (1)Details of accounts payable Unit: RMB Items Closing balance Opening balance Within 1 year(including 1 year) 2,184,050,911.51 1,538,694,359.81 1 to 2 years 88,579,882.54 36,247,361.15 2 to 3 years 1,289,268.11 7,254,952.39 Over 3 years 5,741,693.81 5,567,079.27 Total 2,279,661,755.97 1,587,763,752.62 24. Advances received (1)Details of advances received Unit: RMB Items Closing balance Opening balance Advance collection of asset package 10,000,000.00 disposal funds 216 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Total 10,000,000.00 25. Contract liabilities Unit: RMB Items Closing balance Opening balance Advance payment for goods 42,581,607.67 23,453,218.32 Total 42,581,607.67 23,453,218.32 Reasons for significant changes in the carrying amount of contract liabilities during the reporting period 26. Employee benefits payable (1)Details of employee benefits payable Unit: RMB Opening Increased in current Decreased in current Items Closing balance balance period period Ⅰ. Short-term employee benefits 221,838,334.79 1,697,764,479.73 1,636,901,323.09 282,701,491.43 Ⅱ. Post-employment benefits - defined 3,701,568.23 36,896,982.26 37,710,409.14 2,888,141.35 contribution plan Ⅲ. Termination benefits 3,457,580.80 2,815,279.48 2,556,579.07 3,716,281.21 Total 228,997,483.82 1,737,476,741.47 1,677,168,311.30 289,305,913.99 (2)Details of Short-term employee benefits Unit: RMB Increased in current Decreased in current Items Opening balance Closing balance period period 1. Wage, bonus, allowances and 203,198,192.24 1,383,935,013.63 1,322,258,453.89 264,874,751.98 subsidy 2. Employee welfare 2,134,102.51 75,651,111.90 77,785,214.41 fund 3. Social insurance 11,162,051.71 96,951,334.31 97,705,345.21 10,408,040.81 premium Including: 2,023,459.75 27,798,779.14 27,533,189.44 2,289,049.45 Medicare premium 211,099.29 1,552,995.84 1,507,314.10 256,781.03 Occupational injuries 217 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. premium 233,674.66 585,303.76 702,538.82 116,439.60 Maternity premium Overseas social 8,693,818.01 67,014,255.57 67,962,302.85 7,745,770.73 security contributions 4. Housing provident 265,855.34 28,489,899.73 28,755,755.07 fund 5. Trade union fund and employee 104,574.42 18,344,132.93 17,224,543.29 1,224,164.06 education fund 8、Dispatching 3,511,341.29 90,298,597.57 90,349,659.22 3,460,279.64 remuneration 9、Cash stock 1,462,217.28 4,094,389.66 2,822,352.00 2,734,254.94 appreciation option Total 221,838,334.79 1,697,764,479.73 1,636,901,323.09 282,701,491.43 (3)Details of defined contribution plan Unit: RMB Opening Increased in current Decreased in current Closing Items balance period period balance 1. Basic endowment insurance 3,584,148.09 35,696,556.05 36,509,160.79 2,771,543.35 premium 2. Unemployment insurance 117,420.14 1,200,426.21 1,201,248.35 116,598.00 premium Total 3,701,568.23 36,896,982.26 37,710,409.14 2,888,141.35 Other remarks: 27. Taxes and rates payable Unit: RMB Items Closing balance Opening balance VAT 14,647,359.92 12,303,529.64 Enterprise income tax 33,105,141.57 27,169,457.87 Individual income tax 5,797,449.67 6,570,153.06 Urban maintenance and construction tax 2,283,772.47 2,004,384.14 Education surcharge 1,207,595.10 1,098,720.52 Local education surcharge 717,275.16 623,676.41 218 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Housing property tax 14,503,893.38 5,263,984.54 Land use tax 2,162,780.06 2,277,425.60 Local foundation for water works 60,119.04 6,051.60 Others 522,755.69 875,224.37 Total 75,008,142.06 58,192,607.75 Other remarks: 28. Other payables Unit: RMB Item Closing balance Opening balance Dividend payable 1,772,750.00 Other payables 270,888,400.58 159,464,464.88 Total 270,888,400.58 161,237,214.88 (1)Dividend payable Unit: RMB Items Closing balance Opening balance Dividend of restricted shares 1,772,750.00 Total 1,772,750.00 Other remarks, include significant dividend payable with age over one year,should disclose the reasons for the non-payment (2)Other payables 1)Other payables listed by nature Unit: RMB Items Closing balance Opening balance Restricted shares repo obligations 145,063,690.00 57,578,920.00 Freight and miscellaneous charges 72,117,058.15 39,930,705.16 Product warranty fee 2,757,036.90 3,114,096.06 Guarantee deposit 6,564,169.23 18,044,694.61 Rent and property fee 7,877,975.71 2,609,059.40 Compensation for product quality loss 3,889,429.08 1,125,611.68 Collection of talent awards 1,320,000.00 1,969,150.29 Others 31,299,041.51 35,092,227.68 219 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Total 270,888,400.58 159,464,464.88 Other remarks Refer to the "Inventory Shares" in the notes to this financial report for the repurchase obligations of restricted shares. 29. Non-current liabilities due within one year Unit: RMB Items Closing balance Opening balance Overseas loan under domestic guarantee 130,498,000.00 Guaranteed borrowings 222,000,000.00 Accrued interest 55,923.87 228,097.22 Total 130,553,923.87 222,228,097.22 Other remarks: 30. Long-term borrowings (1)Categories of long-term borrowings Unit: RMB Items Closing balance Opening balance Guaranteed borrowings 1,380,000,000.00 Overseas loan under domestic guarantee 326,142,884.74 392,371,834.47 Accrued interest 1,776,110.13 510,445.62 Total 1,707,918,994.87 392,882,280.09 Remarks on categories of long-term borrowings: Other remarks, including interest rate ranges 31. Long-term payables Unit: RMB Items Closing balance Opening balance Long-term payables 90,336,083.27 94,235,857.77 Total 90,336,083.27 94,235,857.77 (1)Long-term payables listed by nature Unit: RMB Items Closing balance Opening balance 220 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Payables for financial leasing 89,432,221.08 92,607,634.64 Stock appreciation rights deposit 903,862.19 1,628,223.13 Other remarks: Payables for financial leasing Remaining lease term Current period cumulative Preceding period comparative Within 1 year(including 1 year) 6,417,433.10 9,515,311.20 1 to 2 years 10,274,197.36 3,752,011.15 2 to 3 years 10,274,197.36 10,005,979.99 Over 3 years 70,534,422.75 78,699,036.81 Subtotal 97,500,250.57 101,972,339.15 Less: Unrecognized financing charges 8,068,029.49 9,364,704.51 Subtotal 89,432,221.08 92,607,634.64 32. Provisions Unit: RMB Items Closing balance Opening balance Reasons for balance Pending lawsuit 2,638,000.00 Total 2,638,000.00 -- Other remarks,Including the relevant significant assumptions and estimates of the significant provisions: 33. Deferred income Unit: RMB Opening Increased in current Decreased in current Reasons for Items Closing balance balance period period balance Government grants 82,537,550.43 76,420,792.64 18,853,006.64 140,105,336.43 Total 82,537,550.43 76,420,792.64 18,853,006.64 140,105,336.43 -- Other remarks: 34. Other non-current liabilities Unit: RMB Items Closing balance Opening balance Engineering agent construction fund 28,782,218.09 32,512,629.00 Long-term employee rights protection 51,616,679.63 49,276,299.52 payment Total 80,398,897.72 81,788,928.52 Other remarks: 221 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. According to local investment promotion policies, the "seven connections and one leveling" project of the construction land of the Wuhu city is completed by Wuhu high-tech Industrial Development Zone Administration Committee. As the state-owned assets management unit of Wuhu high-tech Industrial Development Zone, Wuhu Xinma Investment Co., Ltd. and Wuhu High-tech Construction Development Co., Ltd., entrusted Wuhu Sanhua Auto-control Components Co., Ltd and Wuhu Sanhua Technology Co., Ltd. to build the "seven connections and one leveling" project, and allocated RMB 72.03 million as engineering fund. As of December 31,2020, the accumulated amount of hedging and written-off of engineering agent construction fund and project expense was RMB 43.2478 million,and the amount to be written-off at the end of the period was RMB 28.7822 million. Long-term employee rights protection payment: retirement pensions of Mr. Harald Schrott who is the former actual controller of the Germany Aweco residential appliances business, and his father Hugo Schrott. Based on Austrian labor law, one-time welfare compensation for termination of labor contract; one-time welfare compensation for retirement, disability and death. The amount of such liabilities is estimated and determined by an independent actuary. 35. Share capital Unit: RMB Changed amount of current period(+/-) Opening balance Issue of Bonus Reserve transferred Closing balance Others Subtotal new shares shares to shares Total 2,765,657,898.00 826,675,080.00 -731,510.00 825,943,570.00 3,591,601,468.00 shares Other remarks: ① Approved by the Company’s shareholders meeting, the Company transferred 826,675,080 shares to all shareholders (excluding repo shareholders) with capital reserve at the ratio of increasing 3 shares for every 10 shares. ② Approved by the Company’s shareholders meeting, repo and write-down of 731,510 shares of equity incentive restricted shares that have not met unlock condition. 36. Capital reserve Unit: RMB Increased in current Decreased in current Items Opening balance Closing balance period period Capital premium 970,924,083.94 11,129,040.00 882,412,402.43 99,640,721.51 (Share premium) Other capital reserve 119,875,938.12 107,029,814.59 11,129,040.00 215,776,712.71 Total 1,090,800,022.06 118,158,854.59 893,541,442.43 315,417,434.22 Other remarks, including changes and reasons in the current period: Reasons for the change of increase or decrease in current period:① Due to transfer capital reserve to share capital,share premium decreased RMB 826,675,080.00;②The company grants restricted stock to employees in the form of inventory stock repurchased from the secondary market , share premium decreased RMB 222 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 49,264,050.00;③ Equity Incentive Restricted Shares unlock 4,988,880 shares this period,the corresponding accumulative compensation paid by shares is RMB 11,129,040.00,a premium on the share capital transferred in such amount from other capital reserves;④ Repo and cancellation of equity incentive restricted shares that have not met the unlock condition,share premium decreased RMB 3,452,414.20;⑤ Other capital reserve increased RMB 72,810,130.99 due to the confirmation of share-based payment remuneration.;⑥The available income tax benefit, due to the expected tax cost of equity incentive restricted shares that are no unlockable exceeds accounting cost, the closing balance was RMB 34,219,683.60 higher than the opening balance, other capital reserve and deferred tax assets increased such amount;⑦Due to transaction for equity,share premium decreased RMB 3,020,858.23, refer to the notes to the financial report. 37. Treasury shares Unit: RMB Increased in current Decreased in current Items Opening balance Closing balance period period Restricted shares 59,453,800.00 118,643,250.00 33,033,360.00 145,063,690.00 Repo shares 304,327,351.34 167,907,300.00 136,420,051.34 Total 363,781,151.34 118,643,250.00 200,940,660.00 281,483,741.34 Other remarks, including changed amount of the current period and movement reason: (1) Restricted shares ①In current period,the Company granted 12.045 million restricted shares to incentive objects with the repo shares from the secondary market, the grant price was RMB 9.85 per share, and a total of RMB 118,643,250.00 was raised. Treasury shares decreased RMB 167,907,300.00,and share premium decreased RMB 49,264,050.00. The restricted shares have not met the unlock condition, the Company accounted them as treasury shares, and recognized related liabilities for repo obligation. ②Equity incentive restricted shares 2,952,000 shares this period,the grant price was RMB 8.37 per share,the unlocked amount is RMB 24,708,240.00. Treasury shares and related liabilities for repo obligation decreased such amount. ③June 2020 and September 2020,The company implemented the 2019 annual equity distribution and the 2020 semi-annual equity distribution,the dividend of the not unlocked portion of the equity incentive restricted shares is RMB 4,141,196.00,suspended by the company. At the same time,treasury shares and related liabilities for repo obligation decreased such amount. ④Repo and cancellation of equity incentive restricted shares that have not met the unlock condition,treasury shares decreased RMB4,183,924.00. (2) Repo shares In current period, the Company granted 12,045,000 shares of restricted stock to incentive recipients based on inventory stock. Repo shares decreased RMB 167,907,300.00. 