Corporate Value and Return Enhancement Action Plan 2024
ofAmlogic (Shanghai) Co., Ltd.
Amlogic (Shanghai) Co., Ltd. (Hereinafter referred to as "Amlogic" or "theCompany") believes that Amlogic, as a listed company, has the responsibility toimprove our quality, increase investors' returns, and enhance investors' sense of gain.The Company hereby formulates the “Corporate Value and Return Enhancement ActionPlan 2024 of Amlogic (Shanghai) Co., Ltd.,” which was reviewed and approved in theninth meeting of the third Board of Directors of the Company on April 11, 2024, topractice the "investor-oriented" concept, safeguard the interests of all shareholders,continuously optimize operations, regulate governance, and actively reward investors.The Action Plan is detailed as follows:
I. Enhancing Technological Innovation Capability and Maintaining the Stabilityof the R&D Team
1) Maintaining Heavy Investment in R&D to Promote New Product Development
Technology R&D and innovation are the core competitiveness of modernenterprises, and the key factors to promote the sustainable development of enterprises.Amlogic attaches great importance to technology R&D and innovation, and promotesit as the enterprise's development strategy.
In 2024, the Company will adopt the following plans and measures to achieve thedevelopment goals:
(1) Product Development Plan
With the continuous development and maturity of consumer electronics relatedtechnologies, the demand for chip products in the above-mentioned field is furtherreleased. Therefore, the Company will continue to strengthen and improve chip designand development capabilities to meet the needs of downstream manufacturers, brands
and operators for chip products with higher integration, better performance and moresecurity. At the same time, the Company will maintain heavy investment in R&D in thefield of new products, and give full play to the expansion, innovation and applicationof the Company's core technologies in new fields, accelerating the transformation ofcore technologies, and speeding up the formation of new profit growth points.
(2) Technology R&D Plan
Based on the combination of medium- and long-term planning with near-termgoals and forward-looking technology research with product application development,the Company will carry out technology R&D and product innovation and improve theinnovation mechanism by taking the technology R&D center as a platform and themarket as a guide. The Company's sustainable innovation ability is secured in terms ofmanpower, financial resources, materials, and management mechanisms, facilitatingthe continuous development of the Company's new technology and new products.
2) Promoting the Transformation of R&D Results and Improving IntellectualProperty Protection
Since its establishment, the Company has conducted in-depth R&D of coretechnologies in the industry segments. By increasing the investment in technologyresearch and product development, and continuously improving and innovatingproducts and technologies, the Company's product functions and technical level havebeen continuously improved and perfected. In the process of R&D, the Company usespatent rights and other forms to protect the property rights of some valuable R&D andinnovation results. In 2023, the Company applied for 52 new intellectual properties,including 30 invention patents, and obtained 80 newly authorized intellectual properties,including 54 invention patents.In 2024, the Company will continue to apply for patents to legally protect R&Dand innovation results. It is expected that no less than 40 new patents will be filed.
3) Strengthening Industry-University-Research Collaboration to Share Cutting-edge Technologies and New Industry Forces
In 2023, the Company continued to promote the joint laboratory project with theSchool of Communication & Electronic Engineering under East China NormalUniversity, and the joint training project with Xidian University, separately. Someexcellent graduates from Xidian University joined the Company to bring new forces forthe Company's talent echelon construction.In 2024, the Company will continue to explore a new model of campus-enterprisecooperation in cooperation with colleges and universities to improve the talent echelon,actively establish cooperative relations with colleges and universities, promote talenttraining, technological innovation and knowledge sharing, jointly explore cutting-edgetechnologies, and cultivate new forces in the industry.
4) Optimizing the Talent Incentive Mechanism and Maintaining the Stability ofthe R&D Team
Talent is the core resource for corporate development. The Company alwaysadheres to the business philosophy that R&D capability constitutes a primaryproductive force and considers the talent team as the core asset of the Company. By theend of 2023, Amlogic had 1,579 R&D personnel, increasing 99 people compared withthe same period of last year, with a year-on-year growth of 6.69%. The average salaryof R&D personnel increased to 595,700 yuan/person, with a year-on-year growth of
7.99%.
