Contents 02 Corporate Information 04 Financial Highlights 05 Chairman s Statement 14 Management Discussion and Analysis 23 Directors, Supervisors and

Transcription

1 Stock code: 2338.HK

2 Contents 02 Corporate Information 04 Financial Highlights 05 Chairman s Statement 14 Management Discussion and Analysis 23 Directors, Supervisors and Senior Management 31 Directors Report 72 Supervisory Committee s Report 75 Corporate Governance Report 83 Independent Auditors Report 85 Consolidated Income Statement 86 Consolidated Statement of Comprehensive Income 87 Consolidated Statement of Financial Position 89 Consolidated Statement of Changes in Equity 90 Consolidated Statement of Cash Flows 93 Statement of Financial Position 95 Notes to Financial Statements 223 Financial Summary 224 Supplemental Information

3 Corporate Information Directors Executive Directors Tan Xuguang (Chairman and CEO) Xu Xinyu (Executive President) Sun Shaojun (Executive President) Zhang Quan (Executive President) Non-executive Directors Zhang Fusheng Liu Huisheng Yao Yu Yeung Sai Hong Chen Xuejian Li San Yim Julius G. Kiss Han Xiaoqun Gu Linsheng Li Shihao Liu Zheng Independent Non-executive Directors Zhang Xiaoyu Koo Fook Sun, Louis Fang Zhongchang Julius G. Kiss G. Supervisors Sun Chengping Ding Yingdong Jiang Jianfang Company Secretary, Chief Financial Officer and Qualified Accountant Cheung Tat Leung, Peter (FCCA, FCPA) (FCCA, FCPA) Secretary to the Board Dai Lixin 02 Weichai Power Co., Ltd.

4 Corporate Information (Continued) Legal Representative Liu Jiahong 197, Section A, Fu Shou East Street High Technology Industrial Development Zone Weifang, Shandong Province The People s Republic of China Postal Code: Tel: (86) (536) Fax: (86) (536) Website: (86) (536) (86) (536) Authorised Repr esentatives Xu Xinyu Cheung Tat Leung, Peter Registered Address and Headquarters of the Company 197, Section A Fu Shou East Street High Technology Industrial Development Zone Weifang Shandong Province The People s Republic of China Postal Code: Tel: (86) (536) Fax: (86) (536) website: (86) (536) (86) (536) Place of Business in Hong Kong Room 1909, 19th Floor Gloucester Tower 15 Queen s Road Central Hong Kong Legal Advisors Richards Butler in association with Reed Smith LLP Annual Report

5 Financial Highlights Turnover Basic Earning Per Share Net Profit Attributable to Equity Holders 04 Weichai Power Co., Ltd.

6 Chairman s Statement Dear Shareholders: On behalf of the Board, I would like to present the audited annual results of the Company for the year ended. I. Review of Operations Entering 2009, the Chinese government put in place a progressive financial policy and a moderately loose monetary policy, meanwhile fully implementing and continuing to perfect a basket of schemes to address the international financial crisis. The substantial increase in fiscal expenditure, the implementation of structured tax reduction, the maintenance of the rapid growth of monetary credit, the enhanced sustainability of the monetary policy and the expansion of the scale of direct financing satisfied the funding demand for economic and social developments and increased internal demand effectively. The downward trend of economy growth was turned around quickly and the momentum of stability and positive signs became evident gradually. In 2009, the GDP in China reached RMB33.5 trillion, representing a year on year growth of 8.7%, but the rate of increase decreased by 0.9% compared to last year. The GDP % Annual Report

7 Chairman s Statement (Continued) money supply accelerated its growth with new loans amounted to RMB9.6 trillion, representing an increase of RMB4.7 trillion compared to last year. Investment maintained its growth at a fast pace as China s fixed asset investments amounted to RMB22.5 trillion, representing a year on year growth of 30.1%, increased by 4.6% over last year. This brought about a larger development space for the equipment industries in China, such as heavy-duty vehicles, construction machinery, vessels and power generation %4.6 In 2009, China s heavy-duty trucks market showed restrain at the beginning but then grew in the later past of the year. Impacted by the international financial crisis, in the first two months it was obvious that the heavy-duty trucks market was suffering a downward trend. From March onward, the growth of the heavy-duty trucks market had been driven directly by domestic real estate, road and bridge construction and large-scale civil engineering construction, as well as the corresponding significant growth of the mining industry and energy demand. During the year, the domestic sales of heavyduty trucks totaled approximately 636,000 units, representing a year-on-year growth of 17.7%. In particular, the forth quarter became the top performing quarter of the year with total sales of approximately 185,000 units, representing a year-on-year growth of 191.4%. With regard to the segmented markets of heavy-duty trucks, the market share of complete vehicles and heavy-duty incomplete vehicles increased by 2 and 1.3 percentage points, respectively % % 21.3 During the reporting period, the overall status of China s heavy-duty trucks market did not see much change and the strong players remained strong, although competition was becoming more intense. According to the statistics of (China Association of Automobile Manufacturers), the performance of the Company s major customers such as (Shaanxi Heavyduty Motor Company Limited, a subsidiary of the Company), (Beiqi Futian Motor Company Limited), (Baotou North-Benz Heavy-Duty Truck Co., Ltd.), and (Anhui Jianghuai Automotive Co., Ltd.), etc. all maintained their leading position, hence driving the Company general market share increased slightly. The Company s aggregate sales of heavy-duty truck engines reached approximately 226,000 units in 2009, representing a year-on-year increase of 14.60%. According to the statistics of (China Association of Automobile Manufacturers), the Company s market share in the 14 tonnes (and above) gross weight heavy-duty truck market reached 35.6%. Shaanxi Heavy-duty Motor Company % % % 06 Weichai Power Co., Ltd.

8 Chairman s Statement (Continued) Limited, a subsidiary of the Company, reported an aggregate sales of approximately 58,000 units of heavy-duty trucks, representing a decrease of 8.75% over last year. (Shaanxi Fast Gear Co. Ltd.), a subsidiary of the Company, reported an aggregate sales of approximately 532,000 units of heavy-duty gear boxes, representing an increase of 14.54% over last year, and maintained its leading position as the largest heavy-duty vehicle gear boxes manufacturer in China % In 2009, China s engineering machinery market suffered a rather large impact from the international financial crisis, the severe contraction in the overseas export market and the shrinking demand for coals and iron ore. Consequently, market sales recorded a yearon-year fall. Since China is still undergoing rapid urbanization and industrialization, the implementation of strategies such as the Western China Development strategy, the Rise of Central China strategy, the invigoration of industrial base in the Northeast and development of new villages, and the crisis-fighting measures have driven the growth of China s infrastructural investments in areas such as railways, roads, ports, projects for people s well-being and reconstruction in disaster area. These in turn have partially offset the negative impact of the financial crisis. A total of approximately 422,000 units of construction machines were sold in China during 2009, representing a decrease of 8.7% over last year, in which sales of wheel loaders with a load capacity of 5 tonnes amounted to approximately 97,000 units, representing a decrease of 7.6% over last year. However, the wheel loaders market showed a sign of recovery since August. According to the statistics of (China Construction Machinery Association), the Company s major customers, such as (China Infrastructure Machinery Holdings Limited), (Shandong Lingong Construction Machinery Co., Ltd.), (Xuzhou Construction Machinery Group Inc.), (Chengdu Construction Machinery Co., Inc.), (Shandong SEM Machinery Co., Ltd.), all recorded decline over last year, hence dragging the growth of the Company s product sales. The Company s sales of engines for construction machinery were approximately 82,000 units in 2009, representing a year-on-year decrease of 7.00%. According to the information published on the website of (China Construction Machinery Network), the Company had a market share of 80.0% in the market of wheel loader engines with a load capacity of 5 tonnes (and above), which is almost the same with that in last year % % % % Annual Report

9 Chairman s Statement (Continued) During the reporting period, with our technology innovation, the Company continued to lead the power-transmission development in China. The national commercial vehicles power system assembly engineering technique research centre and the strategic alliance for technical innovation of commercial vehicles and construction machinery new energy power industry were approved by the Ministry of Science and Technology, laying the platform for the Company to enhance our system R&D capacity and seize the core advanced technique. Entering the heavy-duty trucks China III release phase, the Company s high-power high-speed Landking engines, which we own the intellectual property right, have been well received by the market for their advantages in areas such as environment protection, energy saving and reliability. During the reporting period, approximately 170,000 units of 10-12L China III engines were sold, making them the flagship product in the domestic engines market for the electrically-controlled high pressure common rail system. Landking China IV engines have entered the market testing phase in small batches, and successfully matched with companies such as Shaanxi Zhongqi and Beiqi Futian. Meanwhile, the Company actively advanced the work for product structure adjustment. Our self researched and developed 5-7L Landking engines fully reached the release standard of China III and China IV and entered the commercialization phase in small batches. The acquisition of Moteurs Baudouin of France, the restructuring of Weichai Power Yangzhou Diesel Engine Co. Ltd. () and the agreement with VM Company regarding the technical introduction for small-bore engines have enabled the Company to own 2-3L and over 16L high-speed products, initially forming the complete product range for our engines business. Following a 12- month brand promotion and quality enhancement, Shaanxi Zhongqi s F3000 has developed positive market reputation and sales base. Marked by the launch of this product, Shaanxi Zhongqi will jump up to a new development platform where its role among leading in complete vehicles will become more prominent. While SFGC s products such as small gear boxes have started to enter the market, a new growing point has been created for the Company and our development prospect will become brighter. III 10-12L III 17.0 IV 5-7L IIIIV VM F Weichai Power Co., Ltd.

10 Chairman s Statement (Continued) During the reporting period, the Company focused on long term and persisted development with internal quality. We have successfully fostered changes during the crisis and development during the changes. Based on our continued satisfactory implementation of lean management tools and control model, in 2009 the Company focused on the launch of four innovative management initiatives: (1) the introduction of the WOS management model gradually helped the Company s development progress to integrate with advanced international management and production concepts; (2) the launch of the innovative appraisal management scheme and enterprise salary system reform stimulated the innovative initiative of the entire workforce; (3) the activation of centralized training for managers allowed nearly 500 leaders within the Company take turn to receive training, further unifying their value of judgement and enhancing their personal quality constantly; (4) with the assistance of an internationally renowned consultant, the organization and structure of the sales and marketing system and workflow were refined with a stronger capability in market planning, market management, marketing and information management to support the Company s long term development. WOS 500 The Company maintained its development momentum and sold approximately 322,000 units of different models of diesel engines in the period, representing an increase of 9.03% over the last year. Revenue increased by approximately 8.27% over last year to approximately RMB35,261 million. The net profit attributable to shareholders was RMB3,407 million, representing an increase of 76.62% over the last year. The basic earnings per share increased by approximately 76.29% over last year to approximately RMB % 35, % 3, % % II. Dividend Putting shareholders interests and return as its top priority, the Company has been maintaining a relatively stable dividend policy. The Board proposed to declare a final dividend of RMB0.48 per share for the year ended. The resolution in respect of the declaration of final dividend will be proposed at the forthcoming annual general meeting for approval. The Company will strive to realize the sustainable growth of dividend and maximize the return of shareholders Annual Report

11 Chairman s Statement (Continued) III. Acquisition and Consolidation During the reporting period, the Company seized the opportunity in the crisis, and integrated domestic and overseas quality resources actively. In January 2009, the Company, through our subsidiary Weichai Power (Hong Kong) International Development Limited, acquired Moteurs Baudouin of France for 2.99 million euros. Moteurs Baudouin s major product M26 engine is the ideal power system for luxurious yachts, boats and power generators, which greatly compliments the Company s current product portfolio. The completion of the restructuring of Weichai Power Yangzhou Diesel Engine Co. Ltd. at the end of 2009 created conditions for establishing a production base for a million small-bore power, marking the Company s concentrated effort in implementing the Yangtze River Delta business sector strategy in full scale, following our Bohai Rim business platform and the Southwest business platform. 299 M26 IV. Outlook and Prospects Looking into 2010, the external development environment may become better compared to last year but the situation facing us is extremely complex. The dynamics between various positive changes and unfavorable factors will increase the dilemmas during the development of an economic society. From the international perspective, it is hopeful that the world economy will recover and grow while the international financial market is stabilizing gradually. The trend of the further deepening of globalization of economies remains unchanged, while new development opportunities are cultivated by substantial reforms in and adjustments to the world economy. Nonetheless, the foundation for the recovery of the world economy is still rather weak, financial risks have not been reduced fully, many countries are struggling to launch stimulation policy, fluctuation in international prices for major commodities and exchange rates for major currencies may increase, and the rise of trade protectionism becomes evident. These coupled with complex global issues such as climate change, food safety and energy resources indicate that many unstable and uncertain factors are still present in the external environment. "" 10 Weichai Power Co., Ltd.

12 Chairman s Statement (Continued) From the domestic perspective, China is still in the crucial strategic opportunity phase while the base for an economic recovery has been further strengthened. The Chinese government is clear about its continued implementation of the active fiscal policy and the moderately loose monetary policy. The policy effect of increasing domestic demand and improving people s livelihood is expected to continue. Meanwhile, the pace and quality of China s macro economic growth is subject to the proper handling of three relationships. The first is the relationship between the maintenance of growth and structure adjustment: whether the changes in development methods would affect the pace of the development of the Chinese economy. Second, it is the relationship between the maintenance of a stable and faster economic development and the proper management of expectation of inflation: whether the continued implementation of a series of economic stimulation policies would create a new round of inflation; and whether the government s monetary policy would be adjusted to address the continuously increased asset bubble. The third is the relationship between increased domestic demand and trade protection. The Chinese economy is being tested by uncertain factors such as the constant rise of trade protectionism in the international arena, the continuously increased pressure on RMB s appreciation, and whether domestic demand is sufficient to compensate for the loss of external demand. The Company is cautiously optimistic about the development of its related industries. With regard to the heavy-duty trucks market, factors such as the continuously improving economy, high fixed assets investment and the improved development environment in the vehicle and assembly production industry will remain in the first half of In addition, due to the sales base of the industry in the first quarter of 2009 being relatively low, heavy-duty trucks industry is expected to see a relatively fast year-on-year growth during the first half of The trend of the heavy-duty trucks industry in the second half of 2010 will be quite uncertain because it is still unclear about the sustainability of the recovery of the macro economy; meanwhile it is rather difficult to predict important factors such as whether China s economic stimulation policy will be adjusted in some degree. The construction machinery market, real estate, infrastructure construction and the export and metallurgy mining industries may work together to propel the industry to a faster growth. On the one hand, the global construction machinery market is expected a rapid rebound after suffering a downturn for three consecutive years; on the other hand, domestic private investment will see a significant recovery compared to This round of government investment is still in the construction and delivery peak time, it is expected that China s wheel loaders industry will remain the growth momentum in Annual Report

13 Chairman s Statement (Continued) Given the implementation of the China IV Emission Standard, we anticipate that there will be fierce competition in China s engine market in the coming years. Leveraging on our advanced technology, quality product and loyal customer base, we have consolidated our leading position in the high-power engine market and the directors have full confidence in the prospect of the Company. IV The Company will further enhance our R&D effort, implement the talent-first strategy and the core technology transformation strategy, complete the marketing for China IV products in small batches ahead of schedule and continue to perfect product performance, so as to better satisfy customers demand and become technologically ready for the upcoming China IV phase. The Company will also further advance product and market structure adjustments. With regard to high-power segment, the Company will accelerate the optimization and localization pace of Moteurs Baudouin s over 16L engines, and develop a complete range of Weichai industry power products. With regard to low to medium-power segment, through the newly developed 5-7L engines, we will keep exploring emerging markets such as passenger vehicles, non-loader construction machinery and medium to heavy-duty trucks. With regard to low-power segment, through the platform of Weichai Power Yangzhou Diesel Engine Co. Ltd., we will accelerate the pace of absorbing and improving the technologies for small-bore engines. The Company will unwaveringly build up its strengths in market diversification to form a coordinated market layout. IV IV At the same time, under the principle of unifying strategy, independent operation, resources sharing, we will accelerate the segmental development of commercial vehicles, power chain and automobile components. We shall further integrate the Company s resources, fully utilize synergies and improve our capability against risks. In next five year, the Company will strive to build its engine business segment as a global leading and full range engine supplier covering all industries. Eventually, all these will enable the Company to become an international enterprise with an orientation on complete machines and the core technology for power assembly, and developing into a unique player in the global equipment manufacturing industry. 12 Weichai Power Co., Ltd.

14 Chairman s Statement (Continued) V. Appreciation Last but not least, I would like to take this opportunity to express my sincere appreciation to all our shareholders, the general public and our customers for their care and support, as well as all our staff for their hard work and dedication in the past year.! Tan Xuguang Chairman and Chief Executive Officer Hong Kong, 26th April, 2010 Annual Report

15 Management Discussion and Analysis The directors are pleased to provide a management discussion and analysis of the results of operations of the Group for the year ended 31st December, 2009, as follow: I. Industry Analysis The Company is one of the largest manufacturers of high-power, high-speed diesel engines in the PRC and a leading company in the power chain market. It is equipped with the most comprehensive supply chain of engines, gear boxes and axles. 1. Heavy-duty Vehicle Industry During the year, China s heavy-duty trucks market showed restriction at the beginning but then grew at a later stage. In 2009, the domestic sales of heavy-duty trucks totaled approximately 636,000 units, representing a year-on-year growth of 17.7%. In particular, the forth quarter became the top performing quarter of the year with total sales of approximately 185,000 units, representing a year-on-year growth of 191.4%. This is mainly attributed to: I % % First, entering 2009, the Chinese government put in place an active financial policy and a moderately loose monetary policy, meanwhile fully implemented and continued to perfect a basket of schemes addressing the international financial crisis. The substantial increase in financial expenditure, the implementation of structured tax reduction, the maintenance of the rapid growth of monetary credit, the enhanced sustainability of the monetary policy and the expansion of the scale of direct financing satisfied the funding demand for economic and social development and increased internal demand effectively. The downward trend of economy growth was turned around quickly and the momentum of stability and positive signs became evident gradually. GDP recorded a yearon-year increase of 8.7% while fixed asset investment recorded a year-on-year increase of 30.1%. The heavy-duty truck industry benefited from the favourable macro-economic environment. GDP 8.7% 30.1% 14 Weichai Power Co., Ltd.

16 Management Discussion and Analysis (Continued) Second, impacted by the international financial crisis during the year, in the first two months it was obvious that the heavy-duty trucks market was going downward. From March onward, the growth of the heavy-duty trucks market has been driven directly by domestic real estate, road and bridge construction and large-scale civil engineering construction, as well as the corresponding significant growth of the mining industry and energy demand. Third, the government investment, industries stimulus measures and fuel tax reform, in particular, brought strong development for the heavy-duty truck market during the reporting period. 2. Construction Machinery Industry During the year, according to the statistics of (China Construction Machinery Association), a total of approximately 422,000 units of construction machines were sold in China, representing a decrease of approximately 8.7% over last year, in which sales of wheel loader with a load capacity of 5 tonnes amounted to approximately 97,000 units, representing a decrease of approximately 7.6% over last year. This is mainly attributed to: % % In 2009, China s engineering machinery market suffered a rather large impact from the spreading out of the international financial crisis, the severe retraction in the overseas export market and the shrinking demand for coals and iron ore. Consequently, market sales resulted in a year-on-year fall. Since China is still undergoing rapid urbanization and industrialization, the implementation of strategies such as the Western China Development strategy, the Rise of Central China strategy, the invigoration of industrial base in the Northeast and development of new villages, and the crisis-fighting measures have driven the growth of China s infrastructural investments in areas such as railways, roads, ports, projects for people's well-being and reconstruction in disaster area. These in turn have partially offset the negative impact from financial crisis. Annual Report

17 Management Discussion and Analysis (Continued) II. The Group s Business An analysis of the Group s business segments is set out in note 4 to the consolidated financial statements. The following are the highlights of the operations of major products lines of the Group. 1. Sales of Diesel Engines For use in Heavy-duty Trucks The Group is the largest supplier of diesel engines to major manufacturers of heavy-duty trucks with a load capacity of 15 tonnes (and above) in the PRC. The key customers such as (Shaanxi Heavy-duty Motor Company Limited), (Beiqi Futian Motor Company Limited), (Baotou North-Benz Heavy-Duty Truck Co., Ltd.) and (Anhui Jianghuai Automotive Co., Ltd.), etc. all maintained their leading position, hence driving the general market share increased slightly. During the year, the Group sold approximately 322,000 units of diesel engines in total, compared to approximately 296,000 units in 2008, representing an increase of approximately 9.03%. Of the diesel engines sold during the year, approximately 226,000 units (2008: 197,000 units) were truck engines, representing an increase of approximately 14.60% compared to For use in Construction Machinery The Group is also the largest supplier of diesel engines to major manufacturers of construction machinery (mainly wheel loaders) with a load capacity of 5 tonnes (and above) in the PRC. The key customers of the Group are: (China Infrastructure Machinery Holdings Limited), (Shandong Lingong Construction Machinery Co., Ltd.), (Xuzhou Construction Machinery Group Inc.), (Chengdu Construction Machinery Co., Inc.), (Shandong SEM Machinery Co., Ltd.), etc. All these companies all recorded decline over last year, hence dragged the growth of the Company s product sales. During the year, the Group sold approximately 82,000 units (2008: 88,000 units) of construction machinery engines, representing a decrease of approximately 7.00% compared to that in II % % % 16 Weichai Power Co., Ltd.

18 Management Discussion and Analysis (Continued) 2. Sale of Heavy-duty Trucks During the year, the Group sold approximately 58,000 units of heavy-duty trucks, compared to approximately 64,000 units in 2007, representing a decrease of approximately 8.75%. Prior to intra-group elimination, the Truck Business contributed revenues RMB13,222 million to the Group during the year. 3. Sale of Heavy-duty Gear Box During the year, the Group sold approximately 532,000 units of heavy-duty gear boxes, compared to approximately 465,000 units in 2008, representing an increase of approximately 14.54%. Prior to intra-group elimination, the Gear Boxes Business contributed revenues approximately RMB6,247 million to the Group during the year. 4. Sale of Engine and Heavy-duty Truck Parts Apart from the production and sale of diesel engines for trucks and construction machinery, heavy-duty trucks and heavy-duty gear boxes, the Group also engaged in the production and sales of engine parts and other truck parts such as: spark plugs, axles, chassis, air-conditioner compressors etc. During the year, the Group recorded an approximately 13.14% increase in sales of engine parts and truck parts to approximately RMB1,714 million. The surge was mainly attributable to the increase in accumulated sales volume of diesel engines in the previous years % 13, % 6, % 1,714 Annual Report

19 Management Discussion and Analysis (Continued) III. Financial Review 1. The Group s Results of Operations a. Turnover The Group s turnover increased from approximately RMB32,567 million in 2008 to approximately RMB35,261 million in 2009, an increase of approximately 8.27%. The increase in turnover was mainly attributable to the rising demand for diesel engines for use in heavy-duty trucks and heavy-duty gear boxes. During the year, the Group sold approximately 226,000 units of diesel engines for use in heavy-duty trucks in total, compared to approximately 197,000 units in 2008, representing an increase of approximately 14.60%. (Shaanxi Fast Gear Co. Ltd.), a subsidiary of the Company, reported an aggregate sales of approximately 532,000 units of heavy-duty gear boxes, representing an increase of 14.54% over last year, and maintained its leading position as the largest heavy-duty vehicle gear boxes manufacturer in China. b. Gross Profit and Gross Profit Margin During the year, the Group s gross profit increased by approximately 34.88% from approximately RMB5,659 million in 2008 to approximately RMB7,632 million in Gross profit margin increased from approximately 17.37% in 2008 to approximately 21.64% in 2009, which was mainly due to the decline in unit cost as a result from economy of scale and the change of product mix, in which the percentage of China III products and engines for use in heavy-duty trucks with higher gross profit margin recorded a growth. c. Other Income and gains Other income and gains increased by approximately 57.94% to approximately RMB346 million in 2009 from approximately RMB219 million in The increase was mainly due to the increase in interest income, excess over the cost of a business combination and gain on debt restructuring. III. 1. a. 32,567 35, % % % b. 5,659 7, % 17.37% 21.64% III c % 18 Weichai Power Co., Ltd.

20 Management Discussion and Analysis (Continued) d. Distribution Costs Distribution costs increased by 6.53% to approximately RMB1,021 million in 2009 from approximately RMB959 million in As a percentage of turnover, distribution costs decreased from approximately 2.94% in 2008 to approximately 2.90% in 2009, which was mainly due to the improvement of cost efficiency as a result from the significant increase in the Company s scale of operations. e. Administrative Expenses Administrative expenses of the Group increased by approximately 13.19% from approximately RMB1,117 million in 2008 to approximately RMB1,265 million in The increase in administrative expenses was mainly due to the increase in the Company s tunover. As a percentage of turnover, the administrative expenses increased from approximately 3.43% in 2008 to approximately 3.59% in f. Operating Profit before Finance Costs During the year, the Group s operating profit increased by approximately 62.14% to approximately RMB4,927 million in 2009 from approximately RMB3,039 million in The Group s operating margin increased from approximately 9.33% in 2008 to approximately 13.97% in 2009, which was mainly due to the higher gross profit margin. d , % 2.94% 2.90% e. 1,117 1, % 3.43% 3.59% f. 3,039 4, % 9.33% 13.97% Annual Report

21 Management Discussion and Analysis (Continued) g. Finance Costs Finance costs decreased by approximately 16.90% to approximately RMB248 million in 2009 from approximately RMB298 million in This decrease was mainly due to the slight decrease in interest-bearing borrowings (including bonds and bank and other borrowings) and lower interest rate. h. Income Taxes The Group s income tax expenses increased by approximately % to approximately RMB732 million in 2009 from approximately RMB329 million in During the period, the Group s average effective tax rate increased from approximately 12.0% in 2008 to approximately 15.65% in i. Net Profit and Net Profit Margin The Group s net profit for the year increased from approximately RMB2,412 million in 2008 to approximately RMB3,947 million in 2009, whilst the net profit margin also increased from approximately 7.41% in 2008 to approximately 11.19% in j. Liquidity and Cash Flow During the year, the Group generated RMB2,962 million in operating cash flows, part of which were applied in expanding the Group s operations by acquisition of property, plant and equipment; and in reducing its borrowings and repaying interests. As at 31st December, 2009, the Group had a net debt (interest-bearing debts net of cash and cash equivalents) of RMB141 million (as at 31st December, 2008: RMB573 million). Based on the net debt calculation above, the debt to equity ratio is 0.90% (as at 31st December, 2008: 5.06%). g % h % 12.0% 15.65% i. 2,412 3, % 11.19% j. 2, % 5.06% 20 Weichai Power Co., Ltd.

22 Management Discussion and Analysis (Continued) 2. Financial Position a. Assets and Liabilities As at, the Group had total assets of approximately RMB36,375 million, of which approximately RMB24,811 million were current. As at, the Group had cash and cash equivalents of approximately RMB3,598 million (as at 31st December, 2008: RMB3,352 million). On the same date, the Group s total liabilities amounted to approximately RMB20,714 million, of which approximately RMB18,416 million were current. The current ratio was approximately 1.35x (as at 31st December, 2008: 1.13x). b. Capital Structure At, the Group had total equity of approximately RMB15,661 million, of which approximately RMB11,755 million was attributable to equity holders of the Company, the balance being minority interests. The Group currently does not rely heavily on borrowings. The borrowings of the Group as at amounted to approximately RMB3,740 million, which included debenture of RMB1,282 million and bank and other borrowings of RMB2,458 million. As a policy, the Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing the return to shareholders through the optimization of the debts and equity balance. The Group s overall strategy remains unchanged from prior years. 2. a. 36,375 24,811 3,598 3,352 20,714 18, b. 15,661 11,755 3,740 1,282 2,458 Annual Report

23 Management Discussion and Analysis (Continued) c. Pledge of Assets As at, bank deposits and bills receivables of approximately RMB3,089 million (as at 31st December, 2008: RMB2,851 million) were pledged to banks to secure bills payables issued by banks to the Group. The pledged bank deposits carry prevailing bank interest rates. The pledge will be released upon the settlement of the relevant bank borrowings. The fair value of the bank deposits at the end of the reporting period approximates the carrying amount. c. 3,089 2,851 Certain other assets were also pledged by the Group to secure the Group s borrowings. Details are set out in note 41 to the consolidated financial statements. d. Contingent Liabilities As at, the Group had approximately RMB1,054 million (as at 31st December, 2008: RMB1,754 million) guarantees given to banks in connection with facilities granted to and utilised by the Group. Details are set out in note 40 to the consolidated financial statements. e. Capital Commitments As at, the Group had approximately RMB947 million capital commitments contracted (as at 31st December, 2008: RMB1,168 million), principally for the capital expenditure in respect of acquisition of property, plant and equipment. 3. Financial Risk and Exposure A detailed analysis of the Group s exposure to various risks including the interest rate risk, foreign currency risk, credit risk etc. are set out in note 47 to the financial statements. 41 d. 1,054 1, e , Weichai Power Co., Ltd.

24 Directors, Supervisors and Senior Management (1) Directors Mr. Tan Xuguang, Chinese, aged 48, is the chairman and the Chief Executive Officer of the Company, chairman and Party committee secretary of Shandong Heavy Industry Group Co., Ltd., chairman and Party committee secretary of Weichai Group Holdings Limited (which holds A shares of the Company in the amount as set out below and is thus interested in shares of the Company under Part XV of the Securities and Futures Ordinance) and Chairman of Weichai Heavy Machinery Co., Ltd. Mr. Tan has been a director of the Company since 18th December, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Tan also holds directorships in various subsidiaries of the Company. He is also the president of China Internal Combustion Engine Industry Association, vice president of China Machinery Industry Federation, vice president of China Enterprise Confederation and China Enterprise Director Association. Mr. Tan joined Weifang Diesel Engine Factory (now known as Weichai Group Holdings Limited) in 1977 and had held various positions including the director of foreign trade department of Weichai, general manager of Shandong Weichai Imp. & Exp. Corp., assistant to general manager, vice general manager and general manager of Weifang Diesel Engine Factory, chairman of Torch Automobile Group Co., Ltd. Mr. Tan is a senior economist and holds a doctor s degree in engineering. Mr. Tan was appointed as a Representative of the Tenth and Eleventh National People s Congress of the PRC and was honored National Labor Model, National May 1st Labour Medalist, (distinguished entrepreneur of the machinery sector in First National Award), CCTV 2005 China Economic Annual Figure, 2006 top ten innovative personage in manufacturing industry in the PRC, the most influential executives of 2007, Top ten Newsmakers of in Second China Economic Award, and (the Gold Award of the 4th Yuan Baohua Enterprise Management). He has extensive experience in engine and equipment production management, international trade, marketing, capital operation management and corporate development and strategic management. (1) 48 CEO A XV CCTV Annual Report

25 Directors, Supervisors and Senior Management (Continued) Mr. Xu Xinyu, Chinese, aged 46, is Executive Director and Executive President of the Company. He has been a director of the Company since 18th December, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Xu joined Weifang Diesel Engine Factory in 1986 and had held the positions of deputy general manager of Shandong Weichai Imp. & Exp. Corp., deputy general manager and executive deputy general manager of Weifang Diesel Engine Factory, director of Torch Automobile Group Co., Ltd. and chairman of Weichai Power (Weifang) Investment Co., Ltd. Mr. Xu also holds directorships in various subsidiaries of the Company. Mr. Xu is a senior economist and holds a bachelor s degree in science and a MBA degree. He has been responsible for corporate restructure, merges and acquisition, and human resources management in the Company, and has extensive experience in corporate operation. 46 MBA Mr. Sun Shaojun, Chinese, aged 44, is Executive Director and Executive President of the Company. He has been a director of the Company since 18th December, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Sun joined Weifang Diesel Engine Factory in 1988 and had held the positions of supervisor of the engineering department, and the chief engineer of Weifang Diesel Engine Factory, and director of Torch Automobile Group Co., Ltd. Mr. Sun also holds directorships in various subsidiaries of the Company. Mr. Sun is a senior engineer and holds a doctor degree in engineering. He was appointed as (Taishan Mountain scholar specialist appointed by Shandong People s Government). He has been responsible for diesel engine research and development in the Company, and has extensive experience in corporate technology management. 44 Mr. Zhang Quan, Chinese, aged 46, is Executive Director and Executive President of the Company. He has been a director of the Company since 18th December, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Zhang joined Weifang Diesel Engine Factory in 1986 and had held the positions of directors of the quality control department and the marketing department, of Weifang Diesel Engine Factory. Mr. Zhang also holds directorships in various subsidiaries of the Company. Mr. Zhang is a senior economist and holds a bachelor s degree in engineering and a MBA degree. He has been responsible for marketing in the Company, and has extensive experience in corporate marketing management. 46 MBA 24 Weichai Power Co., Ltd.