38. Other comprehensive income (OCI) Unit: RMB Items Opening Changed amount of the current period Closing 223 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. balance Less: balance Less: OCI OCI Attributable Attributable Current carried Less: carried to to period forward incom forward the parent Non-controlli cumulative transferred e tax transferre Company ng before to expens d to after interest income tax undistribut e profit or tax after tax ed profit loss Items to be reclassified -39,332,748. -50,292,214. -50,292,214. -89,624,962. subsequently 50 11 11 61 to profit or loss -39,332,748. -50,292,214. -50,292,214. -89,624,962. Translation 50 11 11 61 reserves Other comprehensi -39,332,748. -50,292,214. -50,292,214. -89,624,962. ve income in 50 11 11 61 total Other remarks, including the effective part of the cash flow hedge profit and losses converted into the initial recognized amount adjustment of the hedged item: 39. Surplus reserve Unit: RMB Items Opening balance Increased in current period Decreased in current period Closing balance Statutory surplus reserve 533,401,562.81 78,070,994.08 611,472,556.89 Discretionary surplus reserve 8,681,137.20 8,681,137.20 Reserve fund 17,813,919.38 17,813,919.38 Total 559,896,619.39 78,070,994.08 637,967,613.47 Remarks on surplus reserve, including movement in current period and the reason for changes: This period increased by RMB 78,070,994.08,According to the parent company's current net profit 10% of the statutory surplus reserve. 40. Undistributed profit Unit: RMB Items Current period Previous period Balance before adjustment at the end of the previous period 5,278,392,288.84 4,488,881,759.86 224 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Add: Increase due to adjustment (or less: decrease) 8,359,634.19 Opening balance after adjustment 5,278,392,288.84 4,497,241,394.05 Add: Net profit attributable to shareholders of the parent Company for current year 1,462,158,821.57 1,421,204,236.13 Less: Appropriation of statutory surplus reserve 78,070,994.08 110,933,454.84 Payable dividends on ordinary shares 771,563,408.50 529,119,886.50 Closing balance 5,890,916,707.83 5,278,392,288.84 41. Operating revenue and Operating cost Unit: RMB Current period cumulative Preceding period comparative Items Revenue Cost Revenue Cost Main operations 11,665,371,918.47 8,081,530,851.82 10,876,865,236.86 7,570,528,297.31 Other operations 444,461,449.97 418,860,470.45 410,624,205.37 376,316,148.52 Total 12,109,833,368.44 8,500,391,322.27 11,287,489,442.23 7,946,844,445.83 After deducting non-recurring profit or loss by audit, whether the net profit is negative or not □ Applicable √ Not Applicable Other remarks 42. Taxes and surcharges Unit: RMB Items Current period cumulative Preceding period comparative Urban maintenance and construction tax 26,020,701.95 26,638,165.64 Education surcharge 13,060,313.39 13,886,087.61 Housing property tax 19,644,211.36 21,934,182.81 Land use tax 3,415,856.97 9,007,858.24 Stamp duty 2,650,817.59 3,334,108.73 Local education surcharge 8,919,791.12 9,220,983.88 Local foundation for water works 596,652.81 642,593.41 Others 3,665,075.62 7,647,358.71 Total 77,973,420.81 92,311,339.03 Other remarks 43. Selling expenses Unit: RMB 225 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Items Current period cumulative Preceding period comparative Labor cost 185,383,982.72 187,342,391.33 Warehousing, freight and miscellaneous 298,383,939.51 240,711,888.21 charges Entertainment expense 38,123,695.62 40,239,474.17 Travel expense 16,841,187.92 43,210,204.21 Market maintenance fee 41,332,674.93 40,227,423.35 Advertising expense 12,803,945.68 13,634,700.98 Others 10,085,332.79 23,181,371.91 Total 602,954,759.17 588,547,454.16 Other remarks: 44. Administrative expenses Unit: RMB Items Current period cumulative Preceding period comparative Labor cost 400,277,866.64 325,762,128.67 Share-based payment remuneration 72,810,130.99 19,072,589.52 Depreciation and amortization expense 96,201,760.17 84,611,377.76 Office expense 94,094,129.08 87,201,138.67 Intermediary organ expense 48,741,873.10 39,435,559.80 Entertainment expense 14,907,529.66 15,337,269.91 Vehicle expense 10,658,851.78 8,374,929.19 Sporadic renovation expense in the park 17,734,954.44 5,850,964.35 Security fund for the disabled 2,441,941.61 Others 6,215,391.41 10,135,162.35 Total 764,084,428.88 595,781,120.22 Other remarks: 45. R&D expenses Unit: RMB Items Current period cumulative Preceding period comparative Labor cost 291,552,480.55 268,606,916.42 Material and power expense 136,062,761.46 169,349,876.66 Depreciation and amortization expense 31,108,149.42 27,393,695.99 226 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Mold manufacturing expense 30,480,247.99 23,688,085.36 Travel expense 3,051,460.51 7,661,182.16 Royalties 4,865,282.70 3,458,424.26 Outsourcing R&D expense 841,185.47 3,958,534.23 Others 20,439,795.53 27,895,620.91 Total 518,401,363.63 532,012,335.99 Other remarks: 46. Financial expenses Unit: RMB Items Current period cumulative Preceding period comparative Interest expense 64,733,993.15 54,050,078.51 Interest income -52,233,256.57 -29,496,046.87 Bank financing fee 1,950,351.25 2,102,904.85 Cash discount -2,528,801.21 -3,143,982.74 Exchange gains or losses 112,675,905.53 -35,510,776.78 Others 4,261,901.49 4,225,003.96 Total 128,860,093.64 -7,772,819.07 Other remarks: 47. Other income Unit: RMB Source of the other income Current period cumulative Preceding period comparative Government grants 150,308,983.80 101,880,138.31 Including: VAT refund of civil welfare 10,848,552.90 11,634,556.01 enterprises VAT refund on software 5,359,348.90 3,934,430.81 products in excess of tax burden Handling fees for withholding individual 1,246,912.65 92,329.55 income tax Total 151,555,896.45 101,972,467.86 48. Investment income Unit: RMB Items Current period cumulative Preceding period comparative 227 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Investment income from long-term equity 2,199,442.47 1,418,182.87 investments under equity method disposal of long-term equity investments -4,100,413.03 Investment income of bank financing 46,589,043.29 41,123,586.63 products Gains and losses on settlement of foreign 19,642,289.10 837,129.75 exchange contract Gains and losses on settlement of futures 29,117,946.22 -15,653,119.67 contracts Bill discount interest -4,369,430.89 -2,407,426.89 Other 17,194.75 Total 89,078,877.16 25,335,547.44 Other remarks: 49. Gains or losses on changes in fair value Unit: RMB Items Current period cumulative Preceding period comparative Floating income of bank financing -10,786,528.53 12,526,390.31 products Floating income of futures contracts 7,260,487.69 8,677,764.72 Floating income of foreign exchange 35,373,956.60 6,702,192.15 contract Total 31,847,915.76 27,906,347.18 Other remarks: 50. Credit impairment loss Unit: RMB Items Current period cumulative Preceding period comparative Provision for bad debt -28,677,382.30 -3,374,126.64 Total -28,677,382.30 -3,374,126.64 Other remarks: 51. Assets impairment loss Unit: RMB Items Current period cumulative Preceding period comparative 228 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Ⅱ. Inventory write-down loss and contract performance cost impairment -58,672,538.84 -27,895,239.50 loss Total -58,672,538.84 -27,895,239.50 Other remarks: 52. Gains on asset disposal Unit: RMB Items Current period cumulative Preceding period comparative Gains on disposal of fixed assets -486,378.33 278,783.69 53. Non-operating revenue Unit: RMB Current period Preceding period Amount recorded into the current Items cumulative comparative non-recurring profit and loss Exempted payment 3,090,050.86 5,479,565.67 3,090,050.86 Compensation and penalty 1,056,661.41 905,086.14 1,056,661.41 income Gains from retirement of 84,161.06 43,110.17 84,161.06 fixed assets Others 824,606.49 364,521.14 824,606.49 Total 5,055,479.82 6,792,283.12 5,055,479.82 Other remarks: 54. Non-operating expenditures Unit: RMB Amount included in Items Current period cumulative Preceding period comparative non-recurring profit or loss Losses on retirement of fixed 10,492,379.67 6,409,161.91 10,492,379.67 assets Litigation for damages 2,638,000.00 2,638,000.00 Donation expenditures 51,555.76 75,428.60 51,555.76 Others 1,661,697.75 1,228,530.89 1,661,697.75 Total 14,843,633.18 7,713,121.40 14,843,633.18 Other remarks: 229 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 55. Income tax expenses (1)Income tax expenses Unit: RMB Items Current period cumulative Preceding period comparative Current period income tax expenses 185,380,549.14 208,303,742.83 Deferred income tax expenses 33,322,315.46 20,949,726.23 Total 218,702,864.60 229,253,469.06 (2)Reconciliation of accounting profit to income tax expenses Unit: RMB Items Current period cumulative Profit before tax 1,692,026,216.58 Income tax expense based on statutory/applicable tax rate 281,618,425.53 Effect of utilization of deductible losses not previously -46,359.55 recognized as deferred tax assets Effect of deducible temporary differences or deductible losses 7,966,260.28 not recognized Effect of prior income tax reconciliation -4,799,245.99 Tax impact of research and development expenses plus -50,508,344.90 deduction Impact of restricted stock unlocked tax deduction -14,466,289.89 Adjustment of permanent differences -1,569,237.24 write-off of deferred tax assets previously recognized in 507,656.36 current period Income tax expenses 218,702,864.60 Other remarks: 56. Other comprehensive income Please refer to the notes of balance sheet items and other comprehensive income for details. 