At the same time, the Company has established a sound long-term incentivemechanism to fully motivate employees and attract and retain outstanding talents. Theinterests of shareholders, the Company and employees are effectively combined tobring the Company's long-term development into focus. As of December 31, 2023, theCompany has implemented four phases of the equity incentive plan (restricted stockincentive plan in 2019, 2021, 2023, and 2023 (phase II)). In 2023, the total amount ofconfirmed share payment fee for equity-based incentive was RMB 157 million.
In 2024, the Company will continue to prioritize the acquisition and cultivationof talents, maintain high-intensity R&D investment, continuously optimize the R&Dteam, and maintain a high-level development platform for talents. When the market
conditions and internal conditions are appropriate, the Company will consider usingequity tools to further strengthen the medium-to-long-term incentives for employeesand build a community of interests for employees, the Company and shareholders.
II. Focusing on the Main Business and Actively Engaging in Market Development
Amlogic, a leading fabless semiconductor system design manufacturer in Chinawith a global layout, is mainly engaged in the research and development (R&D), design,and sales of the system on chips (SoCs) and peripheral chips. Currently, the Companyprovides main products including multimedia intelligent terminal SoCs, wirelessconnectivity chips, and automotive electronics chips, offering master control chips(SoCs) and system-level solutions for numerous consumer electronics sectors. TheCompany's products have been widely used in home, automotive, office, education,physical fitness, industry, commerce, agriculture, entertainment, warehousing and otherfields. The Company boasts rich experience in the whole process design of SoCs, andis committed to the development of core software and hardware technologies such asultra-high definition multimedia codec and display processing, content securityprotection, and system IP, integrating industry-leading CPU/GPU technologies andadvanced process technology, realizing cost, performance and power optimization,providing complete system solutions based on various open platforms, and helpingglobal operators, OEMs, ODMs and other customers to quickly deploy the market.
The Company's business has covered the Chinese mainland, Hong Kong, NorthAmerica, Europe, Latin America, Asia-Pacific, Africa and other major economicregions in the world. Relying on long-term technology application, continuous R&D ofnew technologies and new application fields, as well as global location advantages andmarket resources, the Company has accumulated a stable and high-quality customerbase around the world.
In 2023, the Company's R&D expenditure was RMB 1.283 billion, up 8.21% fromthe same period in 2022, accounting for 23.88% of the operating revenue. In the contextof an industry downturn, the Company's counter-cyclical heavy investment in R&D
takes effect gradually. Recently, the Company succeeded in the trial production of itsfirst 6nm commercial chip. In addition, the new Wi-Fi product has been successfullytrial-produced (tri-mode combination Wi-Fi 6 + BT 5.4 + 802.15.4, which supportsThread/Zigbee and can be used in end products such as Matter controllers and IoTgateways). The 8K chip has passed the operators' bidding certification test and will soonbe extensively used in the domestic operator market.In 2024, the Company will continue to focus on the intensive cultivation of mainbusinesses, maintain heavy investment in R&D, and constantly improve the marketcompetitiveness of products and technology leadership, to comprehensively enhancethe core competitiveness, profitability and brand influence of the Company. Specifically,the following aspects are included:
1) Market Development Plan
The Company has established a long-term cooperative relationship with manycustomers. The Company will continue to upgrade the existing chip products to meetcustomer demand for chip products with higher integration, more powerfulperformance and higher security. In addition, the Company will deeply explore marketdemand and customer demand, continuously improve the independent R&D andinnovation capabilities through technology R&D center construction, and enhancemarket competitiveness.
2) Enhancing Market Expansion and Retaining Efforts
The Company is always customer-centric and strives to optimize customerrelationship management (CRM). In 2023, the Company introduced the CRM systemto optimize the sales process, enhance customer satisfaction, and improve salesefficiency and business decision quality through the functions of real-time reporting,future forecasting, and online process management provided by CRM system, bringinggreater business value and competitive advantage to the Company.
In 2024, the Company will further consolidate the cooperation with existingcustomers in advantageous fields, extend the previous successful experience to new
customers and regions, actively expand the new application scenarios of advantageousproducts, continuously enhance the market share of advantageous products, and furtherincrease the incremental market share and customers. At the same time, in the field ofnew products, the Company will actively get close to and deeply understand customerneeds, use new products to bring new value to customers, achieve new growth for theCompany, and transform dominant core technologies into the competitiveness of newproducts.