26 Directors, Supervisors and Senior Management (Continued) Ms. Zhang Fusheng, Chinese, aged 52, is a Non-executive Director of the Company. She has been a director of the Company since 18th December, Her latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and she has since continued to hold her directorship under PRC law. Ms. Zhang joined Weifang Diesel Engine Factory in 1975 and had held the positions of director of finance department, and chief accountant of Weifang Diesel Engine Factory, and director and vice president of Torch Automobile Group Co., Ltd. She is now the deputy general manager of Weichai Group Holdings Limited. Ms. Zhang is a senior accountant and Certified Public Accountant and holds the qualification of senior manager of international finance and a bachelor s degree. She has extensive experience in corporate finance management. 52 Mr. Liu Huisheng, Chinese, aged 44, is a Non-executive Director of the Company. His appointment as director of the Company was from 30th June, 2006 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Liu joined Weifang Diesel Engine Factory in 1989 and had held the positions of deputy general manager of the power branch of Weifang Diesel Engine Factory, general manager of Chongqing Weichai Diesel Engine Factory, and deputy general manager of Weifang Diesel Engine Factory. He is now the general manager of Weichai Heavy Machinery Co., Ltd. Mr. Liu is a senior economist and holds a bachelor s degree in engineering. He has extensive experience in corporate general management. 44 Mr. Yao Yu, Chinese, aged 39, is a Non-executive Director of the Company. He has been a director of the Company since 18th December, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. He had held positions of secretary to the Board of (Shenzhen Hezhong Industrial Co. Ltd.), assistant general manager of (Shenzhen Tianjin Electric Co. Ltd.) and senior investment manager of Shenzhen Chuangxin Investment Group Company Limited. He holds a MBA degree and has nearly 10 years of experience in investment management and related fields Mr. Yeung Sai Hong, Chinese, aged 55, is a Non-executive Director of the Company and the chairman of Peterson Holdings Company Limited which is a promoter of the Company. He has been a director of the Company since 18th December, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. He is also a member of the 10th Shandong Provincial Committee of the Chinese People s Political Consultative Conference. 55 Annual Report

27 Directors, Supervisors and Senior Management (Continued) Mr. Chen Xuejian, Chinese, aged 54, is a Non-executive Director of the Company. He has been a director of the Company since 29th June, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. He had held various positions including the director of Weifang Accounting Firm, deputy director of Local Taxation Bureau of Weifang, deputy director of Finance Bureau of Weifang. Mr. Chen is now the general manager of Weifang Investment Company, Representative of the National People s Congress of Weifang, chairman of Weifang Binhai Investment Development Co., Ltd, vice chairman of (Weifang Port Co., Ltd.), vice chairman of FOTON Lovol Heavy Industries Co., Ltd, vice chairman of Huadian Weifang Power Generation Co., Ltd., director of Shandong Helon Co., Ltd, director of Weifang Commercial Bank, director of Weichai Heavy Machinery Co., Ltd, director of Shandong International Trust Corporation, and director of (Shandong Weijiaoji Co., Ltd.). Mr. Li San Yim, Chinese (Hong Kong), aged 58, is a Non-executive Director of the Company. He has been a director of the Company since 18th December, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Li founded Fujian Longyan Construction Machinery (Group) Company Limited (a promoter of the Company) in 1993, and now is the chairman of Lonking Holdings Limited (03339.HK). Mr. Julius G. Kiss, Austrian, aged 82, is a Non-executive Director of the Company. He is the chairman of IVM Technical Consultants Wien G.m.b.H. which is a promoter of the Company. He has been a director of the Company since 18th December, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Ms. Han Xiaoqun, Chinese, aged 59, is a Non-executive Director of the Company. Her appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and she has since continued to hold her directorship under PRC law. Ms. Han is the chairman of (Shandong Provincial Enterprises Trusteeship & Operation Co., Ltd.) which is a promoter of the Company. Mr. Gu Linsheng, Chinese, aged 69, is an Independent Director of the Company. His appointment as director of the Company was from 30th April, 2007 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. He served as an independent director of Torch Automobile Group Co., Ltd. from 30th April, 2004 to 30th April, Mr. Li Shihao, Chinese, aged 69, retired in February 2001, is an Independent Director of the Company. His appointment as director of the Company was from 30th April, 2007 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. He is now the director of (science and technology committee) and (urban vehicle specialist committee) of the Ministry of Housing and Urban-Rural Development (03339.HK) Julius G. Kiss82 IVM Technical Consultants Wien G.m.b.H Weichai Power Co., Ltd.

28 Directors, Supervisors and Senior Management (Continued) Mr. Liu Zheng, Chinese, aged 62, is an Independent Director of the Company. His appointment as director of the Company was from 30th April, 2007 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Liu was the general manager of Weifang Investment Company from 1999 to February He retired in February Mr. Zhang Xiaoyu, Chinese, aged 64, is an Independent Nonexecutive Director of the Company. He has been a director of the Company since 20th October, His latest appointment as director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Zhang served as the deputy director of (State Mechanic Industry Bureau of the PRC). He is a senior engineer with professor-grade treatment. Mr. Zhang is the vice-chairman of (China Machinery Industrial Association), chairman of (China Vehicles Engineering Association) and chairman of (China Internal Combustion Engine Association). Mr. Koo Fook Sun, Louis, English, aged 53, is an Independent Non-executive Director of the Company. He has been a director of the Company since 20th October, His latest appointment as a director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Koo is the managing director of Hercules Capital Limited, a corporate finance consultancy company. He served various positions for many international investment banks and directorship and chief executive officer for Hong Kong listed companies. In addition to the Company, he currently also serves as an independent director of other companies listed on the main board and the GEM of Hong Kong Stock Exchange. He graduated with a bachelor degree in business administration from the University of California, Berkeley. Mr. Fang Zhongchang, Chinese, aged 67, is an Independent Nonexecutive Director of the Company. He has been a director of the Company since 15th December, His latest appointment as a director of the Company was from 18th December, 2005 to 17th December, 2008 and he has since continued to hold his directorship under PRC law. Mr. Fang was graduated from Harbin Industrial University. He previously served as engineer at (Shandong Anqiu County Glasswork), deputy mayor of (Anqiu County), deputy mayor of Weifang Municipal Government, secretary to the Municipal Disciplinary Committee of the Standing Committee of Weifang Municipal Government, and deputy director of the Standing Committee of Weifang Municipal People s Congress. He was also a visiting researcher of the Chinese Academy of Management Science and a Representative of the People s Congress for the Shandong Province. He retired from civil service in University of California, Berkeley 67 Annual Report

29 Directors, Supervisors and Senior Management (Continued) (2) Supervisors Mr. Sun Chengping, Chinese, aged 62, is the Chairman of the Supervisory committee of the Company. He has been a supervisor of the Company since 18th December, He joined Weifang Diesel Engine Factory in 1969 and was the deputy general manager and Party committee secretary of Weifang Diesel Engine Factory, and supervisor of Torch Automobile Group Co., Ltd. He is now the general manager of Weichai Group Holdings Limited. Mr. Sun is a senior economist and holds a junior college s degree. He has extensive experience in diesel engine production management and technology renovation. Mr. Ding Yingdong, Chinese, aged 41, is a Supervisor of the Company and assistant to president and director of operational management department. He has been a supervisor of the Company since 22nd October, Mr. Ding joined Weifang Diesel Engine Factory in 1990 and had held positions of deputy director of corporate planning department and director of human resources department of Weifang Diesel Engine Factory, director of human resources department and director of corporate management department of Weichai Power Co., Limited. Mr. Ding is a senior economist and holds the qualification of senior manager of corporate human resources and a bachelor s degree in engineering. He has extensive experience in corporate management. Ms. Jiang Jianfang, Chinese, aged 47, is a Supervisor of the Company. She has been a supervisor of the Company since 18th December, She was the deputy chief of the financial audit committee of (Guangxi Liugong Group Company Limited) and a supervisor of (Guangxi Liugong Machinery Company Limited). Ms. Jiang is an accountant. (2) (3) Senior Management Mr. Li Dakai, Chinese, aged 56, is an Executive President of the Company. Mr. Li has been a member of the senior management of the Group since Shaanxi Fast Gear Co., Ltd. became a subsidiary of the Company in April Mr. Li had held various positions including director of product design department, chief economist, general manager of Shaanxi Auto Gear General Works, and director and deputy president of Torch Automobile Group Co., Ltd. He currently holds the positions of chairman and general manager of Shaanxi Fast Auto Drive Group Company and director and general manager of Shaanxi Fast Gear Co., Ltd. Mr. Li holds a bachelor s degree and is a senior engineer with researcher-grade treatment. He was honored National Labor Model and entitled specialist who can receive state special allowance. Mr. Li was appointed as a Representative of the Eleventh National People s Congress of the PRC and member of the Standing Committee of Xi an Municipal People s Congress. He has extensive experience in heavy-duty gear box designing and production management. (3) Weichai Power Co., Ltd.

30 Directors, Supervisors and Senior Management (Continued) Mr. Fang Hongwei, Chinese, aged 43, is an Executive President of the Company. Mr. Fang has been a member of the senior management of the Group since Shaanxi Heavy-duty Motor Company Limited became a subsidiary of the Company in April He had held the positions of section chief of test technology section of motor research institute, deputy director of financial department, deputy general manager, general manager of sales company and executive deputy general manager of Shaanxi Automobile Manufactory. Mr. Fang is now the director and general manager of Shaanxi Heavy-duty Motor Company Limited. Mr. Fang is a senior economist and holds a master s degree in engineering and the senior career manager certification of machinery industrial corporation. He has extensive experience in heavy-duty vehicle designing and production management. 43 Mr. Xu Hong, Chinese, aged 50, is an Executive President of the Company. He joined Weifang Diesel Engine Factory in 1976 and was the deputy general manager of foundry branch, general manager of (cast branch) and director of production department. Mr. Xu holds a bachelor s degree. He has extensive experience in the management of production and manufacturing. 50 Mr. Cheung Tat Leung, Peter, Chinese (Hong Kong), aged 39, is the Chief Financial Officer, Company Secretary and Qualified Accountant of the Company and is responsible for the accounting and finance functions and secretary affairs of the Company. Mr. Cheung joined the Company in October He is a fellow member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants. Mr. Cheung has worked for many companies listed on the main board of the Hong Kong Stock Exchange. He holds a bachelor s degree and has over 15 years experience in the accounting and financial management fields Mr. Dai Lixin, Chinese, aged 42, is the Secretary to the Board and Director of Securities department of the Company. He joined Weifang Diesel Engine Factory in 1987 and was the deputy director of the treasury department of Weifang Diesel Engine Factory. Mr. Dai is an economist and holds a bachelor s degree. He has extensive experience in corporate financing, restructure, merger and acquisition. 42 Mr. Feng Gang, Chinese, aged 45, is the Vice President of the Company and the Deputy General Manager of the Marketing company. He was manager of technology service department, assistant general manager and executive deputy general manager of sales company and executive deputy director of marketing management department of Weifang Diesel Engine Factory. He is an engineer and holds a bachelor s degree in engineering. Mr. Feng has extensive experience in marketing. 45 Annual Report

31 Directors, Supervisors and Senior Management (Continued) Mr. Tong Dehui, Chinese, aged 45, is the Vice President and the Supervisor of the Engineering department of the Company. He was the supervisor of the laboratory of engineering department, assistant supervisor of engineering department, deputy chief engineer of Weifang Diesel Engine Factory. Mr. Tong is a senior engineer and holds a doctor s degree in engineering and has extensive experience in the research and development of engine and management. 45 Mr. Li Zhi, Chinese, aged 51, is the Vice President of the Company. He was the deputy general manager of Xinjiang Xinghuo Machinery Factory, general manager of Xinjiang Bearing Factory General Works, general manager of Zhuzhou headquarter of TAGC, supervisor, general manager of investment management department, vice president of Torch Automobile Group Co., Ltd. Mr. Li is a senior economist and holds a bachelor s degree. He has extensive experience in corporate operation management. 51 Mr. Zhou Chongyi, Chinese, aged 45, is the Vice President of the Company. He was the deputy supervisor of engineering department, deputy chief engineer of China National Heavy Duty Truck Group Corp, Ltd. and deputy chief engineer of Shanghai Huizhong Automobile Co. Ltd. Mr. Zhou is a senior engineer and holds a bachelor s degree. He has extensive experience in heavy-duty vehicle designing and production and manufacturing management. 45 Mr. Qian Cheng, American, aged 47, is the Vice President of the Company. He was the senior project engineer of engineering department of Caterpillar in the USA, senior project manager of North America engineering department of Ricardo in the UK, senior design engineer of product design chassis department of Ford Motor Company in the USA, senior project engineer of product design center of General Motors in the USA, vice president and director of international business department of Torch Automobile Group Co., Ltd. Mr. Qian graduated with a doctor s degree from University of Kentucky and has extensive experience in commercial vehicle strategy research. 47 Ricardo Mr. Liu Xinhua, Chinese, aged 54, is the Vice President of the Company, Manager of Hangzhou branch. Mr. Liu holds a junior college s degree. He was the director of production department, deputy general manager, executive deputy general manager, and general manager of Hangzhou Engine Co., Ltd. Mr. Liu has extensive experience in engine production and management Weichai Power Co., Ltd.

32 Directors Report The directors present their annual report and the audited consolidated financial statements of the Group for the year ended. Principal Activities The principal activities of the Group is the manufacture and sale of diesel engines and related parts, automobiles and other major automobile components, minor automobile components and import and export services. There were no significant changes in the nature of the Group s principal activities during the year. The activities of its principal subsidiaries, jointly-controlled entity and associates are set out in notes 20, 21 and 22 to the financial statements, respectively. Results and Appropriations The results of the Group for the year ended and the state of affairs of the Company and the Group at that date are set out in the financial statements on pages 85 to The directors recommended the payment of a final dividend of RMB0.48 per ordinary share for the year ended to shareholders. This recommendation has been incorporated in the financial statements as an allocation of retained profits within the equity section of the statement of financial position Summary Financial Information A summary of the published results and assets, liabilities and minority interests of the Group for the last five financial years, as extracted from the audited financial statements and restated/reclassified as appropriate, is set out on page 223. This summary does not form part of the audited financial statements. 223 Property, Plant and Equipment Details of movements in the property, plant and equipment of the Company and the Group during the year are set out in note 14 to the financial statements. 14 Investment Properties Details of movements in the investment properties of the Group during the year are set out in note 15 to the financial statements. 15 Share Capital Details of movements in the share capital of the Company during the year are set out in note 36 to the financial statements. 36 Annual Report

33 Directors Report (Continued) Reserves Details of movements in the reserves of the Company and the Group during the year are set out in note 37(b) to the financial statements and in the consolidated statement of changes in equity, respectively. 37(b) Distributable Reserves At, the Company s reserve available for distribution, calculated in accordance with the relevant regulations, amounted to RMB6,340,303,000, out of which dividend of RMB399,862,000 for the year ended was proposed on 26th April, In addition, the Company s share premium account in the amount of RMB1,832,568,000 in its statutory financial statements may be distributed in the form of fully paid bonus shares. 6,340,303, ,862,000 1,832,568,000 Charitable Contributions During the year, the Group made charitable contributions totalling RMB1,300,000. 1,300,000 Major Customers and Suppliers In the year under review, sales to the Group s five largest customers accounted for 32.60% of the total sales for the year and sales to the largest customers included therein amounted to 13.12%. Purchases from the Group s five largest suppliers accounted for less than 30% of the total purchases for the year. None of the directors and supervisors of the Company or any of their associates or any shareholders (which, to the best knowledge of the directors, own more than 5% of the Company s issued share capital) had any beneficial interest in the Group s five largest customers %13.12% 30% 5% 32 Weichai Power Co., Ltd.

34 Directors Report (Continued) Directors and Supervisors The directors and supervisors of the Company during the year and up to the date of this report were: Executive directors: Tan Xuguang (Chairman and CEO) Xu Xinyu (Executive President) Sun Shaojun (Executive President) Zhang Quan (Executive President) Non-executive directors: Zhang Fusheng Liu Huisheng Yao Yu Yeung Sai Hong Chen Xuejian Li San Yim Julius G. Kiss Han Xiaoqun Gu Linsheng Li Shihao Liu Zheng Independent non-executive directors: Zhang Xiaoyu Koo Fook Sun, Louis Fang Zhongchang Supervisors: Sun Chengping Ding Yingdong Jiang Jianfang Julius G. Kiss G The Company has received, from each of the independent non-executive directors, an annual confirmation of his independence pursuant to Rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules ), and as at the date of this report, the Company still considers that all of the independent nonexecutive directors are independent Annual Report

35 Directors Report (Continued) Directors and Senior Management s Biographies Biographical details of the directors of the Company and the senior management of the Group are set out on pages 23 to 30 of the annual report Directors and Supervisors Service Contracts Each of the executive directors has entered into a service contract with the Company from 18th December, 2005 to 17th December, Each of the aforesaid directors has since continued to holdover his directorship under the relevant law of the People s Republic of China (the PRC ). The latest appointment of each of the non-executive directors and supervisors was from 18th December, 2005 to 17th December, 2008, except that Liu Huisheng, a non-executive director, was appointed on 30th June, 2006 at the Company s annual general meeting and his term of office ran from 30th June, 2006 to 17th December, 2008; Liu Zheng, Li Shihao and Gu Linsheng, non-executive directors, were appointed on 29th December, 2006 at the Company s extraordinary general meeting and their term of office ran from 30th April, 2007 to 17th December, 2008; Ding Yingdong, Supervisor, was appointed on 22nd October, 2007 at the Company s labor representative meeting and his term of office ran from 22nd October, 2007 to 17th December, Each of the aforesaid directors and supervisors has since continued to holdover his/her directorship under the PRC law. The latest appointment of each independent non-executive director of the Company was from 18th December, 2005 to 17th December, Each of the aforesaid directors has since continued to holdover his directorship under the PRC law. 34 Weichai Power Co., Ltd.

36 Directors Report (Continued) Directors and Supervisors Interests in Contracts of Significance Mr. Li San Yim, being indirectly interested in the capital of Fujian Longyan Construction Machinery (Group) Company Limited and Shanghai Longgong Machinery Company Limited, was interested in a contract for the supply of diesel engines and diesel engine parts by the Company to these two companies. Mr. Yeung Sai Hong, being indirectly interested in the capital of Peterson (CNG) Equipment Limited, was interested in a contract for supply of diesel engines and related parts by the Company to Weifang Weichai Peterson Gas Diesel Engines Company Limited. Further details of the transactions undertaken in connection therewith are included in the section headed Continuing connected transactions below. Save as disclosed above, no director had a material interest, either directly or indirectly, in any contract of significance to the business of the Group to which the Company, its holding company, or any of its subsidiaries or fellow subsidiaries was a party during the year. (CNG) Annual Report

37 Directors Report (Continued) Directors and Supervisors Interests in Shares and Underlying Shares As at, the interests and short position (if any) of the directors, the chief executive and the supervisors in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the SFO )), as recorded in the register maintained by the Company pursuant to Section 352 of the SFO, or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited pursuant to the Model Code for Securities Transactions by Directors of Listed Companies ( Model Code ), were as follows: XV 352 Capacity Number of A shares held A Percentage of the issued share capital of the Company Name of Director Tan Xuguang Beneficial owner 6,880,000 (Note 1) 0.8% 1 Xu Xinyu Beneficial owner 1,600,000 (Note 1) 0.2% 1 Sun Shaojun Beneficial owner 1,600,000 (Note 1) 0.2% 1 Zhang Quan Beneficial owner 1,600,000 (Note 1) 0.2% 1 Liu Huisheng Beneficial owner 960,000 (Note 1) 0.1% 1 Yeung Sai Hong (Note 3) Held by controlled corporation 37,600,000 (Note 2) 4.5% 3 2 Li San Yim (Note 4) Held by spouse and controlled corporation 34,400,000 (Note 1) 4.1% 4 1 Julius G. Kiss (Note 5) Held by controlled corporation 17,200,000 (Note 2) 2.1% Julius G. Kiss 2 G.5 Name of Supervisor Ding Yingdong Beneficial owner 560,000 (Note 1) 0.1% 1 36 Weichai Power Co., Ltd.

38 Directors Report (Continued) Notes: 1. These shares were derived from the previous domestic shares of the Company. The domestic shares were ordinary shares issued by the Company, with a Renminbidenominated par value of RMB1.00 each, which were subscribed for and paid up in Renminbi or credited as fully paid up. These shares became A shares of the Company upon the A share listing of the Company on the Shenzhen Stock Exchange A A 2. These shares were derived from the previous foreign shares of the Company. The foreign shares were ordinary shares issued by the Company, with a Renminbidenominated par value of RMB1.00 each, which were subscribed for and paid up in a currency other than Renminbi. These shares became A shares of the Company upon the A share listing of the Company on the Shenzhen Stock Exchange. 3. Yeung Sai Hong, a non-executive director, was directly and indirectly interested in the issued share capital of Peterson Holdings Company Limited, which in turn held 37,600,000 shares in the Company. 4. Li San Yim, a non-executive director, and his spouse, Ni Yinying, were interested in 69.16% and 30.84%, respectively, in the registered capital of () (Fujian Longyan Construction Machinery (Group) Company Limited ( Fujian Longgong )) which in turn held 34,400,000 shares in the Company, and therefore Li San Yim was deemed to be interested in these shares of the Company. 5. Julius G. Kiss, a non-executive director, was indirectly interested in the entire issued share capital of IVM Technical Consultants Wien Gesellschaft m.b.h. ( IVM ), which in turn held 17,200,000 shares in the Company. 6. All the shareholding interests listed in the above table are long position. Save as disclosed above, as at, none of the directors, the chief executive nor the supervisors had an interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations that was recorded in the register and required to be kept pursuant to Section 352 of the SFO, or as otherwise notified to the Company pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers A A 3. 37,600, % 30.84% 34,400, Julius G. Kiss G. IVM Technical Consultants Wien Gesellschaft m.b.h.ivmivm 17,200, Directors Rights to Acquire Shares or Debentures Save as disclosed in the section Directors and supervisors interests in shares and underlying shares above, at no time during the year were rights to acquire benefits by means of the acquisition of shares in or debentures of the Company granted to any director and supervisor or their respective spouses or minor children, or were any such rights exercised by them; or was the Company, its holding company, or any of its subsidiaries or fellow subsidiaries a party to any arrangement to enable the directors to acquire such rights in any other body corporate. Annual Report

39 Directors Report (Continued) Details of Changes in Share Capital and Substantial Shareholders Shareholdings (I) Changes in shareholdings 1. Changes in share capital Movement of the Company s share capital during the year are as follows: (I) 1. Beginning of the Year Increase/decrease during the Year (+, ) End of the Year No. of shares Percentage New shares issued Transfer of surplus to capital Others Sub-total No. of shares Percentage (%) (%) I. Restricted circulating shares 349,824, % 349,824, % 1. State-owned shares 24,224, % 24,224, % 2. State-owned legal person shares 162,320, % 162,320, % 3. Shares held by other domestic entities including: 108,480, % 108,480, % Shares held by non State-owned 84,800, % 84,800, % legal persons Shares held by domestic 23,680, % 23,680, % natural persons 4. Shares held by other foreign 54,800, % 54,800, % entities including: Shares held by overseas 54,800, % 54,800, % legal persons II. Non-restricted circulating shares 483,220, % 483,220, % 1. RMB ordinary shares 280,820, % 280,820, % 2. Domestic listed foreign shares 3. Overseas listed foreign shares 202,400, % 202,400, % 4. Others III. Total number of shares 833,045, % 833,045, % Note: 1. There were no internal staff shares during the reporting period Weichai Power Co., Ltd.

40 Directors Report (Continued) 2. Time over which shares are restricted from listing for trade 2. Time Additional shares that can be listed and traded upon expiry of the restricted period Remaining restricted shares Remaining non-restricted shares Description 30th April, ,824,937 Under the commitments of the holders of non-circulating shares of the Company and 24 natural person promoter shareholders, none of their shares can be transferred within 36 months commencing from the Company s listing on the Shenzhen Stock Exchange Annual Report

41 Directors Report (Continued) 3. Shareholdings of the top ten restricted shareholders and the restrictions Number of shares permitted Time permitted to be Number of to be listed and listed and Name of restricted restricted traded in traded in Serial No share shareholders shares held the market the market Restriction 1. (Weichai Group Holdings Limited) ( Weichai Holdings ) 2. (Peterson Holdings Company Limited) 3. () (Fujian Longyan Construction Machinery (Group) Company Limited) 4. (Shenzhen Chuangxin Investment Group Company Limited) 124,236,640 30th April, ,600,000 30th April, ,400,000 30th April, ,400,000 30th April, 2010 Under the commitments of the eight legal person promoter shareholders (including Weichai Holdings) and Zhuzhou State-owned Assets, no shares held by them shall be transferred or managed by other persons or repurchased by the Company repurchased by the Company within 36 months commencing from the Company s listing on the Shenzhen Stock Exchange (Weifang Investment Company) 30,898,480 30th April, Weichai Power Co., Ltd.

42 Directors Report (Continued) Number of shares permitted Time permitted to be Number of to be listed and listed and Name of restricted restricted traded in traded in Serial No share shareholders shares held the market the market Restriction 6. (Zhuzhou State-owned Assets Administration Management Company Limited) 7. IVM (IVM Technical Consultants Wien Gesellschaft m.b.h) 8. (Shandong Enterprise Trust Operation Company Limited) 24,224,937 30th April, ,200,000 30th April, ,000,000 30th April, 2010 Under the commitments of the 24 natural person shareholders (including Tan Xuguang), no shares held by them shall be beneficially transferred or repurchased by the Company within 36 months commencing from the Company s listing on the Shenzhen Stock Exchange (Guangxi Liugong Group Limited) 7,184,880 30th April, Tan Xuguang 6,880,000 30th April, 2010 Annual Report

43 Directors Report (Continued) (II) Shareholdings of the Substantial Shareholders as at (II) Total number of Shareholders The number of shareholders is 47,766 among which 47,480 are shareholders of A shares and 286 are shareholders of H shares 47,766 A47,480H286 Shareholdings of the top ten shareholders 10 Approximate Number of percentage of Number of shares Type of shares held Total number restricted pledged or Name of shareholder shareholder (%) of shares held shares held frozen (%) HKSCC Nominees Limited Foreign shareholder 24.23% 201,808,718 N/A (Weichai Group Holdings Limited) State-owned legal person 14.92% 124,304, ,236,640 Peterson Holdings Company Limited Overseas legal person 4.51% 37,600,000 37,600,000 (Shenzhen Chuangxi Investment Group Co., Ltd) Domestic non-stateowned legal person 4.13% 34,400,000 34,400,000 (Fujian Longyan Construction Machinery (Group) Company Limited) Domestic non-stateowned legal person 4.13% 34,400,000 34,400,000 (Weifang Investment Company) State-owned legal person 3.71% 30,898,480 30,898, Weichai Power Co., Ltd.

44 Directors Report (Continued) Name of shareholder Type of shareholder Approximate percentage of shares held (%) Total number of shares held Number of restricted shares held Number of shares pledged or frozen (%) (Zhuzhou State-owned Assets Administration Management Company Limited) State-owned shares legal person 2.91% 24,224,937 24,224,937 7,200,000 IVM (IVM Technical Consultants Wien Gesellschaft m.b.h) Overseas legal person 2.06% 17,200,000 17,200,000 (Shandong Enterprise Trust Operation Company Limited) Domestic non-stateowned legal person 1.92% 16,000,000 16,000,000 Bank of China Domestic non-stateowned legal person 1.46% 12,143,096 Annual Report

45 Directors Report (Continued) Shareholdings of the top ten non-restricted shareholders 10 Name of shareholder Number of the non-restricted shares held Types of shares HKSCC Nominees Limited 201,808,718 Overseas listed foreign shares Bank of China 12,143,096 RMB ordinary shares Industrial and Commercial Bank of China 8,500,943 RMB ordinary shares Dacheng Value Growth Stock Investment Fund 8,376,302 RMB ordinary shares National Social Security Fund 104 portfolio 5,999,924 RMB ordinary shares China Construction Bank 5,649,683 RMB ordinary shares China Construction Bank 5,500,000 RMB ordinary shares China Construction Bank 4,753,767 RMB ordinary shares Agricultural Bank of China 4,573,506 RMB ordinary shares China Merchants Bank Co., Limited 3,553,455 RMB ordinary shares Description of the connected relationship or acting in concert relationship among the aforesaid shareholders: 1. Among the aforementioned shareholders, and Dacheng Value Growth Stock Investment Fund are both managed by a fund manager, namely Dacheng Fund Management Co., Ltd. () Save as the aforementioned, it s not certain whether there is any connected relationship among the top ten shareholders and the other top ten non-restricted shareholders, or whether there is any acting in concert relationship among them Weichai Power Co., Ltd.

46 Directors Report (Continued) SUBSTANTIAL SHAREHOLDERS The register of substantial shareholders maintained by the Company pursuant to Section 336 of the SFO (including interests filed with the Hong Kong Stock Exchange) shows that as at, the following persons (other than the directors, the chief executive and the supervisors) had the following interests and the short positions (if any) in the shares and underlying shares of the Company: 336 Percentage Percentage of share of share Percentage Long/ capital capital of total Short Number of comprising Number of comprising issued share Name Capacity position A shares only A shares H shares only H shares capital A H A H Weichai Group Holdings Limited Beneficial owner Long 124,304, % 14.92% State-owned Assets Supervision and Administration Commission of Shandong Province ( Shandong SASAC ) (Note 1) Held by controlled corporation Long 124,304, % 14.92% 1 Peterson Holdings Company Beneficial owner Long 37,600, % 4.51% Limited ( Peterson ) (Note 2) 2 Yeung Sai Hong (Note 2) Held by controlled corporation Long 37,600, % 4.51% 2 Tingho Nominees Limited (Note 2) Held by controlled corporation Long 37,600, % 4.51% Advantage Investment Corporation Limited (Note 2) Held by controlled corporation Long 37,600, % 4.51% Shenzhen Chuangxi Investment Group Beneficial owner Long 34,400, % 4.13% Co., Ltd (Note 3) 3 Shenzhen Chuangxi Investment Held by controlled corporation Long 34,400, % 4.13% Management Company (Note 3) 3 Fujian Longyan Construction Machinery (Group) Company Limited ( Fujian Longgong ) (Note 4) () 4 Beneficial owner Long 34,400, % 4.13% Annual Report

47 Directors Report (Continued) Percentage Percentage of share of share Percentage Long/ capital capital of total Short Number of comprising Number of comprising issued share Name Capacity position A shares only A shares H shares only H shares capital A H A H Li San Yim (Note 4) Held by controlled Long 34,400, % 4.13% corporation and spouse 4 Ni Yinying (Note 4) Held by controlled Long 34,400, % 4.13% corporation and spouse 4 The Capital Group Companies, Inc Investment manager Long 20,153, % 2.42% JPMorgan Chase & Co. Investment manager Long 12,152, % 1.46% Notes 1. State-owned Assets Supervision and Administration Commission of Shandong Province ( Shandong SASAC ) held the entire capital of Weichai Group Holding Limited (formerly known as Weifang Diesel Engine Works). For details, please refer to the announcement of the Company Dated 22nd March, Yeung Sai Hong,a Non-Executive Director, was beneficially interested in the entire issued share capital of Tingho Nominees Limited, which in turn held 100% of Advantage Investment Corporation Limited, which was interested in 90% of the issued share capital of Peterson. 2. Tingho Nominees LimitedTingho Nominees Limited Advantage Investment Corporation Limited 100% Advantage Investment Corporation Limited90% 3. Shenzhen Investment Management Company was interested in approximately 33.73% of the registered capital of Shenzhen Chuangxin Investment Group Company Limited % 4. The registered capital of Fujian Longgong was held as to 69.16% by Li San Yim, a Non-Executive Director, and as to 30.84% by Ni Yinying, spouse of Li San Yim, and therefore Ni Yinying was deemed to be interested in these shares of the Company % 30.84% Save as disclosed above, the Company had not been notified of any other relevant interests or short positions in the issued share capital of the Company as. 46 Weichai Power Co., Ltd.

48 Directors Report (Continued) Details of the Directors, Supervisors and Chief Executives I. Shareholdings of the directors, supervisors and chief executives Nine of the directors, supervisors and the chief executive of the Company, namely Tan Xuguang, Xu Xinyu, Sun Shaojun, Zhang Quan, Liu Huisheng, Ding Yingdong, Dai Lixin, Feng Gang and Tong Dehui, are natural-person promoter shareholders and have undertaken that they will not transfer any shares of the Company within 36 months commencing from its listing on the Shenzhen Stock Exchange. When the restriction period expires, the shares held can be transferred in accordance with the relevant rules of China Securities Regulatory Commission and Shenzhen Stock Exchange. I II. Appointment and resignation of the directors, supervisors and officers There is no appointment of the directors, supervisors and officers during the reporting period. II. Continuing Connected Transactions During the year, the Company and the Group had the following continuing connected transactions, certain details of which are disclosed in compliance with the requirements of Chapter 14A of the Listing Rules. List of Connected Persons and the relationship with the Company 14A Name of Connected Person Abbreviation Relationship between the Connected Person and the Group Weichai Group Holdings Limited Weichai Holdings Held 14.92% interest in the Company, one of the promoters of the Company 14.92% Fujian Longyan Construction Machinery (Group) Company Limited Fujian Longgong One of the Promoters of the Company Annual Report

49 Directors Report (Continued) Name of Connected Person Abbreviation Relationship between the Connected Person and the Group Shanghai Longgong Machinery Company Limited Shanghai Longgong An associate of Mr. Li San Yim (a non-executive director of the Company) Guangxi Liugong Machinery Co., Ltd. Guangxi Liugong Machinery Guangxi Liugong Group Co., Ltd. (one of the Promoters of the Company) held a 63% interest in Guangxi Liugong Machinery 63% Weifang Weichai Deutz Diesel Engine Co., Ltd. Weichai Deutz Weichai Holdings held a 50% interest in Weichai Deutz 50% Weichai Heavy Machinery Co., Ltd. (formerly known as Shandong Juli Company Limited) Weichai Heavy Machinery Weichai Holdings held 30.59% interest in Weichai Heavy Machinery 30.59% Weifang Weichai Peterson Gas Diesel Engines Company Limited Weichai Gas Peterson (CNG) Equipment Limited (an associate of Mr. Yeung Sai Hong, who is a non-executive director of the Company) held a 50% interest in Weichai Gas (CNG) 50% Shaanxi Fast Gear Automotive Transmission Co., Ltd. Fast Transmission Held a 49% interest in a subsidiary of the Company, Shaanxi Fast Gear Co., Ltd. ( SFGC ) 49% 48 Weichai Power Co., Ltd.

50 Directors Report (Continued) Name of Connected Person Abbreviation Relationship between the Connected Person and the Group Shaanxi Automotive Group Co., Ltd. Shaanxi Automotive Held a 49% interest in a subsidiary of the Company, Shaanxi Heavy Duty Automotive Co., Ltd. ( Shaanxi Zhongqi ) 49% Dong Feng Automotive Group Co., Ltd. Dong Feng Automotive Held a 40% interest in a subsidiary of the Company, Dong Feng Off-road Vehicles Co., Ltd. ( DFOVCL ) 40% Mudan Jiang Huatong Automotive Group Company Limited Huatong Held a 20.04% interest in a subsidiary of the Company, Mudan Jiang Futong Automotive Air Conditioner Co., Ltd. ( Futong ) 20.04% Mr. Wang Wei Mr. Wang A natural person, a director of a subsidiary of the Company, MAT Automotive Inc ( MAT ) MAT Automotive Inc.MAT Annual Report

51 Directors Report (Continued) 1. Provision of general services and labour services by Weichai Holdings and its associate to the Company Pursuant to the general services agreement entered into between the Company and Weichai Holdings on 17th November, 2003 (as amended and supplemented by various supplemental agreements, collectively referred to as Weichai Holdings General Services Agreement ), Weichai Holdings has agreed to provide certain labour services as well as general services to the Company, namely, environmental protection, security, fire, repair, maintenance and other general services and the payment of certain town land use right tax in relation to the property occupied and/or used by the Company. The fees payable by the Company to Weichai Holdings with respect to the provision of the said services are determined based on the actual costs incurred by Weichai Holdings and apportioned on a prorata basis according to the area of the relevant property occupied and/or used by the Company plus a service charge representing not more than 5% of such costs and settled by the parties on a monthly basis. 1. 5% Pursuant to the general services agreement entered into between the Company and Chongqing Weichai Diesel Engine Works ( Chongqing Weichai ), an associate of Weichai Holdings, on 17th November, 2003 (as amended and supplemented by various supplemental agreements, collectively referred to as Chongqing Weichai General Services Agreement ), Chongqing Weichai has agreed to provide certain general services to the Company, namely, environmental protection, security, fire, repair, maintenance and other general services and the payment of certain town land use right tax in relation to the property occupied and/or used by the Company. The fees payable by the Company to Chongqing Weichai with respect to the provision of the said services are determined based on the actual costs incurred by Chongqing Weichai and apportioned on a pro-rata basis according to the area of the relevant property occupied and/or used by the Company plus a service charge not exceeding 20% of such costs (save that the town land use right tax paid by Chongqing Weichai on behalf of the Company will not be subject to the said 20% service charge) and are settled by the parties on a monthly basis. 20% 20% Upon the expiry of the Weichai Holdings General Services Agreement and Chongqing Weichai General Services Agreement on 31st December 2010, the Company shall have an option to renew the agreement for a term of three years. The approved annual caps for the aforesaid services provided by Weichai Holdings and Chongqing Weichai for the years ended/ending and 2010 are RMB36.5 million and RMB47.5 million, respectively. In the year ended, the total amount charged by Weichai Holdings and Chongqing Weichai to the Company for the said services was RMB25,408, ,500,000 47,500,000 25,408, Weichai Power Co., Ltd.