57. Notes to items of the consolidated cash flow statement (1)Other cash receipts related to operating activities Unit: RMB 230 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Items Current period cumulative Preceding period comparative Government grants 189,256,546.89 96,292,082.24 Net change in restricted funds 22,294,525.74 Interest income 52,233,256.57 29,496,046.87 Rental income 10,255,696.35 10,583,717.33 Guarantee deposit 1,056,661.41 3,820,200.00 Other 733,249.60 12,207,297.84 Total 253,535,410.82 174,693,870.02 The remarks of other cash receipts related to operating activities: (2)Other cash payments related to operating activities Unit: RMB Items Current period cumulative Preceding period comparative Net change in restricted funds 11,123,000.00 5,176,329.03 Guarantee deposit 12,114,845.90 9,307,226.86 Expense payments for the period 669,374,176.12 607,837,864.04 Total 692,612,022.02 622,321,419.93 The remarks of other cash payments related to operating activities: (3)Other cash receipts related to investing activities Unit: RMB Items Current period cumulative Preceding period comparative Redemption of bank financing products 520,254,995.00 1,045,500,000.00 Net change in restricted funds 7,204,442.99 3,384,912.56 Profit on Foreign exchange contract settlement 19,642,289.10 Profit on Futures contract settlement 29,117,946.22 Deposit of land transfer 5,055,525.00 Withdraw call loans 2,000,000.00 Total 576,219,673.31 1,055,940,437.56 The remarks of other cash receipts related to investing activities: (4)Other cash payments related to investing activities Unit: RMB Items Current period cumulative Preceding period comparative 231 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Payments for purchasing bank financing 289,200,000.00 4,608,043.00 products Net change in restricted funds 3,929,071.15 Loss on foreign exchange contract 18,623,937.92 settlement Loss on futures contract settlement 689,383.44 Call loans 2,000,000.00 Total 289,200,000.00 29,850,435.51 The remarks of other cash payments related to investing activities: (5)Other cash receipts related to financing activities Unit: RMB Items Current period cumulative Preceding period comparative Disposal of part of the subsidiary's 222,517.59 5,109,000.00 equity Net change in restricted funds 24,311,782.55 57,855,624.87 Total 24,534,300.14 62,964,624.87 The remarks of other cash payments related to financing activities: (6)Other cash payments related to financing activities Unit: RMB Items Current period cumulative Preceding period comparative Repo shares expenses 2,309,044.00 276,250,709.93 Repayment of finance lease 4,472,088.58 9,049,906.21 Bank financing charges 1,950,351.25 2,102,904.85 Finance lease interest expenses 1,296,675.02 1,403,481.08 Expenses for acquiring non-controlling 9,238,318.85 interest in subsidiaries Payment of stock appreciation right 724,360.94 1,438,316.05 deposit Total 10,752,519.79 299,483,636.97 The remarks of other cash payments related to financing activities: 232 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 58. Supplement information to the cash flow statement (1)Supplement information to the cash flow statement Unit: RMB Supplement information Current period cumulative Preceding period comparative 1. Reconciliation of net profit to cash flow -- -- from operating activities: Net profit 1,473,323,351.98 1,433,815,038.76 Add: Provision for assets impairment 87,349,921.14 31,269,366.14 loss Depreciation of fixed assets, oil 398,438,067.60 342,878,543.15 and gas assets, productive biological assets Amortization of right-of-use assets Amortization of intangible assets 20,558,264.41 21,512,188.24 Amortization of Long-term prepayments 5,698,329.34 7,179,778.92 Loss on disposal of fixed assets, intangible assets and other 486,378.33 -278,783.69 long-term assets (Less: gains) Loss on retirement of fixed 10,408,218.61 6,366,051.74 assets (Less: gains) Losses on changes in fair value -31,847,915.76 -27,906,347.18 (Less: gains) Financial expenses (Less: gains) 85,662,587.59 56,152,983.36 Investment losses (Less: gains) -93,448,308.05 -25,335,547.44 Decrease of deferred tax assets -14,636,264.19 -16,761,875.13 (Less: increase) Increase of deferred tax liabilities 65,728,822.77 32,217,777.42 (Less: decrease) Decrease of inventories (Less: -188,213,271.68 -181,755,639.30 increase) Decrease of operating receivables -817,805,253.81 82,864,778.13 (Less: increase) Increase of operating payables 1,012,830,723.84 113,378,878.02 (Less: decrease) Others 72,810,130.99 24,566,413.46 Net cash flows from operating activities 2,087,343,783.11 1,900,163,604.60 2. Significant investing and financing -- -- 233 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. activities not related to cash receipts and payments: Conversion of debt into capital Convertible bonds due within one year Fixed assets leased in under finance leases 3. Net changes in cash and cash -- -- equivalents: Cash at the end of the period 3,400,144,038.54 2,553,783,015.01 Less: Cash at the beginning of the 2,553,783,015.01 1,164,542,861.48 period Add: Cash equivalents at the end of the period Less: Cash equivalents at the beginning of the period Net increase of cash and cash 846,361,023.53 1,389,240,153.53 equivalents (2)Net cash receipts from disposal of subsidiaries in current period Unit: RMB 金额 Cash and cash equivalents received in current period for 6,562,658.15 subsidiary disposal in current period Including: -- Qingdao Debaiyi Refrigeration Equipment Co. Ltd. 6,562,658.15 Less: Cash and cash equivalents held by subsidiaries on which the 6,272,468.97 Company lost control Including: -- Qingdao Debaiyi Refrigeration Equipment Co. Ltd. 6,272,468.97 Including: -- Net cash receipts from disposal of subsidiaries in current period 290,189.18 Other remarks: (3)Composition of cash and cash equivalents Unit: RMB 234 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Items Closing balance Opening balance Ⅰ . Cash 3,400,144,038.54 2,553,783,015.01 Including: Cash on hand 232,265.51 417,814.58 Cash in bank that can be 3,399,911,773.03 2,553,365,200.43 readily drawn on demand Ⅲ. Cash and cash equivalents at end of 3,400,144,038.54 2,553,783,015.01 year Other remarks: On December 31, 2020,restricted use of cash and bank balances includes margin deposits 46,093,170.51 yuan 、 Litigation freeze deposit 11,123,000.00yuan and Deposit in securities and futures institutions 32,327,359.09yuan,totals 89,543,529.60 yuan. Such cash and bank balances are not readily available for payment and do not belong to cash and cash equivalents. (4)Amount of endorsed acceptance not involving cash receipts and payments Items Current period cumulative Amount of endorsed acceptance 112,518,677.57 Including: Payment for operating activities 109,630,824.74 Payment for investment activities 2,887,852.83 59. Assets with restriction on ownership or use rights Unit: RMB Carrying amount at the end of the Items Cause of restriction period Guarantee deposit 、Margin deposit with Cash and Bank Balances 89,543,529.60 a futures institution and litigation freeze deposit Notes receivable 1,608,722,846.32 Pledge financing Total 1,698,266,375.92 -- Other remarks: Items Carrying amount at the end of the period Cause of restriction Cash and Bank Balances 46,093,170.51 Guarantee deposit 32,327,359.09 Margin deposit with a futures institution 11,123,000.00 litigation freeze deposit Subtotal 89,543,529.60 235 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 60. Monetary items in foreign currencies (1)Monetary items in foreign currencies Unit: RMB Closing balance in Exchange rate RMB equivalent Items foreign currencies Cash and Bank Balances -- -- Including: USD 111,089,210.06 6.5249 724,845,986.72 EUR 43,167,466.15 8.0250 346,418,915.85 Other currencies 59,010,905.15 Subtotal 1,130,275,807.72 Accounts receivable -- -- Including: USD 154,439,692.02 6.5249 1,007,703,546.46 EUR 34,569,590.53 8.0250 277,420,964.00 Other currencies 74,178,308.22 Subtotal 1,359,302,818.68 Long-term borrowings -- -- Including: USD 32,166,620.38 6.5249 209,883,981.32 EUR 14,530,450.00 8.0250 116,606,861.25 Subtotal 326,490,842.57 Held-for-trading financial assets Including: USD 6,396,683.63 6.5249 41,737,721.02 Subtotal 41,737,721.02 Notes receivable Including: JPY 203,642,687.00 0.0632 12,877,548.96 Subtotal 12,877,548.96 Other receivables Including: USD 686,535.44 6.5249 4,479,575.09 EUR 150,354.70 8.0250 1,206,596.47 Mexican peso 33,932,763.37 0.3280 11,130,591.11 Other currencies 2,237,538.98 Subtotal 19,054,301.65 Long-term receivable Including: EUR 190,000.00 8.0250 1,524,750.00 236 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Subtotal 1,524,750.00 Short-term borrowings Including: USD 15,000,000.00 6.5249 97,873,500.00 EUR 33,047,116.66 8.0250 265,203,111.20 Subtotal 363,076,611.20 Derivative financial liabilities Including: USD 1,170,892.72 6.5249 7,639,957.91 Subtotal 7,639,957.91 Accounts payable Including: USD 11,575,948.70 6.5249 75,531,907.67 EUR 13,420,576.38 8.0250 107,700,125.45 Other currencies 18,382,422.89 Subtotal 201,614,456.01 Other payables Including: USD 2,771,121.00 6.5249 18,081,287.41 EUR 1,606,544.91 8.0250 12,892,522.90 Other currencies 9,528,416.32 Subtotal 40,502,226.63 Non-current liabilities due within one year Including: USD 20,008,570.84 6.5249 130,553,923.87 Subtotal 130,553,923.87 Long-term payables Including: USD 47,180.00 6.5249 307,844.78 EUR 11,209,906.00 8.0250 89,959,495.65 Other currencies 68,742.84 Subtotal 90,336,083.27 Other remarks: (2)Notes on overseas operating entities, including for the significant overseas operating entities, its main operating locations, reporting currency and the basis for selection should be disclosed, and the reason for changes in reporting currency should also be disclosed. √ Applicable □ Not Applicable The Company has several overseas subsidiaries, locate in the United States, Europe, Japan, Poland, Mexico and other countries, where US dollars, Euro, Japanese yen, Polish zloty, Mexican pesos, etc. are used as the standard reporting currency. 237 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 61. Government grants (1)Details 1) Government grants related to assets Unit: RMB Items Opening Increased in The amount recorded Closing balance Related to balance current period as other income in assets/related current period to income Grant for project of an annual output of 4,898,000.16 2,448,999.96 2,449,000.20 Related 15 million commercial refrigeration and to assets air-conditioning automatic control components Special fund grant for multistory factory 5,215,120.26 219,986.16 4,995,134.10 Related buildings of small and medium-sized to assets enterprises Grant for innovation ability construction 3,750,000.12 624,999.96 3,125,000.16 Related project of National Enterprise Technology to assets Center Grant for energy-saving project with an 3,051,396.55 910,570.80 2,140,825.75 Related to annual output of 35 million sets of L-type assets four-way reversing valve for air conditioners Grant for technical transformation project 3,032,000.00 758,000.00 2,274,000.00 Related to of newly increased 800000 sets of heat assets exchanger per year Grant for the technical transformation 2,760,000.08 552,000.00 2,208,000.08 Related to project with an annual output of 2 million assets sets of air-conditioning parts Grant for the industrialization project of 1,443,272.70 1,164,435.00 278,837.70 Related to 20 million refrigeration and air assets conditioning automatic control components Grant for commercial machine 2,030,050.00 738,200.00 1,291,850.00 Related to micro-channel heat exchanger technical assets transformation project Grant for 1 million sets of 6,407,450.08 915,349.92 5,492,100.16 Related to air-conditioning thermal sensor assets technology transformation of new energy vehicle Grant for an annual output of 2 million 2,295,417.72 515,947.64 1,779,470.08 Related to sets of high-efficiency energy-saving 238 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. inverter controllers assets Technical transformation project of 5,008,290.00 1,273,400.00 1,224,830.00 5,056,860.00 Related to annual output of 100000 large heat assets exchangers Grant for air-conditioning component 1,000,000.00 1,000,000.00 Related to micro-channel heat exchanger project assets Grant for construction project of public 1,399,999.72 700,000.08 699,999.64 Related to test and detection service platform for assets refrigeration components Grant for the construction project of 960,000.00 480,000.00 480,000.00 Related to automatic control components for assets residential air conditioners with an annual output of 10 million Grant for pollution source treatment 1,347,391.67 178,900.00 1,168,491.67 Related to project assets Grant for construction project of public 641,666.83 384,999.96 256,666.87 Related to inspection and testing service platform for assets automobile air conditioning parts Technical transformation project for the 624,038.60 126,923.04 497,115.56 Related to production line of energy-saving assets residential air-conditioning control components with an annual output of 50 million sets Grant for construction project of 25 476,000.24 135,999.96 340,000.28 Related to million sets of new energy-saving and assets environmental protection variable frequency air conditioning expansion valve Industrial transfer projects and single 450,690.70 144,326.64 