III. Accelerating Investment ProjectsOn August 8, 2019, the Company was listed on the Sci-Tech Innovation Board ofthe Shanghai Stock Exchange and raised a total of RMB 1.58312 billion. Since listing,the Company has used the raised funds to invest in projects such as "R&D andindustrialization of AI ultra-HD audio and video processing chips and applications","Upgrade of standard integrated intelligent main chip for global digital-analogtelevision", "Upgrade of international/domestic standard 8K codec chip", and"Construction of R&D centers". By the end of 2023, the four projects mentioned abovehave been completed. By the end of 2023, the Company had invested a total of RMB
1.476 billion, and the investment progress reached 97.47%.
In September 2021, in accordance with the Fundraising Management System, theCompany invested the development and technology reserve funds for the "Multimediaintelligent terminal chip upgrading project" based on the industry trend and theCompany's strategic development plan. The investment period of this project is 3 years.In 2024, the Company will accelerate the promotion of investment projects under theDevelopment and Science & Technology Reserve Fund Project. It is expected to reachthe usable status no later than the end of 2024. During the implementation of investmentprojects, the Company will strictly abide by the regulations on the management of theraised funds, prudently use the raised funds, and guarantee the smooth progress ofinvestment projects as planned.
IV. Enhancing Profitability and Capital Efficiency Through ComprehensiveFinancial Management Optimization1）Diversified Growth Strategy and Precision Operations to Boost ProfitabilityAmlogic has long been committed to the R&D, design, and sales of the SoCs andperipheral chips. Our current product portfolio includes a wide range of chips, such asmultimedia intelligent terminal SoCs, wireless connectivity chips, and automotiveelectronics chips. We promote a product diversification strategy by enriching productlines and application scenarios. The application fields include home, automobile, office,education, sports and fitness, industry, commerce, agriculture, entertainment,warehousing, and so on. Our business spans major economic regions worldwide,including the Chinese mainland, Hong Kong, North America, Europe, Latin America,Asia-Pacific, and Africa, with a solid and loyal customer base established globally.In the future, we will continue to adhere to the product diversification strategy andfurther strengthen our existing product lines and market positions. At the same time,through continuous technological advancements, innovation and refined operation, wewill continue to expand our customer base, enter new markets, and develop newapplications to further increase our market share and profitability.2）Strengthening Accounts Receivable and Inventory Management and ImproveOperational Efficiency
In recent years, the Company has been strictly enforcing the credit policy andclosely monitoring the collection of accounts receivable, thus ensuring a steady cashflow for business activities. By the end of 2023, our accounts receivable balance stoodat RMB 218,028,600, with the turnover rate increasing from 23.93 times in 2022 to
30.79 times in 2023.
To boost our asset returns, we have implemented real-time monitoring andpredictive analysis of inventory to maintain optimal stock levels. We have alsostrengthened our collaboration with suppliers to jointly manage our supply chain,thereby mitigating the risk of excess inventory. Moreover, we have optimized ourproduction plans and sales forecasts to minimize the risk of inventory buildup due tomarket fluctuations. By the end of 2023, our inventory balance was RMB
1,244,553,400, marking a decrease of RMB 272,995,300 from the previous year and ayear-on-year drop of 17.99%. Our days sales of inventory in 2023 was around 146 days,with a healthy inventory structure.In 2024, we will further strengthen accounts receivable management and reduceaccounts receivable balance. Specifically, (1) we have established a relativelycomprehensive accounts receivable management process and system, including aginganalysis of accounts, collection policy, reconciliation system and risk early warningmechanism. (2) We have implemented the management responsibility of accountsreceivable, formulated and optimized a series of measures to collect accounts receivable,and strengthened the credit investigation of customers, accounts receivablemanagement and accounts receivable collection. (3) We have strengthened the internalprocess of accounts receivable management and appraisal management, and directlylinked the collection of accounts receivable to the performance appraisal of the relevantresponsible persons to facilitate the collection of accounts receivable.In 2024, we will further optimize inventory management, reasonably control thescale of inventory, and improve the inventory turnover rate by taking measures such asaccelerating the purchase and sale, shortening the procurement cycle, and acceleratingthe turnover of inventory.3）Prudent Use of Idle Funds to Improve Capital EfficiencyThe Company wisely manages the planning and utilization of idle funds to ensureoptimal capital efficiency. We have also enhanced our management of cash flow tomaintain stability. By the end of 2023, our cash reserves amounted to RMB2,506,951,100. While prioritizing our operational safety, we implement severalmeasures to maximize returns on our capital. First, without affecting our normaloperations, we invest our idle funds in safe and profitable financial products to optimizeour capital utilization. This approach allows us to utilize our idle funds wisely andgenerate additional returns for the Company and our shareholders. Second, we share aportion of our profits with our shareholders through cash dividends. During the firstthree quarters of 2023, we distributed cash dividends totaling RMB 208.1595 million.