52 Directors Report (Continued) 2. Supply and/or connection of utilities by Weichai Holdings and its associate to the Company (and its subsidiaries) Pursuant to the utility services agreement entered into between the Company and Weichai Holdings on 17th November, 2003 (as amended and supplemented by various supplemental agreements, collectively referred to as Weichai Holdings Utilities Services Agreement ), Weichai Holdings has agreed to provide or provide the connection of certain utility and energy services to the Company, namely, water, electricity, gas, steam, oxygen, nitrogen, compressed air, waste water treatment and supply of treated waste water, etc. The fees payable by the Company to Weichai Holdings with respect to the provision of the said services are determined based on the actual usage of the Company and by reference to the market prices of such utilities. If only government published rates are available with respect to certain utilities, the fees payable would be determined by reference to the government published rates plus the wastage, depreciation and repair expenses incurred by Weichai Holdings in relation thereto. If no market price or government published rates with respect to the above utility and energy services are available, the Company will pay the actual costs incurred by Weichai Holdings in relation to the provision of such utility and energy services plus a service charge representing not more than 20% of such costs. Since 1st January, 2006, Weichai Holdings has been charging the Company a service charge of 5% of the actual costs incurred thereof. The fees are settled by the parties on a monthly basis. Pursuant to the utility services agreement entered into between the Company and Chongqing Weichai on 17th November, 2003 (as amended and supplemented by various supplemental agreements, collectively referred to as Chongqing Weichai Utilities Services Agreement ), Chongqing Weichai has agreed to provide or provide the connection of certain utility and energy services to the Company, namely, water, electricity, natural gas, steam, oxygen, nitrogen and compressed air, etc. The fees payable by the Company to Chongqing Weichai with respect to the provision of the said services are determined based on the usage thereof by the Company or, if it is not possible to measure such usage, pro-rated according to the respective sales of Chongqing Weichai and the Company and by reference to the market prices of such utilities. If only government published rates are available with respect to certain utilities, the fees payable will be determined by reference to the government published rates plus the wastage, depreciation and repair expenses incurred by Chongqing Weichai in relation thereto. If no market prices or government published rates with respect to the above utilities and energy services are available, the Company will pay the actual costs incurred by Chongqing Weichai in relation to the provision of such utilities and energy services plus a service charge representing not more than 20% of such costs. Chongqing Weichai has been charging the Company a service charge of 20% of the actual costs incurred thereof. The fees are settled by the parties on a monthly basis % 5% 20% 20% Annual Report

53 Directors Report (Continued) Upon the expiry of the Weichai Holdings Utilities Services Agreement and Chongqing Weichai Utilities Services Agreement on 31st December, 2010, the Company shall have an option to renew the agreement for a term of three years. The approved annual caps for the aforesaid services provided by Weichai Holdings and Chongqing Weichai for the years ended/ending and 2010 are RMB223 million and RMB290 million, respectively. In the year ended, the total amount charged by Weichai Holdings and Chongqing Weichai to the Company and its subsidiaries for the said services was RMB139,194, Purchase of diesel engine parts and components, gas and scrap metals, etc., materials and related products and processing services by the Company (and its subsidiaries) from Weichai Holdings and its associate Pursuant to the Weichai Purchase and Processing Services Agreement entered into between the Company, Weichai Holdings and Chongqing Weichai on 27th November, 2008, 223,000, ,000, ,194, (i) the Company has agreed to purchase diesel engine parts and components, gas and scrap metals, etc., materials and related products at market prices from Weichai Holdings and Chongqing Weichai; and (i) (ii) Chongqing Weichai has agreed to provide processing services to the Company with respect to certain semi-finished diesel engine parts at fees determined based on the relevant market prices. (ii) The above transactions are settled by the parties on a monthly basis. Upon the expiry of the Weichai Purchase and Processing Services Agreement on 31st December, 2010, the Company shall have an option to renew the agreement for a term of three years. The approved annual caps for the aforesaid purchases made and services received from Weichai Holdings and Chongqing Weichai for the years ended/ending and 2010 are RMB102 million and RMB112.5 million, respectively. In the year ended 31st December, 2009, the total purchases made and processing services received by the Company and its subsidiaries from Weichai Holdings and Chongqing Weichai amounted to RMB50,967,000 in total. 102,000, ,500,000 50,967, Weichai Power Co., Ltd.

54 Directors Report (Continued) 4. Sale of diesel engines, diesel engine parts and components, materials and related products and provision of processing services by the Company and one of its subsidiaries, Weichai Power Reserves and Resources Company ( Weichai Resources ) to Weichai Holdings and its certain associates Pursuant to the Weichai Sales and Processing Services Agreement entered into between the Company and Weichai Resources as suppliers and Weichai Holdings and its certain associates as customers on 27th November, 2008, the Company and Weichai Resources have agreed to (i) sell certain diesel engines, diesel engine parts and components and related products, and materials for the repair services of diesel engines, and (ii) provide certain processing services in relation to the production of diesel engines to Weichai Holdings and its certain associates at market prices. The transactions are settled by the parties on a monthly basis. Upon the expiry of the Weichai Sales and Processing Services Agreement on 31st December, 2010, the Company shall have an option to renew the agreement for a term of three years. The approved annual caps for the aforesaid sales made and services provided to Weichai Holdings and its certain associates for the years ended/ending and 2010 are RMB265 million and RMB315 million, respectively. In the year ended 31st December, 2009, the total sales made and processing services provided by the Company and Weichai Resources to Weichai Holdings and its certain associates amounted to RMB153,279,000 in total. 5. Lease of buildings and equipment by Weichai Holdings (and its associates) to the Company (and its subsidiaries) Pursuant to the asset lease agreement entered into between the Company and Weichai Holdings on 21st October, 2003 (as amended and supplemented by various supplemental agreements, collectively referred to as Lease of Buildings and Equipment ), Weichai Holdings has agreed to lease to the Company certain buildings (including factories and warehouses with a total gross floor area of 63,245 square metres) situated at Weichai Holdings (the Buildings ) and all the equipment in relation to the manufacture of certain semi-finished diesel engine parts (collectively referred to as Equipment ) located in the Buildings for a term ending 31st December, 2012, upon the expiry of which the parties may renew the term for another three years on a mutually agreed basis. The approved annual caps for the lease rental payable to Weichai Holdings in respect of the Lease of Buildings and Equipment for each of the years ended/ending, 2010, 2011 and 2012 are all RMB43 million. In the year ended, the total lease rental payable by the Company to Weichai Holdings in respect of the lease of Buildings and Equipment amounted to RMB42,814, (i) (ii) 265,000, ,000, ,279, ,245 43,000,000 42,814,000 Annual Report

55 Directors Report (Continued) 6. Lease of properties by Chongqing Weichai to the Company Pursuant to the properties lease agreement entered into between the Company and Chongqing Weichai on 1st July, 2003 (as amended and supplemented by various supplemental agreements), collectively referred to as Lease of Properties ), Chongqing Weichai has agreed to lease to the Company certain land and buildings where the Chongqing Production Line is situated for a term ending 31st December, 2012, upon the expiry of which the parties may renew the term for another three years on a mutually agreed basis. 6. The approved annual caps for the lease rental payable to Chongqing Weichai in respect of the Lease of Properties for each of the years ended/ending, 2010, 2011 and 2012 are all RMB4 million. In the year ended, the total lease rental payable by the Company to Chongqing Weichai in respect of the Lease of Properties amounted to RMB3,404, Supply of diesel engines and diesel engine parts by the Company to Fujian Longgong and Shanghai Longgong and their associates Pursuant to the respective framework agreements dated 21st October, 2003 entered into by the Company with Fujian Longgong and Shanghai Longgong (as supplemented by various supplemental agreements), the Company has agreed to supply Fujian Longgong and Shanghai Longgong and their associates, at market prices and settled in the month following delivery, diesel engines and diesel engine parts for a term ending 31st December, 2010, upon which the Company shall have the option to extend the term for another three years. 4,000,000 3,404, The approved annual caps for the aforesaid sales of diesel engines and diesel engine parts to Fujian Longgong and Shanghai Longgong and their associates for the years ended/ending and 2010 are RMB1.3 billion and RMB1.5 billion, respectively. In the year ended, the total sales of diesel engines and diesel engine parts made by the Company to Fujian Longgong and Shanghai Longgong and their associates amounted to RMB612,317,000. 1,300,000,000 1,500,000, ,317, Weichai Power Co., Ltd.

56 Directors Report (Continued) 8. Sale of diesel engines and diesel engine parts by the Company to Guangxi Liugong Machinery Co., Ltd. Pursuant to the framework agreement dated 21st October, 2003 entered into between the Company and Guangxi Liugong Machinery (as supplemented by various supplemental agreements), the Company has agreed to supply Guangxi Liugong Machinery, at market prices and settled in the month following delivery, WD615 Engines and parts for a term ending 31st December, 2010, upon the expiry of which the Company shall have the option to extend the term for another three years. 8. WD615 The approved annual caps for the aforesaid sales of diesel engines and diesel engine parts to Guangxi Liugong Machinery for the years ended/ending and 2010 are RMB1,235 million and RMB1,350 million, respectively. In the year ended 31st December, 2009, the total sales of diesel engines and diesel engine parts made by the Company to Guangxi Liugong Machinery amounted to RMB609,598, Sale of semi-finished diesel engine parts and related products by the Company (and its subsidiaries) to Weichai Deutz Pursuant to the master sales agreement entered into between the Company and Weichai Deutz on 21st October, 2003 (as supplemented by various supplemental agreements), the Company has agreed to supply semi-finished diesel engines parts and related products to Weichai Deutz for its 226B series of diesel engines, at market prices and settled on a monthly basis, for a term ending 31st December, 2010, upon the expiry of which the Company shall have the option to extend the term for another three years. 1,235,000,000 1,350,000, ,598, B The approved annual caps for the aforesaid sales of semi-finished diesel engine parts and related products to Weichai Deutz for the years ended/ending and 2010 are RMB130 million and RMB170 million, respectively. In the year ended 31st December, 2009, the total sales of semi-finished diesel engines parts and related products made by the Company and its subsidiaries to Weichai Deutz amounted to RMB53,920, ,000, ,000,000 53,920,000 Annual Report

57 Directors Report (Continued) 10. Provision of sales and warranty period repair services by the Company to Weichai Deutz Pursuant to the sales and warranty agreement entered into between the Company and Weichai Deutz on 21st September, 2005 (as supplemented by various supplemental agreements), the Company has agreed to provide sales and warranty period repair and maintenance services to Weichai Deutz, at market prices and settled on a quarterly basis, for a term ending 31st December, 2010, upon the expiry of which the Company shall have the option to extend the term for another three years. 10. The approved annual caps for the aforesaid sales and warranty period repair services provided to Weichai Deutz for the years ended/ending and 2010 are RMB20 million and RMB26 million, respectively. In the year ended, the sales and warranty period repair services provided by the Company to Weichai Deutz amounted to RMB13,253,000 in total. 11. Purchase of diesel engine parts and components and related products by Weichai Resources from Weichai Deutz Pursuant to the diesel engine parts and components and related products purchase agreement entered into between Weichai Resources and Weichai Deutz on 27th November, 2008, Weichai Resources has agreed to purchase from Weichai Deutz certain parts and components for the manufacture of diesel engines, at market prices and settled on a monthly basis, for a term ending 31st December, 2010, upon the expiry of which Weichai Resources shall have the option to extend the term for another three years. 20,000,000 26,000,000 13,253, The approved annual caps for the aforesaid purchases of diesel engine parts and components and related products from Weichai Deutz for the years ended/ending and 2010 are RMB47 million and RMB60 million, respectively. In the year ended, the total purchases of diesel engine parts and components and related products made by Weichai Resources from Weichai Deutz amounted to RMB21,793, ,000,000 60,000,000 21,793, Weichai Power Co., Ltd.

58 Directors Report (Continued) 12. Purchase of diesel engines and related products by the Company from Weichai Deutz Pursuant to the diesel engines purchase agreement entered into between the Company and Weichai Deutz on 27th November, 2008, the Company has agreed to purchase certain diesel engines and related products from Weichai Deutz, at market prices and settled on a quarterly basis, for a term ending 31st December, 2010, upon the expiry of which the Company shall have the option to extend the term for another three years. 12. The approved annual caps for the aforesaid purchases of diesel engines and related products from Weichai Deutz for the years ended/ending and 2010 are RMB28 million and RMB32 million, respectively. In the year ended, the total purchases of diesel engines and related products made by the Company from Weichai Deutz amounted to RMB27,478, Sale of diesel engines and related products by the Company to Weichai Heavy Machinery The Company and Weichai Holdings entered into a framework agreement on 17th November, 2003 (as supplemented by various supplemental agreements). The rights and obligations of Weichai Holdings in the agreement were assumed by Weichai Heavy Machinery pursuant to supplemental framework agreements entered into between the Company, Weichai Holdings and Weichai Heavy Machinery on 13th August, ,000,000 32,000,000 27,478, Pursuant to the framework agreement, the Company has agreed to sell to Weichai Heavy Machinery WD615 Engines and related products, at market prices and settled on a monthly basis, for a term ending 31st December, 2011, upon the expiry of which the parties may extend the term for another three years. WD615 The approved annual caps for the aforesaid sales of diesel engines and related products to Weichai Heavy Machinery for the years ended/ending, 2010 and 2011 are RMB260 million, RMB312 million and RMB375 million, respectively. In the year ended, the total sales of diesel engines and related products made by the Company to Weichai Heavy Machinery amounted to RMB258,051, ,000, ,000, ,000, ,051,000 Annual Report

59 Directors Report (Continued) 14. Purchase of diesel engine parts and components, materials, steel and scrap metal, etc. and related products and the processing services by the Company and Weichai Resources from Weichai Heavy Machinery Pursuant to the Purchase and Processing Services Agreement entered into between the Company and Weichai Resources and Weichai Heavy Machinery on 27th November, 2008, 14. (i) the Company and Weichai Resources have agreed to purchase from Weichai Heavy Machinery diesel engine parts and components, steel and scrap metal, etc. and related products; and (i) (ii) Weichai Heavy Machinery has agreed to provide processing services to the Company with respect to diesel engine parts and components. (ii) The said purchases and processing services are transacted at market prices and settled on a monthly basis for a term ending 31st December, 2010, upon the expiry of which the parties may extend the term for another three years. The approved annual caps for the aforesaid purchases made and processing services received from Weichai Heavy Machinery for the years ended/ending and 2010 are RMB410 million and RMB525 million, respectively. In the year ended 31st December, 2009, the total purchases made and processing services received by the Company and Weichai Resources from Weichai Heavy Machinery amounted to RMB269,778,000 in total. 15. Supply of semi-finished diesel engine parts by the Company (and its subsidiaries) to Weichai Heavy Machinery The Company and Weichai Holdings entered into a semi-finished diesel engine parts supply agreement on 17th November, 2003 (as amended and supplemented by various supplemental agreements). The rights and obligations of Weichai Holdings in the agreement were assumed by Weichai Heavy Machinery pursuant to a supplemental agreement entered into between the Company, Weichai Holdings and Weichai Heavy Machinery on 9th November, ,000, ,000, ,778, Weichai Power Co., Ltd.

60 Directors Report (Continued) Pursuant to the latest semi-finished diesel engine parts supply agreement, the Company and its subsidiaries have agreed to sell certain semi-finished diesel engine parts, diesel engine parts and components, reserve parts and related products and to provide certain relevant labour services (as the case may be) to Weichai Heavy Machinery at market prices and settled on a monthly basis for a term ending 31st December, 2011, upon the expiry of which the parties may renew the term for another three years on a mutually agreed basis. The approved annual caps for the aforesaid supply of semi-finished diesel engine parts to Weichai Heavy Machinery for the years ended/ ending 31st December 2009, 2010 and 2011 are RMB330 million, RMB375 million and RMB390 million, respectively. In the year ended, the total supply of semi-finished diesel engine parts, diesel engine parts and components, reserve parts and related products and provision of labour services by the Company (and its subsidiaries) to Weichai Heavy Machinery amounted to RMB271,911, Supply of WD615 Engines and related parts by the Company to Weichai Gas Pursuant to the framework agreement entered into between the Company and Weichai Gas on 21st October, 2003 (as supplemented by various supplemental agreements), the Company has agreed to supply Weichai Gas, at market prices and settled in the month following delivery, WD615 Engines and related parts for a term ending 31st December, 2011, upon the expiry of which the parties shall have the option to extend the term for another three years on a mutually agreed basis. 330,000, ,000, ,000, ,911, WD615 WD615 The approved annual caps for the aforesaid supply of WD615 Engines and related parts to Weichai Gas for the years ended/ending 31st December, 2009, 2010 and 2011 are RMB40 million, RMB48 million and RMB58 million, respectively. In the year ended 31st December, 2009, the total sales of WD615 Engines and related parts made by the Company to Weichai Gas amounted to RMB39,836,000. WD615 40,000,000 48,000,000 58,000,000 WD615 39,836,000 Annual Report

61 Directors Report (Continued) 17. Purchase of gas engines and related products by the Company (and its subsidiaries) from Weichai Gas Pursuant to the Weichai Gas Purchase Agreement on 27th April, 2009 (as amended and supplemented by a supplemental agreement), the Company has agreed to purchase certain gas engines and related products from Weichai Gas, at market prices and settled in the month following delivery, for a term ending 31st December, 2011, upon the expiry of which the parties shall have the option to extend the term for another three years on a mutually agreed basis. 17. The approved annual caps for the aforesaid purchases of gas engines and related products from Weichai Gas for the years ended/ending 31st December 2009, 2010 and 2011 are RMB77 million, RMB93 million and RMB111 million, respectively. In the year ended 31st December, 2009, the total purchase of gas engines and related products from Weichai Gas amounted to RMB72,958, Sale of parts and components of transmissions and related products by SFGC to Fast Transmission Pursuant to the parts and components sale agreement entered into between SFGC and Fast Transmission on 1st August, 2007 (as amended and supplemented by various supplemental agreements), SFGC has agreed to sell to Fast Transmission certain parts and components of transmissions, namely, gearboxes, at market prices and settled every two to three months, for a term ending 31st December, 2011, upon the expiry of which the parties shall have an option to renew the agreement for a term of three years on a mutually agreed basis. 77,000,000 93,000, ,000,000 72,958, The approved annual caps for the aforesaid sales of parts and components of transmissions to Fast Transmission for the years ended/ending, 2010 and 2011 are RMB820 million, RMB1 billion and RMB1.2 billion, respectively. In the year ended, the total sales of parts and components of transmissions made by SFGC to Fast Transmission amounted to RMB775,485, ,000,000 1,000,000,000 1,200,000, ,485, Weichai Power Co., Ltd.

62 Directors Report (Continued) 19. Purchase of parts and components of transmissions and related products by SFGC from Fast Transmission Pursuant to the parts and components purchase agreement entered into between SFGC and Fast Transmission on 1st August, 2007 (as amended and supplemented by various supplemental agreements), SFGC has agreed to purchase from Fast Transmission certain parts and components of transmissions and gears, namely, power take off assemblies and castings, at market prices and settled every two to three months, for a term ending 31st December, 2011, upon the expiry of which the parties shall have an option to renew the agreement for a term of three years on a mutually agreed basis. 19. The approved annual caps for the aforesaid purchase of parts and components of transmissions from Fast Transmission for the years ended/ending, 2010 and 2011 are RMB1,250 million, RMB1,600 million and RMB1,800 million, respectively. In the year ended, the total purchases of parts and components of transmissions made by SFGC from Fast Transmission amounted to RMB1,141,571, Provision of general services by Fast Transmission to SFGC Pursuant to the general services agreement entered into between SFGC and Fast Transmission on 17th September, 2001 (as amended and supplemented by various supplemental agreements), Fast Transmission has agreed to provide certain general services to SFGC, namely, health care, staff accommodation, child care, logistics, etc. for a term ending on 31st December, 2011, upon the expiry of which the parties shall have an option to renew the agreement for a term of three years on a mutually agreed basis. The fees payable by SFGC to Fast Transmission with respect to the provision of the said general services are determined based on the relevant State policy and market prices and are settled on a quarterly basis. 1,250,000,000 1,600,000,000 1,800,000,000 1,141,571, The approved annual caps for the aforesaid general services provided by Fast Transmission for the years ended/ending 31st December, 2009, 2010 and 2011 are RMB45 million, RMB54 million and RMB65 million, respectively. In the year ended, the total amount payable by SFGC to Fast Transmission for the general services was RMB29,051, ,000,000 54,000,000 65,000,000 29,051,000 Annual Report

63 Directors Report (Continued) 21. Lease of land and premises by Fast Transmission to SFGC Pursuant to the land use rights lease agreement and building lease agreement entered into between SFGC and Fast Transmission on 21st March, 2002 (both as supplemented by various supplemental agreements), Fast Transmission has agreed to lease to SFGC certain land (the SFGC Land ) and certain premises situated at the SFGC Land (the SFGC Premises ) for a term ending on 31st December, 2011, upon the expiry of which SFGC shall have an option to renew the agreements for a term of three years. The SFGC Land and SFGC Premises are mainly used by SFGC for its production. 21. The rental for SFGC Land shall be paid by SFGC before 25th June and 25th December every year, and the amount payable shall be revised by the parties every four years based on the national price level of the PRC and the relevant laws and regulations of the PRC. The land tax in respect of the SFGC Land shall be borne by SFGC in accordance with the relevant laws and regulations of the PRC. The rental for SFGC Premises shall be paid by SFGC every quarter each year, and the amount payable shall be determined based on the yearly depreciation of the original value of the premises. The property tax in respect of the SFGC Premises shall be borne by SFGC in accordance with the relevant laws and regulations of the PRC. The approved annual caps for the total lease rental payable to Fast Transmission for the SFGC Land and SFGC Premises for the years ended/ending, 2010 and 2011 are RMB24 million, RMB26 million and RMB28 million, respectively. In the year ended, the total lease rental payable by SFGC to Fast Transmission for the SFGC Land and SFGC Premises amounted to RMB12,249, ,000,000 26,000,000 28,000,000 12,249, Weichai Power Co., Ltd.

64 Directors Report (Continued) 22. Sale of vehicles, parts and components of vehicles and related products and provision of heat processing services by certain subsidiaries of the Company to Shaanxi Automotive and its associates Pursuant to the vehicles, parts and components and raw materials sale and heat processing services agreement entered into between Shaanxi Zhongqi and certain other subsidiaries of the Company as suppliers (the Shaanxi Suppliers ) and Shaanxi Automotive and its associates as customers (the Shaanxi Customers ) on 1st August, 2007 (as supplemented by a supplemental agreement on 27th November, 2008), the Shaanxi Suppliers have agreed to sell certain vehicles and parts and components of vehicles, namely, wire gauges emission pipes and raw materials, ductile iron, castings, converted carriage, and provide heat processing services to the Shaanxi Customers, at market prices and settled by the parties every one to three months, for a term ending 31st December, 2010, upon the expiry of which the Shaanxi Suppliers shall have an option to renew the agreement for a term of three years. 22. The approved annual caps for the aforesaid sales of vehicles, parts and components and raw materials and provision of heat processing services to the Shaanxi Customers for the years ended/ending 31st December, 2009 and 2010 are RMB850 million and RMB1,100 million, respectively. In the year ended, the total sales of vehicles, parts and components and raw materials and provision of heat processing services by the Shaanxi Suppliers to the Shaanxi Customers amounted to RMB366,105, Purchase of parts and components of vehicles, scrap steel and related products by certain subsidiaries of the Company from certain associates of Shaanxi Automotive Pursuant to the parts and components and scrap steel purchase agreement entered into between Shaanxi Zhongqi and certain other subsidiaries of the Company as buyers (the Shaanxi Buyers ) and certain associates of Shaanxi Automotive as sellers (the Shaanxi Sellers ) on 1st August, 2007 (as supplemented by a supplemental agreement on 27th November, 2008), the Shaanxi Buyers have agreed to purchase certain parts and components of vehicles, namely, wire gauges and emission pipes, brake hoofs, transmission axles and radiators, and scrap steel from the Shaanxi Sellers, at market prices and settled by the parties every one to three months, for a term ending 31st December, 2010, upon the expiry of which the Shaanxi Buyers shall have an option to renew the agreement for a term of three years. 850,000,000 1,100,000, ,105, Annual Report

65 Directors Report (Continued) The approved annual caps for the aforesaid purchases of parts and components of vehicles and scrap steel from the Shaanxi Sellers for the years ended/ending and 2010 are RMB2.2 billion and RMB2.7 billion, respectively. In the year ended 31st December, 2009, the total purchases of parts and components of vehicles and scrap steel made by the Shaanxi Buyers from the Shaanxi Sellers amounted to RMB916,158, Lease of land and premises by Shaanxi Automotive to certain subsidiaries of the Company Pursuant to the land use right lease agreements and building lease agreements entered into between Shaanxi Zhongqi and certain other subsidiaries of the Company as the lessees (the Shaanxi Lessees ) and Shaanxi Automotive as the lessor on 20th September, 2002, 1st April, 2003 and 12th September, 2005 (as supplemented by various redefinition agreements and supplemental agreements), Shaanxi Automotive has agreed to lease to the Shaanxi Lessees certain land and premises (the Shaanxi Land and Shaanxi Premises, respectively) for a term ending 31st December, 2010, upon the expiry of which the Shaanxi Lessees shall have an option to renew the agreements for a term of three years. The Shaanxi Land and Shaanxi Premises are mainly used by the Shaanxi Lessees for their production. 2,200,000,000 2,700,000, ,158, The rental for the Shaanxi Land and Shaanxi Premises shall be paid by the Shaanxi Lessees on a monthly basis (with the exception that the annual rental shall be paid by one of the Shaanxi Lessees on 25th June and 25th December every year). The annual rental of the Shaanxi Land and Shaanxi Premises shall be revised by the parties every five years based on the national price index of the PRC and the relevant laws and regulations of the PRC (with the exception that the annual rental of the Shaanxi Premises applicable to one of the Shaanxi Lessees is determined based on the yearly depreciation of the original value of the premises). The land tax and property tax in respect of the Shaanxi Land and Shaanxi Premises shall be borne by the Shaanxi Lessees in accordance with the relevant laws and regulations of the PRC. The approved annual caps for the total lease rental payable to Shaanxi Automotive for the Shaanxi Land and Shaanxi Premises for the years ended/ending and 2010 are RMB17.8 million and RMB17.8 million, respectively. In the year ended 31st December, 2009, the total lease rental payable by the Shaanxi Lessees to Shaanxi Automotive amounted to RMB11,980, ,800,000 17,800,000 11,980, Weichai Power Co., Ltd.

66 Directors Report (Continued) 25. Payment of utility charges by Shaanxi Automotive to Shaanxi Zhongqi for onward payment to utility providers Pursuant to the general services agreement entered into between Shaanxi Zhongqi and Shaanxi Automotive on 20th September, 2002 (as supplemented by a redefinition agreement and various supplemental agreements), Shaanxi Zhongqi has agreed to transfer certain utility services including water, electricity and gas it received from third party utilities providers to Shaanxi Automotive, at market prices and settled by the parties on a monthly basis, for a term ending 31st December, 2010, upon the expiry of which Shaanxi Zhongqi shall have an option to renew the agreement for a term of three years. Shaanxi Automotive shall pay the charges for the relevant utility charges to Shaanxi Zhongqi for its onward payment to the utility providers without any mark up (except for the sharing of costs). 25. The approved annual caps for the total utility payments by Shaanxi Automotive for the years ended/ending and 2010 are RMB18 million and RMB20 million, respectively. In the year ended, the total utility payments made by Shaanxi Automotive to Shaanxi Zhongqi for onward payment to utility providers amounted to RMB11,680, Provision of general services by Shaanxi Automotive to Shaanxi Zhongqi and certain other subsidiaries of the Company Pursuant to the general services agreement entered into between Shaanxi Zhongqi and certain other subsidiaries of the Company and Shaanxi Automotive on 20th September, 2002 (as supplemented by a supplemental agreement dated 27th November, 2008), Shaanxi Automotive has agreed to provide to Shaanxi Zhongqi and certain other subsidiaries of the Company certain general services namely, health care, accommodation, education, child care and property management and other general services, for a term ending 31st December, The fees payable to Shaanxi Automotive with respect to the provision of the said general services are determined based on the relevant State policy and market prices and are settled on a quarterly basis. The approved annual caps for the aforesaid general services provided by Shaanxi Automotive for the years ended/ending 31st December, 2009 and 2010 are RMB80 million and RMB91 million, respectively. In the year ended, the total amount payable by Shaanxi Zhongqi and certain other subsidiaries of the Company to Shaanxi Automotive for the general services was RMB 48,059, ,000,000 20,000,000 11,680, ,000,000 91,000,000 48,059,000 Annual Report

67 Directors Report (Continued) 27. Sale of off-road vehicles by DFOVCL to Dong Feng Automotive Pursuant to the off-road vehicles sale agreement entered into between DFOVCL and Dong Feng Automotive on 1st August, 2007 (as supplemented by a supplemental agreement dated 27th November, 2008), DFOVCL has agreed to sell certain off-road vehicles to Dong Feng Automotive, at market prices and settled by the parties every two to three months, for a term ending 31st December, 2010, upon the expiry of which DFOVCL shall have an option to renew the agreement for a term of three years. 27. The approved annual caps for the aforesaid sales of off-road vehicles to Dong Feng Automotive for the years ended/ending 31st December, 2009 and 2010 are RMB530 million and RMB630 million, respectively. In the year ended, the total sales of off-road vehicles made by DFOVCL to Dong Feng Automotive amounted to RMB96,472, Purchase of parts and components of off-road vehicles and related products by DFOVCL from Dong Feng Automotive and its associates and provision of technical support services by Dong Feng Automotive and its associates to DFOVCL Pursuant to the parts and components purchase agreement entered into between DFOVCL and Dong Feng Automotive on 1st August, 2007 (as supplemented by a supplemental agreement dated 27th November, 2008), DFOVCL has agreed to purchase certain parts and components of off-road vehicles from Dong Feng Automotive and its associates, at market prices and settled by the parties every two to three months. In addition, Dong Feng Automotive and its associates have agreed to provide certain technical support services to DFOVCL at a price being 3% of the transaction amount of the off-road vehicles sold by DFOVCL. The said transactions are for a term ending 31st December, 2010, upon the expiry of which DFOVCL shall have an option to renew the agreement for a term of three years. 530,000, ,000,000 96,472, % 66 Weichai Power Co., Ltd.

68 Directors Report (Continued) The approved annual caps for the aforesaid purchases made and technical support services received from Dong Feng Automotive and its associates for the years ended/ending and 2010 are RMB230 million and RMB270 million, respectively. In the year ended, the total purchases made and technical support services received by DFOVCL from Dong Feng Automotive and its associates amounted to RMB43,357,000 in total. 29. Provision of processing services by Huatong to Futong Pursuant to the processing services agreement entered into between Futong and Huatong on 1st August, 2007 (as supplemented by a supplemental agreement dated 27th November, 2008), Huatong has agreed to provide certain processing services to Futong in respect of parts and components of vehicles, at market prices and settled by the parties every two to three months, for a term ending 31st December, 2010, upon the expiry of which Futong shall have an option to renew the agreement for a term of three years. 230,000, ,000,000 43,357, The approved annual caps for the aforesaid processing services provided by Huatong for the years ended/ending 31st December, 2009 and 2010 are RMB13 million and RMB15 million, respectively. In the year ended, the total amount payable by Futong to Huatong for the processing services was RMB5,715, ,000,000 15,000,000 5,715, Sale of automotive parts and components and related products by MAT to certain associates of Mr. Wang Pursuant to the automotive parts and components sale agreement entered into between MAT and its subsidiaries as suppliers (the US Suppliers ) and certain associates of Wang Wei as customers (the US Customers ) on 27th November, 2008 (supplemented by a supplemental agreement dated 13th August, 2009), the US Suppliers have agreed to sell to the US Customers automotive parts and components, in particular, automotive brake rotors, grease fittings for hubs, brake shims for automotive brake pads and back plates, and related products, at market prices and settled by the parties one to three months after delivery, for a term ending 31st December, 2011, upon the expiry of which MAT shall have an option to renew the agreement for a term of three years. 30. MAT MAT MAT Annual Report

69 Directors Report (Continued) The approved annual caps for the aforesaid sales of automotive parts and components and related products to the US Customers for the years ended/ending, 2010 and 2011 are RMB170 million, RMB204 million and RMB245 million, respectively. In the year ended, the total sales of automotive parts and components and related products made by the US Suppliers to the US Customers amounted to RMB102,340, Purchase of automotive parts and components and related products by MAT and its subsidiaries from certain associates of Mr. Wang Pursuant to the automotive parts and components purchase agreement entered into between certain associates of Mr. Wang as suppliers (the US Sellers ) and MAT on 27th November, 2008 (supplemented by a supplemental agreement dated 13th August, 2009), MAT and its subsidiaries (the US Buyers ) have agreed to purchase from the US Sellers automotive parts and components, in particular, automotive brake drums and rotors, hubs and truck parts, industrial pumps and parts, lawn motor seats and mirror supports, and related products, at market prices and settled by the parties one to three months after delivery, for a term ending 31st December, 2011, upon the expiry of which MAT shall have an option to renew the agreement for a term of three years. 170,000, ,000, ,000, ,340, MAT MAT MAT MAT The approved annual caps for the aforesaid purchases of automotive parts and components and related products made from the US Sellers for the years ended/ending, 2010 and 2011 are RMB45 million, RMB54 million and RMB65 million, respectively. In the year ended, the total purchases of automotive parts and components and related products made by the US Buyers from the US Sellers amounted to RMB21,585, ,000,000 54,000,000 65,000,000 21,585,000 The independent non-executive directors of the Company have reviewed the continuing connected transactions set out above and have confirmed that these continuing connected transactions were entered into (i) in the ordinary and usual course of business of the Group; (ii) on normal commercial terms or on terms no less favourable to the Group than terms available to or from independent third parties; and (iii) in accordance with the relevant agreements governing them on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole. (i) (ii) (iii) 68 Weichai Power Co., Ltd.

