Financial Overview

(In million yuan)

	FY ended Dec. 31, 2012	FY ended Dec. 31, 2011	Increases (%)	Factors
Sales	2,381.71	2,199.92	8.26%	-Increase in the market share of engines
Operating profit	42.33	(18.83)	-	-Profit increased as a result of new product development, marketing and cost control.
Ordinary profit	50.31	17.38	189.47%
Net profit	43.02	1.22	3,426.23%

-The Company's 2012 diesel sale ranked fifth in China.  

- Kunming Yunnei Power Co., Ltd. announced on January 10, 2013 that it has produced its 5,500th D19 diesel engine compliant with the Euro V regulations for the U.K. market. The D19 engine for passenger vehicles was developed based on Euro lV engines. It was engineered jointly by Kunming Yunnei, SAIC and FEV of Germany according to an agreement made in 2009. The development project  involved an investment of approximately 120 million yuan. Major performance indexes of the D19 engine even exceeded those of engines made by European engine manufacturers. Mass production of the D19 Euro V engine started on October 30, 2012. It will be installed on the MG6 to be released in the U.K. in the first quarter of 2013. (From news releases issued by multiple sources on January 11, 2013)

Merging
- Kunming Yunnei Powers said it will merge Kunming Leimo Power System Co., Ltd., its wholly owned subsidiary, into it own operations effective December 31, 2012. Kunming Yunnei Power will take over all assets, liabilities and employees of Kunming Leimo Power System. The merger is intended to establish a lean business structure, reduce operating expenses, and enhance its management system. (From an announcement by the company, October 29, 2012)   

Joint Ventures

- Kunming Yunnei Power announced that together with a local sales company it will establish a joint venture company in Qingzhou, Shandong to expand its presence in Northern China and Northeast China. The new company will be called Shandong Yunnei Power Co., Ltd. (tentative name). According to the agreement, its capital amount will not fall below 70 million yuan, of which at least 51 percent will be provided by Kunming Yunnei. When the first phase of the construction project is completed, the plant will be able to manufacture 150,000 units on a double-shift operation. (From a press release, October 29, 2012)

-The company will establish Bijie Yunnei Power Co., Ltd. (tentative name) at the Bijie Economic Development Area, Guizhou Province through a joint investment with Bijie District Lifan Junma Vehicle Co., Ltd. The joint-venture company will produce engines for Bijie District Lifan Junma Vehicle. It will be capitalized at 60 million yuan, of which 80 percent will be invested by Kunming Yunnei. The production facility will be able to  produce 50,000 engines a year initially with a plan to increase the capacity based on the future demand levels.(From an announcement by the company, August 4, 2012)

Share Transfer

- Kunming Yunnei Power Co., Ltd. announced that it is going to transfer its 51 percent share in Yunnei Power Dazhou Automobile Co., Ltd., one of its subsidiaries, to Sichuan Zhonghui Enterprise Co., Ltd. The share transfer project has already been approved by China’s State-owned Assets Supervision and Administration. Sichuan Zhonghui Enterprise is paying 25.5 million yuan for the deal, which is equivalent to 51 percent of Yunnei Power Dazhou Automobile’s capital amount. Sichuan Zhonghui Enterprise conducts business in the areas of real estate management, investment and information services. It also sells industrial machinery through its subsidiary. (From an announcement by the company, October 13, 2012)

New Plant
-The company will move its facilities to the Kunming Economic & Technological Development Zone, expecting a long-term growth. The company has been working on the construction project since 2008 on the 60 hectares site it had acquired for the project. The foundation work for the facility has just been completed. (From an announcement by the company, August 4, 2012)

Restructuring

- It has been decided that 100 percent of the shares in Yunnan Diesel Engine Plant, which is a parent company of the Company will be transferred to Changan Automobile free of cost, turning Yunnan Diesel Engine Plant into a wholly owned subsidiary of the automaker. The transfer will bring Kunming Yunnei Power under the umbrella of Changan Automobile. This project, which has already been approved by the State-owned Assets Supervision and Administration Commission of Kunming City, is subject to approval of both the State-owned Assets Supervision and Administration Commission of the State Council; and China Securities Regulator Commission, as well. (From an announcement by the company, January 7, 2011)