The Company's cumulative cash dividends for the year 2023 accounted for 41.80% ofthe net profit attributable to the listed company's shareholders in the 2023 consolidatedfinancial statements. Finally, we are committed to strengthening our core business andstaying ahead in technological advancements. We utilize our idle funds to engage ininvestment and collaboration both in China and internationally to strategicallyintroduce advanced technologies and premium products. This approach enhances ouroverall competitiveness and facilitates high-quality growth.
In 2024, on the premise of not affecting the main business, we will remaincommitted to prudent cash management and the sound allocation and utilization of idlefunds to enhance our capital efficiency with the following initiatives:
(1) Strengthen capital budgeting and planning and formulate refined capitalbudgets and plans to ensure the reasonable allocation of funds in different businessareas and avoid idle funds and wasteful use of funds. (For example, the Company andits controlling subsidiaries will use temporarily idle proprietary funds with an amountnot exceeding RMB 1 billion to purchase low-risk wealth management products withhigh security and good liquidity). At the same time, the Company will pay closeattention to the flow of funds and make timely adjustments to the capital plan based onmarket changes and business needs.
(2) Optimize the fund structure, reduce the cost of funds and improve theefficiency of fund usage through rational allocation of short-term and long-term funds.In addition, we will strengthen the risk management of funds to ensure the safe andsound operation of funds. (For example, the Company and its controlling subsidiarieswill use proprietary funds and bank credits with an amount not exceeding USD 200million to carry out foreign exchange hedging business with banks and other financialinstitutions.)
(3) Strengthen internal communication and collaboration. We will establish across-departmental and cross-level fund communication mechanism that enablesinformation sharing and synergy between departments. By strengthening internalcommunication and collaboration, we can optimize fund management and improvemanagement efficiency.
V. Enhancing Training for Directors, Supervisors, and Senior Management whileContinuously Improving Governance Structure to Elevate Governance StandardsAmlogic continuously refines the corporate governance structure in accordancewith relevant laws, regulations, and guidelines, such as the Company Law of thePeople's Republic of China, the Securities Law of the People's Republic of China, theCode of Corporate Governance of Listed Companies, and the Guidelines on the Articlesof Association of Listed Companies. Our structure is built around key elements such asthe shareholders' meeting, the board of directors, the supervisory board, independentdirectors, and senior management. Moreover, the coordination, checks and balancesamong our power structure, decision-making body, supervisory body, and managementteam ensure that our operations are efficient, stable, and compliant.
1) Enhancing Training Depth and Frequency for Directors, Supervisors, andSenior Management
To bolster the expertise of our directors, supervisors, and senior management, weconducted 11 specialized training sessions in 2023, with a 100% attendance rate.In 2024, we will continue to firmly support the active participation of our directors,supervisors, and senior management in online and offline training programs hosted byregulatory bodies. Additionally, we will arrange relevant training sessions for ourdirectors, supervisors, and senior management in response to significant regulatorychanges. We are committed to enhancing the understanding of securities market lawsand regulations, gaining deeper familiarity with the complexities of the securitiesmarket, keeping abreast of regulatory developments, continuously enhancing the abilityof our directors, supervisors, and senior management to perform duties as well as theprofessional knowledge of the business personnel, and continuously strengthening theirself-discipline awareness. These efforts will enable Amlogic to achieve sustained andstandardized operations and effectively avoid the risks of corporate governance.