70 Directors Report (Continued) Connected Transaction On 31st December, 2008, the Group entered into a conditional agreement with the minority shareholder of MAT, a subsidiary which was then owned by the Company as to 75%, whereby the Group would ensure MAT to transfer its 100% equity interest in Meneta Holding ApS to the then minority shareholder of MAT, Mr. Wang Wei, in exchange for his 25% equity interest in MAT and a cash consideration of USD1,500,000. The transaction was completed in January MAT75% MAT Meneta Holding ApS 100% MAT MAT 25% 1,500,000 Emolument Policy The emolument policy of the employees of the Group is set up by the Remuneration Committee on the basis of their merit, qualifications and competence. The emoluments of the directors of the Company are decided by the Remuneration Committee, having regarded to the Group s operating results, individual performance and comparable market statistics. Arrangements to Purchase Shares or Debentures At no time during the year was the Company or any of its subsidiaries a party to any arrangements to enable the directors and supervisors of the Company to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate. Purchase, Sale or Redemption of Listed Securities of the Company During the year, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company s listed securities. Pre-emptive Rights There are no provisions for pre-emptive rights under the Company s articles of association or the laws of the PRC, which would oblige the Company to offer new shares on a pro-rata basis to existing shareholders. Events after the Reporting Period Details of the significant events after the reporting period of the Group are set out in note 48 to the financial statements. 48 Annual Report

71 Directors Report (Continued) Audit Committee The Audit Committee comprises three independent non-executive directors of the Company. The Chairman of the Audit Committee is Mr. Koo Fook Sun, Louis, an independent non-executive director. Mr. Koo is an experienced investment banker with appropriate professional qualifications or accounting or related financial management expertise as required under Rule 3.10 (2) of the Listing Rules for the purpose of this appointment. Throughout the year, the Audit Committee discharged its responsibilities, reviewed and discussed the financial results and internal control system of the Company. In accordance with the requirements of Appendix 16 to the Listing Rules, the Audit Committee has reviewed the financial statements for the year. 3.10(2) 16 Compliance with Code on Corporate Governance Practices in Appendix 14 of the Listing Rules Throughout the year, other than the roles of the Chairman and the Chief Executive Officer being performed by Mr. Tan Xuguang ( Mr. Tan ), the Company has complied with all the code provisions of the Code on Corporate Governance Practices as set out in Appendix 14 to the Listing Rules. Mr. Tan is in charge of the overall management of the Company. The directors consider that the combination of the roles of the Chairman and the Chief Executive Officer can promote the efficient formulation and implementation of the Company s strategies which will enable the Group to grasp business opportunities efficiently and promptly. The Company considers that through the supervision of its board and its independent non-executive directors, there is adequate balance of power and authority in place. Compliance with the Model Code During the year, the Company has adopted a code of conduct regarding securities transactions by directors on terms no less exacting than the required standard set out in the Model Code for Securities Transaction by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules (the Model Code ). Having made specific enquiry of all directors, the directors have confirmed that they complied with the required standard set out in the Model Code for the year under review. 70 Weichai Power Co., Ltd.

72 Directors Report (Continued) Sufficiency of Public Float Based on the information that is publicly available to the Company and within the knowledge of the directors, the Company has maintained the prescribed public float under the Listing Rules as at the date of this report. Auditors Shandong Zheng Yuan Hexin Accountants Limited ( ) retire and a resolution for their reappointment as auditors of the Company for its accounts prepared under PRC accounting principles and financial regulations will be proposed at the forthcoming annual general meeting. Ernst & Young retire and a resolution for their reappointment as auditors of the Company for its accounts prepared under Hong Kong Financial Reporting Standards will be proposed at the forthcoming annual general meeting. Approval of the Financial Statements The financial statements for the year have been approved by the board on 26th April, Publication of the Annual Report on the Websites of the Stock Exchange of Hong Kong Limited and the Company The 2009 Annual Report will be despatched to shareholders as well as made available on The Stock Exchange of Hong Kong Limited s website at and the Company s website at On behalf of the Board Tan Xuguang Chairman and CEO Hong Kong 26th April, 2010 Annual Report

73 Supervisory Committee s Report Dear Shareholders, During the period, in accordance with the relevant provisions of the Company Law of the People s Republic of China (the Company Law ) and the Articles of Association of the Company and in compliance with the principles of integrity, all members of the Supervisory Committee of the Company (the Supervisory Committee ) performed their duties of supervision with a view to protecting shareholders interests in line with their accountability to all shareholders. They monitored the operations and financial position as well as the performance of the senior management of the Company during the period. On behalf of the Supervisory Committee, I hereby present our report as follows: Overview of the Work of the Supervisory Committee In 2009, as required by the relevant rules and procedures of meetings of the Supervisory Committee and based on its actual work, the Supervisory Committee conducted inspections on the operations and financial position of the Company, and reviewed the financial statements regularly. In 2009, the Supervisory Committee held three meetings. Details of the time, attendance and contents of the meetings are as follows: 1. On 27th April, 2009, the eighth meeting of the second phase of the Supervisory Committee was convened. All Supervisors were present. The meeting considered and approved the full text and summary of 2008 annual report of the Company, the work report of the Supervisory Committee for 2008, the consolidated financial statements and auditors report for 2008, the final finance report for 2008, the profit distribution proposal for 2008, the internal control self-evaluation report for 2008, the proposal for impairment provision, and 2009 first quarter report of the Company On 28th August, 2009, the ninth meeting of the second phase of the Supervisory Committee was convened. All Supervisors were present. The meeting considered and approved the full text and summary of 2009 interim report of the Company and was of the opinion that the interim report gives a true and fair view of the operations and financial position of the Company during the first-half On 23rd October, 2009, the first provisional meeting of the Supervisory Committee in 2009 was convened. All Supervisors were present. The meeting considered and approved 2009 third quarter report of the Company and highly affirmed the financial performance of the Company. The Supervisory Committee was of the opinion that the quarter report gives a true and fair view of the operations and financial position of the Company during the reporting period Weichai Power Co., Ltd.

74 Supervisory Committee s Report (Continued) Independent Opinion of the Supervisory Committee on Relevant Matters of the Company in 2009 Compliance of the Company s operations with Legal Requirements During the period, pursuant to the laws and regulations of the place of listing, the Supervisory Committee has duly supervised and examined the convening procedures and resolutions of Board meetings, performance of duties by the senior management of the Company, as well as the establishment and consistent implementation of the Company s internal management system. The Supervisory Committee is of the view that the Board and the senior management of the Company strictly operated in accordance with the Company Law, the Articles of Association as well as other relevant regulations and rules of the place of listing. With integrity and diligence, they performed their duties, executed all resolutions and authorities of the general meetings, and conducted all operations in compliance with laws and regulations and the Articles of Association. When examining the financial position of the Company and monitoring the performance of the directors and the senior management of the Company, the Supervisory Committee was not aware of any action which would damage the interests of the Company and the shareholders or may result in a breach of laws or regulations or the Articles of Association and the rules of the Company. Examination of Financial Position of the Company In 2009, the Supervisory Committee further enhanced its internal control, especially the examination on financial system. The Company has established a comprehensive system on external investment, asset transfer and connected transactions, etc. The Supervisory Committee is of the view that the Company strictly operated and executed in accordance with the relevant laws and regulations of the PRC and of China Securities Regulatory Commission. On the control of capital turnover and management expenses, the Company strictly checked on each grade which ensured the ordinary operation of the Company while avoided financial risk. The Supervisory Committee is of the view that the financial statements of the Company reflect the financial position and operating results of the Company in all material aspects in an objective, true and fair manner, and the financial statements are true and reliable. The Supervisory Committee has agreed on the audited financial statements issued by the auditors of Shandong Zheng Yuan Hexin Accountants Limited and Ernst & Young. Annual Report

75 Supervisory Committee s Report (Continued) Acquisition and Disposal of Assets of the Company During the period, the Company did not conduct any material acquisition or disposal of assets, and did not produce or occur any insider dealing or other actions which would damage the interests of the shareholders or cause any asset loss. Connected Transactions During the period, the Supervisory Committee is of the view that the connected transactions of the Company during 2009 were conducted under the principles of fairness and the procedures of the transactions were in compliance with laws and regulations. The Supervisory Committee is not aware of any action which would damage the interests of the Company and the shareholders. In 2010, the Supervisory Committee will continue to perform its supervision duties diligently for the protection of the interests of shareholders and the Company in accordance with the Company Law and the Articles of Association of the Company. Sun Chengping Chairman of the Supervisory Committee Weifang, Shandong Province 26th April, Weichai Power Co., Ltd.

76 Corporate Governance Report The Company has always regarded the consistent maintenance of an excellent, solid and reasonable corporate governance structure as its top priority. Code on Corporate Governance Practice For the year ended, the Company has reviewed its corporate governance documents and is of the view that the Company has fully complied with the code provisions of the Code of Corporate Governance Practice set out in the Appendix 14 to the Listing Rules other than Code A.2.1, which requires that the roles of chairman and chief executive officer should be two separate roles and should not be performed by the same individual. Currently, Mr. Tan Xuguang ( Mr. Tan ) serves as the Chairman of the Board as well as the Chief Executive Officer of the Company. Despite such deviation, the directors believe that vesting such roles in Mr. Tan will allow for more effective planning and execution of business strategies of the Company. As all major decisions are made in consultation with other members of the Board, the Company believes that there is adequate balance of power and authority in place. A.2.1 The directors believe that the Articles of Association, the scope of responsibilities of the Audit Committee, the scope of responsibilities of the Supervisory Committee and the codes on securities dealings by directors and certain executives, which constitute the basis for the regular codes on corporate governance of the Company, have covered the principles and the code provisions of the Code on Corporate Governance Practice as set out in Appendix 14 to Listing Rules. In respect of the following areas, our internal corporate governance documents are more stringent than the Code on Corporate Governance Practices: 1. In addition to the Audit Committee, Remuneration Committee and Nomination Committee, the Company has also established the Strategic Development and Investment Committee (the SDIC ) All members of the Audit Committee are Independent Non-executive Directors, of whom Mr. Koo Fook Sun, Louis, the Chairman of the Committee, holds the relevant professional qualification or professional knowledge related to accounting or financial management. 2. Annual Report

77 Corporate Governance Report (Continued) Board of Directors The key responsibilities of the Board include, among other things, formulating the Company s overall strategies, setting management targets, regulating internal controls and financial management, and supervising the management s performance while the day-to-day operations and management are delegated by the Board to the executives of the Company. The Board currently comprises 18 directors, whose details are set out on page 23 to 30 of this annual report. The Board includes four Executive Directors, eleven Non-executive Directors and three Independent Nonexecutive Directors, namely, Mr. Tan Xuguang (Chairman and CEO), Mr. Xu Xinyu, Mr. Sun Shaojun, Mr. Zhang Quan (Executive Directors), Ms. Zhang Fusheng, Mr. Liu Huisheng, Mr. Yao Yu, Mr. Yeung Sai Hong, Mr. Chen Xuejian, Mr. Li San Yim, Mr. Julius G. Kiss, Ms. Han Xiaoqun, Mr. Gu Linsheng, Mr. Li Shihao, Mr. Liu Zheng (Non-executive Directors), Mr. Zhang Xiaoyu, Mr. Koo Fook Sun, Louis and Mr. Fang Zhongchang (Independent Non-executive Directors) Julius G. Kiss G. The Company has received from each of the Independent Non-executive Directors, an annual confirmation of his independence pursuant to Rule 3.13 of the Listing Rule and considers each of the Independent Nonexecutive Directors to be independent. The Board has notified each of the directors and supervisors in advance that they should not trade in the securities of the Company within the period as stipulated under the Listing Rules. All directors and supervisors confirmed that they were in compliance with the Listing Rules in this respect Other than their working relationships with the Company, none of the directors, supervisors or the senior management has any financial, business or family relationships or any relationships in other material aspects with each other. Other than the service contracts entered into by them or as otherwise disclosed in this annual report, none of the directors or the supervisors has any personal and substantive interest, direct or indirect, in the material contracts entered into by the Company or any of its subsidiaries during Weichai Power Co., Ltd.

78 Corporate Governance Report (Continued) In 2009, the Company held 7 Board meetings. The principal activities of the Board in 2009 were as follow: 7 Review the annual and interim result of the Company; Review of annual profit distribution and, interim dividend and 2008 final dividend distribution proposal. The total remuneration, including the basic salary, performance-linked salary, incentive-linked salary and discretionary bonus of the directors in 2009 amounted to approximately RMB7.4 million. Independent Nonexecutive Directors were only entitled to receive director s fees but not other salary or remuneration. For details for the remuneration of directors, please refer to note 8 to the financial statements of the Company Audit Committee An Audit Committee was established by the Board. The Audit Committee comprises all the Independent Non-executive Directors, Mr. Zhang Xiaoyu, Mr. Koo Fook Sun, Louis, and Mr. Fang Zhongchang, with Mr. Koo Fook Sun, Louis, with the appropriate professional qualifications and experience in financial matters, acting as the chairman of the Audit Committee. The terms of reference of the Audit Committee are aligned with the recommendations set out in A Guide for Effective Audit Committees issued by the Hong Kong Institute of Certified Public Accountants. The Audit Committee held two meetings during the period, presided over by Mr. Koo Fook Sun, Louis. Details of the attendance are set out on page 80 of this annual report. 80 Annual Report

79 Corporate Governance Report (Continued) The major works accomplished by the Audit Committee during the year are as follows: Review of the annual, interim financial statements of the Group, as well as the management recommendations furnished by the external auditors and responses from the Company s management; Review of the accounting policies and practices adopted by the Group and related matters; Assisting the Board to monitor the Group s internal audit. Throughout the period under review, the Audit Committee discharged its responsibilities, reviewed and discussed the financial results and internal control system of the Group. In accordance with the requirements of Appendix 16 to the Listing Rules, the Audit Committee has reviewed the consolidated financial statements for the year ended. The non-prc auditors of the Company have audited the consolidated financial statements and have issued an unqualified auditors report. Strategic Development and Investment Committee The Strategic Development and Investment Committee ( SDIC ) was established by the Board. The SDIC is principally responsible for examining and reviewing the Company s strategic plans, monitoring the implementation of strategic planning, and facilitating timely adjustments to the Company s strategies and governance structure. The SDIC currently comprises Mr. Tan Xuguang (Chairman of the Board and of the SDIC), Mr. Sun Shao Jun, Mr. Zhang Quan, Mr. Chen Xuejian, Mr. Li San Yim, Mr. Julius G. Kiss and Mr. Zhang Xiaoyu. Julius G. Kiss G. 78 Weichai Power Co., Ltd.

80 Corporate Governance Report (Continued) Remuneration Committee A Remuneration Committee was established by the Board. The Remuneration Committee is responsible for recommendation to the Board on the remuneration packages and terms of employment for directors, supervisors and senior management of the Company. The Committee also determines the relevant remuneration policy for directors, supervisors and senior management of the Company and their participations in incentive schemes operated by the Company. The Remuneration Committee currently comprises all the Independent Non-executive Directors and two Non-executive Directors, being Mr. Koo Fook Sun, Louis (chairman of the Remuneration Committee), Ms. Zhang Fusheng, Mr. Yao Yu, Mr. Zhang Xiaoyu and Mr. Fang Zhongchang. Nomination Committee A Nomination Committee was established by the Board The Nomination Committee comprises all the Independent Non-executive Directors and two Executive Directors, being Mr. Fang Zhongchang (chairman of the Nomination Committee), Mr. Xu Xinyu, Mr. Zhang Quan, Mr. Zhang Xiaoyu, Mr. Koo Fook Sun, Louis. The meetings of the Nomination Committee were arranged and held on an as-needed basis. The Nomination Committee will identify qualified candidates to fill the Board membership whenever such vacancy arises, it will nominate such candidates for the Board to consider, regularly review the composition of the Board and make suggestions as to any change in the membership of the Board that may be required. Annual Report

81 Corporate Governance Report (Continued) Supervisory Committee The Supervisory Committee consists of three members, with one Supervisor being elected from the staff as a representative of employees and the other two elected by the shareholders of the Company. The Supervisory Committee is responsible for supervision of the Board and its members and the senior management of the Company, so as to prevent them from abusing their authorities and violating the interests of the Company, its shareholders and staff. The size and composition of the Supervisory Committee are in compliance with the requirements of the relevant laws and regulations of the PRC. The Supervisory Committee held three meetings during the year to carry out its supervision on behalf of the shareholders in respect of the Company s financial matters and the lawfulness and compliance in respect of the discharge of duties by the directors and senior management of the Company. The members of the Supervisory Committee attended all Board meetings and shareholders meetings of the Company and diligently performed their supervisory duties. Attendances at meetings of the Board, Supervisory Committee and specialised committees (attendance in person/ number of meetings) during the year are as follows: Supervisory Audit Board Committee Committee Name Executive Directors Tan Xuguang 7/7 Xu Xinyu 7/7 Sun Shaojun 7/7 Zhang Quan 7/7 Non-executive Directors Zhang Fusheng 7/7 Liu Huisheng 7/7 Yao Yu 6/7 Yeung Sai Hong 7/7 Chen Xuejian 7/7 Li San Yim 7/7 Julius G. Kiss Julius G. Kiss G. 7/7 Han Xiaoqun 7/7 Gu Linsheng 7/7 Li Shihao 7/7 Liu Zheng 7/7 Independent Non-executive Directors Zhang Xiaoyu 7/7 2/2 Koo Fook Sun, Louis 7/7 2/2 Fang Zhongchang 7/7 2/2 Supervisors Sun Chengping 3/3 Ding Yingdong 3/3 Jiang Jianfang 3/3 The directors and supervisors who were unable to attend any meeting in person, had appointed another director or supervisor (as the case may be), as his representative to attend and vote at the meeting on his behalf and was treated as having attended the meeting in person. 80 Weichai Power Co., Ltd.

82 Corporate Governance Report (Continued) Shareholders Meeting and Investor Relations The shareholders meeting is the highest authority of the Company, providing an opportunity for direct communications and building a sound relationship between the Board and the shareholders of the Company. Therefore, the Company places great importance to such meetings. In 2009, the Company convened three general meetings. Matters reviewed and approved at the meetings include the following: the Report of the Directors, Report of Supervisory Committee for 2008; the profit distribution and final dividend distribution proposals for 2008; re-appointment and change of appointment of the external auditors and determination of its remuneration; remuneration proposals for directors and supervisors; amendment to the Articles of Association of the Company. Internal Control and Management The Board recognises its responsibility for maintaining an adequate system of internal control to safeguard the Group s assets and shareholders interests. Internal control, including a defined management structure with limits of authority, is designed to help achieve business objectives, safeguard assets against unauthorised use, maintain proper accounting records for the provision of reliable financial information for internal use or for publication. The system is set up to provide reasonable, but not absolute, assurance against material mis-statement or loss and to manage rather than eliminate risks of failure in operational systems and achievement of the Group s objectives. Management maintains and monitors the system of controls on an ongoing basis. Annual Report

83 Corporate Governance Report (Continued) During the year, based on the evaluations made by management, the Audit Committee was satisfied that nothing has come to its attention to cause the Audit Committee to believe that the system of internal control is inadequate, and there is an ongoing process to identify, evaluate and manage significant risks faced by the Group. Directors Responsibilities for the Financial Statements The directors aim to present the financial statements of the Group in accordance with the statutory requirements and applicable accounting standards. The directors ensure the publication of financial statements of the Group in a timely manner that the final and interim results of the Group are announced within the four months and three months limit respectively after the end of the relevant periods prescribed under the Listing Rules. The financial statements of the Group for the year ended 31st December, 2009 have been reviewed by the Audit Committee and audited by the external auditors, Ernst & Young Limited. The directors acknowledge their responsibilities for preparing the financial statements of the Group and presenting a balanced, clear and comprehensive assessment of the Group s performance and prospects. They are not aware of any material uncertainties relating to events or conditions that may cast significant doubt upon the ability of the Company to continue as a going concern. The Statement of the Auditors about their reporting responsibilities on the financial statements is set out in the Independent Auditor s Report. Auditors Remuneration The Company has engaged Ernst & Young as auditors of the Company. For the year ended, an amount of RMB10 million was paid/payable to Ernst & Young for their audit service Weichai Power Co., Ltd.

84 Independent Auditors Report To the shareholders of Weichai Power Co., Ltd. (Incorporated in the People s Republic of China as a joint stock company with limited liability) We have audited the financial statements of Weichai Power Co., Ltd. set out on pages 85 to 222, which comprise the consolidated and company statements of financial position as at, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes Directors Responsibility for the Financial Statements The directors of the Company are responsible for the preparation and the true and fair presentation of these financial statements in accordance with Hong Kong Financial Reporting Standards issued by the Hong Kong Institute of Certified Public Accountants and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. We conducted our audit in accordance with Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement. Annual Report

85 Independent Auditors Report (Continued) An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and true and fair presentation of the financial statements 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31st December, 2009 and of the Group s profit and cash flows for the year then ended in accordance with Hong Kong Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance. Ernst & Young Certified Public Accountants Hong Kong 26th April, Weichai Power Co., Ltd.

86 Consolidated Income Statement Year ended Notes RMB 000 RMB 000 REVENUE 5 35,260,899 32,567,190 Cost of sales (27,628,689) (26,908,591) Gross profit 7,632,210 5,658,599 Other income and gains 5 345, ,875 Selling and distribution costs (1,021,391) (958,817) Administrative expenses (1,264,787) (1,117,368) Research and development cost (450,217) (379,525) Loss on disposal of disposal group held for sale (5,677) (49,775) Other expenses (305,648) (327,705) Finance costs 7 (247,507) (297,844) Share of profits and losses of: A jointly-controlled entity 2, Associates (5,773) (6,265) PROFIT BEFORE TAX 6 4,679,244 2,740,698 Income tax expense 10 (732,380) (328,989) PROFIT FOR THE YEAR 3,946,864 2,411,709 Attributable to: Owners of the parent 3,406,935 1,928,955 Minority interests 539, ,754 3,946,864 2,411,709 EARNINGS PER SHARE ATTRIBUTABLE TO ORDINARY EQUITY HOLDERS OF THE PARENT Basic For profit for the year 13 RMB4.09 RMB2.32 Details of the dividends payable and proposed for the year are disclosed in note 12 to the financial statements. 12 Annual Report

87 Consolidated Statement of Comprehensive Income Year ended RMB 000 RMB 000 PROFIT FOR THE YEAR 3,946,864 2,411,709 OTHER COMPREHENSIVE INCOME Available-for-sale assets Changes in fair value 289,255 (97,800) Income tax effect (43,834) 14,670 Exchange differences on translation of foreign operations OTHER COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR, NET OF TAX 245,421 (83,130) 6,056 (15,137) 251,477 (98,267) TOTAL COMPREHENSIVE INCOME FOR THE YEAR 4,198,341 2,313,442 Attributable to: Owners of the parent 3,658,412 1,835,281 Minority interests 539, ,161 4,198,341 2,313, Weichai Power Co., Ltd.

88 Consolidated Statement of Financial Position Notes RMB 000 RMB 000 NON-CURRENT ASSETS Property, plant and equipment 14 8,039,811 6,920,953 Investment properties 15 83,668 80,663 Prepaid land lease payments , ,570 Goodwill , ,016 Other intangible assets , ,727 Investment in a jointly-controlled entity 21 23,275 20,932 Investments in associates , ,772 Available-for-sale investments , ,187 Deposit paid for acquisition of property, plant and equipment , ,780 Deferred tax assets , ,903 Total non-current assets 11,564,080 9,764,503 CURRENT ASSETS Inventories 26 5,806,642 5,850,617 Trade and bills receivables 27 11,352,945 6,930,008 Prepayments, deposits and other receivables 28 1,059,084 1,271,235 Prepaid land lease payments 16 14,455 19,671 Pledged deposits 29 2,979,932 2,511,809 Cash and cash equivalents 29 3,598,339 3,352,138 Assets of a disposal group classified as held for sale 24,811,397 19,935, ,886 Total current assets 24,811,397 20,185,364 CURRENT LIABILITIES Trade and bills payables 31 11,830,642 10,627,951 Other payables and accruals 32 3,574,003 2,916,253 Dividend payable to minority shareholders 42,622 79,775 Debentures 33 1,700,000 Interest-bearing bank and other borrowings 34 1,515,664 1,308,304 Tax payable 956, ,476 Warranty provision , ,343 Liabilities directly associated with the assets classified as held for sales 18,416,477 17,613, ,611 Total current liabilities 18,416,477 17,798,713 NET CURRENT ASSETS 6,394,920 2,386,651 TOTAL ASSETS LESS CURRENT LIABILITIES 17,959,000 12,151,154 Annual Report

89 Consolidated Statement of Financial Position (Continued) Notes RMB 000 RMB 000 NON-CURRENT LIABILITIES Debentures 33 1,281,669 Interest-bearing bank and other borrowings , ,700 Deferred tax liabilities 25 73,816 46,976 Total non-current liabilities 2,297, ,676 Net assets 15,661,315 11,326,478 EQUITY Equity attributable to owners of the parent Issued capital , ,046 Reserves 37 10,521,710 7,056,412 Proposed final dividends 399, ,296 11,754,618 7,997,754 Minority interests 3,906,697 3,328,724 Total equity 15,661,315 11,326,478 Tan Xuguang Director Xu Xinyu Director 88 Weichai Power Co., Ltd.

90 Consolidated Statement of Changes in Equity Year ended Attributable to owners of the parent Availablefor-sale investment revaluation Translation Retained Proposed final Minority Total Issued Capital Surplus capital reserve reserve reserve reserve profits dividend Total interests equity Notes RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 note 37(a) note 37(a) 37(a) 37(a) At 1st January, ,654 2,399, ,639 3,736 (1,581) 2,831, ,088 6,383,472 3,014,716 9,398,188 Total comprehensive income (83,130) (10,544) 1,928,955 1,835, ,161 2,313,442 Unilateral capital contribution to subsidiaries 8,089 8,089 (1,771) 6,318 Bonus issue ,392 (312,392) Final 2007 dividend declared (229,088) (229,088) (229,088) Proposed final 2008 dividend 12 (108,296) 108,296 Dividend paid to minority shareholders (109,423) (109,423) Transfer from retained profits 163,792 (163,792) Contribution from minority shareholders 10,165 10,165 Acquisition of minority interests (63,124) (63,124) At 31st December, ,046 2,094, ,431 (79,394) (12,125) 4,488, ,296 7,997,754 3,328,724 11,326,478 At 1st January, 2009 Total comprehensive income 245,421 6,056 3,406,935 3,638, ,929 4,198,341 Final 2008 dividend declared 12 (108,296) (108,296) (108,296) Proposed final 2009 dividend 12 (399,862) 399,862 Dividend paid to minority shareholders (50,199) (50,199) Transfer from retained profits 282,958 (282,958) Contribution from minority shareholders 195, , , ,781 Acquisition of minority interests (1,732) (1,732) (59,278) (61,010) Others 13,372 13,372 12,848 26,220 At 833,046 2,301,712* 847,389* 166,027* (6,069)* 7,212,651* 399,862 11,754,618 3,906,697 15,661,315 * These reserve amounts comprise the consolidated reserves of RMB10,521,710,000 (2008: RMB7,056,412,000) in the consolidated statement of financial position. * 10,521,710,000 7,056,412,000 Annual Report

91 Consolidated Statement of Cash Flows Year ended Notes RMB 000 RMB 000 CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax 4,679,244 2,740,698 Adjustments for: Finance costs 7 247, ,844 Share of profits and losses of a jointly-controlled entity and associates 3,430 5,742 Interest income 5 (116,809) (48,827) Dividend income from available-for-sale investments 5 (1,600) Loss on disposal of items of property, plant and equipment 6 6, Loss on disposal of investment property 6 1,028 Depreciation of property, plant and equipment 6 874, ,256 Depreciation of investment properties 6 3,605 2,276 Recognition of prepaid land lease payments 6 11,441 19,499 Amortisation of other intangible assets 6 15,325 15,603 Gain on disposal of available-for-sale investments 5 (1,936) (11,015) Gain on debt restructuring 5 (45,921) Impairment/loss on disposal of disposal group held for sale 5,677 49,775 Excess over the cost of a business combination 38 (87,334) Impairment of an investment in an associate Impairment of items of property, plant and equipment 6 25,380 Impairment of available-for-sale investments ,722 Impairment of trade and other receivables Write-down of inventories to net realisable values 6 227, , , ,992 6,053,556 4,160,398 Increase in inventories (65,543) (1,836,599) Increase in trade and bills receivables (4,506,571) (1,112,274) Decrease/(increase) in prepayments, deposits and other receivables 318,012 (438,592) Increase in trade and bills payables 919,363 3,363,178 Increase in other payables and accruals 619, ,497 Increase in warranty provision 6 33, ,708 Cash generated from operations 3,371,442 4,806,316 Income tax paid (409,724) (361,969) Net cash inflow from operating activities 2,961,718 4,444, Weichai Power Co., Ltd.

92 Consolidated Statement of Cash Flows (Continued) Year ended Notes RMB 000 RMB 000 CASH FLOWS FROM INVESTING ACTIVITIES Interest received 6 116,809 48,827 Investment in associates (800) Investment in a jointly-controlled entity (20,409) Increase in pledged deposits 29 (468,123) (1,655,700) Additions in prepaid land lease payments (179,793) (445) Purchases of items of property, plant and equipment and deposits paid for acquisition of property, plant and equipment (1,576,198) (1,723,790) Purchases of investment properties 15 (7,638) (50,606) Purchases of available-for-sale investments (194,000) Purchases of intangible assets 18 (29,409) (5,888) Cash inflow from business combination 38 2,621 Cash outflow from disposal of a subsidiary 39 (7,816) Proceeds from disposal of associates 15,661 Proceeds from disposal of available-for-sale investments 1,936 26,879 Proceeds from disposal of items of property, plant and equipment 28,239 38,910 Proceeds from disposal of disposal group held for sale 10,108 1,000 Dividends received 1,600 1,242 Acquisition of minority interests (12,520) (55,341) Net cash outflow from investing activities (2,120,184) (3,574,460) CASH FLOWS FROM FINANCING ACTIVITIES New interest-bearing bank and other borrowings 3,300,720 3,872,448 Repayment of interest-bearing bank and other borrowings (3,063,026) (3,493,835) Transaction costs for the issuance of debentures (19,500) Proceeds from issuance of debentures 1,300,000 1,700,000 Repayment of debentures (1,700,000) (900,000) Interest paid (288,052) (234,672) Dividends paid (108,296) (229,088) Dividends paid to minority shareholders (87,352) (61,414) Capital contributions from minority shareholders 70,203 10,165 Net cash (outflow)/inflow from financing activities (595,303) 663,604 Annual Report

93 Consolidated Statement of Cash Flows (Continued) Year ended Notes RMB 000 RMB 000 NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Effect of foreign exchange rate changes, net 246,231 1,533,491 3,352,138 1,819,554 (30) (907) CASH AND CASH EQUIVALENTS AT END OF YEAR 29 3,598,339 3,352,138 ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 29 2,223,880 2,409,488 Non-pledged time deposits with original maturity of less than three months when acquired 1,374, ,650 3,598,339 3,352, Weichai Power Co., Ltd.

94 Statement of Financial Position Notes RMB 000 RMB 000 NON-CURRENT ASSETS Property, plant and equipment 14 2,277,435 1,803,493 Prepaid land lease payments , ,638 Other intangible assets , ,476 Investments in subsidiaries 20 4,432,812 4,002,382 Investment in a jointly-controlled entity 21 20,409 20,409 Investments in associates 22 49,461 52,545 Available-for-sale investments ,000 96,200 Deposit paid for acquisition of property, plant and equipment , ,123 Deferred tax assets , ,131 Total non-current assets 8,066,772 6,947,397 CURRENT ASSETS Inventories 26 1,679,295 1,741,154 Trade and bills receivables 27 7,219,623 3,414,244 Prepayments, deposits and other receivables ,013 1,025,345 Prepaid land lease payments 16 6,402 2,240 Pledged deposits ,138 1,813,232 Cash and cash equivalents 29 1,442, ,079 Total current assets 11,847,449 8,766,294 CURRENT LIABILITIES Trade and bills payables 31 4,957,975 4,791,896 Other payables and accruals 32 1,727,161 1,414,495 Debentures ,000 Interest-bearing bank and other borrowings , ,346 Tax payable 775, ,979 Warranty provision , ,899 Total current liabilities 8,366,415 7,939,615 NET CURRENT ASSETS 3,481, ,679 TOTAL ASSETS LESS CURRENT LIABILITIES 11,547,806 7,774,076 Annual Report

95 Statement of Financial Position (Continued) TOTAL ASSETS LESS CURRENT LIABILITIES Notes RMB 000 RMB ,547,806 7,774,076 NON-CURRENT LIABILITIES Debentures 33 1,281,669 Interest-bearing bank and other borrowings , ,000 Deferred tax liabilities 25 39,728 10,039 Total non-current liabilities 1,521, ,039 Net assets 10,026,409 7,064,037 EQUITY Issued capital , ,046 Reserves 37 8,793,501 6,122,695 Proposed final dividends 399, ,296 Total equity 10,026,409 7,064,037 Tan Xuguang Director Xu Xinyu Director 94 Weichai Power Co., Ltd.