306,364.06 Related to equipment investment grant assets Comprehensive investment award for 3,343,136.00 357,888.00 2,985,248.00 Related to technological transformation of industrial assets enterprises in Wuhu City Industrial transformation and upgrading, 1,615,259.34 202,424.90 1,412,834.44 Related to technological transformation and assets industrial investment Intelligent factory technological 4,124,999.93 500,000.04 3,624,999.89 Related to transformation project based on The assets Internet of Things technology Grant for the annual production of 11.5 4,200,000.00 14,594,072.64 1,131,004.37 17,663,068.27 Related to million sets of new energy auto parts assets project 239 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Four-way reversing valve optimization 733,333.40 159,999.96 573,333.44 Related to project assets Policy grant for Wuhu City's strong 795,000.00 90,000.00 705,000.00 Related to industrial base and manufacturing strong assets province Annual production of 3 million 816,750.00 99,000.00 717,750.00 Related to self-circulating superconducting plates assets technology project Comprehensive award and compensation 2,218,666.33 275,964.24 1,942,702.09 Related to for investment in technological assets transformation of industrial enterprises Grant for intelligent manufacturing 2,991,220.00 360,000.00 2,631,220.00 Related to technology transformation project of 6 assets million sets of commercial refrigeration components per year Grant for technical transformation project 6,628,400.00 828,550.00 5,799,850.00 Related to of intelligent manufacturing of assets refrigeration components Grant for technical transformation project 7,200,000.00 800,000.00 6,400,000.00 Related to of 30 million sets of high efficiency assets energy saving refrigeration and air conditioning control components Grant for an annual output of 7.3 million 1,080,000.00 39,300,000.00 40,380,000.00 Related to sets of new energy vehicle thermal assets management system components technical transformation Grant for technical transformation project 12,116,100.00 100,967.50 12,015,132.50 Related to for the high efficiency and energy saving assets refrigeration and air conditioning control components with an annual output of 30 million sets Grant for technical transformation project 1,125,100.00 9,375.83 1,115,724.17 Related to for the commercial refrigeration control assets components with an annual output of 12 million sets Grant for equipment of New 1,317,620.00 43,912.68 1,273,707.32 Related to technological transformation for assets industrialization Technical transformation project of large 6,694,500.00 669,450.00 6,025,050.00 Related to heat exchanger with annual output of assets 700,000 sets Subtotal 82,537,550.43 76,420,792.64 18,853,006.64 140,105,336.43 240 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 2) Government grants related to income and used to compensate relevant cost, expenses or losses Unit: RMB Items Current period cumulative Financial Report Items Awards for major industrial investment projects 41,560,300.00 Other income Subsidy of overseas COVID-19 13,558,741.13 Other income Refund of unemployment insurance expenses 10,341,885.75 Other income VAT refund of civil welfare enterprises 10,848,552.90 Other income VAT refund on software products in excess of tax burden 5,359,348.90 Other income Award of enterprise R&D investment 6,713,693.72 Other income Award of industry support fund 5,840,830.00 Other income Enterprise operation development reward 4,050,000.00 Other income Energy saving and consumption reduction and environmental protection 4,601,440.00 Other income subsidies Talent introduction and job stabilization subsidies 3,381,598.79 Other income Subsidy and award of technological innovation and entrepreneurship 6,708,500.00 Other income Reward for the development of industrial informatization 3,411,500.00 Other income Special funds for foreign trade and economic development 2,078,801.00 Other income Award of urban land use tax policy 1,659,233.76 Other income Patent subsidy for enterprises 1,154,880.00 Other income Innovation and Development Award 200,000.00 Other income Award of logistics Development Support 314,100.00 Other income Other 9,672,571.21 Other income Subtotal 131,455,977.16 (2)The amount of government grant included in the profit or loss statement in the current period is RMB 150,308,983.80. 62. Others Ⅷ. Changes in the consolidation scope 1. Disposal of subsidiaries Whether there is one-time disposal involving loss of control over a subsidiary √Applicable □ Not Applicable Unit: RMB Subsid Equity Equity Equity Loss Deter Differe Propor Carryi Fair Gains/ Deter Chang 241 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. iaries dispos dispos dispos of minati nce tion of ng value Losses minati es in al al al control on betwee remain amoun of on fair on other consid propor metho date basis n ing t of remain value metho compr eration tion d for dispos equity remain ing remeas d and ehensi (%) loss of al at the ing equity ureme major ve control consid loss of equity at the nt of assum incom date eration control at the loss of remain ption e/equit and date loss of control ing on fair y net control date equity value related assets date of to attribu remain former table ing subsidi to the equity ary’s Comp at the equity any at loss of invest the control ment consol date transfe idated rred to financi invest al ment statem incom ents e level Compl ete the Qingd registr ao ation Debaiy 4/5000 proced i Agree Decem ures Refrig 6,562, 70.00 ment -4,098, ber 2, for 0.00% eration 658.15 % to 327.44 2020 industr Equip dispos ial and ment al comm Co. ercial Ltd. change s Other remarks: Whether there is disposal of subsidiaries in stages involving loss of control in current period □Applicable√ Not Applicable 2. Changes in consolidation scope due to other reasons Changes in consolidation scope due to other reasons and related information (such as newly established subsidiary, liquidation subsidiary, etc. 242 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 1.Entities brought into the consolidation scope Entity name Equity acquisition Equity Actual capital contribution at Capital contribution method acquisition date the end of the period proportion (%) Zhejiang Xianji Intelligent Technology New investment 2020-09-10 34.6 million yuan 100% Co., Ltd Sanhua Mexico Investment Co., Ltd New investment 2020-09-15 200000 pesos 100% Zhejiang Sanhua Commercial New investment 2020-10-09 68.29 million yuan 100% Refrigeration Co. Ltd Shaoxing Sanhua Automobile Thermal New investment 2020-12-03 0.00yuan 100% Management Technology Co. Ltd 2.Entities excluded from the consolidation scope Unit: RMB Equity disposal Equity disposal Disposal-date net Net profit from the period Entities method date assets beginning to the disposal date Hangzhou Sanhua Home Appliance Liquidation 2020-05-18 147,448.25 -78,092.41 Thermal Management System Co., Ltd cancellation Liquidation Aweco Appliance (Shanghai) Co., Ltd 2020-06-02 6,669.73 22,351.38 cancellation Ma 'anshan Sanhua Intelligent Technology Liquidation 2020-08-03 3,907,472.50 -478,491.11 Co., Ltd cancellation 3. Others Ⅸ. Interest in other entities 1. Interest in subsidiaries (1)Composition of enterprise group Main operating Place of Holding proportion Acquisition Subsidy name Business nature place registration Direct Indirect method Zhejiang Sanhua Trading Zhejiang Zhejiang Commerce 100.00% Establishment Co., Ltd Zhejiang Business Sanhua Climate combination and Appliance Zhejiang Zhejiang Manufacture 74.00% 26.00% under common Controls Group control Co., Ltd. Zhejiang Zhejiang Zhejiang Manufacture 100.00% Business 243 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Sanhua combination Automotive under common Components control Co., Ltd. Sanhua Business (hangzhou) combination Micro Channel Zhejiang Zhejiang Manufacture 100.00% under common Heat Exchanger control Co., Ltd Sanhua Business International combination Singapore Singapore Commerce 100.00% Singapore Pte. under common Ltd control Remarks on inconsistency between holding proportion and voting rights proportion in subsidiaries: Basis for the control of an investee while holding its half or less than half voting rights, and the non-control of an investee while holding its more than half voting rights Basis for control of significant structured entities brought into the consolidation scope Basis for determining an entity being acting as an agent or a principal Other remarks: The above subsidiaries are significant subsidiaries of the Company. (2)Significant not wholly-owned subsidiaries Remarks on inconsistency between holding proportion and voting rights proportion of non-controlling shareholders in subsidiaries: Other remarks: On December 31, 2020,The Company has no Significant not wholly-owned subsidiaries. 2. Transactions resulting in changes in subsidiaries’ equity but without losing control (1)Changes in subsidiaries’ equity Date of Holding proportion before Holding proportion after Subsidiaries change change change Xinchang county sitong mechanical and electrical co. 2020-07-31 100% 70% LTD As a result of the Company's transfer to minority shareholders of the 30% equity held in Xinchang County Sitong Electromechanical Co., Ltd. (Hereinafter referred to as Sitong electromechanical), the company's interest was reduced from 100% to 70%. 244 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. (2)Effect of transactions on non-controlling interest and equity attributable to parent company Unit: RMB Items Sitong electromechanical(100% to 70%) Acquisition costs/Disposal considerations 8,563,752.16 -- Cash 8,563,752.16 Total acquisition costs/disposal considerations 8,563,752.16 Less: Share in subsidiaries’ net assets based on acquired/disposed net assets proportion 11,584,610.39 Balance -3,020,858.23 Including: Capital reserve adjusted -3,020,858.23 Other remarks: 3. Others X. Risks Relating to Financial Instruments The Company has exposure to the following risks from its use of financial instruments, which mainly include: credit risk, liquidity risk, and market risk. The Company's overall risk management strategy is aimed at the unpredictability of the financial market and strives to reduce the potential adverse effects on the Company's financial performance. (I) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. 1. Credit risk management practice (1) Evaluation method of credit risk At each reporting date, the Company assesses whether the credit risk on a financial instrument has increased significantly since initial recognition. When assessing whether the credit risk has increased significantly since initial recognition, the Company takes into account reasonable and supportable information, which is available without undue cost or effort, including qualitative and quantitative analysis based on historical data, external credit risk rating, and forward-looking information. The Company determines the changes in default risk of financial instruments during the estimated lifetime through comparison of the default risk at the balance sheet date and the initial recognition date, on an individual basis or a collective basis. The Company considers the credit risk on a financial instrument has increased significantly when one or more of the following qualitative and quantitative standards are met. Quantitative standard mainly relates to the scenario in which, on the balance sheet date, the probability of default in the remaining lifetime has risen by more than a certain percentage compared with the initial recognition. Qualitative standard mainly relates to significant adverse changes in the debtor’s operation or financial position, present or expected changes in technology, market, economy or legal environment that will have significant adverse impact on the debtor’s repayment ability. (2) Definition of default and credit-impaired asset A financial asset is credit-impaired when one or more following events have occurred. The standard is consistent with the definition of credit impairment. The debtor has significant financial difficulty. The debtor breached the binding clause of the contract on the debtor. The debtor is likely to go bankrupt or other financial 245 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. reorganization. The creditor of the debtor, for economic or contractual reasons relating to the debtor’s financial difficulty, having granted to the debtor a concession(s) that the creditor would not otherwise consider. 