2) Updating and Optimizing Internal Systems
To implement the reform of the independent director system and other relevantrequirements, in 2024, the Company will revise 17 internal systems and formulate theAccounting Firms Hiring System. Among them, the revisions of 7 internal systems need
to be submitted to the shareholders' meeting for consideration. After the completion ofsystem revisions, we will publicize the updated systems for employees at differentlevels by means of written materials, meetings and training, and implement them intothe specific work of each department.We will closely monitor changes in laws, regulations, and regulatory policies, andpromptly update our internal management systems to ensure compliance with laws andregulations, thereby protecting the rights and interests of investors.
3) Improving Internal Control System
The Company assesses, updates, and refines the internal control system asnecessary to comply with regulations set forth by the China Securities RegulatoryCommission and the Shanghai Stock Exchange, as well as relevant laws such as theCompany Law of the People's Republic of China, and the provisions outlined in theArticles of Association. Additionally, guided by our Basic Norms for Enterprise InternalControl and the associated guidelines, we assess and enhance our internal controlsystem based on considerations of both internal and external factors, as well as theCompany's specific developmental context. This approach not only boosts theefficiency of our corporate management and decision-making processes but alsoensures the legal compliance of our business operations and management, as well asthe safety of our assets. Consequently, it effectively facilitates the implementation ofour corporate development strategies.In 2024, the Company will continue to comprehensively review the existingmanagement systems based on the specific situation and prioritize innovation whileensuring compliance with internal control standards. We aim to establish a dynamicinternal control management system tailored to our specific needs. This effort willinvolve clarifying the roles and authorities of relevant departmental personnel, fosteringa culture of comprehensive management, and encouraging widespread employeeparticipation. Through these measures, we will establish an internal control system thatpromotes collaboration, checks and balances among employees.
4) Enhancing the Internal Governance Mechanism
In 2024, the Company will position Environmental, Social, and Governance (ESG)
efforts as a cornerstone of corporate management. We will refine our ESG governancemechanism, with the Board of Directors assuming primary responsibility, to drive theCompany's long-term sustainable development.
VI. Improving Information Disclosure Effectiveness and Normalizing InvestorCommunicationStrengthening information disclosure and managing investor relations effectivelyare key steps for us to enhance our governance standards, boost our market transparency,and maintain a positive corporate image. The Company always attaches greatimportance to information disclosure and fulfills disclosure responsibilities strictly inaccordance with relevant regulations, such as the Rules for Listing on the Sci-TechInnovation Board of the Shanghai Stock Exchange and our internal InformationDisclosure Management System policy. We are committed to ensuring truthful, accurate,complete, timely, and effective disclosure of the Company's periodic reports, interimannouncements, and other material information.Our information disclosure received an A rating in the 2022-2023 evaluation oflisted companies by the Shanghai Stock Exchange. In 2023, we issued 91 interimannouncements, 4 regular reports, and held 3 performance briefings. We also publishedESG reports for three consecutive years.In 2024, we plan to further enhance our information disclosure and investorrelations management through the following steps:
1) Improving Clarity in Information Disclosure
In 2024, the Company will release periodic reports and interpret periodic reportsand interim announcements in the form of performance briefings, graphic presentations,and so on. By enhancing the intuitiveness and intelligibility of information, we can helpinvestors better understand our operating results, financial situation and developmentstrategies.
Moreover, we will refine the language and structure of our information disclosureby using simpler expressions and avoiding overly technical or obscure terms. This willensure clarity in communication.
2) Refining Sustainability Reporting and Management System
In 2024, utilizing our past practices, we will continue to optimize the ESG reportand effectively integrate ESG into corporate management and business operations toboost economic, social and environmental sustainability. We will work for the organiccombination of industrial management and capital operations and be committed tobuilding an international first-class enterprise that is responsible and makes significantcontributions. In this way, we can respond more comprehensively to the concerns of thecapital market and the public about the Company's sustainable development. We willimprove the ESG governance mechanism and work responsibilities at all levels, andcarry out ESG management in an institutional, standardized and systematic manner.
Moreover, we will continuously improve the ESG governance structure andstrengthen the supervision and participation of the Board of Directors in ESG matters.The Board of Directors is responsible for making suggestions for the ESG matters andsupervising and guiding the implementation of the ESG matters. We will be committedto promoting the scientific nature of corporate development planning and strategicdecisions and enhancing corporate sustainability.