96 Notes to Financial Statements 1. Corporate Information Weichai Power Co., Ltd. (the Company ) is a joint stock limited liability company established in the People s Republic of China (the PRC ) on 23rd December, The Company s H shares and A shares are listed on The Stock Exchange of Hong Kong Limited (the Hong Kong Stock Exchange ) and The Shenzhen Stock Exchange from 11th March, 2004 and 30th April, 2007 onwards, respectively. The registered office of the Company is located at 197, Section A, Fu Shou East Street, High Technology Industry Development Zone, Weifang, Shandong Province, the PRC. During the year, the Company and its subsidiaries (the Group ) were involved in the following principal activities: manufacture and sale of diesel engines and related parts; 1. H A 197 manufacture and sale of automobiles and major automobile components other than diesel engines; manufacture and sale of non-major automobile components; and import and export services. 2.1 Basis of Preparation These financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards ( HKFRSs ) (which include all Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards ( HKASs ) and Interpretations) issued by the Hong Kong Institute of Certified Public Accountants, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for certain investments which have been measured at fair value. Disposal groups held for sale are stated at the lower of their carrying amounts and fair values less costs to sell as further explained in note 2.4. These financial statements are presented in Renminbi ( RMB ) and all values are rounded to the nearest thousand except when otherwise indicated Annual Report

97 Notes to Financial Statements (Continued) 2.1 Basis of Preparation (continued) Basis of consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries (collectively referred to as the Group ) for the year ended. Adjustments are made to bring into line any dissimilar accounting policies that may exist. The results of subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. All income, expenses and unrealised gains and losses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full. 2.1 The acquisition of subsidiaries during the year has been accounted for using the purchase method of accounting. This method involves allocating the cost of the business combinations to the fair value of the identifiable assets acquired, and liabilities and contingent liabilities assumed at the date of acquisition. The cost of the acquisition is measured at the aggregate of the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Minority interests represent the interests of outside shareholders not held by the Group in the results and net assets of the Company s subsidiaries. Acquisitions of minority interests are accounted for using the entity concept method whereby the difference between the consideration and the book value of the share of the net assets acquired is recognised as an equity transaction. 96 Weichai Power Co., Ltd.

98 Notes to Financial Statements (Continued) 2.2 Changes in Accounting Policy and Disclosures The Group has adopted the following new and revised HKFRSs for the first time for the current year s financial statements. Except for in certain cases giving rise to new and revised accounting policies and additional disclosures, the adoption of these new and revised HKFRSs has had no significant effect on these financial statements. 2.2 HKFRS 1 and HKAS 27 Amendments HKFRS 2 Amendments HKFRS 7 Amendments HKFRS 8 HKAS 1 (Revised) Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS 27 Consolidated and Separate Financial Statements Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate Amendments to HKFRS 2 Share-based Payment Vesting Conditions and Cancellations Amendments to HKFRS 7 Financial Instruments: Disclosures Improving Disclosures about Financial Instruments Operating Segments Presentation of Financial Statements HKAS 18 Amendment* Amendment to Appendix to HKAS 18 Revenue Determining whether an entity is acting as a principal or as an agent HKAS 23 (Revised) Borrowing Costs HKAS 32 and HKAS 1 Amendments HK(IFRIC)-Int 9 and HKAS 39 Amendments HK(IFRIC)-Int 13 HK(IFRIC)-Int 15 HK(IFRIC)-Int 16 HK(IFRIC)-Int 18 Improvements to HKFRSs (October 2008) Amendments to HKAS 32 Financial Instruments: Presentation and HKAS 1 Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation Amendments to HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives and HKAS 39 Financial Instruments: Recognition and Measurement Embedded Derivatives Customer Loyalty Programmes Agreements for the Construction of Real Estate Hedges of a Net Investment in a Foreign Operation Transfers of Assets from Customers (adopted from 1st July, 2009) Amendments to a number of HKFRSs * * Included in Improvements to HKFRSs 2009 (as issued in May 2009). * Annual Report

99 Notes to Financial Statements (Continued) 2.2 Changes in Accounting Policy and Disclosures (continued) The principal effects of adopting these new and revised HKFRSs are as follows: (a) Amendments to HKFRS 1 First-time Adoption of HKFRSs and HKAS 27 Consolidated and Separate Financial Statements Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate The HKAS 27 Amendment requires all dividends from subsidiaries, associates or jointly-controlled entities to be recognised in the income statement in the parent s separate financial statements. The distinction between pre and post acquisition profits is no longer required. However, the payment of such dividends requires the Company to consider whether there is an indicator of impairment. The amendment is applied prospectively. (b) Amendments to HKFRS 2 Share-based Payment Vesting Conditions and Cancellations The HKFRS 2 Amendments clarify that vesting conditions are service conditions and performance conditions only. Any other conditions are non-vesting conditions. Where an award does not vest as a result of a failure to meet a non-vesting condition that is within the control of either the entity or the counterparty, this is accounted for as a cancellation. As the Group has not entered into share-based payment schemes with non-vesting conditions attached, the amendments have had no impact on the financial position or result of operations of the Group. 2.2 (a) (b) Weichai Power Co., Ltd.

100 Notes to Financial Statements (Continued) 2.2 Changes in Accounting Policy and Disclosures (continued) (c) Amendments to HKFRS 7 Financial Instruments: Disclosures Improving Disclosures about Financial Instruments The HKFRS 7 Amendments require additional disclosures about fair value measurement and liquidity risk. Fair value measurements related to items recorded at fair value are to be disclosed by sources of inputs using a three-level fair value hierarchy, by class, for all financial instruments recognised at fair value. In addition, a reconciliation between the beginning and ending balance is now required for level 3 fair value measurements, as well as significant transfers between levels in the fair value hierarchy. The amendments also clarify the requirements for liquidity risk disclosures with respect to derivative transactions and assets used for liquidity management. The fair value measurement disclosures are presented in note 46 to the financial statements while the revised liquidity risk disclosures are presented in note 47 to the financial statements. (d) HKFRS 8 Operating Segments HKFRS 8, which replaces HKAS 14 Segment Reporting, specifies how an entity should report information about its operating segments, based on information about the components of the entity that is available to the chief operating decision maker for the purposes of allocating resources to the segments and assessing their performance. The standard also requires the disclosure of information about the products and services provided by the segments, the geographical areas in which the Group operates, and revenue from the Group s major customers. The Group concluded that the operating segments determined in accordance with HKFRS 8 are the same as the business segments previously identified under HKAS 14. These revised disclosures, including the related revised comparative information, are shown in note 4 to the financial statements. 2.2 (c) (d) Annual Report

101 Notes to Financial Statements (Continued) 2.2 Changes in Accounting Policy and Disclosures (continued) (e) HKAS 1 (Revised) Presentation of Financial Statements HKAS 1 (Revised) introduces changes in the presentation and disclosures of financial statements. The revised standard separates owner and non-owner changes in equity. The statement of changes in equity includes only details of transactions with owners, with all non-owner changes in equity presented as a single line. In addition, this standard introduces the statement of comprehensive income, with all items of income and expense recognised in profit or loss, together with all other items of recognised income and expense recognised directly in equity, either in one single statement, or in two linked statements. The Group has elected to present two statements. 2.2 (e) 1 1 (f) Amendment to Appendix to HKAS 18 Revenue Determining whether an entity is acting as a principal or as an agent Guidance has been added to the appendix (which accompanies the standard) to determine whether the Group is acting as a principal or as an agent. The features to consider are whether the Group (i) has the primary responsibility for providing the goods or services, (ii) has inventory risk, (iii) has the discretion to establish prices and (iv) bears credit risk. The Group has assessed its revenue arrangements against these criteria and concluded that it is acting as a principal in all arrangements. The amendment has had no impact on the financial position or results of operations of the Group. (f) 18 (i) (ii)(iii) (iv) (g) HKAS 23 (Revised) Borrowing Costs HKAS 23 has been revised to require capitalisation of borrowing costs when such costs are directly attributable to the acquisition, construction or production of a qualifying asset. As the Group s current policy for borrowing costs aligns with the requirements of the revised standard, the revised standard has had no impact on the financial position or results of operations of the Group. (g) Weichai Power Co., Ltd.

102 Notes to Financial Statements (Continued) 2.2 Changes in Accounting Policy and Disclosures (continued) (h) Amendments to HKAS 32 Financial Instruments: Presentation and HKAS 1 Presentation of Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation The HKAS 32 Amendments provide a limited scope exception for puttable financial instruments and instruments that impose specified obligations arising on liquidation to be classified as equity if they fulfil a number of specified features. The HKAS 1 Amendments require disclosure of certain information relating to these puttable financial instruments and obligations classified as equity. As the Group currently has no such financial instruments or obligations, the amendments have had no impact on the financial position or results of operations of the Group. 2.2 (h) (i) Amendments to HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives and HKAS 39 Financial Instruments: Recognition and Measurement Embedded Derivatives The amendment to HK(IFRIC)-Int 9 requires an entity to assess whether an embedded derivative must be separated from a host contract when the entity reclassifies a hybrid financial asset out of the fair value through profit or loss category. This assessment is to be made based on circumstances that existed on the later of the date the entity first became a party to the contract and the date of any contract amendments that significantly change the cash flows of the contract. HKAS 39 has been revised to state that if an embedded derivative cannot be separately measured, the entire hybrid instrument must remain classified as fair value through profit or loss in its entirety. The adoption of the amendments has had no impact on the financial position or results of operations of the Group. (i) Annual Report

103 Notes to Financial Statements (Continued) 2.2 Changes in Accounting Policy and Disclosures (continued) (j) HK(IFRIC)-Int 13 Customer Loyalty Programmes HK(IFRIC)-Int 13 requires customer loyalty award credits to be accounted for as a separate component of the sales transaction in which they are granted. The consideration received in the sales transaction is allocated between the loyalty award credits and the other components of the sale. The amount allocated to the loyalty award credits is determined by reference to their fair value and is deferred until the awards are redeemed or the liability is otherwise extinguished. As the Group currently has no customer loyalty award scheme, the interpretation has had no impact on the financial position or results of operations of the Group. (k) HK(IFRIC)-Int 15 Agreements for the Construction of Real Estate HK(IFRIC)-Int 15 replaces HK Interpretation 3 Revenue Precompletion Contracts for the Sale of Development Properties. It clarifies when and how an agreement for the construction of real estate should be accounted for as a construction contract in accordance with HKAS 11 Construction Contracts or an agreement for the sale of goods or services in accordance with HKAS 18 Revenue. The interpretation has had no impact on the accounting for the Group s construction activities. 2.2 (j) (k) (l) HK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation HK(IFRIC)-Int 16 provides guidance on the accounting for a hedge of a net investment in a foreign operation. This includes clarification that (i) hedge accounting may be applied only to the foreign exchange differences arising between the functional currencies of the foreign operation and the parent entity; (ii) a hedging instrument may be held by any entities within a group; and (iii) on disposal of a foreign operation, the cumulative gain or loss relating to both the net investment and the hedging instrument that was determined to be an effective hedge should be reclassified to the income statement as a reclassification adjustment. As the Group currently has no hedge of a net investment in a foreign operation, the interpretation has had no impact on the financial position or results of operations of the Group. (l) (i) (ii) (iii) 102 Weichai Power Co., Ltd.

104 Notes to Financial Statements (Continued) 2.2 Changes in Accounting Policy and Disclosures (continued) (m) HK(IFRIC)-Int 18 Transfers of Assets from Customers (adopted from 1st July, 2009) HK(IFRIC)-Int 18 provides guidance on accounting by recipients that receive from customers items of property, plant and equipment or cash for the acquisition or construction of such items, provided that these assets must then be used to connect customers to networks or to provide ongoing access to a supply of goods or services, or both. As the Group currently has no such transactions, the interpretation has had no impact on the financial position or results of operations of the Group. (n) In October 2008, the HKICPA issued its first Improvements to HKFRSs which sets out amendments to a number of HKFRSs. Except for the amendments to HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations Plan to Sell the Controlling Interest in a Subsidiary which is effective for annual periods beginning on or after 1st July, 2009, the Group adopted all the amendments from 1st January, While the adoption of some of the amendments results in changes in accounting policies, none of these amendments has had a significant financial impact to the Group. Details of the key amendments most applicable to the Group are as follows: HKFRS 7 Financial Instruments: Disclosures: Removes the reference to total interest income as a component of finance costs. HKAS 1 Presentation of Financial Statements: Clarifies that assets and liabilities which are classified as held for trading in accordance with HKAS 39 are not automatically classified as current in the statement of financial position. 2.2 (m) (n) Annual Report

105 Notes to Financial Statements (Continued) 2.2 Changes in Accounting Policy and Disclosures (continued) (n) (continued) HKAS 16 Property, Plant and Equipment: Replaces the term net selling price with fair value less costs to sell and the recoverable amount of property, plant and equipment is the higher of an asset s fair value less costs to sell and its value in use. In addition, items of property, plant and equipment held for rental that are routinely sold in the ordinary course of business after rental are transferred to inventories when rental ceases and they are held for sale. HKAS 20 Accounting for Government Grants and Disclosure of Government Assistance: Requires government loans granted in the future with no or at a below-market rate of interest to be recognised and measured in accordance with HKAS 39 and the benefit of the reduced interest to be accounted for as a government grant. HKAS 27 Consolidated and Separate Financial Statements: Requires that when a parent entity accounts for a subsidiary at fair value in accordance with HKAS 39 in its separate financial statements, this treatment continues when the subsidiary is subsequently classified as held for sale. HKAS 28 Investments in Associates: Clarifies that an investment in an associate is a single asset for the purpose of conducting the impairment test and that no impairment is separately allocated to goodwill included in the investment balance. HKAS 36 Impairment of Assets: When discounted cash flows are used to estimate fair value less costs to sell, additional disclosures (e.g., discount rate and growth rate used) are required which are consistent with the disclosures required when the discounted cash flows are used to estimate value in use. 2.2 (n) Weichai Power Co., Ltd.

106 Notes to Financial Statements (Continued) 2.2 Changes in Accounting Policy and Disclosures (continued) (n) (continued) 2.2 (n) HKAS 38 Intangible Assets: Expenditure on advertising and promotional activities is recognised as an expense when the Group either has the right to access the goods or has received the service. 38 The reference to there being rarely, if ever, persuasive evidence to support an amortisation method for intangible assets other than the straight-line method has been removed. The Group has reassessed the useful lives of its intangible assets and concluded that the straightline method is still appropriate. HKAS 39 Financial Instruments: Recognition and Measurement: (i) sets out a number of changes in circumstances relating to derivatives that are not considered to result in reclassification into or out of the fair value through profit or loss category; (ii) removes the reference to the designation of hedging instrument at the segment level; and (iii) requires that the revised effective interest rate (rather than the original effective interest rate) calculated on cessation of fair value hedge accounting should be used for the remeasurement of the hedged item when paragraph AG8 of HKAS 39 is applicable. 39 (i) (ii) (iii) 39 AG8 HKAS 40 Investment Property: Revises the scope such that property being constructed or developed for future as an investment property is classified as an investment property. The Group has applied the amendment prospectively from 1st January, Annual Report

107 Notes to Financial Statements (Continued) 2.3 Issued but not yet Effective Hong Kong Financial Reporting Standards The Group has not applied the following relevant new and revised HKFRSs, that have been issued but are not yet effective in these financial statements. HKFRS 1 (Revised) HKFRS 1 Amendments HKFRS 2 Amendments First-time Adoption of Hong Kong Financial Reporting Standards 1 Amendments to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards Additional Exemptions for First-time Adopters 2 Amendments to HKFRS 2 Share-based Payment Group Cash-settled Sharebased Payment Transactions 2 HKFRS 3 (Revised) Business Combinations 1 HKFRS 9 Financial Instruments 6 HKAS 24 (Revised) Related Party Disclosures 5 HKAS 27 (Revised) HKAS 32 Amendment HKAS 39 Amendment Amendments to HKFRS 5 included in improvements to HKFRSs issued in October 2008 HK(IFRIC)-Int 14 Amendments Consolidated and Separate Financial Statements 1 Amendment to HKAS 32 Financial Instruments: Presentation Classification of Rights Issues 3 Amendment to HKAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items 1 Amendments to HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations Plan to Sell the Controlling Interest in a Subsidiary 1 Amendments to HK(IFRIC)-Int 14 Prepayments of a Minimum Funding Requirement 5 HK(IFRIC)-Int 17 Distributions of Non-cash Assets to Owners 1 HK(IFRIC)-Int 19 Extinguishing Financial Liabilities with Equity Instruments 4 HK Interpretation 4 Leases Determination of the Length of (Revised in December 2009) Lease Term in respect of Hong Kong Land Leases 2 1 Effective for annual periods beginning on or after 1st July, Effective for annual periods beginning on or after 1st January, Effective for annual periods beginning on or after 1st February, Effective for annual periods beginning on or after 1st July, Effective for annual periods beginning on or after 1st January, Effective for annual periods beginning on or after 1st January, Weichai Power Co., Ltd.

108 Notes to Financial Statements (Continued) 2.3 Issued but not yet Effective Hong Kong Financial Reporting Standards (continued) Apart from the above, the HKICPA has issued Improvements to HKFRSs 2009 which sets out amendments to a number of HKFRSs primarily with a view to removing inconsistencies and clarifying wording. The amendments to HKFRS 2, HKAS 38, HK(IFRIC)-Int 9 and HK(IFRIC)-Int 16 are effective for annual periods beginning on or after 1st July, 2009 while the amendments to HKFRS 5, HKFRS 8, HKAS 1, HKAS 7, HKAS 17, HKAS 38 and HKAS 39 are effective for annual periods beginning on or after 1st January, 2010 although there are separate transitional provisions for each standard or interpretation. HKFRS 1 (Revised) was issued with an aim to improve the structure of the standard. The revised version of the standard does not make any changes to the substance of accounting by first-time adopters. As the Group is not a first-time adopter of HKFRSs, the amendments will not have any financial impact on the Group. The HKFRS 1 Amendments provide relief from the full retrospective application of HKFRSs for the measurement of oil and gas assets and leases. As a result of extending the options for determining deemed cost to oil and gas assets, the exiting exemption relating to decommissioning liabilities has also been revised. The revised HKFRS 3 introduces a number of changes in accounting for business combinations that will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs, and future reported results. The revised HKAS 27 requires that a change in the ownership interest of a subsidiary without loss of control is accounted for as an equity transaction. Therefore, such a change will have no impact on goodwill, nor will it give rise to a gain or loss. Furthermore, the revised standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. Other consequential amendments were made to HKAS 7 Statement of Cash Flows, HKAS 12 Income Taxes, HKAS 21 The Effects of Changes in Foreign Exchange Rates, HKAS 28 Investments in Associates and HKAS 31 Interests in Joint Ventures. The changes introduced by the revised HKFRS 3 and revised HKAS 27 are to be applied prospectively and will affect the accounting of future acquisitions and transactions with minority interests. The amendments to HKFRS 2 clarify the scope and the accounting for group cash-settled share-based payment transactions in the separate financial statements. The amendments to HKFRS 2 also incorporate guidance previously included in HK(IFRIC)-int 8 Scope of HKFRS 2 and HK(IFRIC)-int 11 HKFRS 2 Group and Treasury Share Transactions Annual Report

109 Notes to Financial Statements (Continued) 2.3 Issued but not yet Effective Hong Kong Financial Reporting Standards (continued) HKFRS 9 issued in November 2009 is the first part of phase 1 of a comprehensive project to entirely replace HKAS 39 Financial Instruments: Recognition and Measurement. This phase focuses on the classification and measurement of financial assets. Instead of classifying financial assets into four categories, an entity shall classify financial assets as subsequently measured at either amortised cost or fair value, on the basis of both the entity s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. This aims to improve and simplify the approach for the classification and measurement of financial assets compared with the requirements of HKAS 39. HKAS 39 is aimed to be replaced by HKFRS 9 in its entirety by the end of The revised HKAS 24 clarifies and simplifies the definition of related parties. The revised standard also provides a partial exemption for government-related entities to disclose details of all transactions and balances with the same government or entities that are controlled, jointly controlled or significantly influenced by the same government The HKAS 32 Amendment revises the definition of financial liabilities such that rights, options or warrants issued to acquire a fixed number of the entity s own equity instruments for a fixed amount of any currency are equity instruments, provided that the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. 32 The amendment to HKAS 39 Amendment addresses the designation of a one-sided risk in a hedged item, and the designation of inflation as a hedged risk or portion in particular situations. It clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. The amendments to HKFRS 5 clarify that all assets and liabilities of a subsidiary shall be classified as held for sale if an entity has a sale plan involving loss of control of the subsidiary, regardless of whether the entity will retain a non-controlling interest. The Group expects to adopt the amendments from 1st January, The changes must be applied prospectively and will affect future sale transactions or plans involving loss of control of a subsidiary Weichai Power Co., Ltd.

110 Notes to Financial Statements (Continued) 2.3 Issued but not yet Effective Hong Kong Financial Reporting Standards (continued) The amendment to HK(IFRIC)-Int 14 removes an unintended consequence arising from the treatment of prepayments of future contributions in certain circumstances when there is a minimum funding requirement. The amendments require an entity to treat the benefit of an early payment as a pension asset. The economic benefit available as a reduction in future contributions is thus equal to the sum of (i) the prepayment for future services and (ii) the estimated future services costs less the estimated minimum funding requirement contributions that would be required as if there were no prepayments. HK(IFRIC)-Int 17 standardises practice in the accounting for all nonreciprocal distributions of non-cash assets to owners. This new interpretation clarifies that (i) a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity; (ii) an entity should measure the dividend payable at the fair value of the net assets to be distributed; and (iii) an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss. Other consequential amendments were made to HKAS 10 Events after the Reporting Period and HKFRS 5 Non-current Assets Held for Sale and Discontinued Operations. HK(IFRIC)-Int 19 addresses the accounting by an entity when the terms of financial liability are renegotiated and resulted in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are consideration paid in accordance with HKAS 39 Financial Instruments: Recognition and Measurement and the difference between the carrying amount of the financial liability extinguished, and the consideration paid, shall be recognised in profit or loss. The consideration paid should be measured based on the fair value of the equity instrument issued or, if the fair value of the equity instrument cannot be reliably measured, the fair value of the financial liability extinguished. The Group is in the process of making an assessment of the impact of these new and revised HKFRSs and HK(IFRIC)s upon initial application. Except for the Revised HKFRS 3 and HKAS 27 which will have an impact on future business combinations and transactions with minority interests and HKFRS 9, the Group anticipates that these new and revised IFRSs and IFRICs are unlikely to have any significant impact on the Group s results of operations and financial position (i) (ii) 17 (i) (ii) (iii) Annual Report

111 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies Subsidiaries A subsidiary is an entity whose financial and operating policies the Company controls, directly or indirectly, so as to obtain benefits from its activities. The results of subsidiaries are included in the Company s income statement to the extent of dividends received and receivable. The Company s investments in subsidiaries that are not classified as held for sales in accordance with HKFRs are stated at cost less any impairment losses. Joint ventures A joint venture is an entity set up by contractual arrangement, whereby the Group and other parties undertake an economic activity. The joint venture operates as a separate entity in which the Group and the other parties have an interest. The joint venture agreement between the venturers stipulates the capital contributions of the joint venture parties, the duration of the joint venture and the basis on which the assets are to be realised upon its dissolution. The profits and losses from the joint venture s operations and any distributions of surplus assets are shared by the venturers, either in proportion to their respective capital contributions, or in accordance with the terms of the joint venture agreement. A joint venture is treated as: 2.4 (a) a subsidiary, if the Group has unilateral control, directly or indirectly, over the joint venture; (a) (b) a jointly-controlled entity, if the Group does not have unilateral control, but has joint control, directly or indirectly, over the joint venture; (b) (c) an associate, if the Group does not have unilateral or joint control, but holds, directly or indirectly, generally not less than 20% of the joint venture s registered capital and is in a position to exercise significant influence over the joint venture; or (c) 20% (d) an equity investment accounted for in accordance with HKAS 39, if the Group holds, directly or indirectly, less than 20% of the joint venture s registered capital and has neither joint control of, nor is in a position to exercise significant influence over, the joint venture. (d) 20% Weichai Power Co., Ltd.

112 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Jointly-controlled entities A jointly-controlled entity is a joint venture that is subject to joint control, resulting in none of the participating parties having unilateral control over the economic activity of the jointly-controlled entity. 2.4 The Group s interests in jointly-controlled entities are stated in the consolidated statement of financial position at the Group s share of net assets under the equity method of accounting, less any impairment losses. The Group s share of the post-acquisition results and reserves of jointly-controlled entities is included in the consolidated income statement and consolidated reserves, respectively. Unrealised gains and losses resulting from transactions between the Group and its jointly-controlled entities are eliminated to the extent of the Group s interests in the jointly-controlled entities, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of jointly-controlled entities, which was not previously eliminated or recognised in the consolidated reserves, is included as part of the Group s interests in jointly-controlled entities. Adjustments are made to bring into line any dissimilar accounting policies that may exist. Associates An associate is an entity, not being a subsidiary or a jointly-controlled entity, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence. 20% The Group s interests in associates are stated in the consolidated statement of financial position at the Group s share of net assets under the equity method of accounting, less any impairment losses. The Group s share of the post-acquisition results and reserves of associates is included in the consolidated income statement and consolidated reserves, respectively. Unrealised gains and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group s interests in the associates, except where unrealised losses provide evidence of an impairment of the asset transferred. Goodwill arising from the acquisition of associates, which was not previously eliminated or recognised in the consolidated reserves, is included as part of the Group s interests in associates and is not individually tested for impairment. Adjustments are made to bring into line any dissimilar accounting policies that may exist. Annual Report

113 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Associates (continued) The results of associates are included in the Company s income statement to the extent of dividends received and receivable. The Company s investments in associates are treated as non-current assets and are stated at cost less any impairment losses. Goodwill Goodwill arising on the acquisition of subsidiaries, associates and jointly-controlled entities represents the excess of the cost of the business combination over the Group s interest in the net fair value of the acquirees identifiable assets acquired, and liabilities and contingent liabilities assumed as at the date of acquisition. 2.4 Goodwill arising on acquisition is recognised in the consolidated statement of financial position as an asset, initially measured at cost and subsequently at cost less any accumulated impairment losses. In the case of associates and jointly-controlled entities, goodwill is included in the carrying amount thereof, rather than as a separately identified asset in the consolidated statement of financial position. The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment test of goodwill as at 31st December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group s cashgenerating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cashgenerating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. An impairment loss recognised for goodwill is not reversed in a subsequent period. 112 Weichai Power Co., Ltd.

114 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Goodwill (continued) Where goodwill forms part of a cash-generating unit (group of cashgenerating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cashgenerating unit retained. Excess over the cost of business combinations Any excess of the Group s interest in the net fair value of the acquirees identifiable assets, liabilities and contingent liabilities over the cost of acquisition of subsidiaries, associates and jointlycontrolled entities (previously referred to as negative goodwill), after reassessment, is recognised immediately in the income statement. 2.4 The excess for associates and jointly-controlled entities is included in the Group s share of the associates and jointly-controlled entities profits or losses in the period in which the investments are acquired. Impairment of non-financial assets other than goodwill Where an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, deferred tax assets, financial assets, investment properties, goodwill and non-current assets/a disposal group classified as held for sale), the asset s recoverable amount is estimated. An asset s recoverable amount is the higher of the asset s or cash-generating unit s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to the income statement in the period in which it arises in those expense categories consistent with the function of the impaired asset. Annual Report

115 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Impairment of non-financial assets other than goodwill (continued) An assessment is made at the end of each reporting period as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the income statement in the period in which it arises. Related parties A party is considered to be related to the Group if: 2.4 (a) the party, directly or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group; (a) (i) (ii) (iii) (b) the party is an associate; (b) (c) the party is a jointly-controlled entity; (c) (d) the party is a member of the key management personnel of the Group or its parent; (d) (e) the party is a close member of the family of any individual referred to in (a) or (d); or (e) (a) (d) (f) the party is an entity that is controlled, jointly controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e). (f) (d) (e) 114 Weichai Power Co., Ltd.

116 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Property, plant and equipment and depreciation Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. When an item of property, plant and equipment is classified as held for sale or when it is part of a disposal group classified as held for sale, it is not depreciated and is accounted for in accordance with HKFRS 5, as further explained in the accounting policy for Noncurrent assets and disposal groups held for sale. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to the income statement in the period in which it is incurred. In situations where the recognition criteria are satisfied, the expenditure for a major inspection is capitalised in the carry amount of the asset as a replacement. Where significant parts of property, plant and equipment are required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and depreciation Depreciation is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life, except for certain machinery and equipment which are depreciated using accelerated depreciation method. The principal annual rates used for this purpose are as follows: Buildings Leasehold improvements Plant and machinery Computer, equipment and fixtures Motor vehicles Other equipment 12 to 35 years 10 to 20 years or the term of the relevant lease 8 to 12 years 3 to 5 years 5 to 10 years 5 to 10 years Where parts of an item of property, plant and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately. Annual Report

117 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Property, plant and equipment and depreciation (continued) Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at each financial year end. 2.4 An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognised in the income statement in the year the asset is derecognised is the difference between the net sales proceeds and the carrying amount of the relevant asset. Construction in progress represents property, plant and equipment under construction and installation, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction and capitalised borrowing costs on related borrowed funds during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use. Investment properties Investment properties are interests in land and buildings held to earn rental income and/or for capital appreciation, rather than for use in the production or supply of goods or services or for administrative purposes; or for sale in the ordinary course of business. Such properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at cost less accumulated depreciation and any impairment losses. Depreciation is charged so as to write off the cost of investment properties using the straight-line method. Any gains or losses on the retirement or disposal of an investment property are recognised in the income statement in the year of the retirement or disposal. 116 Weichai Power Co., Ltd.

118 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Non-current assets and disposal groups held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sales transaction rather than through continuing use. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition subject only to terms that are usual and customary for the sale of such assets or disposal groups and its sale must be highly probable. 2.4 Non-current assets and disposal groups (other than investment properties, deferred tax assets and financial assets) classified as held for sale are measured at the lower of their carrying amounts and fair values less costs to sell. Property, plant and equipment and intangible assets classified as held for sale are not depreciated or amortised. Intangible assets (other than goodwill) Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year end. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash-generating unit level. Such intangible assets are not amortised. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is accounted for on a prospective basis. Patents and licences Purchased patents and licences are stated at cost less any impairment losses and are amortised on the straight-line basis over their estimated useful lives of 3 to 20 years Annual Report

119 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Intangible assets (other than goodwill) (continued) Research and development costs All research costs are charged to the income statement as incurred. 2.4 Expenditure incurred on projects to develop new products is capitalised and deferred only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred. Deferred development costs are stated at cost less any impairment losses and are amortised using the straight-line basis over the commercial lives of the underlying products not exceeding 10 years, commencing from the date when the products are put into commercial production. Leases Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in property, plant and equipment, and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms. 10 Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessor, assets leased by the Group under operating leases are included in non-current assets, and rentals receivable under the operating leases are credited to the income statement on the straight-line basis over the lease terms. Where the Group is the lessee, rentals payable under the operating leases net of any incentives received from the lessor are charged to the income statement on the straight-line basis over the lease terms. 118 Weichai Power Co., Ltd.

120 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Leases (continued) Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms. Investments and other financial assets Initial recognition and measurement Financial assets within the scope of HKAS 39 are classified as loans and receivables and available-for-sale financial assets, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. The Group s financial assets include cash and bank balances, trade and other receivables and quoted and unquoted financial instruments. Subsequent measurement The subsequent measurement of financial assets depends on their classification as follows: Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortised cost using the effective interest rate method less any allowance for impairment. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance income in the income statement. The loss arising from impairment is recognised in the income statement in other expenses. Annual Report

121 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Investments and other financial assets (continued) Available-for-sale financial investments Available-for-sale financial investments are non-derivative financial assets in listed and unlisted equity. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions. 2.4 After initial recognition, available-for-sale financial investments are subsequently measured at fair value, with gains or losses recognised as other comprehensive income in the available-for-sale investment valuation reserve until the investment is derecognised, at which time the cumulative gain or loss is recognised in the income statement in other income, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement in other expenses and removed from the available-for-sale investment valuation reserve. Interest and dividends earned are reported as interest income and dividend income, respectively and are recognised in the income statement as other income in accordance with the policies set out for Revenue recognition below. When the fair value of unlisted equity securities cannot be reliably measured because (a) the variability in the range of reasonable fair value estimates is significant for that investment or (b) the probabilities of the various estimates within the range cannot be reasonably assessed and used in estimating fair value, such securities are stated at cost less any impairment losses. (a) (b) The Group evaluates its available-for-sale financial assets whether the ability and intention to sell them in the near term are still appropriate. When the Group is unable to trade these financial assets due to inactive markets and management s intent to do so significantly changes in the foreseeable future, the Group may elect to reclassify these financial assets in rare circumstances. Reclassification to loans and receivables is permitted when the financial assets meet the definition of loans and receivables and the Group has the intent and ability to hold these assets for the foreseeable future or to maturity. The reclassification to the held-tomaturity category is permitted only when the entity has the ability and intent to hold until the maturity date of the financial asset. 120 Weichai Power Co., Ltd.

122 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Investments and other financial assets (continued) For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective interest rate. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the effective interest rate. If the asset is subsequently determined to be impaired, then the amount recorded in equity is reclassified to the income statement. Derecognition of financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognised when: 2.4 the rights to receive cash flows from the asset have expired; the Group has transferred its rights to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a pass-through arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. (a) (b) When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group s continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay. Annual Report

123 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Impairment of financial assets The Group assesses at each of the reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Financial assets carried at amortised cost For financial assets carried at amortised cost, the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. 2.4 If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. 122 Weichai Power Co., Ltd.

124 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Impairment of financial assets (continued) Financial assets carried at amortised cost (continued) The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery. 2.4 If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the income statement. Assets carried at cost If there is objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured has been incurred, the amount of the loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Impairment losses on these assets are not reversed. Available-for-sale financial investments assets For available-for-sale financial investments, the Group assesses at the end of each reporting period whether there is objective evidence that an investment or a group of investments is impaired. If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the income statement, is removed from other comprehensive income and recognised in transferred from equity to the income statement. Annual Report

125 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Impairment of financial assets (continued) Available-for-sale financial investments assets (continued) In the case of equity investments classified as available for sale, objective evidence would include a significant or prolonged decline in the fair value of an investment below its cost. Significant is evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement is removed from other comprehensive income and recognised in the income statement. Impairment losses on equity instruments classified as available for sale are not reversed through the income statement. Increases in their fair value after impairment are recognised directly in other comprehensive income. Financial liabilities Initial recognition and measurement Financial liabilities within the scope of HKAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition All financial liabilities are recognised initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs. The Group s financial liabilities include trade and other payables, financial guarantee contracts, debentures and interest-bearing loans and borrowings. 124 Weichai Power Co., Ltd.