2. Measurement of expected credit losses The key factors in the measurement of expected credit loss include the probability of default, loss rate of default, and exposure to default risk. The Company develops a model of the probability of default, loss rate of default, and exposure to default risk on the basis of quantitative analysis of historical data (e.g. counterparty rating, guarantee measures and collateral type, payment method, etc.) and forward-looking information. 3. Please refer to “Notes receivable”, “Accounts receivable”, “Other receivable” for details on the reconciliation table of opening balance and closing balance of provision for losses of financial instrument. 4. Exposure to credit risk and concentration of credit risk The Company’s credit risk is primarily attributable to cash and bank balances, bank financial investments, notes receivable and accounts receivable. The Company deposits its bank balances and other cash and bank balances in financial institutions with relatively high credit levels. Some bank acceptance bills held by the Company are accepted and paid by small and medium financial institutions. In addition, in order to improve the efficiency of capital use, the Company entrusts idle funds to banks for financial investment. The management of the Company believes that, based on the current operating status of domestic banks, bank balances and other cash, notes receivable and bank financial investments are not currently facing serious credit risks. If there is a serious unfavorable differentiation in the bank's credit system in the future, the Company will make adjustments in due course. The Company performs credit assessment on customers who uses credit settlement on a continuous basis. Based on the customer's financial status, past credit history and other factors, assess the customer's credit rating, and monitor the balance of accounts receivable to control credit risk exposure. For customers with bad credit records, the Company will use written reminders, shorten or cancel credit periods, and reduce credit transaction amounts to ensure that there is no major risk of bad debts. The Company conducts transactions with recognized and creditworthy customers, and the credit risk is centralized and managed on the basis of customers. As of December 31, 2020, the Company has a certain concentration of credit risk, and 37.57% of accounts receivable was due from the five largest customers of the Company. The Company held no collateral or other credit enhancement on balance of receivables. The maximum amount of exposure to credit risk of the Company is the carrying amount of each financial asset on the balance sheet. (II) Liquidity risk The Company continues to monitor short-term and long-term funding needs to ensure that sufficient cash reserves are maintained. At the same time, the Company continuously monitors compliance with the loan agreement to ensure that the credit line obtained from commercial banks can meet short-term or long-term funding needs. When necessary, the Company can implement equity financing. As of December 31, 2020, the undiscounted contractual cash flows of the Company’s financial liabilities listed by maturity date are shown in the following table: Financial liabilities classified based on remaining time period till maturity Closing balance Items Within 1 year 1-3 years Over 3 years Total Short-term borrowings(Include interest) 384,529,024.72 384,529,024.72 Notes payable 1,238,574,463.73 1,238,574,463.73 Accounts payable 2,279,661,755.97 2,279,661,755.97 246 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Other payable 270,888,400.58 270,888,400.58 Non-current liabilities due within one year(Include interest) 132,518,381.28 132,518,381.28 Long-term borrowings(Include interest) 1,781,690,487.83 1,781,690,487.83 Long-term payables(Include interest) 6,417,433.10 20,548,394.68 70,534,422.75 97,500,250.53 Subtotal 4,312,589,459.38 1,802,238,882.51 70,534,422.75 6,185,362,764.64 (Continued) Opening balance Items Within 1 year 1-3 years Over 3 years Total Short-term borrowings(Include interest) 1,311,299,960.81 1,311,299,960.81 Notes payable 1,130,668,415.32 1,130,668,415.32 Accounts payable 1,587,763,752.62 1,587,763,752.62 Other payable 159,464,464.88 159,464,464.88 Non-current liabilities due within one year(Include interest) 223,342,263.89 223,342,263.89 Long-term borrowings(Include interest) 411,319,664.33 411,319,664.33 Long-term payables(Include interest) 194,556.75 15,342,264.21 78,699,036.81 94,235,857.77 Subtotal 4,412,733,414.27 426,661,928.54 78,699,036.81 4,918,094,379.62 (III) Market risk 1. Interest Rate Risk The Company’s interest risk relates mainly to bank borrowings. The Company’s fair value interest risks arise from fixed-rate financial instruments, while the cash flow interest risks arise from floating interest financial instruments. The Company determines the proportion of fixed-rate financial instruments and floating interest rate financial instruments based on the market environment. As of December 31, 2020, the Company's interest-bearing debt accounted for a small proportion, and the interest rate risk it faced was within a controllable range. The Company continues to monitor the level of interest rates. Rising interest rates will have an adverse impact on the Company's financial performance, and the management will make necessary response measures in a timely manner based on the latest market conditions. 2. Foreign currency risk The Company's production bases and sales markets are distributed in developed and developing countries, including the United States, the European Union, Japan, India, Mexico, etc. The business volume settled in Euros and U.S. dollars has a certain proportion, and the exchange rate risk is relatively high. Based on internal risk control policies, the Company's management has taken several measures to deal with exchange rate risks: a. pre-judgment based on the trend of exchange rate changes, timely settlement of foreign exchange receipts or delayed settlement of foreign exchange; b. Carry out overseas financing through domestic guarantees and overseas loans to hedge foreign currency monetary assets and control net risk exposure; and c. Carry out forward exchange settlement and foreign currency swap business to lock in exchange rates. As of December 31, 2020, please refer to “monetary items in foreign currencies” of notes to financial statements for details in foreign currency financial assets and liabilities. 247 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. XI. Disclosure of Fair Values 1. Fair values of the assets and liabilities at the end of the period Unit: RMB Fair value as of the balance sheet date Item Name Level 1 Level 2 Level 3 Total Recurring fair value measurement -- -- -- -- 1.Held-for-trading financial assets 8,990,525.42 408,564,822.89 393,000,000.00 810,555,348.31 Financial assets measured at fair value through profit or loss 8,990,525.42 408,564,822.89 393,000,000.00 810,555,348.31 Debt instrument investments 359,224,861.78 393,000,000.00 752,224,861.78 Derivative financial assets 8,990,525.42 49,339,961.11 58,330,486.53 Total amount of assets constantly measured at their fair 8,990,525.42 408,564,822.89 393,000,000.00 810,555,348.31 values 2. Held-for-trading liabilities 7,939,957.91 7,939,957.91 Derivative financial liabilities 7,939,957.91 7,939,957.91 Total amount of liabilities constantly measured at their fair 7,939,957.91 7,939,957.91 values Non-constant measurement at fair values -- -- -- -- 2. Basis for determining the market price of items under first level constant and non-constant measurement at fair value. The fair value of futures contracts is measured at the exchange's open market quotes. 3. Items under second level constant and non-constant measurement at fair value, valuation technique adopted, and qualitative and quantitative information of important parameters The fair value of forward foreign exchange contracts and bank financing products is measured based on the valuation amount of the host bank or the forward foreign exchange rate announced by the Bank of China. Bank financing products are measured based on the valuation amount of the issuer or manager. 4. Items under third level constant and non-constant measurement at fair value, valuation technique adopted, and qualitative and quantitative information of important parameters. If the fair value information is insufficient, the bank financing products are measured at cost on behalf of the fair value. 248 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. XII. Related party relationships and transactions 1. Parent Company Holding Voting right Place of Parent Company Business nature Registered capital proportion over proportion over registration the Company the Company Sanhua Holding Industrial Zhejiang Province 660 million yuan 50.46% 50.46% Group Co., Ltd Investment Remarks on the parent Company: As of December 31, 2020, Sanhua Holding Group Co., Ltd. directly holds 29.78% of the Company's shares, and indirectly holds 20.68% of the shares through its subsidiaries, for a total of 50.46% of the shares. The final controllers of the Company are Mr Zhang Daocai, Mr Zhang Yabo and Zhang Shaobo. Other remarks: 2. Information about the Company's subsidiaries Please refer to interest in other entities of notes to financial statements. 3. Joint ventures and associates of the Company Please refer to notes to financial statements for details on the Company’s significant joint ventures and associates. Details of other joint ventures or associates carrying out related party transactions with the Company in current period or in preceding period but with balance in current period are as follows: Joint ventures or associates Relationships with the Company Chongqing Tainuo Machinery Co., Ltd Associates Qingdao Sanhua jinlifeng Machinery Co., Ltd Associates Zhongshan Xuanyi Pipe Making Co., Ltd Associates Other remarks Joint ventures or associates Abbreviation of associate Qingdao Sanhua Jinlifeng Machinery Co., Ltd QSJM Zhongshan Xuanyi Pipe Making Co., Ltd ZXPM Chongqing Tainuo Machinery Co., Ltd CTMC 4. Other related parties of the Company Other related parties Other relationships with the Company Shareholders and under the same control of the parent Zhejiang Sanhua Green Energy Industrial Group Co., Ltd. Company Hangzhou Tongchan Machinery Co., Ltd. under the same control of the parent Company 249 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Hangzhou Sanhua Research Institute Co., Ltd. under the same control of the parent Company Hangzhou Sanhua International Building Co., Ltd. under the same control of the parent Company Xinchang County Sanhua Property Management Co., Ltd. under the same control of the parent Company Shanghai Sanhua Electric Co., Ltd under the same control of the parent Company Zhejiang Sanhua Zhicheng Real Estate Development Co., Ltd. under the same control of the parent Company Zhejiang Haoyuan Technology Co., Ltd. under the same control of the parent Company Ningbo Fuerda Smartech Co., Ltd. under the same control of the parent Company Wuhu Alda Technology Co., Ltd. Subsidiary of a Company with shares held by the Company