3) Enhancing Investor Communication
Since our listing, the Company has been actively engaging with investors throughdedicated service lines, promptly responding to investor emails, and addressingmessages on the interactive platform of the Shanghai Stock Exchange athttps://sns.sseinfo.com/. Following the disclosure of our regular reports, we holdinvestor communication sessions to explain our business performance and interpret thereports. We also visualize our financial reports on our official website. We execute ourinformation disclosure management system in accordance with relevant laws,regulations, and regulatory requirements to ensure truthful, accurate, complete, timely,and fair disclosure of information.
In 2024, Amlogic will proactively schedule investor receptions as requested byinvestors outside of sensitive statutory quiet periods. For example, investors will beinvited to visit the Company and engage in discussions with us to gain insight into ouroperations. After the release of regular reports, we will hold performance briefings atwhich our company executives will be invited to interpret our performance and addressinvestor inquiries. Additionally, we will conduct investor relations management tasksthrough various channels, including our official website, dedicated investor servicelines, investor mailbox, and the Shanghai Stock Exchange E-Interactive platform. Weare dedicated to improving our communication and interaction with investors whileensuring smooth channels for investor communication.
4) Establishing an Investor Opinion Solicitation and Feedback Mechanism
The Company will continually improve the mechanism for soliciting andaddressing investor feedback, while also bolstering transparency in informationdisclosure. We aim to fully grasp and respond to investors' specific needs throughmultiple channels. In compliance with laws and regulations, we ensure that investorshave comprehensive and timely insights into our business operations, developmentstrategies, and other pertinent information. Strengthening communication andinteraction with investors will foster their trust and support for the Company.
VII. Increasing Investor Returns
The Company prioritizes investor returns. In the first three quarters of 2023, wedistributed cash dividends totaling RMB 208.1595 million. The Company's cumulativecash dividends for the year 2023 accounted for 41.80% of the net profit attributable tothe listed company's shareholders in the 2023 consolidated financial statements. Basedon the profit distribution plan for the first three quarters of 2023, the Company intendsnot to repeat the profit distribution at the end of 2023 and not to increase the sharecapital by capital surplus. The profit distribution plan for 2023 is yet to be submitted tothe shareholders' meeting for consideration.
In 2024, we aim to establish a sustainable, stable, and scientifically-drivenshareholder return mechanism based on our profitability, financial needs, anddevelopment plans. This mechanism will prioritize both short-term gains and long-termbenefits for our shareholders in compliance with relevant laws, regulations, and theCompany's Articles of Association. Consequently, it will enhance overall investorsatisfaction.
VIII. Strengthening the Shared Responsibility, Mutual Benefits, and Checks andBalances Between Management and Shareholders
The Remuneration and Appraisal Committee, operating under the Company'sBoard of Directors, is responsible for outlining the guiding principles for ourcompensation plans. This committee reviews and approves the annual performanceappraisals and performance bonus schemes for senior management in alignment withthe Company's relevant criteria. Subsequently, the results are submitted to the Board ofDirectors for final approval. The compensation and bonuses for senior management aredetermined based on the Company's annual business performance and their individualperformance appraisals. In 2023, our executive compensation remained in line with theCompany's business performance and industry benchmarks.
In 2024, we will conduct performance appraisals of our senior management basedon various factors, including our annual financial status and overall businessperformance. Their compensation will be linked to the Company's businessperformance to incentivize their enthusiasm, initiative, and creativity, thus ensuring thelong-term stability and growth of the Company.
IX. Other Matters
The Company will consistently evaluate the progress of the "Corporate Value andReturn Enhancement Action Plan" Action Plan while fulfilling our obligation todisclose information promptly. We will stay focused on our main business activities
while enhancing our competitiveness, profitability, and risk management capabilities.Our goal is to protect investor interests by ensuring effective business management,standardized corporate governance, and satisfactory returns. We are committed tofulfilling our duties as a listed company responsibly and efficiently. We aim to maintaina positive market image, reward investors' trust, and contribute to the stable and healthydevelopment of the capital market.Please note that the future plans and strategies mentioned in this document areforward-looking statements and do not constitute binding commitments to investors.Investors are advised to be aware of associated risks.
The Board of Directors of Amlogic (Shanghai) Co., Ltd.
April 12, 2024
This report has been prepared in Chinese and English respectively. In case ofdiscrepancy in the interpretation of this report, the Chinese version shall prevail.