126 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Financial liabilities (continued) Subsequent measurement The measurement of financial liabilities depends on their classification as follows: Loans and borrowings After initial recognition, interest-bearing loans and borrowings and debentures are subsequently measured at amortised cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method amortisation process. 2.4 Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortisation is included in finance costs in the income statement. Financial guarantee contracts Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. A financial guarantee contract is recognised initially as a liability at its fair value, adjusted for transaction costs that are directly attributable to the issuance of the financial guarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and (ii) the amount initially recognised less, when appropriate, cumulative amortisation. Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. (i) (ii) When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in the income statement. Annual Report

127 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Offsetting of financial instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if, and only if, there is currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Fair value of financial instruments The fair value of financial instruments investments that are traded in active organised financial markets is determined by reference to quoted market bid prices or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For financial instruments where there is no active market, the fair value is determined using appropriate valuation techniques. Such techniques include using recent arm s length market transactions; reference to the current market value of another instrument which is substantially the same; a discounted cash flow analysis; and option pricing models or other valuation models. Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Net realisable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal. Cash and cash equivalents For the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group s cash management. 2.4 For the purpose of the statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use. 126 Weichai Power Co., Ltd.

128 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Provisions A provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation. 2.4 When the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement. Provisions for product warranties granted by the Group on certain products are recognised based on sales volume and past experience of the level of repairs and returns, discounted to their present values as appropriate. Income tax Income tax comprises current and deferred tax. Income tax relating to items recognised outside profit or loss is recognised outside profit or loss, either in other comprehensive income or directly in equity. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates. Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Annual Report

129 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Income tax (continued) Deferred tax liabilities are recognised for all taxable temporary differences, except: 2.4 where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised, except: where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. 128 Weichai Power Co., Ltd.

130 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Income tax (continued) The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered. 2.4 Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Government grants Government grants are recognised at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to the income statement over the expected useful life of the relevant asset by equal annual instalments. Annual Report

131 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Revenue recognition Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases: 2.4 (a) from the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold; (a) (b) from the rendering of services, when the services are rendered; (b) (c) rental income, on a time proportion basis over the lease terms; (c) (d) interest income, on an accrual basis using the effective interest method by applying the rate that discounts the estimated future cash receipts through the expected life of the financial instrument to the net carrying amount of the financial asset; and (d) (e) dividend income, when the shareholders right to receive payment has been established. (e) Employee benefits Pension scheme The Company and its subsidiaries, jointly-controlled entities and associates which operate in Mainland China are required to participate in a government-regulated defined contribution pension scheme, under which the Group make contributions to a government-regulated pension scheme at a fixed percentage of wages and salaries of the existing full-time employees in Mainland China and have no further legal or constructive obligations to make additional contributions. The contributions are charged as an expense to the income statement as incurred. 130 Weichai Power Co., Ltd.

132 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised as part of the cost of those assets. The capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalised. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Dividends Final dividends proposed by the directors are classified as a separate allocation of retained profits within the equity section of the statement of financial position, until they have been approved by the shareholders in a general meeting. When these dividends have been approved by the shareholders and declared, they are recognised as a liability. Foreign currencies These financial statements are presented in RMB, which is the Company s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the end of the reporting period. All differences are taken to the income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. 2.4 Annual Report

133 Notes to Financial Statements (Continued) 2.4 Summary of Significant Accounting Policies (continued) Foreign currencies (continued) The functional currencies of certain overseas subsidiaries are currencies other than the RMB. As at the end of the reporting period, the assets and liabilities of these entities are translated into the presentation currency of the Company at the exchange rates ruling at the end of the reporting period and their income statements are translated into RMB at the weighted average exchange rates for the year. The resulting exchange differences are recognised in other comprehensive income and accumulated in the exchange fluctuation reserve. On disposal of a foreign operation, the component of other comprehensive income relating to that particular foreign operation is recognised in the income statement. For the purpose of the consolidated statement of cash flows, the cash flows of overseas subsidiaries are translated into RMB at the exchange rates ruling at the dates of the cash flows. Frequently recurring cash flows of overseas subsidiaries which arise throughout the year are translated into RMB at the weighted average exchange rates for the year Significant Accounting Judgements and Estimates The preparation of the Group s financial statements requires management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets or liabilities affected in the future. Judgements In the process of applying the Group s accounting policies, management has made the following judgements, apart from those involving estimations, which have the most significant effect on the amounts recognised in the financial statements: Operating lease commitments Group as lessor The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties which are leased out on operating leases Weichai Power Co., Ltd.

134 Notes to Financial Statements (Continued) 3. Significant Accounting Judgements and Estimates (continued) Judgements (continued) Classification between investment properties and owneroccupied properties The Group determines whether a property qualifies as an investment property, and has developed criteria in making that judgement. Investment property is a property held to earn rentals or for capital appreciation or both. Therefore, the Group considers whether a property generates cash flows largely independently of the other assets held by the Group. Some properties comprise a portion that is held to earn rentals or for capital appreciation and another portion that is held for use in the production or supply of goods or services or for administrative purposes. If these portions could be sold separately or leased out separately under a finance lease, the Group accounts for the portions separately. If the portions could not be sold separately, the property is an investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgement is made on an individual property basis to determine whether ancillary services are so significant that a property does not qualify as an investment property. Intangible assets with indefinite useful lives As detailed in note 18, trademarks with a carrying value of RMB210,589,000 as at (2008: RMB203,089,000) that are renewable every 10 years at minimal cost. The directors of the Company consider that these trademarks for all practical purposes have an indefinite useful life and therefore they will not be amortised until their useful life is determined to be finite and they will be tested for impairment annually ,589, ,089,000 Estimation uncertainty The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below. Annual Report

135 Notes to Financial Statements (Continued) 3. Significant Accounting Judgements and Estimates (continued) Estimation uncertainty (continued) Estimated recoverable amounts of goodwill and trademarks The Group determines whether goodwill and trademarks are impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which goodwill and trademarks have been allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. As at 31st December, 2009, the carrying amount of goodwill and trademarks was RMB538,016,000 (2008: RMB538,016,000) and RMB210,589,000 (2008: RMB203,089,000), respectively. Details of the recoverable amount calculation are disclosed in note 19. Development costs Development costs are capitalised in accordance with the accounting policy for research and development costs in note 2.4 to the financial statements. Determining the amounts to be capitalised requires management to make assumptions regarding the expected future cash generation of the assets, discount rates to be applied and the expected period of benefits. Deferred tax assets Deferred tax assets are recognised for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details are contained in note 25 to the financial statements ,016, ,016, ,589, ,089, Weichai Power Co., Ltd.

136 Notes to Financial Statements (Continued) 3. Significant Accounting Judgements and Estimates (continued) Estimation uncertainty (continued) Impairment of available-for-sale investments The Group classifies certain assets as available-for-sale and recognises movements of their fair values in equity. When the fair value declines, management makes assumptions about the decline in value to determine whether there is an impairment that should be recognised in the income statement. At, impairment of RMB122,025,000 (2008:RMB123,527,000) has been recognised for available-for-sale assets. The carrying amount of available-for-sale assets as at was RMB477,430,000 (2008: RMB178,187,000). Write-down of inventories to net realisable value Write-down of inventories to net realisable value is made based on assessment of the salability and net realisable value of inventories. The identification of write-down of inventories requires management s judgement and estimates. Where the actual outcome of expectation in future is different from the original estimate, such differences will impact the carrying value of the inventories and write-down loss/reversal of write-down in the period in which such estimate has been changed. Impairment of trade and other receivables Impairment of trade and other receivables is made based on assessment of the recoverability of trade and other receivables. The identification of impairment of trade and other receivables requires management s judgement and estimates. Where the actual outcome of expectation in future is different from the original estimate, such differences will impact the carrying value of the receivables and impairment loss/reversal of impairment in the period in which such estimate has been changed. Warranty expenses The Group offers a six month to three year warranty for its products, during which free warranty service for the repair and maintenance of parts or components under normal usage is provided to customers. Management estimates the warranty provision based on the historical cost data for repairs and maintenance and units of products sold. The carrying amount of the warranty provision was RMB497,231,000 (2008: RMB446,343,000) as at. More details are disclosed in note 35 to the financial statements ,025, ,527, ,430, ,187, ,231, ,343, Annual Report

137 Notes to Financial Statements (Continued) 4. Operating Segment Information For management purposes, the Group is organised into business units based on their products and services and has four reportable operating segments as follows: 4. (a) manufacturing and sale of diesel engines and related parts ( Diesel engines ); (a) (b) manufacturing and sale of automobiles and major automobile components other than diesel engines ( Automobiles and other major automobile components ); (b) (c) manufacturing and sale of non-major automobile components ( Non-major automobile components ); and (c) (d) provision of import and export services ( Import & export services ). (d) Management monitors the results of its operating segments separately for the purpose of making decisions about resources allocation and performance assessment. Segment performance is evaluated based on reportable segment profit, which is a measure of adjusted profit before tax from continuing operations. The adjusted profit before tax from continuing operations is measured consistently with the Group s profit before tax from continuing operations except that interest income, finance costs, dividend income as well as head office and corporate expenses are excluded from such measurement. Segment assets exclude deferred tax assets, pledged deposits, cash and cash equivalents and other unallocated head office and corporate assets as these assets are managed on a group basis. Segment liabilities exclude interest-bearing bank and other borrowings, tax payable, deferred tax liabilities and other unallocated head office and corporate liabilities as these liabilities are managed on a group basis. Intersegment sales and transfers are transacted with reference to the selling prices used for sales made to third parties at the then prevailing market prices. 136 Weichai Power Co., Ltd.

138 Notes to Financial Statements (Continued) 4. Operating Segment Information (continued) Year ended 4. Diesel engines Automobiles and other major auto-mobile components Non-major automobile components Import & export services Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Segment revenue: Sales to external customers 14,425,689 19,571, , ,271 35,260,899 Inter-segment sales 2,501, ,669 2,597,815 Total 16,926,940 19,572,236 1,021, ,271 37,858,714 Reconciliation: Elimination of inter-segment sales (2,597,815) Revenue 35,260,899 Segment results 3,473,536 1,446, ,192 8,800 5,041,221 Reconciliation: Elimination of inter-segment results (151,457) Interest income 116,809 Dividend income and unallocated gains 228,882 Corporate and other unallocated expenses (308,704) Finance costs (247,507) Profit before tax 4,679,244 Segment assets 14,518,233 14,520, , ,282 30,366,556 Reconciliation: Elimination of inter-segment receivables (1,661,800) Corporate and other unallocated assets 7,670,721 Total assets 36,375,477 Segment liabilities 7,783,157 9,358, ,481 61,750 17,606,298 Reconciliation: Elimination of inter-segment payables (1,661,800) Corporate and other unallocated liabilities 4,769,664 Total liabilities 20,714,162 Annual Report

139 Notes to Financial Statements (Continued) 4. Operating Segment Information (continued) Year ended 4. Diesel engines Automobiles and other major auto-mobile components Non-major automobile components Import & export services Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Other segment information: Share of profits and losses of: A jointly-controlled entity 2,343 2,343 Associates (1,601) (5,727) 1,555 (5,773) Write-down of inventories to net realisable value 5, ,031 2, ,115 Impairment loss on trade and other receivables 10, ,364 4,268 (234) 227,604 Depreciation and amortisation 387, ,588 34,151 1, ,404 Loss/(gain) on disposal of items of property, plant and equipment (264) 6, (30) 6,940 Product warranty provision 523, ,014 10, ,188 Investments in associates 44,501 96,290 31, ,559 Investment in a jointly-controlled entity 23,275 23,275 Capital expenditure* * 1,034,793 1,263, ,506 5,750 2,441,325 * Capital expenditure consists of additions to property, plant and equipment, intangible assets and investment properties including assets from the acquisition of a subsidiary and contribution from minority shareholders. * 138 Weichai Power Co., Ltd.

140 Notes to Financial Statements (Continued) 4. Operating Segment Information (continued) Year ended 31st December, Diesel engines Automobiles and other major auto-mobile components Non-major automobile components Import & export services Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Segment revenue: Sales to external customers 10,912,567 20,396, , ,769 32,567,190 Inter-segment sales 2,990, ,880 3,015,946 Total 13,903,338 20,396, , ,769 35,583,136 Reconciliation: Elimination of inter-segment sales (3,015,946) Revenue 32,567,190 Segment results 1,920,743 1,318,043 38,038 8,006 3,284,830 Reconciliation: Elimination of inter-segment results (137,639) Interest income 48,827 Dividend income and unallocated gains 170,048 Corporate and other unallocated expenses (327,524) Finance costs (297,844) Profit before tax 2,740,698 Annual Report

141 Notes to Financial Statements (Continued) 4. Operating Segment Information (continued) Year ended 31st December, Diesel engines Automobiles and other major auto-mobile components Non-major automobile components Import & export services Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Segment assets 9,962,832 12,688, , ,581 24,140,909 Reconciliation: Elimination of inter-segment receivables (1,081,601) Corporate and other unallocated assets 6,890,559 Total assets 29,949,867 Segment liabilities 7,370,991 7,309, , ,608 15,337,534 Reconciliation: Elimination of inter-segment payables (1,081,601) Corporate and other unallocated liabilities 4,367,456 Total liabilities 18,623,389 Other segment information: Share of profits and losses of: A jointly-controlled entity Associates (1,817) (3,378) (1,070) (6,265) Write-down of inventories to net realisable value 99,641 83,606 2, ,992 Impairment loss on trade and other receivables 20,660 88, , ,640 Depreciation and amortisation 362, ,408 42, ,634 Loss/(gain) on disposal of items of property, plant and equipment (317) 1,162 (43) (131) 671 Product warranty provision 390, ,979 6, ,946 Investments in associates 44, ,641 2, ,772 Investment in a jointly-controlled entity 20,932 20,932 Capital expenditure 580,828 1,388,982 41,373 2,011, Weichai Power Co., Ltd.

142 Notes to Financial Statements (Continued) 4. Operating Segment Information (continued) Information about a major customer Revenue of approximately RMB4,627,218,000 (2008: RMB2,920,698,000) was derived from sales by the Diesel engines segment and Automobiles and other major automobile components segment to a single customer. Geographical information During the years ended 31st December, 2008 and 2009, more than 90% of the Group s revenue was generated from customers located in the PRC and over 90% of the non-current assets of the Group were located in the PRC. 4. 4,627,218,000 2,920,698,000 90% 90% Annual Report

143 Notes to Financial Statements (Continued) 5. Revenue, Other Income and Gains Revenue includes turnover and other revenue that arise in the course of the Group s ordinary activities. The Group s turnover, which arises from the principal activities of the Group, represents the net invoiced value of goods sold, after allowances for returns and trade discounts, the value of services rendered; and gross rental income received and receivable from investment properties, net of sales taxes and surcharges during the year. 5. An analysis of revenue, other income and gains is as follows: Notes RMB 000 RMB 000 Revenue Turnover Sale of goods 34,011,367 31,481,811 Rendering of services 37,262 77,255 Other revenue Sales of scrap and other materials 1,199,894 1,003,338 Gross rental income 12,376 4,786 35,260,899 32,567,190 Other income Bank interest income 116,809 48,827 Dividend income from available-for-sale investments 1,600 Government subsidies 70, ,908 Penalty and compensation income 12,315 9,488 Excess over the cost of business combinations 38 87,334 Others 9,580 11, , ,860 Gains Gain on debt restructuring 45,921 Gain on disposal of available-for-sale investments 1,936 11,015 47,857 11, , , Weichai Power Co., Ltd.

144 Notes to Financial Statements (Continued) 6. Profit Before Tax The Group s profit before tax is arrived at after charging/(crediting): Notes RMB 000 RMB 000 Cost of inventories sold 26,684,146 26,012,238 Cost of service provided 4,240 11,415 Write-down of inventories to net realisable value 231, ,992 Product warranty provision Additional provision , ,946 Amounts utilised during the year 35 (675,999) (433,238) 33, ,708 Employee benefits expense (including directors and supervisors remuneration (note 8): 8 Wages and salaries 1,712,232 1,596,670 Defined contribution pension scheme (note i) i 193, ,981 Medical benefits costs (note ii) ii 43,029 36,171 Housing fund 62,645 51,363 Cash housing subsidies costs 74,692 60,512 Total staff costs 2,085,920 1,900,697 Rental income less direct operating expenses of RMB5,383,000 (2008: RMB2,130,000) 5,383,000 2,130,000 (6,993) (2,656) Bank interest income 5 (116,809) (48,827) Dividend income 5 (1,600) Research and development costs 450, ,525 Minimum lease payment under operating leases: Plant and machinery 41,495 32,011 Land and buildings 63,780 58,722 Auditors remuneration 18,380 21,539 Loss on disposal of property, plant and equipment 6, Loss on disposal of investment properties 15 1,028 Depreciation of property, plant and equipment , ,256 Depreciation of investment properties 15 3,605 2,276 Recognition of prepaid land lease payments 16 11,441 19,499 Amortisation of other intangible assets 18 15,325 15,603 Impairment of trade and other receivables 227, ,640 Impairment of available-for-sale investments 207 2,722 Impairment of property, plant and equipment 14 25,380 Impairment of investment in an associate 142 Foreign exchange differences, net ,205 Annual Report

145 Notes to Financial Statements (Continued) 6. Profit Before Tax (continued) Notes: 6. (i) Defined contribution pension scheme (i) All of the Group s full-time employees in Mainland China are covered by a government-regulated pension scheme and are entitled to an annual pension determined by their basic salaries upon their retirement. The PRC government is responsible for the pension liabilities to these retired employees. The Group is required to make annual contributions to the government-regulated pension scheme at 20.0% (2008: 20.0%) of the employees basic salaries. This defined contribution pension scheme continued to be available to the Group s employees for the year. The related pension costs are expensed as incurred. 20.0% 20.0% (ii) Medical benefits costs (ii) The Group contributes on a monthly basis to defined contribution medical benefit plans organised by the PRC government. The PRC government undertakes to assume the medical benefit obligations of all existing and retired employees under these plans. Contributions to these plans by the Group are expensed as incurred. The Group has no further obligations for medical benefits and supplemental medical benefits for their qualified employees under these plans. 7. Finance Costs An analysis of finance costs is as follows: RMB 000 RMB 000 Interest on bank loans and other borrowings wholly repayable within five years 146, ,294 Interest on debenture 50,321 62,933 Interest on discounted bills receivable 50,607 57,724 Imputed interest expense on an amount due to a related party 2,789 Total interest expense on financial liabilities not at fair value through profit or loss 247, ,740 Less: Interest capitalised (5,896) 247, , Weichai Power Co., Ltd.

146 Notes to Financial Statements (Continued) 8. Directors and Supervisors Remuneration Directors and supervisors remuneration for the year, disclosed pursuant to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules ) and Section 161 of the Hong Kong Companies Ordinance, is as follows: Group RMB 000 RMB 000 Fees Other emoluments: Salaries, allowances and benefits in kind 6,976 4,773 Performance-related bonuses Pension scheme contributions ,432 5,214 (a) Independent non-executive directors The fees paid to independent non-executive directors during the year were as follows: (a) RMB 000 RMB 000 Mr. Zhang Xiaoyu Mr. Fang Zhongchang Mr. Koo Fook Sun There were no other emoluments payable to the independent non-executive directors during the year (2008: Nil). Annual Report

147 Notes to Financial Statements (Continued) 8. Directors and Supervisors Remuneration (continued) (b) Executive directors, non-executive directors and supervisors 8. (b) Fees Salaries, allowances and benefits in kind Performancerelated bonuses Pension scheme contributions Total remuneration RMB 000 RMB 000 RMB 000 RMB 000 RMB Executive directors: Mr. Tan Xuguang 1, ,514 Mr. Xu Xinyu 1, ,319 Mr. Sun Shaojun 1, ,319 Mr. Zhang Quan 1, ,319 5, ,471 Non-executive director: Ms. Zhang Fusheng Mr. Liu Huisheng Mr. Yao Yu Mr. Yeung Sai Hong Mr. Chen Xuejian Mr. Li San Yim Mr. Julius G. Kiss Julius G. Kiss Ms. Han Xiaoqun Mr. Gu Linsheng Mr. Li Shihao Mr. Liu Zheng Supervisors: Mr. Sun Chengping Mr. Ding Yingdong Ms. Jiang Jianfang Weichai Power Co., Ltd.

148 Notes to Financial Statements (Continued) 8. Directors and Supervisors Remuneration (continued) (b) Executive directors, non-executive directors and supervisors (continued) 8. (b) Fees Salaries, allowances and benefits in kind Performancerelated bonuses Pension scheme contributions Total remuneration RMB 000 RMB 000 RMB 000 RMB 000 RMB Executive directors: Mr. Tan Xuguang 1, ,011 Mr. Xu Xinyu Mr. Sun Shaojun Mr. Zhang Quan , ,543 Non-executive director: Ms. Zhang Fusheng Mr. Liu Huisheng Mr. Yao Yu Mr. Yeung Sai Hong Mr. Chen Xuejian Mr. Li San Yim Mr. Julius G. Kiss Julius G. Kiss Ms. Han Xiaoqun Mr. Gu Linsheng Mr Li Shihao Mr. Liu Zheng Supervisors: Mr. Sun Chengping Mr. Ding Yingdong Ms. Jiang Jianfang There was no arrangement under which a director or a supervisor waived or agreed to waive any remuneration during the year. Annual Report

149 Notes to Financial Statements (Continued) 9. Five Highest Paid Employees The five highest paid employees during the year included one (2008: one) directors or supervisors, details of whose remuneration are set out in note 8 above. Details of the remuneration of the remaining four (2008: four) non-director and non-supervisor, highest paid employees for the year are as follows: 9. 8 Group RMB 000 RMB 000 Salaries, allowances and benefits in kind 7,247 5,309 Performance-related bonuses Pension scheme contributions ,314 5,332 The number of non-director and non-supervisor, highest paid employees whose remuneration fell within the following bands is as follows: Number of employees Nil to HKD1,000,000 1,000,000 HKD1,000,001 to HKD1,500,000 1,000,0011,500, HKD1,500,001 to HKD2,000,000 1,500,0012,000, Weichai Power Co., Ltd.

150 Notes to Financial Statements (Continued) 10. Income Tax The Company and all its subsidiaries that operate in Mainland China are subject to the statutory corporate income tax rate of 25% (2008: 25%) for the year under the income tax rules and regulations of the PRC, except that: % 25% (1) The Company and certain subsidiaries are subject a preferential rate of 15% as they are assessed by relevant government authorities as High and New Technology Enterprises ( HNTE ) for a period of three years commencing 1st January, Pursuant to the PRC Income Tax Law, enterprises assessed as HNTE are entitled to a preferential income tax rate of 15%; and (1) 15% 15% (2) Pursuant to Notice of the State Administration of Taxation concerning the Opinions on the Implementation of the Relevant Taxation Policies for the Western Development, certain subsidiaries which are approved as domestic enterprises engaged in the industries encouraged by the State in the Western Region are also subject to a preferential tax rate of 15%. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries/jurisdictions in which the Group operates. No provision for Hong Kong profits tax has been made as the Group had no assessable profits arising in Hong Kong for the year. (2) 15% RMB 000 RMB 000 Group: Current Mainland China Charge for the year 832, ,193 Over-provision in prior years (7,027) (2,214) Current Elsewhere Charge for the year 5,666 1,206 Deferred (note 25) 25 (99,183) (128,196) Total tax charge for the year 732, ,989 Annual Report

151 Notes to Financial Statements (Continued) 10. Income Tax (continued) A reconciliation of the tax expense applicable to profit before tax at the statutory rates for the countries/jurisdictions in which the Company and its subsidiaries are domiciled to the tax expense at the effective tax rates and a reconciliation of the statutory tax rates to the effective tax rates is as follows: 10. Group 2009 Mainland China Elsewhere Total RMB 000 % RMB 000 % RMB 000 % Profit before tax 4,699,740 (20,496) 4,679,244 Tax at the statutory tax rate 1,174, (5,774) ,169, Preferential tax rate or concessions (436,841) (9.3) (436,841) (9.3) Effect of tax rate change on opening deferred tax 8, , Adjustments in respect of current tax of previous periods (7,027) (0.1) (7,027) (0.2) Profits and losses attributable to a jointly-controlled entity and associates 655 (390) Income not subject to tax (20,560) (0.4) (20,560) (0.4) Expenses not deductible for tax 20, ,428 (41.1) 28, Tax incentives on eligible expenditures (28,062) (0.6) (28,062) (0.6) Tax losses utilised from previous periods (6,465) (0.1) (6,465) (0.1) Tax losses not recognised 1,914 6,249 (30.5) 8, Deductible temporary differences not recognised, net ,737 (76.8) 16, Tax charge at the Group s effective rate 708, ,250 (118.3) 732, Weichai Power Co., Ltd.

152 Notes to Financial Statements (Continued) 10. Income Tax (continued) Group Mainland China Elsewhere Total RMB 000 % RMB 000 % RMB 000 % Profit before tax 2,784,336 (43,638) 2,740,698 Tax at the statutory tax rate Preferential tax rate or concessions Effect of tax rate change on opening deferred tax Adjustments in respect of current tax of previous periods Profits and losses attributable to a jointly-controlled entity and associates 696, (5,749) , (287,167) (10.4) (287,167) (10.5) (316) (316) (2,214) (0.1) (2,214) (0.1) (0.3) 842 Income not subject to tax (6,786) (0.2) (6,786) (0.2) Expenses not deductible for tax 14, ,704 (20.0) 22, Tax incentives on eligible expenditures Tax losses utilised from previous periods (95,842) (3.4) (95,842) (3.5) (2,807) (0.1) (2,807) (0.1) Tax losses not recognised 10, , Deductible temporary differences not recognised, net Tax charge at the Group s effective rate (303) (303) 325, ,096 (7.1) 328, The share of tax attributable to a jointly-controlled entity and associates amounting to RMB578,000 (2008: RMB119,000) and RMB272,000 (2008: RMB246,000), respectively, is included in share of profits and losses of a jointly-controlled entity and associates in the consolidated income statement. 11. Profit Attributable to Owners of the Parent The consolidated profit attributable to owners of the parent for the year ended includes a profit of RMB2,828,588,000 (2008: RMB1,636,425,000) which has been dealt with in the financial statements of the Company (note 37(b)). 578, , , , ,828,588,000 1,636,425,000 37(b) Annual Report

153 Notes to Financial Statements (Continued) 12. Dividends RMB 000 RMB 000 Proposed final RMB0.48 (2008: RMB 0.13) per ordinary share , ,296 The proposed final dividend for the year is subject to the approval of the Company s shareholders at the forthcoming annual general meeting. 13. Earnings per Share Attributable to Ordinary Equity Holders of the Parent The calculation of basic earnings per share amounts is based on the profit for the year attributable to ordinary equity holders of the parent and the weighted average number of ordinary shares in issue during the year, as adjusted to reflect the bonus issue during the year ended 31st December, No diluted earnings per share amounts have been presented for the years ended 31st December, 2008 and 2009 as no diluting events existed during these years RMB 000 RMB 000 Earnings Profit attributable to ordinary equity holders of the Parent used in the basic earnings per share calculation Shares Weighted average number of ordinary shares in issue during the year used in the basic earnings per share calculation 3,406,935 1,928, , , Weichai Power Co., Ltd.

154 Notes to Financial Statements (Continued) 14. Property, Plant and Equipment Group 14. Construction in progress Buildings Leasehold improvements Plant and machinery Computer equipment and fixtures Motor vehicles Other equipment Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Cost At 1st January, ,521 2,182,859 27,574 6,250, , ,286 19,950 9,640,369 Additions 1,494,771 5,935 7, ,726 13,196 19,050 22,163 1,726,976 Business combination (note 38) 38 62,237 14, ,988 83,721 Contribution from a minority shareholder 31, , , ,948 1, ,797 Transfers (1,403,186) 447, ,376 35,803 5, Disposals (14,258) (48,015) (12,401) (8,692) (4,681) (88,047) Disposal of a subsidiary (note 39) 39 (25,971) (51,901) (1,514) (1,899) (81,285) Exchange realignment (419) (1,359) (51) (15) (1,844) At 814,198 2,780,476 34,709 7,352, , ,935 44,665 11,551,687 Accumulated depreciation and impairment At 1st January, , ,902 10,687 2,231, , ,397 10,413 2,719,416 Business combination (note 38) 38 2,282 1, ,313 Depreciation provided during the year 97,413 3, ,950 64,012 29,194 10, ,033 Impairment Disposals (4,175) (31,144) (10,133) (5,495) (1,921) (52,868) Disposal of a subsidiary (note 39) 39 (6,076) (26,266) (958) (1,245) (34,545) Exchange realignment 416 1, ,527 At Net carrying amount At 3, ,762 13,779 2,846, , ,896 19,324 3,511, ,397 2,451,714 20,930 4,505,209 94, ,039 25,341 8,039,811 At 1st January, ,720 1,943,957 16,887 4,019, , ,889 9,537 6,920,953 Annual Report

155 Notes to Financial Statements (Continued) 14. Property, Plant and Equipment (continued) Group 14. Construction in progress Buildings Leasehold improvements Plant and machinery Computer equipment and fixtures Motor vehicles Other equipment Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Cost At 1st January, ,090 1,777,708 25,578 5,008, , ,087 18,823 7,659,884 Additions 1,569,982 93,848 1, ,141 11,124 13,733 3,420 1,954,244 Assets no longer classified as disposal group held for sale 27,757 72,437 2,232 17, ,804 Transfers (1,331,551) 304, ,305 47,780 19, Disposals (18,864) (44,482) (7,151) (12,383) (2,974) (85,854) Exchange realignment (1,786) (4,661) (144) (1,118) (7,709) At 31st December, ,521 2,182,859 27,574 6,250, , ,286 19,950 9,640,369 Accumulated depreciation and impairment At 1st January, , ,719 8,033 1,581,973 70,542 88,521 5,774 1,922,300 Depreciation provided during the year 78,221 2, ,734 38,649 23,480 5, ,256 Impairment 63 25,317 25,380 Assets no longer classified as disposal group held for sale 46, ,378 64,930 Disposals (3,038) (28,266) (5,226) (8,864) (879) (46,273) Exchange realignment (3,017) (42) (1,118) (4,177) At 31st December, 2008 Net carrying amount At 31st December, , ,902 10,687 2,231, , ,397 10,413 2,719, ,720 1,943,957 16,887 4,019, , ,889 9,537 6,920,953 At 1st January, ,352 1,613,989 17,545 3,426,086 91, ,566 13,049 5,737, Weichai Power Co., Ltd.

156 Notes to Financial Statements (Continued) 14. Property, Plant and Equipment (continued) Company 14. Leasehold improvements Computer equipment and fixtures Construction in progress Buildings Plant and machinery Motor vehicles Other equipment Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Cost At 1st January, ,116 1,008,605 1,101, ,879 82,957 8,958 2,552,878 Additions 705,315 11,586 3,623 2,346 2, ,488 Transfers (367,347) 164, ,550 30,898 1,950 Disposals (2,456) (1,550) (2,755) (6,761) At 499,084 1,173,554 1,280, ,850 84,498 11,576 3,271,605 Accumulated depreciation and impairment At 1st January, , ,258 86,949 43,932 5, ,385 Depreciation provided during the year 53, ,676 39,164 12,172 5, ,516 Disposals (1,409) (1,389) (1,933) (4,731) At 168, , ,724 54,171 11, ,170 Net carrying amount At 499,084 1,004, ,518 98,126 30, ,277,435 At 1st January, , , , ,930 39,025 3,171 1,803,493 Company Leasehold improvements Computer equipment and fixtures Construction in progress Buildings Plant and machinery Motor vehicles Other equipment Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Cost At 1st January, , ,624 1,645, ,774 95,114 9,158 3,032,679 Additions 256,946 1, , ,996 Transfers (326,277) 129, ,142 25,457 9,697 Disposals (707,177) (10,059) (27,361) (200) (744,797) At 31st December, ,116 1,008,605 1,101, ,879 82,957 8,958 2,552,878 Accumulated depreciation and impairment At 1st January, , ,353 76,174 41,249 3, ,864 Depreciation provided during the year 43, ,037 15,318 15,831 2, ,344 Disposals (116,132) (4,543) (13,148) (133,823) At 31st December, , ,258 86,949 43,932 5, ,385 Net carrying amount At 31st December, , , , ,930 39,025 3,171 1,803,493 At 1st January, , ,049 1,231,209 97,600 53,865 5,645 2,425,815 Annual Report

157 Notes to Financial Statements (Continued) 14. Property, Plant and Equipment (continued) As at, certain buildings, machinery and motor vehicles of the Group with net book value of approximately RMB88,273,000 (2008: RMB81,833,000) were pledged to secure general banking facilities granted to the Group (note 34) ,273,000 81,833, The Group was in the process of applying for the real estate certificates for the aforesaid buildings with a gross area of approximately 385,000 square meters and a net book value of approximately RMB1,022,175,000 as at. 385,000 1,022,175,000 As at, the Group had not obtained the real estate certificates for buildings with a total gross area of approximately 541,000 square meters (2008: 398,000 square meters) and a net book value of RMB1,256,392,000 (2008: RMB894,987,000). 541, ,000 1,256,392, ,987, Investment Properties RMB 000 RMB 000 Carrying amount at 1st January 80,663 32,333 Additions 7,638 50,606 Disposals (1,028) Depreciation provided during the year (3,605) (2,276) Carrying amount at 31st December 83,668 80, Weichai Power Co., Ltd.

158 Notes to Financial Statements (Continued) 15. Investment Properties (continued) The Group s investment properties are situated in Mainland China and are held under short term leases. The investment properties are depreciated on a straight-line basis over their useful lives. Further particulars of the Group s investment properties are as follows: 15. Location Use Tenure Attributable interest of the Group Jinwei Industrial Park, Economic Technique & Development District, Xi an Industrial & Office Building Short term 51% No. 39, North Xinfu Road, Xi an Industrial Building Short term 51% 39 East Yuanbaopin Road, Tianjin Industrial Building Short term 51% Annual Report

159 Notes to Financial Statements (Continued) 16. PREPAID LAND LEASE PAYMENTS 16. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Carrying amount at 1st January 298, , , ,486 Addition 206, ,347 Business combination (note 38) 38 5,411 Contribution from a minority shareholder 93,520 Transfer to a subsidiary (11,871) Recognised during the year (11,441) (19,499) (5,672) (2,737) Carrying amount at 31st December 592, , , ,878 Current portion (14,455) (19,671) (6,402) (2,240) Non-current portion 577, , , ,638 The leasehold land is held under a long term lease and is situated in Mainland China. As at, certain leasehold land of the Group with a net book value of approximately RMB85,724,000 (2008: RMB69,024,000) was pledged to secure general banking facilities granted to the Group (note 34). 85,724,000 69,024, Weichai Power Co., Ltd.