Hangzhou Formost Material Technology Co., Ltd Subsidiary of a Company with shares held by the Company Other remarks Joint ventures or associates Abbreviation of associate Sanhua Holding Group Co., Ltd. SHG Zhejiang Sanhua Green Energy Industrial Group Co., Ltd. ZSGE Hangzhou Sanhua Research Institute Co., Ltd. HSRI Hangzhou Tongchan Machinery Co., Ltd. HTM Zhejiang Haoyuan Technology Co., Ltd. ZHT Hangzhou Sanhua International Building Co., Ltd. HSIB Zhejiang Sanhua Zhicheng Real Estate Development Co., Ltd. ZSZR Shanghai Sanhua Electric Co., Ltd SSE Xinchang County Sanhua Property Management Co., Ltd. XCSP Ningbo Fuerda Smartech Co., Ltd. NFS Wuhu Alda Technology Co., Ltd. WAT Hangzhou Formost Material Technology Co., Ltd HFMT 5. Related party transactions (1)Purchase and sale of goods, rendering and receiving services Purchase of goods and receiving of services Unit: RMB Related Content of Current period Approved Over the Transaction Preceding period parties transaction cumulative Transaction Limit Limit or No comparative Materials and HTM 519,318.58 1,500,000.00 81,077.58 mechanical parts HTM Services 50,000.00 NO 130,682.02 HSRI Water and electricity 115,165.09 30,500,000.00 NO 1,144,787.13 HSRI Materials 14,303.48 1,500,000.00 250 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. ZSGE Utility 2,151,282.58 30,500,000.00 NO 2,333,110.78 ZXPM Materials 9,947,414.32 10,000,000.00 NO 11,884,054.12 QSJM Merchandise 1,702,420.54 2,000,000.00 NO 1,702,846.12 WAT Merchandise 16,601.77 50,000.00 NO 17,327.58 ZHT Merchandise 1,063,598.21 1,500,000.00 ZHT Utility 7,308,466.90 30,500,000.00 NO Sale of goods and rendering of services Unit: RMB Related parties Content of transaction Current period cumulative Preceding period comparative SHG Merchandise and Materials 1,080,229.07 SHG Water and electricity 1,871,967.25 CTMC Merchandise 233,517.60 QSJM Materials 291,399.64 12,322.99 HFMT Water and electricity 890,529.83 2,354,827.67 HSRI Water and electricity 919,853.20 3,010,720.73 HSRI Merchandise and Materials 305,509.41 1,805,362.91 HSRI Services 636,792.45 WAT Utility 212,462.82 320,544.07 WAT Merchandise and Materials 1,449.92 228,021.51 WAT Services 59,840.90 ZSGE Water and electricity 1,357,863.17 1,520,785.51 HSIB Merchandise 290,149.69 ZSZR Merchandise 29,990.27 17,388.50 ZHT Water and electricity 95,522.69 ZHT Merchandise 159.29 HTM Water and electricity 42,297.07 Remarks of related transactions related to the purchase and sale of goods and the provision and acceptance of services Due to the large number of related parties involved in related party transactions between the parent Company Sanhua Holding Group Co., Ltd and its subsidiaries, the Company approved RMB 1.5 million as the overall purchase quota for purchases and purchase rent, equipment rental, property management, water, electricity and power, service fee amount of 30.5 million yuan from the parent company Sanhua Holding Group Co., Ltd. and its subsidiaries collectively. The approval bases on the merger of the parent Company and its subsidiaries. (2)Related party leases The Company as the lessor: 251 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Unit: RMB Lessees Types of asset leased Lease income for current period Lease income for the preceding period SHG Office building 5,309,339.44 5,309,339.44 HFMT Plant 1,022,346.21 849,851.40 WAT Plant 345,223.41 312,302.76 The Company as the lessee: Unit: RMB Lessors Types of asset leased Lease expenses for current period Lease expenses for the preceding period HSRI Office building 1,134,833.52 921,788.57 ZSGE dormitory 80,800.00 80,800.00 ZSGE Plant 405,234.27 17,828.56 Remarks of related party leases (3)Related party guarantees The Company as guarantors Unit: RMB Guaranteed parties Maturity date Whether the guarantee is Amount guaranteed Commencement date mature The Company as guaranteed parties Guaranteed parties Amount guaranteed Commencement date Maturity date Whether the guarantee is mature SHG RMB 1,380,000,000.00 February 7, 2020 October 25, 2022 No SHG EUR14,500,000.00 July 05, 2019 June 20, 2022 No SHG USD20,000,000.00 December 24, 2019 December 23, 2021 No Remarks of related party guarantees The information in the table does not include related guarantees within the scope of consolidation, nor related guarantees that have been performed. (4)Assets transfer and debt restructuring of the related parties Unit: RMB Related parties Content of related party transactions Current period cumulative Preceding period comparative HTM Equipment 21,622,706.86 19,421,679.72 HSRI Equipment 17,393,367.30 (5)Key management’s emoluments Unit: RMB 252 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Items Current period cumulative Preceding period comparative Key management’s emoluments 5,950,600.00 5,664,500.00 (6)Other related party transactions Unit: RMB Abbreviation of associate Content of transaction Current period cumulative Preceding period comparative SHG Property income 1,684,018.88 1,684,018.88 Property expenses 847,318.27 254,553.09 ZSGE Service income 3,849.06 6,943.40 HFMT Property income 461,320.79 379,584.92 HSRI Property expenses 44,752.78 30,483.19 HTM Service income 6,867.92 13,207.55 XCSP Property expenses 2,984.07 In addition,it is affected by the inconsistency between the registered permanent residence of a few employees and the place of work,there are transactions between related parties that pay employee social insurance premium and housing accumulation fund on behalf of them. In current period,related parties pay for the company RMB2,828,941.97,the company pays for the related party RMB3,786.42. 6. Balance due to or from related parties (1)Receivables Unit: RMB Closing balance Opening Balance Related Items parties Book balance Provision for bad Book balance Provision for bad debts debts Accounts receivable WAT 376,293.54 18,814.68 62,502.41 3,125.12 Accounts receivable SHG 180,000.00 9,000.00 Accounts receivable QSJM 26,973.19 1,348.66 9,331.56 466.58 Accounts receivable HSRI 18,514.60 925.73 358,962.37 17,948.12 Accounts receivable XCSP 3,372.00 168.60 Advances paid ZXPM 186,974.96 Other receivables SHG 20,000.00 1,000.00 Other non-current assets HTM 9,122,291.82 (Equipment payment in advance) (2)Payables Unit: RMB 253 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Items Related parties Closing balance Opening Balance Accounts payable HTM 3,883,247.79 4,002,107.32 Accounts payable ZXPM 1,072,110.11 Accounts payable HSRI 266,150.00 266,150.00 Accounts payable QSJM 1,177,838.77 Contract liabilities WAT 1,518.94 2,101.34 Advances received NFS 10,000,000.00 Other payables HFMT 100,000.00 100,000.00 7. Related party commitments 8. Others XIII. Share-based payment 1. Overall information √ Applicable □ Not applicable Unit: RMB Total equity instruments granted in current period 12,045,000.00 Total equity instruments exercised in current period 5,120,700.00 Total equity instruments retired in current period 458,055.00 The adjusted grant price of stock appreciation rights The range of exercise prices of share options outstanding at the end of is 4.59 yuan, which will be unlocked in batches the period and the remaining contractual life within 12 months after 36 months from the grant date. 2018 Restricted Stock Incentive Plan: The adjusted restricted stock grant price is 4.59 yuan, which will be unlocked in batches within 12 months after 36 The range of exercise prices of other equity instruments at the end of the months after the grant date. 2020 Restricted Stock period and the remaining contractual life Incentive Plan: The adjusted restricted stock grant price is RMB 7.36, which will be unlocked in batches within 12 months after 12 months, 24 months, and 36 months from the grant date. Other remarks (1) Restricted stock and stock appreciation right incentive plan implemented in 2018 In September 2018, the Company implemented a restricted stock and stock appreciation right incentive plan for core employees. Among them, the number of restricted stocks granted was 10.33 million shares, the number of stock appreciation rights granted was 355,000 shares, and the grant price per share was RMB 8.37. The grant date was September 18, 2018, at 30%:30%:40%. The proportion is unlocked year by year in batches. 254 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. In May 2019, the Company implemented the 2018 equity distribution. According to the methods stipulated in the "2018 Restricted Stock Incentive Plan" and "2018 Stock Appreciation Rights Incentive Plan", the exercise price and quantity of the underlying stocks involved were adjusted accordingly. After the adjustment, the number of restricted stocks granted was 13.429 million shares. The number of stock appreciation rights granted was 461,500 shares, and the grant price per share was RMB 6.25. In June 2020, the Company implemented the 2019 equity distribution. In September 2020, the company implemented the 2020 semi-annual equity distribution. According to the methods stipulated in the "2018 Restricted Stock Incentive Plan" and "2018 Stock Appreciation Rights Incentive Plan", the exercise price and quantity of the underlying stocks involved were adjusted accordingly .After the adjustment, the number of restricted stocks granted was 17.4577 million shares. The number of stock appreciation rights granted was 599,950 shares, and the grant price per share was RMB 4.59. (2) Restricted stock incentive plan implemented in 2020 In February 2020,the Company implemented a restricted stock incentive plan for core employees. Among them,the number of restricted stocks granted was 12.045 million shares ,and the grant price per share was RMB 9.85,The grant date was February 24, 2020, and it will be unlocked year by year in batches at a ratio of 30%:30%:40%. In June 2020, the Company implemented the 2019 equity distribution. In September 2020, the company implemented the 2020 semi-annual equity distribution. According to the method stipulated in the "2020 Restricted Stock Incentive Plan", the exercise price and quantity of the underlying stocks involved were adjusted accordingly. After the adjustment, the number of restricted stocks granted was 15.6585 million shares, and the grant price per share was RMB 7.36. 2. Equity-settled share-based payment √ Applicable □ Not applicable Unit: RMB Determination method for grant-date fair value of equity Calculated based on the closing price of the stock on the grant date instruments minus the grant price of the restricted stock. Determination method for the number of equity instruments [Note] expected to vest Reasons for significant difference between the estimates in Not applicable current period and preceding period Capital reserve accumulated due to equity-settled 97,243,888.18 share-based payment Total expenses incurred due to equity-settled share-based 72,810,130.99 payment Other remarks Note:In 2018, the company initially granted 10.33 million restricted stocks to incentive object. Later, it was adjusted to 17.4577 million shares due to the annual distribution of equity in 2018 and the annual distribution of equity in 2019. In 2020, the company initially granted 12.045 million restricted stocks to incentive object. Later, it was adjusted to 17.4577 million shares due to the annual distribution of equity in 2019. The number is the base,it will be unlocked year by year in batches at a ratio of 30%:30%:40%. The Company estimates the number of 255 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. exercisable equity instruments on the following basis: the Company's operating performance can meet the target, the future voluntary turnover rate of the incentive objects is 0%,and the performance appraisal level is above C (the unlocking coefficient is 1). 