Business partnership
- Kunming Yunnei Power Co., Ltd. announced that the company and the Jinan Light Truck Sales Dept. of Sinotruck (Hong Kong) Limited are conducting a nationwide exhibition program for the HOWO light-duty trucks equipped with Kunming Yunnei’s 4100/4102 engines. The program kicked off in Xuchang, Henan in May 2012. Sinotruck entered the light-duty truck market in 2011 by launching operations of a new production line capable of producing 100,000 light duty trucks a year. (From a press release, July 6, 2012) 

- Shanghai Automotive Industry Corporation (Group) and the Company are likely to bolster collaboration in the area of small diesel engine technology for passenger cars and other vehicles. The two companies are said to be discussing plans that include establishing a joint-venture company and conducting a stock swap. Since last year, they have been carrying out a joint project to develop 0.9- to 1.9-liter diesel engines. This latest development in strengthening their ties is seen as part of Shanghai Automotive's initiative to enhance its passenger vehicle business. It is believed that Shanghai Automotive is intending to install a new 1.9-liter diesel engine, which it is developing with the company, on in its own-brand Roewe 550 that will be launched possibly by next year. 

R&D Expenditure

Product Development

(in million yuan)

Project	Amount invested in 2012	Amount invested in 2011	Amount invested in 2010
D19TCI electronic controlled Common Rail System	-	0.97	-
D25TCI electronic controlled Common Rail System	7.33	2.22	4.95
Development of Diesel Engines conforming to China 3 Emissions Limits	8.93	1.59	3.36
Development of Diesel Engines conforming to Euro 4 Emissions Limits	1.84	0.88	-
Development of Diesel Engines conforming to Euro 5 Emissions Limits	27.18	13.89	11.51
Development of Mini Diesel Engines	7.56	3.02	2.34
Development of Hybrid Power Diesel Engines	1.24	1.09	0.21
Development of Diesel Engines conforming to China 4 Emissions Limits	4.39	3.23	1.17
Development of Euro 4 Platform	2.59	0.2	2.39
Development of YNC45TCID Disesel Engines	2.58	2.58	-
Total	63.63	29.67	26.74

The R&D expenditure in 2012 is 14.10 million yuan, 22.15% year-on-year increase.

Source: Annual report

R&D Structure

Facility

Overview

Internal Combustion Engine Institute

- Designing and developing diesel engines, and developing manufacturing facilities to produce them - This facility and Beijing Institute of Technology are jointly operating the Internal Combustion Engine Engineering Center - This facility and Kunming Science & Technology University are jointly operating the Diesel Engine Test & Research Center - Set up Su Wanhua Academician Workstation in cooperation with Tianjin University

- The Company is identified as a National Passenger Car Diesel Engine High-tech Industrial Base, Diesel Engine Engineering Technology Research Center of Yunnan Province, National High-tech Enterprises and International Research Center.

-The Company cooperated with German FEV to develop international advanced passenger car diesel engines with independent intellectual property rights in 2012.

- D series engine research and development is taking a leading position in China. D19TCI passenger car diesel engines have been identified as national key new products in 2010. D16TCI, D19TCI, and D25TCI have been included in the national "Recommended List (secondbatch) of Energy-saving Electrical and Mechanical Equipments and won the national Certificate of Machinery Industry Energy-efficient Mechanical and Electrical Equipment. Meanwhile, D16TCI and D19TCI passenger car diesel engines have obtained 33 utility model patents.(From the Company's 2012 annual report)

Items (in million yuan)	Planned Budget	Amount invested in 2012	Notes
New plant to manufacture diesel engines for passenger vehicles	1,256.00	158.29	100%

The Company is constructing a new plant to manufacture diesel engines for passenger car. The total amount of investment in this project is budgeted at 1,796.40 million yuan. When the new production lines are completed, the Company will be able to produce 200,000 diesel engines a year.