160 Notes to Financial Statements (Continued) 17. GOODWILL RMB 000 RMB 000 Cost and carrying amount At 1st January and 31st December of the year 538, ,016 The carrying amount of goodwill at and 2008 was related to the following cash generating units: RMB 000 RMB 000 Automobile and other major automobile components 538, ,016 Particulars regarding impairment testing on goodwill are detailed in note Annual Report

161 Notes to Financial Statements (Continued) 18. Other Intangible Assets Group 18. Trademarks Technologies Total RMB 000 RMB 000 RMB 000 (note i) (note ii) i ii Cost at 1st January, 2009, net of accumulated amortisation 203,089 68, ,727 Additions 29,409 29,409 Contribution from a minority shareholder 7,500 9,060 16,560 Amortisation provided during the year (15,325) (15,325) At 210,589 91, ,371 At : Cost 220, , ,563 Accumulated amortisation (10,372) (316,820) (327,192) Net carrying amount 210,589 91, ,371 31st December, 2008 Cost at 1st January, 2008, net of accumulated amortisation 203,089 78, ,442 Additions 5,888 5,888 Amortisation provided during the year (15,603) (15,603) At 31st December, ,089 68, ,727 At 31st December, 2008: Cost 213, , ,594 Accumulated amortisation (10,372) (301,495) (311,867) Net carrying amount 203,089 68, , Weichai Power Co., Ltd.

162 Notes to Financial Statements (Continued) 18. Other Intangible Assets (continued) Company 18. Trademarks Technologies Total RMB 000 RMB 000 RMB 000 Cost at 1st January, 2009, net of accumulated amortisation 108, ,476 Additions 2 2 Amortisation provided during the year At 108, ,478 At : Cost 119,264 21, ,028 Accumulated amortisation (10,372) (21,178) (31,550) Net carrying amount 108, ,478 31st December, 2008 Cost at 1st January, 2008, net of accumulated amortisation 108, ,892 Additions Amortisation provided during the year At 31st December, , ,476 At 31st December, 2008: Cost 119,264 21, ,026 Accumulated amortisation (10,372) (21,178) (31,550) Net carrying amount 108, ,476 Notes: (i) The trademarks are renewable every 10 years at minimal cost. The directors of the Company are of the opinion that the Group has both the intention and ability to renew the trademarks continuously. As a result, the useful life of the trademarks is considered by the management of the Group as indefinite because the trademarks are expected to contribute to the Group s net cash inflows indefinitely. The trademarks will not be amortised until their useful life is determined to be finite. Instead the trademarks will be tested for impairment annually and whenever there is an indication that they may be impaired. Particulars of the impairment testing are disclosed in note 19. (i) 19 (ii) Technologies represented manufacturing know-how, which have definite useful lives. These technologies are amortised on a straight-line basis over 8 to 10 years. (ii) 8 10 Annual Report

163 Notes to Financial Statements (Continued) 19. Impairment Testing on Goodwill and Trademarks with Indefinite Useful Lives As explained in note 4, the Group is organised into business units based on their products and services. For the purpose of impairment testing, goodwill and trademarks with indefinite useful lives have been allocated to two individual cash generating units as below (CGUs), including manufacturing and sale of diesel engines and related parts ( CGU A ) and automobile and major automobile components other than diesel engines ( CGU B ). The carrying amounts of goodwill and trademarks (net of accumulated impairment losses) as at allocated to these units are as follows: A B Goodwill Trademarks RMB 000 RMB 000 RMB 000 RMB 000 CGU A A 116, ,892 CGU B B 538, ,016 94,197 94, , , , ,089 The basis of the recoverable amounts of the above CGUs and their major underlying assumptions are summarised below: CGU A The recoverable amount of this unit has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a five-year period, and a discount rate of 14.4% (2008: 10%). CGU A s cash flows beyond the 5-year period are extrapolated with no growth rate for both years. Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted sales and gross margin, such estimation is based on the unit s past performance and management s expectations for the market development. A % 10% A Weichai Power Co., Ltd.

164 Notes to Financial Statements (Continued) 19. Impairment Testing on Goodwill and Trademarks with Indefinite Useful Lives (continued) CGU B The recoverable amount of this unit has been determined based on a value in use calculation. That calculation uses cash flow projections based on financial budgets approved by management covering a five-year period, and discount rate of 11.6% (2008: 14%). CGU B s cash flows beyond the 5-year period are extrapolated with no growth for both years. Other key assumptions for the value in use calculations relate to the estimation of cash inflows/outflows which include budgeted sales and gross margin, such estimation is based on the unit s past performance and management s expectations for the market development. 20. Investments in Subsidiaries 19. B % 14% B 5 B RMB 000 RMB 000 Unlisted investments, at cost 4,432,812 4,002,382 Annual Report

165 Notes to the Financial Statements (Continued) 20. Investments in Subsidiaries (continued) 20. Particulars of the principal subsidiaries are as follows: Name Place of incorporation/ registration and Registered capital Percentage of equity attributable to the Company operations (in 000) Direct Indirect Principal activities Weichai Power (Weifang) Spare Part Resources Co., Ltd. PRC RMB89,796 89, % Manufacture and trading of diesel engine and related spare parts Weichai Power (Weifang) Oil Co., Ltd. PRC RMB10,000 10, % Trading of lubricant oil products Weichai Power (Weifang) Intensive Logistics Co., Ltd. PRC RMB20,000 20, % Provision of warehouse management services Weichai Power (Weifang) Casting Co., Ltd. PRC RMB20,000 20, % Manufacture and trading of cast products Weichai Power (Weifang) Reconstruction Co., Ltd. PRC RMB30,000 30, % Reconstruction of automotive components Shaanxi Heavy-Duty-Automotive Co., Ltd. PRC RMB1,706,330 1,706, % Manufacture and trading of heavy duty trucks and related automotive components Tianjin Tiangua Automotive Co., Ltd. PRC RMB11,760 11, % Manufacture and sale of trailers and tractors Tianjin Xinming Automotive Commercial Co., Ltd. PRC RMB1,000 1, % Trading of automotive components Shaanxi Hande Axle Co., Ltd. PRC RMB320, , % 47.94% Manufacture and sale of motor vehicles and related automotive components 164 Weichai Power Co., Ltd.

166 Notes to the Financial Statements (Continued) 20. Investments in Subsidiaries (continued) 20. Name Place of incorporation/ registration and Registered capital Percentage of equity attributable to the Company operations (in 000) Direct Indirect Principal activities Shaanxi Jinding Casting Co., Ltd. PRC RMB35,360 35, % Manufacture and trading of cast product Shaanxi Heavy Duty Automotive Import & Export Co., Ltd. PRC RMB10,000 10, % Provision of import and export services Shaanxi Fast Gear Co., Ltd. PRC RMB256, , % Manufacture and trading of automotive components Baoji Fast Gear Co., Ltd. PRC RMB30,000 30, % 48.45% Manufacture and trading of gear and related automotive components Xi an Fast Auto Drive Co., Ltd. PRC RMB134, , % Trading of motor vehicles and related automotive components Shaanxi Fast Gear Sales Co., Ltd. PRC RMB1,000 1, % Trading of automotive components Shaanxi Fast Gear Spare Parts Import & Export Co., Ltd. PRC RMB3,000 3, % Provision of import and export services Zhuzhou Gear Co., Ltd. PRC RMB131, , % Trading of motor vehicles and related automotive components Zhuzhou Wande Forging Co., Ltd. PRC RMB5,000 5, % Manufacture and sale of motor vehicles and related automotor components Annual Report

167 Notes to the Financial Statements (Continued) 20. Investments in Subsidiaries (continued) 20. Name Place of incorporation/ registration and Registered capital Percentage of equity attributable to the Company operations (in 000) Direct Indirect Principal activities Zhuzhou Euro Grace Gear Automotive Transmission Co., Ltd. PRC RMB50,000 50, % Trading of automotive components Dongfeng Off-road Vehicle Co., Ltd. PRC RMB155, , % Manufacture and trading of vehicles and related automotive components Shiyan Amor Coating Technology Co., Ltd. PRC RMB2,200 2, % Coating and sale of automotive components Zhuzhou Torch Sparkplugs Co., Ltd. PRC RMB176, , % Manufacture and trading of spark plugs MAT Automotive Inc. USA USD % Import and sale of automotive components Torch Import & Export Co., Ltd. PRC RMB181, , % 1.66% Provision of import and export services Zhuzhou Torch Machinery Manufacturing Co., Ltd. PRC RMB142, , % Trading of automotive component Zhuzhou Torch Property Development Co., Ltd. PRC RMB13,120 13, % 5.34% Provision of property development Zhuzhou Torch Auto Sealing Co., Ltd. PRC RMB20,420 20, % Trading of automotive components Zhuzhou Torch Auto Lighting Co., Ltd. PRC RMB31,000 31, % Trading of automotive components 166 Weichai Power Co., Ltd.

168 Notes to the Financial Statements (Continued) 20. Investments in Subsidiaries (continued) 20. Name Place of incorporation/ registration and Registered capital Percentage of equity attributable to the Company operations (in 000) Direct Indirect Principal activities Mudan Jiang Futong Automotive Air Conditioner Company Limited PRC RMB118, , % Manufacture and trading of automotive components Xinjiang Machinery Equipment Import & Export Co., Ltd. PRC RMB20,000 20, % Provision of export and import services Shanghai He Da Auto Accessory Co., Ltd. PRC USD4,248 4, % Trading of automotive components Weichai Power (Shanghai) Technology Development Co., Ltd. PRC RMB300, , % Investment Weichai Power Yangzhou Diesel Engine Co., Ltd. PRC RMB300, , % Manufacture and trading of diesel engine and related spare parts Weichai Power (Chongqing) Western Development Co., Ltd. PRC RMB100, , % Development and management of industrialization of high and new technology products, investment and management consulting service Chongqing Jialing Chuanjiang Vehicles Manufacturing Co., Ltd. PRC RMB80,000 80, % Manufacture and trading of automobiles and related automotive components Weichai Power (Hong Kong) International Development Co., Ltd. Hong Kong USD13,675 13, % Investment Siciété International des Moteurs Baudouin France EUR5,000 5, % Manufacture and trading of diesel engines Shandong Synergy Oil Co., Ltd. PRC USD3,000 3, % 2.60% Trading of spare parts Annual Report

169 Notes to the Financial Statements (Continued) 20. Investments in Subsidiaries (continued) The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results for the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length Investment in a Jointly-controlled Entity 21. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Unlisted shares, at cost 20,409 20,409 Share of net assets 8,615 6,272 Goodwill on acquisition 14,660 14,660 23,275 20,932 20,409 20,409 Particulars of the jointly-controlled entity are as follows: Name Paid up registered capital (in 000) Place of incorporation/ registration Ownership interest Percentage of Voting power Profit sharing Principal activities Weifang Weichai Peterson Gas Diesel Engines Co., Ltd. USD PRC 50% 50% 50% Manufacture and sale of gas refrigerator The above investment in a jointly-controlled entity is directly held by the Company. 168 Weichai Power Co., Ltd.

170 Notes to the Financial Statements (Continued) 21. Investment in a Jointly-controlled Entity (continued) 21. The following table illustrates the summarised financial information of the Group s jointly-controlled entity: RMB 000 RMB 000 Share of the jointly-controlled entity s assets and liabilities: Current assets 35,775 20,184 Non-current assets 3, Current liabilities (30,206) (14,583) Net assets 8,615 6,272 Share of the jointly-controlled entity s results: Revenue 64,814 12,817 Other income ,814 13,093 Total expenses (61,893) (12,451) Income tax expense (578) (119) Profit after tax 2, Investments in Associates 22. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Unlisted shares, at cost 49,461 52,545 Share of net assets 172, , , ,493 49,461 52,545 Provision for impairment (285) (3,721) 172, ,772 49,461 52,545 Annual Report

171 Notes to the Financial Statements (Continued) 22. Investments in Associates (continued) Particulars of the principal associates are as follows: 22. Name Paid-up registered capital (in 000) Place of incorporation/ registration Percentage of ownership attributable to the group Principal activities Shanghai Xinlian Chuangye Investment Co., Ltd. RMB150,000 PRC 33.33% Investment holding company 150,000 Shaanxi Eurostar Auto Co., Ltd. RMB114, ,954 PRC 16.86% Manufacture and sale of vehicle chassis and products Shaanxi Tonghui Automotive Transportation Co., Ltd. RMB10,000 10,000 PRC 20.40% Manufacture and sale of vehicle chassis and products Xian Cummics Engine Co., Ltd. USD24,000 24,000 PRC 12.75% Manufacture and sale of diesel motors and spare parts CIMC-SHAC (Xi an) Special Vehicles Co., Ltd. RMB50,000 50,000 PRC 12.75% Manufacture and sale of special car trailers and spare parts Laizhou Luyuan Automotive Fitting Co., Ltd. RMB37,930 37,930 PRC 25.00% Manufacture and sale of vehicle chassis and products Dalian Hongyuan Machinery Manufacturing Co., Ltd. USD13,280 13,280 PRC 41.40% Trading of automotive components 170 Weichai Power Co., Ltd.

172 Notes to the Financial Statements (Continued) 22. Investments in Associates (continued) The following table illustrates the summarised financial information of the Group s associates extracted from their financial statements: RMB 000 RMB 000 Assets 1,299,336 1,077,203 Liabilities 742, ,109 Revenue 766, ,023 Loss (26,993) (21,636) 23. Available-For-Sale Investments 23. Listed equity investments, at fair value: Group Company RMB 000 RMB 000 RMB 000 RMB 000 Mainland China 385,997 96, ,000 96,200 Unlisted equity investments 91,433 81, , , ,000 96,200 During the year, the gross gain in respect of the Group s availablefor-sale investments recognised in other comprehensive income amounted to RMB289,255,000 (2008: RMB97,800,000). The fair values of listed equity investments are based on quoted market prices. As at 31st December, 2008, listed available-for-sale equity investments of RMB96,200,000 were restricted for trading over certain periods of less than six months. The listed availablefor-sale equity investments as at were not restricted for trading. The above unlisted investments represent investments in unlisted equity securities issued by private entities established in the PRC. As at, certain unlisted available-for-sale equity investments with a carrying amount of RMB91,433,000 (2008: RMB81,445,000) were stated at cost less impairment because the range of reasonable fair value estimates is so significant that the directors are of the opinion that their fair value cannot be measured reliably. The Group does not intend to dispose of them in the near future. 289,255,000 97,800,000 96,200,000 91,433,000 81,445,000 Annual Report

173 Notes to the Financial Statements (Continued) 24. Deposits Paid for Acquisition of Property, Plant and Equipment At the end of reporting period, the amount represented deposits paid to certain vendors for the acquisition of property, plant and equipment. Details of the related capital commitments are set out in note Deferred Tax The movements in deferred tax assets and liabilities during the year are as follows: Deferred tax assets Group Eliminated profits resulting from intra-group transactions Impairment of assets Change in fair value of availablefor-sale investments Sales rebate and warranty provision Others Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 At 1st January, , ,630 14, ,857 81, ,903 Effect of change in tax rate on the opening balance charged to the income 10 statement (note 10) (8,462) (8,462) Deferred tax credited/ (charged) to the income statement during 10 the year (note 10) 18,622 43,078 47,776 (3,474) 106,002 Deferred tax charged to equity during the year (14,670) (14,670) Exchange realignment (10) (10) Gross deferred tax assets at 46, , ,633 77, , Weichai Power Co., Ltd.

174 Notes to the Financial Statements (Continued) 25. Deferred Tax (continued) Deferred tax liabilities Group Fair value adjustments arising from acquisitions of subsidiaries Change in fair value of availablefor-sale investments Trademarks Others Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 At 1st January, ,111 9,412 1,453 46,976 Deferred tax (credited)/charged to the income statement during the year (note 10) 10 (2,456) 2,255 (1,442) (1,643) Deferred tax charged to the equity during the year 28,483 28,483 Gross deferred tax liabilities at 33,655 28,483 11, ,816 Annual Report

175 Notes to the Financial Statements (Continued) 25. Deferred Tax (continued) Deferred tax assets Group Eliminated profits resulting from intra-group transactions Impairment of assets Change in fair value of availablefor-sale investments Sales rebate and warranty provision Others Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 At 1st January, ,174 80,538 63,714 34, ,788 Effect of change in tax rate on the opening balance charged to the income statement (note 10) 10 (354) (354) Assets no longer classified as disposal group held for sale 22,630 22,630 Deferred tax credited to the income statement during the year (note 10) 10 1,127 26,446 57,143 25, ,504 Deferred tax credited to equity during the year 14,670 14,670 Exchange realignment (1,335) (1,335) Gross deferred tax assets at 31st December, , ,630 14, ,857 81, , Weichai Power Co., Ltd.

176 Notes to the Financial Statements (Continued) 25. Deferred Tax (continued) Deferred tax liabilities Group Fair value adjustments arising from acquisitions of subsidiaries Trademarks Others Total RMB 000 RMB 000 RMB 000 RMB 000 At 1st January, 2008 Effect of change in tax rate on the opening balance credited to the income statement (note 10) Deferred tax (credited)/ charged to the income statement during the year (note 10) Gross deferred tax liabilities at 31st December, ,631 7,000 5,391 65, (670) (670) 10 (15,850) 2,412 (3,938) (17,376) 36,111 9,412 1,453 46,976 Annual Report

177 Notes to the Financial Statements (Continued) 25. Deferred Tax (continued) Deferred tax assets Company Change in fair value Sales of available- rebate and Impairment for-sale warranty of assets investments provision Others Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 At 1st January, ,610 14,670 69,161 36, ,131 Deferred tax credited/(charged) to the income statement during the year (18,104) 50,012 21,988 53,896 Deferred tax charged to equity during the year (14,670) (14,670) Gross deferred tax assets at 9, ,173 58, , Weichai Power Co., Ltd.

178 Notes to the Financial Statements (Continued) 25. Deferred Tax (continued) Deferred tax liabilities Company Change in fair value of availablefor-sale investments Trademarks Others Total RMB 000 RMB 000 RMB 000 RMB 000 At 1st January, 2009 Deferred tax (credited)/ charged to the income statement during the year Defered tax credited to the equity during the year Gross deferred tax liabilities at 9, ,039 2,255 (616) 1,639 28,050 28,050 28,050 11, ,728 Annual Report

179 Notes to the Financial Statements (Continued) 25. Deferred Tax (continued) Deferred tax assets Company Change in fair value Sales of available- rebate and Impairment for-sale warranty of assets investments provision Others Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 At 1st January, ,250 37,395 34,376 78,021 Deferred tax charged to the income statement during the year 21,360 31,766 2,314 55,440 Deferred tax charged to equity during the year 14,670 14,670 Gross deferred tax assets at 31st December, ,610 14,670 69,161 36, , Weichai Power Co., Ltd.

180 Notes to the Financial Statements (Continued) 25. Deferred Tax (continued) Deferred tax liabilities Company Trademarks Others Total RMB 000 RMB 000 RMB 000 At 1st January, ,000 6,403 13,403 Deferred tax (credited)/charged to the income statement during the year 2,412 (5,776) (3,364) Gross deferred tax liabilities at 31st December, , ,039 Deferred tax assets have not been recognised in respect of the following items: Group Company RMB 000 RMB 000 RMB 000 RMB 000 Tax losses 112, ,424 Deductible temporary differences 78, , , ,345 The above tax losses are available for offsetting against future taxable profits of the companies in which the losses arose for a period of five years. Deferred tax assets have not been recognised in respect of the above items as it is not considered probable that taxable profits will be available against which the above items can be utilised. Annual Report

181 Notes to the Financial Statements (Continued) 25. Deferred Tax (continued) Pursuant to the PRC Corporate Income Tax Law, a 10% withholding tax is levied on dividends declared to foreign investors from the foreign investment enterprises established in Mainland China. The requirement is effective from 1st January, 2008 and applies to earnings after 31st December, A lower withholding tax rate may be applied if there is a tax treaty between China and jurisdiction of the foreign investors. This tax law does not have significant impact on the Group s tax liability because the Company and most of its subsidiaries are domiciled in Mainland China % There are no income tax consequences attaching to the payment of dividends by the Company to its shareholders. 26. Inventories 26. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Raw materials and consumables 1,325,523 2,229, , ,078 Work in progress 620, , , ,650 Finished goods 3,860,870 3,037,956 1,237, ,426 5,806,642 5,850,617 1,679,295 1,741, Weichai Power Co., Ltd.

182 Notes to the Financial Statements (Continued) 27. Trade and Bills Receivables 27. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Trade receivables 3,849,645 3,256, , ,846 Bills receivable 8,032,145 3,995,709 7,040,816 3,154,637 Impairment (528,845) (322,126) (13,327) (17,239) 11,352,945 6,930,008 7,219,623 3,414,244 The Group s trading terms with its customers are mainly on credit except for new customers, where payment in advance or cash on delivery is normally required. The credit period is generally 90 days to 180 days; however, customers with established trading records could be granted a longer credit period. The Group seeks to maintain strict control over its outstanding receivables and has a credit control policy to minimise credit risk. Credit sales are made to customers with an appropriate credit history. Credit limits granted to customers are reviewed regularly. In view of the aforementioned and the fact that the Group s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk. Trade receivables are non-interest-bearing An aged analysis of the trade and bills receivables as at the end of the reporting period, based on the invoice date and net of provision for impairment, is as follows: Group Company RMB 000 RMB 000 RMB 000 RMB 000 Within 3 months 3 5,987,889 3,933,770 2,890,959 3,122,590 3 to 6 months 3 6 4,730,036 2,526,842 4,318, ,647 6 to 12 months , ,177 9,488 3,470 1 to 2 years 385,423 79,219 1, to 3 years ,352,945 6,930,008 7,219,623 3,414,244 Annual Report

183 Notes to the Financial Statements (Continued) 27. Trade and Bills Receivables (continued) The movements in provision for impairment of trade and bills receivables are as follows: 27. Group Company RMB 000 RMB 000 RMB 000 RMB 000 At 1st January 322, ,690 17,239 11,624 Impairment losses recognised 228, ,946 6,756 Contribution from a minority shareholder 762 Amount written off as uncollectible (14,415) (9,332) (1,141) Impairment losses reversed (8,041) (16,178) (3,912) 528, ,126 13,327 17,239 The above provision for impairment of trade and bills receivables of the Group and the Company is provision for both individually and collectively impaired trade and bills receivables with a carrying amount before impairment of RMB1,155,926,000 (2008: RMB829,240,000) and RMB15,287,000 (2008: RMB19,503,000), respectively. For amounts which were past due at the end of reporting period, the Group has not provided for those receivables of which there has not been significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral or other credit enhancements over these balances. 1,155,926, ,240,000 15,287,000 19,503, Weichai Power Co., Ltd.

184 Notes to the Financial Statements (Continued) 27. Trade and Bills Receivables (continued) The aged analysis of the trade and bills receivables that are not considered to be impaired is as follows: 27. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Neither past due nor impaired 10,585,850 5,671,940 7,217,575 3,379,549 Less than 1 year 140, , ,431 1 to 2 years past due 10,725,864 6,422,894 7,217,663 3,411,980 Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default. Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the Company are of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully recoverable. The Group does not hold any collateral or other credit enhancements over these balances. As at, trade and bills receivables of approximately RMB209,474,000 (2008: RMB338,815,000) were pledged to secure bank loans and credit facilities of the Group. Included in the balance of RMB209,474,000, trade receivable of RMB4,134,000 were pledged to secure bank loans (note 34(b)). 209,474, ,815, ,474,000 4,134,000 34(b) Annual Report

185 Notes to the Financial Statements (Continued) 27. Trade and Bills Receivables (continued) The amounts due from related parties included above are analysed as follows: 27. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Weichai Holdings and its subsidiaries 10,461 28,953 4,071 1,368 Lonking Holdings and its subsidiaries 260, , Subsidiaries 1,202, ,270 Jointly-controlled entity 617 5,036 5,036 Associates 31,455 42, Minority shareholders groups (note 44(a)) 44(a) 110, ,505 1, , ,552 1,467, ,107 The amounts due from related parties are on credit terms similar to those offered to the major customers of the Group. 184 Weichai Power Co., Ltd.

186 Notes to the Financial Statements (Continued) 28. Prepayments, Deposits and Other Receivables 28. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Deposits and other receivables 775,292 1,006, , ,551 Impairment (91,553) (118,809) (46,292) (58,318) Deposits and other receivables, net 683, , , ,233 Dividend receivables 4,293 3,040 39,976 77,714 Advances to suppliers 367, ,765 80, ,398 Prepayments 3, ,059,084 1,271, ,013 1,025,345 The carrying amounts of the deposits and other receivables approximate to their fair values. The movements in provision for impairment of deposits and other receivables are as follows: Group Company RMB 000 RMB 000 RMB 000 RMB 000 At 1st January 118,809 97,954 58,318 36,028 Impairment losses recognised 15,803 24,925 22,427 Amount written off as uncollectible (34,488) (4,017) (2,423) (137) Impairment losses reversed (8,571) (53) (9,603) 91, ,809 46,292 58,318 Annual Report

187 Notes to the Financial Statements (Continued) 28. Prepayments, Deposits and Other Receivables (continued) The above provision for impairment of deposits and other receivables of the Group and the Company is a provision for both individually and collectively impaired deposits and other receivables with a carrying amount (before impairment) of RMB109,787,000 (2008: RMB139,284,000) and RMB69,151,000 (2008: RMB78,474,000), respectively. These impaired deposits and other receivables relate to parties that were in default or delinquency in payments and only a portion of the deposits and other receivables is expected to be recovered. The Group does not hold any collateral or other credit enhancements over these balances ,787, ,284,000 69,151,000 78,474,000 The amounts due from related parties included above are analysed as follows: Group Company RMB 000 RMB 000 RMB 000 RMB 000 Weichai Holdings and its subsidiaries Subsidiaries 541, ,336 Associates 17,889 4,050 13,596 Minority shareholders groups (note 44(a)) 44(a) 111, , , , , ,857 Except for the amount of RMB59,602,000 (2008: RMB57,602,000) due from Shaanxi Automotive Group Co., Ltd. and the amount of RMB19,238,000 (2008: RMB19,042,000) due from Zhuzhou Gear Share Co., Ltd as at which are interest-bearing at 5.76% per annum (2008: 6.57%) and 5.31% (2008: 7.47%), respectively, other receivables are non-interest-bearing, unsecured and repayable on demand. 59,602,000 57,602,000 19,238,000 19,042, Weichai Power Co., Ltd.

188 Notes to the Financial Statements (Continued) 29. Cash and Cash Equivalents and Pledged Deposits 29. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Cash and bank balances 2,223,880 2,409, , ,929 Time deposits 4,354,391 3,454,459 1,995,798 2,394,382 Less: Pledged time deposits: Pledge for credit facilities Pledge for short term loans (note 34 (b)) 6,578,271 5,863,947 2,098,116 2,583,311 (2,879,847) (2,511,809) (569,138) (1,813,232) 34(b (100,085) (86,000) Cash and cash equivalents 3,598,339 3,352,138 1,442, ,079 At the end of the reporting period, the cash and bank balances of the Group denominated in RMB amounted to RMB6,476,461,000 (2008: RMB5,806,302,000). The RMB is not freely convertible into other currencies, however, under Mainland China s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business. 6,476,461,000 5,806,302,000 Cash at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between seven days and three months depending on the immediate cash requirements of the Group, and earn interest at the respective short term time deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history of default. Annual Report

189 Notes to the Financial Statements (Continued) 30. Disposal Group Held for Sale On 31st December, 2008, the Group entered into a conditional agreement with the minority shareholder of MAT Automotive Inc ( MAT ), a subsidiary which was then owned by the Company as to 75%, whereby the Group would ensure MAT to transfer its 100% equity interest in Meneta Holding ApS ( Meneta Group ) to the then minority shareholder of MAT, Mr. Wang Wei, in exchange for his 25% equity interest in MAT and a cash consideration of USD1,500,000. Accordingly, Meneta Group was classified as a disposal group held for sale as at 31st December, The transaction was completed in January MAT Automotive IncMAT 75% MAT Meneta Holding ApSMeneta 100% MAT MATMAT 25% 1,500,000 Meneta 31. Trade and Bills Payables 31. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Trade payables 8,355,933 6,442,175 3,501,042 2,208,611 Bills payable 3,474,709 4,185,776 1,456,933 2,583,285 11,830,642 10,627,951 4,957,975 4,791,896 An aged analysis of the trade and bills payables as at the end of the reporting period, based on the invoice date, is as follows: Group Company RMB 000 RMB 000 RMB 000 RMB 000 Within 3 months 3 9,519,364 5,798,843 4,427,987 2,852,587 3 to 6 months 3 6 2,072,145 3,570, ,829 1,709,446 6 to 12 months , ,325 10,577 98,412 Over 1 year 229, , , ,451 11,830,642 10,627,951 4,957,975 4,791, Weichai Power Co., Ltd.

190 Notes to the Financial Statements (Continued) 31. Trade and Bills Payables (continued) The amounts due to related parties included above are analysed as follows: 31. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Weichai Holdings and its subsidiaries 3,611 2,335 3,600 1,317 Subsidiaries 3,084, ,150 Jointly-controlled entity 6 5,096 Associates 45,895 67,819 Minority shareholders groups (note 44(a)) 44(a 211, , , ,401 3,088, ,467 The trade payables are non-interest-bearing and are normally settled on 90-day terms. The amounts due to related parties are on credit terms similar to those offered by the major suppliers of the Group Other Payables and Accruals 32. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Advances from customers 747,093 1,052,874 45, ,045 Accruals 541, , , ,357 Salary and welfare payable 673, , , ,940 Other payables 1,612,259 1,069,014 1,087, ,153 3,574,003 2,916,253 1,727,161 1,414,495 Annual Report

191 Notes to the Financial Statements (Continued) 32. Other Payables and Accruals (continued) The carrying amounts of other payables and accruals approximate to their fair values. The amounts due to related parties included above are analysed as follows: 32. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Weichai Holdings and its subsidiaries 7,610 Subsidiaries 260, ,343 Associates Jointly-controlled entity Minority shareholders groups (note 44(a)) 44(a 41,936 86,105 42,296 86, , ,343 Other payables are non-interest-bearing, unsecured and have no fixed terms of repayment. 33. Debentures On 21st March, 2008, a subsidiary of the Group issued unsecured short term debentures to independent third parties in an aggregate principal amount of RMB800 million in the PRC. The debentures were priced and issued at a face value of RMB100 each. The debentures are due for repayment in two lots of RMB400 million each at 10th January, 2009 and 21st March, 2009, respectively. The effective interest rates for the two lots of debentures were 6.04% and 6.1%, respectively. The debentures were repaid in On 21st July, 2008, the Company issued unsecured short-term debentures to independent third parties in an aggregate principal amount of RMB900 million in the PRC. The debentures were priced and issued at a face value of RMB100 each. The debentures are due for repayment at 10th July, The effective interest rate for the debentures was 5.20%. The proceeds from the debentures were used to meet the Group s production, operational and other working capital needs. The debentures were repaid in July On 24th August, 2009, the Company issued unsecured medium-term debentures to independent third parties in an aggregate principal amount of RMB1,300 million in the PRC. The debentures were priced and issued at a face value of RMB100 each. The debentures are listed and transferable on the inter-bank debenture market in the PRC with a maturity period of five years and are due for repayment at 25th August, The effective interest rate for the debentures was 5.30%. The proceeds from the debentures will be used for the repayment of certain bank loans of the Company and the investment in the Company s diesel engine project ,000, ,000, % 6.1% 900,000, % 1,300,000, % 190 Weichai Power Co., Ltd.

192 Notes to the Financial Statements (Continued) 34. Interest-Bearing Bank and Other Borrowings 34. Effective interest Effective interest Group rate (%) Maturity RMB 000 rate (%) Maturity RMB 000 (%) (%) Current Bank loans secured , ,230 Bank loans unsecured , ,067,074 Current portion of long-term bank loans , ,000 Other loans secured ,000 Other loans unsecured ,000 1,515,664 1,308,304 Non-current Bank loans secured ,000 Bank loans unsecured , ,000 Other loans unsecured , , , ,700 2,457,864 2,086, Effective Effective interest interest Company rate (%) Maturity RMB 000 rate (%) Maturity RMB 000 (%) (%) Current Bank loans unsecured , ,346 Current portion of long-term bank loans , , ,346 Non-current Bank loans unsecured , , , , , ,346 Annual Report

193 Notes to the Financial Statements (Continued) 34. Interest-Bearing Bank and Other Borrowings (continued) 34. Group Company RMB 000 RMB 000 RMB 000 RMB 000 Analysed into: Bank loans repayable: Within one year or on demand 1,372,664 1,308, , ,346 In the second year 117, , , ,000 In the third to fifth years, inclusive 800, , , ,000 2,289,664 2,075, , ,346 Other borrowings repayable: Within one year 143,000 In the third to fifth years, inclusive 20,000 Beyond five years 5,200 10, ,200 10,700 2,457,864 2,086, , ,346 Notes: (a) The Group s credit facilities amounting to RMB4,886,249,000 (2008: RMB5,476,676,000), of which RMB2,108,334,000 (2008: RMB1,878,676,000) had been utilised as at the end of reporting period. (b) Certain of the Group s bank loans are secured by: (i) (ii) (iii) mortgages over certain of the Group s land use rights, buildings, machinery and motor vehicles, which had an aggregate carrying value at the end of the reporting period of approximately RMB173,997,000; and pledge of the Group s term deposit amounting to RMB100,085,000. pledge of the Group s trade receivable amounting to RMB4,134,000. (a) (b) 4,886,249,000 5,476,676,000 2,108,334,000 1,878,676,000 (i) (ii) (iii) 173,997, ,085,000 4,134,000 (c) Except for the bank loan of RMB82,197,000 which is denominated in United States dollars and RMB81,887,000 which is denominated in Hong Kong dollars, all borrowings are in RMB. (c) 82,197,00081,887,000 (d) Included in the above are defaulted bank loans of approximately RMB24,080,000 (2008: RMB44,228,000) drawn by a subsidiary of Torch Automobile Group Co., Ltd ( TAGC ) prior to the TAGC Acquisition (note 36) which are classified as current. The Group is currently negotiating a restructuring of these loans with the relevant bankers. As at the date of this report, the negotiations are still in progress. However, the directors are confident that their negotiations with the lenders will ultimately reach a successful conclusion. (d) 36 24,080,000 44,228,000 The carrying amounts of the Group s and the Company s borrowings approximate to their fair values. 192 Weichai Power Co., Ltd.