3. Cash-settled share-based payment √ Applicable □ Not applicable Unit: RMB Determination method for the fair value of liability It is calculated based on the closing price of the stock on the balance incurred by the Company and to be settled in cash or other sheet date after deduction of the adjusted stock appreciation right grant assets price. Liabilities incurred due to cash-settled share-based 6,332,840.44 payment Total expenses incurred due to cash-settled share-based 4,094,389.66 payment Other remarks 4. Others XIV. Commitments and contingencies 1. Contingencies (1)Significant contingencies existing on the balance sheet date On December 31, 2020,no significant contingent matter needs to be disclosed by the Company. (2)If no significant contingent matter to be disclosed by the Company, it should also be noted accordingly No important contingent matter needs to be disclosed by the Company. 2. Others XV. Events after the balance sheet date 1. Profit distribution Unit: RMB Proposed profits or dividends 895,454,593.00 Profits or dividends declared to be paid after approval 895,454,593.00 256 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. XVI. Other Significant Events 1. Segment information (1)Basis for reportable segments and the accounting policy Reportable segments are identified based on operating segments which are determined based on the structure of the Company’s internal organization, management requirements and internal reporting system, etc., and identified the reportable segments based on products. (2)Financial information of the reporting subsection Unit: RMB Refrigeration and air-conditioning Auto parts Inter-segment Items Total electrical parts business business elimination Total Operating revenue 964,064.72 246,918.62 1,210,983.34 Total Operating cost 676,459.91 173,579.22 850,039.13 Total assets 1,266,070.50 437,182.57 1,703,253.07 Total liabilities 546,913.43 141,064.36 687,977.79 2. Other remarks (1) Convertible corporate bonds In January 2021, The Company has received the "Retification on Approval of Zhejiang Sanhua Intelligent Controls Co., Ltd.'s Public Issuance of Convertible Corporate Bonds" (CSRC License [2021] No. 168) issued by China Securities Regulatory Commission. Within 12 months as of the date of approval, the Company may issue convertible corporate bonds with a total face value of 3 billion yuan to the public. (2)Financing lease Please refer to “Fixed assets” of notes to financial statements for details in fixed assets leased in by financing. The unrecognized financing costs are 8,068,029.49yuan at the end of period and minimum lease payments to be paid in subsequent years are as follows: Remaining lease term Amount Within 1 year(including 1 year) 6,417,433.10 1 to 2 years 10,274,197.36 2 to 3 years 10,274,197.36 Over 3 years 70,534,422.75 Subtotal 97,500,250.57 257 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. XVII. Notes to items of parent Company financial statements 1. Accounts receivable (1)Disclosure of accounts receivable by categories Unit: RMB Closing balance Opening balance Provision for bad Provision for bad Book balance Book balance debt debt Categor Accrue Carrying Accrue Carrying y Proport d amount Proport d amount Amount Amount Amount Amount ion proport ion proport ion ion Receiva bles with provisio 568,926,1 77.05 568,926,1 986,349,01 86.28 986,349,01 n made 07.65 % 07.65 4.75 % 4.75 on an individu al basis Includin g: Receiva bles with provisio 169,453,2 22.95 8,472,66 160,980,5 156,790,40 13.72 7,839,52 148,950,88 5.00% 5.00% n made 30.80 % 1.54 69.26 1.29 % 0.06 1.23 on a collecti ve basis Includin g: 738,379,3 100.00 8,472,66 729,906,6 1,143,139,4 100.00 7,839,52 1,135,299,8 Total 1.15% 0.69% 38.45 % 1.54 76.91 16.04 % 0.06 95.98 Provision made on an individual basis: Unit: RMB Closing balance Name Book balance Provision for bad Accrued Accrued debt proportion reason 258 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Zhejiang Sanhua Trading Co., Ltd 391,515,686.85 SANHUA INTERNATIONAL SINGAPORE 91,681,883.29 PTE.LTD. SANHUA (VIETNAM) COMPANY LIMITED 57,017,505.61 Zhejiang Sanhua Automotive Components Co., Ltd. 13,985,140.95 Other subsidiaries 14,725,890.95 Total 568,926,107.65 -- -- Provision made on a collective basis: Unit: RMB Closing balance Items Book balance Book balance Book balance Within 1 year 169,453,230.80 8,472,661.54 5.00% Total 169,453,230.80 8,472,661.54 -- The remarks of determination of a collective basis: If the provision for bad debt of accounts receivable is accrued in accordance with the general expected credit loss model, please refer to the disclosure of other receivables to disclose the relevant information about the provision for bad debt: √ Applicable □ Not applicable Phase I Phase II Phase III Subtotal Provision for bad debt 12 month expected Lifetime expected credit losses Lifetime expected credit losses credit losses (credit not impaired) (credit impaired) Balance on January 1, 2020 7,839,520.06 7,839,520.06 The balance as of January 1, 2020 is —— —— —— —— in the current period --Transferred to phase II --Transferred to phase III --Reversed to phase II --Reversed to phase I Provision made in the current period 633,141.48 633,141.48 Provision recovered in current period Provision reversed in current period Provision written off in current period Other changes Balance on December 31, 2020 8,472,661.54 8,472,661.54 Disclosure by aging Unit: RMB Aging Closing balance 259 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Within 1 year (including 1 year) 738,379,338.45 Total 738,379,338.45 (2)Provision for bad debt accrued, recovered or reversed in current period Provision for bad debt accrued in current period: Unit: RMB Changed amount of the current period Opening Closing Category Recovered or Write balance Accrued Others balance reversed off Receivables with provision made on a 7,839,520.06 633,141.48 8,472,661.54 collective basis Total 7,839,520.06 633,141.48 8,472,661.54 Including significant provision for bad debt recovered or reversed amount: (3)Assets and liabilities arising from transferred but still involved accounts receivable Other remarks: Closing balance of top 5 debtors totaled 629,113,983.75yuan, accounting for 85.20% of the total closing balance of accounts receivable, and provision for bad debts made thereon totaled 4,444,945.40 yuan. 2. Other receivables Unit: RMB Items Closing balance Opening balance Other receivables 348,897,078.11 603,257,516.95 Total 348,897,078.11 603,257,516.95 (1)Other receivables 1)Other receivables categorized by nature Unit: RMB Other receivables categorized by nature Closing balance Opening balance Principal and interest of capital assistance to subsidiaries 329,063,840.37 573,806,364.53 Tax refund receivable 8,536,537.99 15,017,287.01 Guarantee deposit 10,381,285.00 10,381,285.00 Others 1,224,031.39 4,660,439.18 Total 349,205,694.75 603,865,375.72 260 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 2)Provision for bad debt Unit: RMB Phase I Phase II Phase III Next 12month Lifetime expected credit Lifetime expected credit Provision for bad debt Total expected credit losses (credit not losses (credit impaired) losses impaired) Balance on January 1, 152,826.34 455,032.43 607,858.77 2020 Balance in current period on January 1, —— —— —— —— 2020 Provision recovered in 109,437.04 189,805.09 299,242.13 current period Balance on December 43,389.30 265,227.34 308,616.64 31, 2020 Loss provisions for significant changes in book balances in current period □ Applicable √ Not Applicable Disclosure by aging Unit: RMB Aging Closing balance Within 1 year (including 1 year) 43,389.30 1 to 2 years 8,689.84 2 to 3 years 232,704.00 Over 3 years 23,833.50 Total 308,616.64 3)Provision for bad debt accrued, recovered or reversed in current period Provision for bad debt accrued in current period: Unit: RMB Changed amount of the current period Opening Closing Category Recovered or Write balance Accrued Others balance reversed off Receivables with provision made on a 607,858.77 299,242.13 308,616.64 collective basis Total 607,858.77 299,242.13 308,616.64 Including significant provision for bad debt recovered or reversed amount: Unit: RMB 261 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Debtors Recovered or reversed Way of collection 4)Top 5 debtors with the largest other receivables balances Unit: RMB Proportion to the total Nature of Closing Provision for bad debt Debtors Age balance of other receivables balance at the end of the period receivables Sanhua (Jiangxi) Self - Within control Components Co., Financial aid 50,000,000.00 14.32% 1 year Ltd. Wuhu Sanhua Auto-control Within Financial aid 46,000,000.00 13.17% Components Co., Ltd 1 year Shaoxing Shangyu Sanli Within Financial aid 40,000,000.00 11.45% Copper Industry Co., Ltd 1 year Zhongshan Sanhua Within Refrigeration Accessories Financial aid 40,000,000.00 11.45% 1 year Co., Ltd Wuhu Sanhua Refrigeration Within Financial aid 40,000,000.00 11.45% Accessories Co., Ltd 1 year Total -- 216,000,000.00 -- 61.85% 3. Long-term equity investments Unit: RMB Closing balance Opening balance Investees Book balance Provision for Book balance Provision for Carrying amount Carrying amount impairment impairment Investments in 4,515,044,723.75 4,515,044,723.75 4,297,929,280.35 54,000,000.00 4,243,929,280.35 subsidiaries Investments in associates and 13,501,505.62 13,501,505.62 12,704,660.71 12,704,660.71 joint ventures Total 4,528,546,229.37 4,528,546,229.37 4,310,633,941.06 54,000,000.00 4,256,633,941.06 (1)Investments in subsidiaries Unit: RMB Opening Changed amount of the current period Closing balance Closing Investees balance(Carrying Investments Investments Provision Others (Carrying balance of 262 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. amount) increased decreased for amount) provision impairment for impairment Zhejiang Sanhua Automotive 1,977,416,802.97 16,722,173.85 1,994,138,976.82 Components Co., Ltd. Sanhua (Hangzhou) Micro Channel 635,170,819.48 9,270,319.62 644,441,139.10 Heat Exchanger Co., Ltd Zhejiang Sanhua Climate & Appliance 310,155,131.25 10,123,137.76 320,278,269.01 Controls Group Co., Ltd Sanhua International 307,379,027.71 906,300.60 308,285,328.31 Inc. Sanhua International 454,171,908.17 210,472,602.90 664,644,511.07 Singapore Pte. Ltd Wuhu Sanhua Automatic Control 150,379,784.89 892,147.77 151,271,932.66 Components Co., Ltd Sanhua (Jiangxi) Self - control 92,824,141.91 543,247.02 93,367,388.93 Components Co., Ltd Xinchang Sitong Electrical and 65,444,051.15 759,611.86 19,557,906.39 46,645,756.62 Mechanical Co., Ltd Zhejiang 68,290,894.37 68,290,894.37 Sanhua 263 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Commercial Refrigeration Co. Ltd Zhejiang Sanhua Trading 51,053,113.94 2,691,893.62 53,745,007.56 Co. Ltd Changzhou Lanke four-way 35,196,850.59 27,302,805.57 62,499,656.16 valve co., LTD Hangzhou Leaderway 47,798,913.83 3,218,640.36 51,017,554.19 Electronics Co., Ltd Shaoxing Shangyu Sanli 31,930,719.92 596,867.18 32,527,587.10 Copper Industry Co., Ltd Zhongshan Sanhua Air conditioning 4,885,524.32 196,919.86 5,082,444.18 Refrigeration Components Co., Ltd Wuhan Sanhua Refrigeration 3,734,983.46 505,207.84 4,240,191.30 Components Co., Ltd Zhongshan Sanhua Refrigeration 5,163,639.29 735,371.44 5,899,010.73 Components Co., Ltd Suzhou Sanhua Air-Conditioner 8,395,763.86 273,311.78 8,669,075.64 Parts Co.,Ltd Hangzhou Sanhua Home Appliance 16,247,160.09 16,247,160.09 Thermal Management System Co., Ltd 264 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Zhejiang Sanhua Self - control 32,000,000.00 32,000,000.00 Components Co., Ltd Qingdao Debaiyi Refrigeration 14,580,943.52 14,580,943.52 Equipment Co., Ltd Total 4,243,929,280.35 353,501,453.40 82,386,010.00 4,515,044,723.75 (2)Investments in associates and joint ventures Unit: RMB Changed amount of the current period Closin Investm Cash g Opening Adjustme Chan Closing ent dividend/ balance balance Investm Investm nt in ges Provisi balance income profit of Investees (Carryin ents ents other in on for Oth (Carryin recogniz declared provisi g increase decreas comprehe other impair ers g ed under for on for amount) d ed nsive equit ment amount) equity distributi impair income y method on ment Ⅰ. Joint ventures Ⅱ. Associates Guochua ng Energy Internet 1,493,71 31,533.7 1,525,25 Innovatio 8.98 8 2.76 n Center (Guangdo ng) Co., Ltd. Chongqin g Tainuo 8,847,72 2,049,17 1,500,000 9,396,90 Machiner 8.00 6.73 .00 4.73 y Co., Ltd. Nanchan 2,335,24 431,896. 