194 Notes to the Financial Statements (Continued) 35. Warranty Provision 35. Group Company RMB 000 RMB 000 RMB 000 RMB 000 At 1st January 446, , , ,500 Additional provision 709, , , ,346 Business combination 38 (note 38) 1,978 Contribution from a minority shareholder Amounts utilised during the year 15,721 (675,999) (433,238) (400,902) (288,947) At 31st December 497, , , ,899 The Group provides warranties ranging from six months to three years to its customers on certain products and undertakes to repair or replace items that fail to perform satisfactorily. The amount of the provision for warranties is estimated based on the sales volume and past experience on the level of repairs and returns. The estimation basis is reviewed on an ongoing basis and revised when appropriate. 36. Share Capital Shares RMB 000 RMB 000 Registered, issued and fully paid: A shares of RMB1 each 1A state-owned shares 186, ,545 other legal person and natural person shares 444, ,101 H shares of RMB1 each 1H 202, , , ,046 The holders of ordinary shares are entitled to receive dividends as and when declared by the Company. All ordinary shares carry one vote per share without restrictions. Annual Report

195 Notes to the Financial Statements (Continued) 36. Share Capital(continued) Shares (continued) During the years ended 31st December, 2008 and 2009, the movements in share capital were as follows: 36. On 12th November, 2006, the Company entered into a conditional agreement with TAGC whereby the Company agreed to issue an aggregate of 190,653,552 new A shares with a par value of RMB1 each (the Consideration Shares ) to acquire 71.88% equity interest in TAGC that the Group did not already own (the TAGC Acquisition ) at an issue price of RMB20.47 per share. The TAGC Acquisition was approved by shareholders of both the Company and TAGC at their respective general meetings held on 29th December, Completion of the TAGC Acquisition took place on 23rd April, 2007, and the Company issued the Consideration Shares on the same day ,653,552 1A 71.88% Upon completion of the TAGC Acquisition, (i) the shares of TAGC were cancelled; (ii) TAGC s assets were absorbed into and its liabilities assumed by the Company; and (iii) TAGC were deregistered and ceased to exist ( Legal merger with TAGC ). In addition, the Company s A shares were listed on the Shenzhen Stock Exchange on 30th April, 2007 while its H shares continued to be listed on the Hong Kong Stock Exchange. (i) (ii) (iii) A H Pursuant to an ordinary resolution passed on 3nd November, 2008 regarding a bonus issue of six shares for every 10 shares held by the shareholders as of 2nd December, 2008, the issued capital of the Company was increased from RMB520,654,000 to RMB833,046,000 by capitalisation of share premium of RMB312,392, ,654, ,392, ,046, Weichai Power Co., Ltd.

196 Notes to the Financial Statements (Continued) 36. Share Capital (continued) Shares (continued) A summary of the transactions during the years with reference to the above movements in the Company s issued capital and the Group s share premium account is as follows: 36. Number of shares in issue Issued Share H shares A shares Total capital premium Total H A RMB 000 RMB 000 RMB 000 At 1st January, , , , ,654 2,368,660 2,889,314 Bonus issue 75, , , ,392 (312,392) At 31st December, 2008 and at 1st January, 2009 At 202, , , ,046 2,056,268 2,889, , , , ,046 2,056,268 2,889, Reserves (a) Group The amounts of the Group s reserves and the movements therein for the current and prior years are presented in the consolidated statement of changes in equity of the financial statements. Capital reserve The capital reserve of the Group includes the Group s share premium of RMB2,056,268,000 and the non-distributable reserves of the Company and its subsidiaries created in accordance with the accounting and financial regulations of the PRC. 37. (a) 2,056,268,000 Annual Report

197 Notes to the Financial Statements (Continued) 37. Reserves (continued) (a) Group (continued) Surplus reserves In accordance with the PRC Company Law and the articles of association of the relevant companies, the Company, its subsidiaries, associates and jointly-controlled entity are required to appropriate a certain percentage of their net profits after tax to the surplus reserves comprising statutory surplus reserve and discretionary surplus reserve. Subject to certain restrictions set out in the relevant PRC regulations and in the Company s articles of association, the statutory surplus reserve may be used either to offset losses, or to be converted to increase share capital. These reserves cannot be used for purposes other than those for which they are created and are not distributable as cash dividends. Distributable reserves At, the Company s reserves available for distribution, calculated in accordance with the relevant regulations, amounted to RMB6,340,303,000 (2008: RMB3,901,978,000), out of which dividend of RMB399,862,000 (2008: RMB108,296,000) for the year ended was proposed on 26th April, In addition, the Company s share premium account in its statutory financial statements, in the amount of RMB1,832,568,000 (2008: RMB1,832,568,000), may be distributed in the form of fully paid bonus shares. 37. (a) 6,340,303,000 3,901,978, ,862, ,296,000 1,832,568,000 1,832,568,000 The amount for which the Company can legally distribute by way of a dividend is determined based on the lower of the retained profits determined in accordance with the generally accepted accounting principles in the PRC and the HKFRSs. 196 Weichai Power Co., Ltd.

198 Notes to the Financial Statements (Continued) 37. Reserves (continued) (b) Company 37. (b) Availablefor-sale investments Capital Surplus revaluation Retained reserve reserves reserve profits Total Notes RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Balance at 1st January ,128, ,639 2,461,040 4,990,088 Bonus issue 36 (312,392) (312,392) Total comprehensive income for the year (83,130) 1,636,425 1,553,295 Appropriation to statutory surplus reserves 163,792 (163,792) Proposed final 2008 dividend 12 (108,296) (108,296) At 31st December, 2008 Total comprehensive income for the year Appropriation to statutory surplus reserves Proposed final 2009 dividend At 1,816, ,431 (83,130) 3,825,377 6,122, ,080 2,828,588 3,070, ,958 (282,958) 12 (399,862) (399,862) 1,816, , ,950 5,971,145 8,793,501 Annual Report

199 Notes to the Financial Statements (Continued) 38. Business Combination In 2009, the Group acquired additional equity interests in Eaton Fast Gear (Xi an) Co., Ltd. ( Eaton Fast ), and Chongqing Jialing Chuanjiang Vehicles Manufacturing Co., Ltd ( Jialing Chuangjiang ). Upon the acquisition, these entities became the Group s subsidiaries. Details are as follows: On 7th May, 2009, the Group acquired an additional 55% equity interest in Eaton Fast, which was formerly an associate of the Group and became a wholly-owned subsidiary of the Group upon the acquisition. Eaton Fast is engaged in the manufacture of heavy duty automotive gears and parts. The purchase consideration for the acquisition of the additional equity interest was in the form of cash of RMB1. Eaton Fast was subsequently merged with Xi an Fast Auto Drive Co., Ltd., a subsidiary of the Group, and deregistered after the merger in November On 3rd December, 2009, the Group acquired an 80% equity interest in Jialing Chuanjiang from its original investors. Jialing Chuanjiang is engaged in the manufacture and trading of automobiles and related automotive components. The purchase consideration for the acquisition was in the form of cash of RMB5,000,000 paid at the acquisition date % 1 80% 5,000, Weichai Power Co., Ltd.

200 Notes to the Financial Statements (Continued) 38. Business Combination (continued) The aggregate fair values of the identifiable assets and liabilities of the above acquired subsidiaries as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were as follows: 38. Fair value recognised on acquisition Carrying amount Notes RMB 000 RMB 000 Property, plant and equipment 14 79,408 79,408 Prepaid land lease payments 16 5,411 5,411 Deposit paid for acquisition of property, plant and equipment 40,870 40,870 Trade and bills receivables 11,060 11,060 Prepayments, deposits and other receivables 2,314 2,314 Cash and cash equivalents 7,621 7,621 Trade and bills payables (22,963) (22,963) Other payables and accruals (146) (146) Warranty provision 35 (1,978) (1,978) 121, ,597 Excess over the cost of business combination recognised in the income statement 5 (87,334) 34,263 Satisfied by: Cash and cash equivalents 5,000 Investments in an associate 29,263 34,263 An analysis of the net outflow of cash and cash equivalents in respect of the acquisition of the above subsidiaries is as follows: RMB 000 Cash consideration (5,000) Cash and bank balances acquired 7,621 Net inflow of cash and cash equivalents in respect of the acquisition of subsidiaries 2,621 Since the acquisition, the newly acquired subsidiaries made no contribution to the Group s turnover and accounted for a loss of RMB9,032,000 to the consolidated profit for the year ended 31st December, Had the combination taken place at the beginning of the year ended, the revenue and the profit of the Group for the year would have been RMB35,260,899,000 and RMB3,931,381,000, respectively. 9,032,000 35,260,899,000 3,931,381,000 Annual Report

201 Notes to the Financial Statements (Continued) 39. Disposal of a Subsidiary 39. Note 2009 RMB 000 Net assets disposed of: Property, plant and equipment 14 46,740 Inventories 24,227 Cash and cash equivalents 7,816 Trade receivables 18,040 Prepayments and other receivables 13,110 Interest-bearing bank and other borrowings (14,000) Trade and bills payables (8,088) Other payables and accruals (39,969) 47,876 Gain on disposal of a subsidiary: 47,876 Satisfied by: Deposits and other receivables 29,093 Investments in associates 18,783 47,876 An analysis of the net outflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows: 2009 RMB 000 Cash consideration Cash and cash equivalents disposed of (7,816) Net outflow of cash and cash equivalents in respect of the disposal of a subsidiary (7,816) 200 Weichai Power Co., Ltd.

202 Notes to the Financial Statements (Continued) 40. Contingent Liabilities At the end of the reporting period, contingent liabilities not provided for in the financial statements were as follows: 40. Guarantees given to banks in connection with facilities granted to third parties Group Company RMB 000 RMB 000 RMB 000 RMB 000 1,053,691 1,754,055 The above guarantees are made by subsidiaries of the Group to the dealers and agents for their business. 41. Pledge of Assets Details of the Group s assets pledged for the banking facilities of the Group are included in notes 14, 16, 27, 29 and 34 to the financial statements. 42. Operating Lease Arrangements (a) As lessor The Group leases certain of its investment properties (note 15) and plant and machinery under operating lease arrangements. Leases for properties are negotiated for terms ranging from one to two years and those for plant and machinery negotiated for terms ranging from one to two years. The terms of the leases generally also require tenants to pay security deposits and provide for periodic rent adjustments according to the then prevailing market conditions. At, the Group had total future minimum lease receivables under non-cancellable operating leases with its tenants falling due as follows: (a) 15 Group RMB 000 RMB 000 Within one year 9,872 2,375 In the second to fifth years, inclusive 340 8,078 After five years 23,930 10,212 34,383 Annual Report

203 Notes to the Financial Statements (Continued) 42. Operating Lease Arrangements (continued) (b) As lessee The Group leases certain plant and machinery and properties under operating lease arrangements. Leases are negotiated for terms ranging from 1 to 10 years and rent is fixed over the lease term. 42. (b) At, the Group and the Company had total future minimum lease payments under non-cancellable operating leases falling due as follows: Group Company RMB 000 RMB 000 RMB 000 RMB 000 Within one year 26,707 24, In the second to fifth years, inclusive 81,547 92, After five years 149, , , , Commitments In addition to the operating lease commitments detailed in note 42(b) above, the Group and the Company had the following capital commitments at the end of reporting period: (b) Group Company RMB 000 RMB 000 RMB 000 RMB 000 Purchase of property, plant and equipment Contracted but not provided for Authorised but not contracted for 946,771 1,168, , ,243 34, ,771 1,203, , , Weichai Power Co., Ltd.

204 Notes to the Financial Statements (Continued) 44. Related Party Transactions (a) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the year: 44. (a) Group Notes RMB 000 RMB 000 Sale of products to Weichai Holdings and its subsidiaries i 734, ,132 Lonking Holdings and its subsidiaries ii 612, ,848 Minority shareholders groups iii 1,169,365 1,388,385 Jointly-controlled entity 39,836 17,179 Associates 26,289 25,820 2,582,090 2,640,364 Purchase of raw materials from Weichai Holdings and its subsidiaries i 316, ,785 Minority shareholders groups iii 1,827,940 1,187,711 Jointly-controlled entity 75,131 Associates 327, ,973 2,547,201 1,987,469 Warehouse and logistics service fees income from Weichai Holdings and its subsidiaries i 3, Other service fees income from Weichai Holdings and its subsidiaries i 10,465 7,558 Other service fees paid to Weichai Holdings and its subsidiaries i 25,408 25,519 Minority shareholders groups iii 82,122 90, , ,658 Utility service fees paid to Weichai Holdings and its subsidiaries i 157, ,882 Utility service income from Minority shareholders groups iii 11,680 11,866 Annual Report

205 Notes to the Financial Statements (Continued) 44. Related Party Transactions (continued) (a) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the year: (continued) 44. (a) Rental income for certain premises, machinery, and equipment from Group Notes RMB 000 RMB 000 Weichai Holdings and its subsidiaries i 2,115 Minority shareholders groups iii 1,813 1,800 Jointly-controlled entity 1,384 Associates 5,540 3,085 10,852 4,885 Rental paid for certain premises, machinery, and equipment to Weichai Holdings and its subsidiaries i 46,218 46,244 Minority shareholders groups iii 27,377 37,593 Associates ,595 84,355 Sales and warranty period repair service fee income from Weichai Holdings and its subsidiaries i 13,253 3,327 Purchase of fixed assets from Minority shareholders groups iii 1,226 Processing service fees paid to Weichai Holdings and its subsidiaries i 55,962 92,273 Minority shareholders groups iii 5,867 61,829 92,273 Notes: (i) Weichai Holdings is the single largest shareholder owning a 14.92% interest in the Company as at. The related party transactions disclosed above were entered into with Weichai Holdings and its subsidiaries, mainly including Chongqing Weichai Diesel Engine Works, Chongqing City Jiangjin District Chongwei Casting Co., Ltd., Shandong Weichai Import and Export Co., Ltd., Weichai Heavy Machinery Co., Ltd. ( Weichai Heavy Machinery, formerly known as Shandong Juli Company Limited), Weifang Weichai Deutz Diesel Engine Co., Ltd., Weichai Tongxin Real Estate Co., Ltd., Weichai Property Development Co., Ltd., and Shandong Huafeng Power Co., Ltd. (i) 14.92% 204 Weichai Power Co., Ltd.

206 Notes to the Financial Statements (Continued) 44. Related Party Transactions (continued) (a) In addition to the transactions detailed elsewhere in these financial statements, the Group had the following material transactions with related parties during the year: (continued) Notes: 44. (a) (ii) Lonking Holdings Limited ( Lonking Holdings, formerly known as China Infrastructure Machinery Holdings Limited) is a Hong Kong listed company which is owned by a non-executive director of the Company and his wife as to 54.33% as at. The couple also own a 4.13% interest in the Company. The related party transactions disclosed above were entered into with the subsidiaries of Lonking Holdings, namely Fujian Longyan Construction Machinery (Group) Company Limited and Shanghai Longgong Machinery Company Limited. (ii) 54.33% 4.13% (iii) Certain companies of the Group entered into related party transactions as disclosed above with their minority shareholders, which were able to exert significant influence over the companies, and the subsidiaries thereof (collectively referred to as Minority shareholders groups ). Such minority shareholders include: (iii) Shaanxi Fast Gear Automotive Transmission Co., Ltd., which owned a 49% interest in a subsidiary of the Group, namely Shaanxi Fast Gear Co., Ltd., as at. 49% Shaanxi Automotive Group Co., Ltd., which owned a 49% interest in a subsidiary of the Group, namely Shaanxi Heavy Duty Automotive Co., Ltd. ( Shaanxi Zhongqi ), as at 31st December, % Dong Feng Automotive Group Co., Ltd., which owned a 40% interest in a subsidiary of the Group, namely Dong Feng Offroad Vehicles Co., Ltd., as at. 40% Zhuzhou Gear Share Co., Ltd. ( Zhuzhou Gear Share ), which owned a 33.98% interest in a subsidiary of the Group, namely Zhuzhou Gear Co., Ltd. ( Zhuzhou Gear ), as at 31st December, % Mudan Jiang Huatong Automotive Group Company Limited ( Huatong ), which owned a 20.04% interest in a subsidiary of the Group, namely Mudan Jiang Futong Automotive Air Conditioner Co., Ltd. ( Futong ), as at % Annual Report

207 Notes to the Financial Statements (Continued) 44. Related Party Transactions (continued) (b) Other transactions with related parties: 44. (b) (i) As at 31st December, 2008, Zhuzhou Gear Share pledged its buildings with net book value of RMB16,220,000 for general banking facilities granted by a bank to Zhuzhou Gear. All the relevant bank loans have been repaid in (i) 16,220,000 (ii) As at 31st December, 2008, Huatong pledged a building with net book value of RMB24,802,000 for general banking facilities granted by a bank to Futong. All the relevant bank loans have been repaid in (ii) 24,802,000 (c) Balances due from/to related parties: (c) The balances due from/to related parties mainly resulted from trading transactions and miscellaneous amounts reimbursable by/to the related parties. Further details are set out in notes 27, 28, 31 and 32 to the financial statements (d) Compensation of key management personnel of the Group: (d) Group RMB 000 RMB 000 Short term employee benefits 19,709 15,649 Post-employment benefits Total compensation paid to key management personnel 19,924 15,824 Further details of directors and supervisors emoluments are included in note 8 to the financial statements. Except for the transactions with jointly-controlled entity and associates, all the above related party transactions also constitute connected transactions or continuing connected transactions as defined in Chapter 14A of the Listing Rules. 8 14A 206 Weichai Power Co., Ltd.

208 Notes to the Financial Statements (Continued) 45. Financial Instruments by Category The carrying amounts of each of the categories of financial instruments as at the end of reporting period are as follows: Financial assets Group Availablefor-sale Loans and financial receivables assets Total RMB 000 RMB 000 RMB 000 Trade and bills receivables (note 27) 27 11,352,945 11,352,945 Financial assets included in prepayments, deposits and other receivables (note 28) , ,032 Available-for-sale investments 23 (note 23) 477, ,430 Pledged deposits (note 29) 29 2,979,932 2,979,932 Cash and cash equivalents (note 29) 29 3,598,339 3,598,339 18,619, ,430 19,096,678 Annual Report

209 Notes to the Financial Statements (Continued) 45. Financial Instruments by Category (continued) 2009 Financial liabilities 45. Group Financial liabilities at amortised cost RMB 000 Trade and bills payables (note 31) 31 11,830,642 Financial liabilities included in other payables and accruals (note 32) 32 2,826,910 Debentures (note 33) 33 1,281,669 Interest-bearing bank and 34 other borrowings (note 34) 2,457,864 18,397, Financial assets Trade and bills receivables (note 27) Financial assets included in prepayments, deposits and other receivables (note 28) Available-for-sale investments (note 23) Group Availablefor-sale Loans and financial receivables assets Total RMB 000 RMB 000 RMB ,930,008 6,930, , , , ,187 Pledged deposits (note 29) 29 2,511,809 2,511,809 Cash and cash equivalents (note 29) 29 3,352,138 3,352,138 13,684, ,187 13,863, Weichai Power Co., Ltd.

210 Notes to the Financial Statements (Continued) 45. Financial Instruments by Category (continued) Financial liabilities 45. Financial liabilities at amortised cost RMB 000 Trade and bills payables (note 31) 31 10,627,951 Financial liabilities included in other payables and accruals (note 32) 32 1,863,379 Debentures (note 33) 33 1,700,000 Interest-bearing bank and 34 other borrowings (note 34) 2,086,004 16,277, Financial assets Company Availablefor-sale Loans and financial receivables assets Total RMB 000 RMB 000 RMB 000 Trade and bills receivables (note 27) 27 7,219,623 7,219,623 Financial assets included in prepayments, deposits and other receivables (note 28) , ,028 Available-for-sale investments 23 (note 23) 381, ,000 Pledged deposits (note 29) , ,138 Cash and cash equivalents (note 29) 29 1,442,978 1,442,978 10,080, ,000 10,461,767 Annual Report

211 Notes to the Financial Statements (Continued) 45. Financial Instruments by Category (continued) Financial liabilities 45. Financial liabilities at amortised cost RMB 000 Trade and bills payables (note 31) 31 4,957,975 Financial liabilities included in other payables and accruals (note 32) 32 1,681,522 Debentures (note 33) 33 1,281,669 Interest-bearing bank and other borrowings 34 (note 34) 748,282 8,669, Financial assets Company Availablefor-sale Loans and financial receivables assets Total RMB 000 RMB 000 RMB 000 Trade and bills receivables (note 27) 27 3,414,244 3,414,244 Financial assets included in prepayments, deposits and other receivables (note 28) , ,947 Available-for-sale investments 23 (note 23) 96,200 96,200 Pledged deposits (note 29) 29 1,813,232 1,813,232 Cash and cash equivalents (note 29) , ,079 6,787,502 96,200 6,883, Weichai Power Co., Ltd.

212 Notes to the Financial Statements (Continued) 45. Financial Instruments by Category (continued) Financial liabilities 45. Financial liabilities at amortised cost RMB 000 Trade and bills payables (note 31) 31 4,791,896 Financial liabilities included in other payables and accruals (note 32) 32 1,151,450 Debentures (note 33) ,000 Interest-bearing bank and 34 other borrowings (note 34) 868,346 7,711, Fair Value Hierarchy The Group uses the following hierarchy for determining and disclosing the fair values of financial instruments: 46. Level 1: fair values measured based on quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: fair values measured based on valuation techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3: fair values measured based on valuation techniques for which all inputs which have a significant effect on the recorded fair value are not based on observable market data (unobservable inputs). Annual Report

213 Notes to the Financial Statements (Continued) 46. Fair Value Hierarchy (continued) As at, the Group held the following financial instruments measured at fair value: 46. Assets measured at fair value as at : Level 1 Level 2 Level 3 Total RMB 000 RMB 000 RMB 000 RMB 000 Available-for-sale investments Equity investments 385, ,997 As at, the Company held the following financial instruments measured at fair value: Assets measured at fair value as at : Level 1 Level 2 Level 3 Total RMB 000 RMB 000 RMB 000 RMB 000 Available-for-sale investments Equity investments 381, , Weichai Power Co., Ltd.

214 Notes to the Financial Statements (Continued) 47. Financial Risk Management Objectives and Policies The Group s principal financial instruments comprise debentures, interest-bearing bank and other borrowings, and cash and short term deposits. The main purpose of these financial instruments is to raise finance for the Group s operations. The Group has various other financial assets and liabilities such as trade receivables and trade payables, which arise directly from its operations. 47. The main risks arising from the Group s financial instruments are interest rate risk, foreign currency risk, credit risk, liquidity risk, equity price risk and commodity price risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below. Interest rate risk The Group s exposure to the risk of changes in market interest rates relates primarily to the Group s long term debt obligations with a floating interest rate. The Group s policy is to manage its interest cost using a mix of fixed and variable rate debts. The Group currently does not have any interest rate hedging policy. Sensitivity analysis The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, of the Group s profit before tax (through the impact on floating rate borrowings) and the Group s equity. The sensitivity analyses below have been determined based on the exposure to interest rates for non-derivative instruments at the end of reporting period. For variable-rate bank borrowings, the analysis is prepared assuming the amount of liability outstanding at the end of reporting period was outstanding for the whole year. A 15 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management s assessment of the reasonably possible change in interest rates. 15 Annual Report

215 Notes to the Financial Statements (Continued) 47. Financial Risk Management Objectives and Policies (continued) Foreign currency risk 47. Increase/ (decrease) in basis point RMB 000 Increase/ (decrease) in profit before tax RMB 000 Increase/ (decrease) in equity 2009 RMB 15 (3,361) (2,845) RMB (15) 3,361 2,845 USD 15 (102) (87) USD (15) HKD 15 (123) (103) HKD (15) Foreign currency risk is the risk of loss resulting from changes in foreign currency exchange rates. Fluctuations in exchange rates between the RMB and other currencies in which the Group conducts business may affect its financial condition and results of operations. The Group seeks to limit its exposure to foreign currency risk by minimising its net foreign currency position. The Group has transactional currency exposures. Such exposures arise from sales or purchases by operating units in currencies other than the units functional currency. Approximately 9% (2008: 9%) of the Group s sales and 0.44% (2008: 0.79%) of the Group s purchases are denominated in currencies other than the functional currency of the operating units making the sales and purchases. The Group has not entered into any forward currency arrangements during the year ended. 9% 9%0.44% 0.79% 214 Weichai Power Co., Ltd.

216 Notes to the Financial Statements (Continued) 47. Financial Risk Management Objectives and Policies (continued) Foreign currency risk (continued) The following table demonstrates the sensitivity at the end of the reporting period to a reasonably possible change in the United States dollar/rmb exchange rate, in the EUR/RMB and in the Hong Kong dollar/rmb, with all other variables held constant, of the Group s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Group s equity. Group 47. Increase/ (decrease) in USD/EUR/HKD rate Increase/ (decrease) in profit before tax Increase/ (decrease) in equity % RMB 000 RMB If RMB weakens against USD 5 4,472 3,706 If RMB strengthens against USD (5) (4,472) (3,706) 2009 If RMB weakens against EUR If RMB strengthens against EUR (5) (303) (244) 2009 If RMB weakens against HKD If RMB strengthens against HKD (5) (216) (180) Credit risk The Group trades only with recognised and creditworthy third parties. It is the Group s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis and the Group s exposure to bad debts is not significant. For transactions with overseas customers, the Group does not offer credit terms without the specific approval of the Head of Credit Control. Annual Report

217 Notes to the Financial Statements (Continued) 47. Financial Risk Management Objectives and Policies (continued) Credit risk (continued) The credit risk of the Group s other financial assets, which comprise cash and cash equivalents, pledged deposits, available-for-sale financial assets, amounts due from associates and a jointly-controlled entity, and other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments. The Group is also exposed to credit risk through the granting of financial guarantees, further details of which are disclosed in note 40 to the financial statements. Since the Group trades only with recognised and creditworthy third parties, there is no requirement for collateral. Concentrations of credit risk are managed by customer/counterparty, by geographical region and by industry sector. At the end of reporting period, the Group has certain concentration of credit risk as 14.39% (2008: 22.18%) of the Group s trade receivables were due from the five largest customers. The Group performs ongoing credit evaluations of its customers financial conditions. The allowance for doubtful debts is based upon a review of the expected collectability of all trade receivables. Further quantitative data in respect of the Group s exposure to credit risk arising from trade and bills receivables are disclosed in note 27 to the financial statements. Liquidity risk Liquidity risk is the risk of not having access to sufficient funds to meet the Group s obligations as they become due. The Group seeks to manage its liquidity risk by maintaining a balance between continuity of funding and flexibility through the use of bank loans and debentures % 22.18% Weichai Power Co., Ltd.

218 Notes to the Financial Statements (Continued) 47. Financial Risk Management Objectives and Policies (continued) Liquidity risk (continued) The maturity profile of the Group s financial liabilities as at the end of reporting period based on the contractual undiscounted payment, is as follows: Group On Less than demand 3 months 3 3 to less than 12 months 1 to 5 years Over 5 years Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Interest-bearing bank and other borrowings 334,133 1,159,558 1,010,331 6,284 2,510,306 Trade and bills payables 10,486,201 1,344,441 11,830,642 Financial liabilities included in other payables and accruals 1,077,365 1,749,545 2,826,910 Debentures 42,900 1,557,400 1,600,300 11,897,699 4,296,444 2,567,731 6,284 18,768,158 Group 2008 On demand Less than 3 months 3 to less than 12 months 1 to 5 years Over 5 years Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Interest-bearing bank and other borrowings 258,877 1,201, ,703 12,004 2,285,484 Trade and bills payables 5,798,843 4,829,108 10,627,951 Financial liabilities included in other payables and accruals 939, ,232 1,863,379 Debentures 805, ,400 1,728,816 7,802,283 7,878, ,703 12,004 16,505,630 Annual Report

219 Notes to the Financial Statements (Continued) 47. Financial Risk Management Objectives and Policies (continued) Liquidity risk (continued) Company On Less than demand 3 months 3 3 to less than 12 months 1 to 5 years Over 5 years Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Interest-bearing bank and other borrowings 76, , , ,345 Trade and bills payables 4,427, ,988 4,957,975 Financial liabilities included in other payables and accruals 100,811 1,580,711 1,681,522 Debentures 42,900 1,557,400 1,600,300 4,605,662 2,655,834 1,767,646 9,029,142 Group 2008 On demand Less than 3 months 3 to less than 12 months 1 to 5 years Over 5 years Total RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Interest-bearing bank and other borrowings 68, , , ,823 Trade and bills payables 2,242,988 2,548,908 4,791,896 Financial liabilities included in other payables and accruals 236, , ,903 1,151,450 Debentures 923, , ,991 2,830,260 3,968, ,093 7,782, Weichai Power Co., Ltd.

220 Notes to the Financial Statements (Continued) 47. Financial Risk Management Objectives and Policies (continued) Equity price risk Equity price risk is the risk that the fair values of equity securities decrease as a result of changes in the levels of equity indices and the value of individual securities. The Group is exposed to equity price risk arising from individual equity investments classified as availablefor-sale investments (note 23) as at. The Group s listed equity investments are mainly listed on the Shanghai Stock Exchange and are valued at quoted market prices at the end of reporting period The market equity indices for the following stock exchanges, at the close of business of the nearest trading day in the year to the end of reporting period, and their respective highest and lowest points during the year were as follows: 31st December High/low 31st December High/low Shanghai A Share Index A 3,437 3,644/ 1,912 5,771/ 1,956 1,793 The following table demonstrates the sensitivity to every 10% change in the fair values of the listed equity investments, with all other variables held constant and before any impact on tax, based on their carrying amounts at the end of reporting period. For the purpose of this analysis, for the available-for-sale listed equity investments the impact is deemed to be on the available-for-sale investment revaluation reserve and no account is given for factors such as impairment which might impact the income statement. 10% Annual Report

221 Notes to the Financial Statements (Continued) 47. Financial Risk Management Objectives and Policies (continued) Equity price risk (continued) Group 47. Carrying amount of equity investments RMB 000 Increase/ decrease in equity RMB 000 Equity investments listed in: Shanghai Available-for-sale 381,000 38,100 Elsewhere Available-for-sale 4, Commodity price risk In addition to the above risks relating to financial instruments, the Group is exposed to the commodity price risk such as steel and metal (major components of the Group s raw materials). The Group currently does not have any arrangement to hedge the price risk exposure of its raw material purchases. Capital management The primary objective of the Group s capital management is to safeguard the Group s ability to continue as a going concern and to maintain healthy capital ratios in order to support its business and maximise shareholders value. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions and the risk characteristics of the underlying assets. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares. The Group is not subject to any externally imposed capital requirements. No changes were made in the objectives, policies or processes for managing capital during the years ended and 31st December, Weichai Power Co., Ltd.

222 Notes to the Financial Statements (Continued) 47. Financial Risk Management Objectives and Policies (continued) Capital management (continued) The Group monitors capital using a gearing ratio, which is net debt divided by the total capital plus net debt. Net debt includes interest-bearing bank and other borrowings, trade, bills and other payables, debentures, less cash and cash equivalents and pledged deposits, and excludes discontinued operations. Capital includes equity attributable to equity holders of the Company. The gearing ratios as at the end of reporting period were as follows: 47. Group RMB 000 RMB 000 Interest-bearing bank and other borrowings 2,457,864 2,086,004 Trade and bills payables 11,830,642 10,627,951 Debentures 1,281,669 1,700,000 Other payables and accruals 3,574,003 2,916,253 Less: Cash and cash equivalents and pledged deposits 6,578,271 5,863,947 Net debt 12,565,907 11,466,261 Equity attributable to owners of the parent 11,754,618 7,997,754 Capital and net debt 24,320,525 19,464,015 Gearing ratio 52% 59% Annual Report

223 Notes to the Financial Statements (Continued) 48. Events After the Reporting Period On 25th March, 2010, the Company, Shaanxi Zhongqi, Weichai Heavy Machinery and Shandong Heavy Industry Group Co., Ltd. ( SHIGC ) entered into an agreement with Shantui Construction Machinery Co., Ltd. ( Shantui ), pursuant to which the Company, Shaanxi Zhongqi, Weichai Heavy Machinery and SHIGC agreed to make a capital contribution of RMB180 million, RMB180 million, RMB180 million and RMB200 million, respectively, into Shantui Leasing Co., Ltd., which is currently a wholly owned subsidiary of Shantui. Upon completion of the capital contribution, the Company and Shaanxi Zhongqi will each own % interest in Shantui Leasing Co., Ltd.. The transaction was approved by the board of directors of the Company on 5th February, % 49. Comparative Amounts As further explained in note 2.2 to the financial statements, due to the adoption of new and revised HKFRSs during the current year, the accounting treatment and presentation of certain items and balances in the financial statements have been revised to comply with the new requirements. Accordingly, certain comparative amounts have been reclassified and restated to conform with the current year s presentation and accounting treatment Approval of the Financial Statements The financial statements were approved and authorised for issue by the board of directors on 26th April, Weichai Power Co., Ltd.

224 Financial Summary A summary of the results and of the assets, liabilities and minority interests of the Group for the last five financial years, as extracted from the published audited financial statements and restated/reclassified as appropriate, is set out below: Year ended 31st December RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 RESULTS REVENUE 35,260,899 32,567,190 28,786,183 6,633,668 5,250,735 PROFIT BEFORE TAX 4,679,244 2,740,698 3,273, , ,602 Tax (732,380) (328,989) (479,566) (181,099) (93,919) PROFIT FOR THE YEAR 3,946,864 2,411,709 2,793, , ,683 Attributable to: Equity holders of the parent 3,406,935 1,928,955 2,014, , ,203 Minority interests 539, , ,672 5,315 1,480 3,946,864 2,411,709 2,793, , ,683 Dividends 399, , , , ,900 Basic earnings per share (in RMB) ASSETS, LIABILITIES Total Assets 36,375,477 29,949,867 22,592,493 16,855,513 5,611,955 Total Liabilities (20,714,162) (18,623,389) (13,194,305) (10,496,149) (3,150,994) Capital and reserves 15,661,315 11,326,478 9,398,188 6,359,364 2,460,961 Equity attributable to equity holders of the Company 11,754,618 7,997,754 6,383,472 2,984,562 2,398,581 Minority interests 3,906,697 3,328,724 3,014,716 3,374,802 62,380 15,661,315 11,326,478 9,398,188 6,359,364 2,460,961 Annual Report

225 Supplemental Information Statement of Differences between Consolidated Financial Statements prepared under Hong Kong Financial Reporting Standards ( HKFRS ) and those under Accounting Standards for Business Enterprises ( PRC GAAP ) Other than certain classification of financial statement items, there are no significant differences between the results for the year ended 31st December, 2009 and the net assets as of that date as reported in the accounts prepared using PRC GAAP and HKFRS. 224 Weichai Power Co., Ltd.

226