1,250,000 1,517,13 g Sanhua 2.16 79 .00 8.95 265 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Jinlifeng Machiner y Co., Ltd. Ningbo Jinlifeng 1,250,00 -187,79 1,062,20 Machiner 0.00 0.82 9.18 y Co., Ltd Qingdao Sanhua Jinlifeng 0.00 0.00 Machiner y Co., Ltd. Zhongsha n Sanhua Tainuo 27,971.5 -27,971. 0.00 Machiner 7 57 y Co., Ltd. Xinchang zhejiang energy sanhua comprehe nsive energy co. LTD 12,704,6 1,250,00 2,296,84 2,750,000 13,501,5 Subtotal 60.71 0.00 4.91 .00 05.62 12,704,6 1,250,00 2,296,84 2,750,000 13,501,5 Total 60.71 0.00 4.91 .00 05.62 (3)Other remarks Due to the implementation of the enterprise group share payment transactions, the company as a settlement enterprise,according to the fair value of the granted entity instrument. Confirm equity investments in subsidiaries (service receivers). At the same time, increase capital reserves 50,111,874.20yuan. 266 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. 4. Operating revenue and Operating cost Unit: RMB Current period cumulative Preceding period comparative Items Revenue Cost Revenue Cost Main operations 4,261,339,025.61 3,143,704,934.36 4,241,261,150.67 3,184,390,923.55 Other operations 255,244,021.84 239,955,604.07 222,135,377.17 218,206,712.02 Total 4,516,583,047.45 3,383,660,538.43 4,463,396,527.84 3,402,597,635.57 Other remarks: 5. Investment income Unit: RMB Items Current period Preceding period cumulative comparative Investment income from long-term equity investments under cost 174,095,823.76 549,123,531.19 method Investment income from long-term equity investments under equity 2,298,930.50 2,100,652.42 method Gains on disposal of long-term equity investments -27,199,644.40 956,707.24 Investment income of bank financing products 13,307,539.55 4,103,178.32 Gains and losses on settlement of futures contracts 17,957,388.89 165,534.20 Gains and losses on settlement of foreign exchange contract -8,360,741.05 163,949.06 Income of fund using fee 17,387,962.74 27,618,295.32 other -43,997.11 Total 189,487,259.99 584,187,850.64 6. R&D expenses Unit: RMB Items 2020 2019 Labor cost 101,435,220.21 80,284,612.99 Material and power expense 72,943,704.17 107,351,260.95 Depreciation and amortization expense 7,931,315.36 9,801,734.85 Mold manufacturing expense 2,063,576.52 1,192,844.56 Travel expense 833,067.62 1,863,554.26 Royalties 825,497.30 642,382.70 267 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Outsourcing R&D expense 443,167.38 1,351,326.21 Others 1,882,272.95 7,162,613.15 Total 188,357,821.51 209,650,329.67 XVIII. Supplementary information 1. Non-recurring profit or loss in current period √ Applicable □ Not Applicable Unit: RMB Items Amount Remarks Gains or loss on disposal of non-current assets -14,770,607.27 Government grants included in profit or loss (excluding those closely related to operating activities of the Company, satisfying government policies and 134,101,082.00 regulations, and continuously enjoyed with certain quantity/quota based on certain standards) Mainly for 1.floating profit from futures hedging operations, refer to "Notes on Changes in Fair Value and Investment Income" in this financial report for details. According to the Measures for the Operation and Management of Futures Hedge Business,the company will continue to carry out futures hedging business of copper, zinc, nickel and other raw materials in 2020, mainly for customers point price and fixed price futures Gains on changes in fair value of held-for-trading hedging business. Due to the contract lock quantity is financial assets, derivative financial assets, consistent with the customer order,and the contract lock held-for-trading financial liabilities and derivative up price is not higher than the customer lock up price. financial liabilities, and investment income from Therefore, the future period is now after the merger disposal of held-for-trading financial assets, 91,394,679.61 (referring to the customer's actual implementation),the derivative financial assets, held-for-trading financial company can keep the above customer business profit liabilities, derivative financial liabilities and other rate stable, to achieve the purpose of hedging. The above investment, excluding those arising from hedging mentioned clients who carry out futures hedging business business related to operating activities are all well-known manufacturers at home and abroad and have good historical credit, the company have not defaulted since the company implemented the copper lock mechanism. 2. Based on the internal risk control policy, the management of the Company has taken several measures to deal with the exchange rate risk, such as to carry out forward settlement of foreign exchange and foreign currency swap business, lock the exchange rate. 268 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Other non-operating revenue or expenditures except 620,065.25 the above items Other profit or loss satisfying the definition of 1,246,912.65 non-recurring profit or loss Less: Enterprise income tax affected 19,272,109.42 Non-controlling interest affected 1,770,947.78 Total 191,549,075.04 -- For items defined as non-recurring profit or loss according to “the No. 1 Explanatory Announcement on Information Disclosure for Companies Offering Their Securities to Public - Non-recurring Profit or Loss”, non-recurring profit or loss items listed in the said document defined as project of recurring profit or loss, specify the reason □ Applicable √ Not Applicable 2. ROE and EPS EPS (yuan/share) Weighted average Profit of the reporting period Basic Diluted ROE EPS EPS Net profit attributable to shareholders of ordinary shares 15.04% 0.41 0.41 Net profit attributable to shareholders of ordinary shares after deducting 13.07% 0.36 0.36 non-recurring profit or loss 3. Financial data variance between financial reporting prepared under domestic and abroad accounting standards (1)Differences of net profits and net assets in the financial reports disclosed according to the IFRS and Chinese Accounting Standards □ Applicable √ Not Applicable (2)Differences of net profits and net assets in the financial reports disclosed according to the overseas accounting standards and Chinese Accounting Standards □ Applicable √ Not Applicable (3)Reasons for accounting data variance between financial reporting prepared under domestic and international accounting standards, and for the difference adjustment on the data already audited by an overseas audit institution, the name of the audit institution should be noted 4. Others 1.Calculation process of weighted average ROE 269 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. (1) Weighted average net assets Weighted by Weighted average net Changed item in net assets Amount month assets Net assets attributable to shareholders of ordinary shares at the beginning of 9,291,632,928.45 12/12 9,291,632,928.45 period Net profit attributable to shareholders of ordinary shares 1,462,158,821.57 6/12 731,079,410.79 2019 cash dividend -410,148,045.30 7/12 -239,253,026.43 Semi-annual cash dividend in 2020 -355,461,639.20 3/12 -88,865,409.80 Stock incentive restricted shares unlock increased net assets 22,895,712.00 2/12 3,815,952.00 Compensation is paid in equity-settled shares 72,810,130.99 6/12 36,405,065.50 The accounting cost and tax cost of share-based compensation have different 34,219,683.40 6/12 17,109,841.70 calculation caliber, which has an impact on current income tax benefits Effect of Foreign Currency Translation -50,292,214.11 6/12 -25,146,107.06 Adjustment of capital reserves for equity transactions -3,020,858.23 7/12 -1,762,167.30 Net assets attributable to shareholders of ordinary shares at the end of period 10,064,794,519.57 9,725,016,487.85 (2) Weighted average ROE Items Symbol Current period cumulative Net profit attributable to shareholders of ordinary shares A 1,462,158,821.57 Non-recurring profit or loss attributable to shareholders of ordinary shares B 191,549,075.04 Net profit attributable to shareholders of ordinary shares after deducting non-recurring profit or C=A-B 1,270,609,746.53 loss Weighted average net assets D 9,725,016,487.85 Weighted average ROE E=A/D 15.04% Weighted average ROE after deducting non-recurring profit or loss F=C/D 13.07% 2.Calculation process of Basic EPS and Diluted EPS (1) Basic EPS Items Symbol Current period cumulative Net profit attributable to shareholders of ordinary shares A 1,462,158,821.57 Equity incentive dividend on restricted stock B 4,141,196.00 Net profit attributable to shareholders of ordinary shares after deducting the equity incentive C=A-B 1,458,017,625.57 dividend on restricted stock Non-recurring profit or loss attributable to shareholders of ordinary shares D 191,549,075.04 Net profit attributable to shareholders of ordinary shares after deducting dividends on restricted E=C-D 1,266,468,550.53 stock and non-recurring profit or loss 270 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Total shares at the beginning of period(Do not consider the unvested repurchase inventory shares) F 2,743,829,802 Capital reserve converted into share capital G 826,675,080 The number of equity incentive restricted stock unreleased in 2018(After transition increase) H 6,658,600 Number of restricted stock write off(After transition increase) I 627,510 Weighted average number of ordinary shares outstanding J[noted] 3,563,218,772 Basic EPS K=C/J 0.41 Basic EPS after deducting non-recurring profit or loss L=E/J 0.36 Remark: J=F+G-H-I (2) Diluted EPS Items Symbol Current period cumulative Net profit attributable to shareholders of ordinary shares A 1,462,158,821.57 Non-recurring profit or loss attributable to shareholders of ordinary shares B 191,549,075.04 Net profit attributable to shareholders of ordinary shares after deducting non-recurring profit or loss C=A-B 1,270,609,746.53 Weighted average number of ordinary shares outstanding D 3,563,218,772 The weighted average number of shareholders of ordinary shares increased by equity incentive E 9,840,255 restricted shares Weighted average number of ordinary shares outstanding after dilution F=D+E 3,573,059,027 Diluted EPS G=A/F 0.41 Diluted EPS after deducting non-recurring profit or loss H=C/F 0.36 271 Zhejiang Sanhua Intelligent Controls Co., Ltd. 2020 Annual Report. Section XIII Documents Available for Inspection 1. The 2020 annual report signed by the chairman of the board. 2. The financial report signed and sealed by the Company's legal representative, chief finance officer and person in charge of accounting department. 3. Articles of Association. 4. Original copy of all the Company's documents and announcements published on the newspapers designated by CSRC within the reporting period. 5. Other documents available for inspection. Note: The Company shall disclose the catalogue of documents available for inspection, including: (1) The financial report signed and sealed by the Company's legal representative, chief finance officer and person in charge of accounting department. (2) The original audit report with the seal of the accounting firm and the signature and seal of the certified public accountant. (3) Original copy of all the Company's documents and announcements published on the newspapers designated by CSRC within the reporting period. (4) Annual reports published in other securities markets. 272