Stock Code: 000100 Stock Name: TCL Announcement No. 2019-111
TCL CORPORATION
TCL集团股份有限公司
INTERIM REPORT 2019 (SUMMARY)
13 August 2019
Maximize Efficiency & Promote Change and Innovation
Chairman’s Statement
Dear shareholders, business partners and employees,TCL continued to promote business reform and transformation in the first half of 2019. In face ofthe harsh competition, All the employees faced the challenges like brave soldiers. We will surviveby maximizing cost efficiency and grow by promoting change, innovation and exploration. Ourcompetitiveness keeps rising. This April, TCL successfully span off the intelligent terminal andrelated businesses through restructuring and shifted from diversified operations to focusedoperations on the semi-conductor display and materials business. The company also engagedin industrial financing and investment based on its main business. The restructuring has enabledTCL to further improve its operating strategy, optimize its organizational flow and enhanceoperating efficiency and competitiveness. For the six months ended 30 June 2019, TCL achievedpro forma operating revenue of RMB26.12 billion, up by 23.9% year-on-year; and a pro forma netprofit of RMB2.64 billion, representing a year-on-year growth rate of 69.9%. And it has reached itsbudget for the first half of the year generally. Through the restructuring, both the capital structureand the operating efficiency of the company have further improved. In the first half of the year, theper-capita net profit increased from RMB18,800 to RMB66,600, the debt/assets ratio dropped from
68.4% to 60.4%, and the net cash generated from operating activities amounted to RMB6.15 billion,suggesting much greater sustainability of the company.To further improve the shareholder value, TCL put forward a share repurchase programme ofRMB1.5~2.0 billion in the first half of the year, of which RMB1.56 billion has been used so far.And it will complete the remaining repurchases according to the market conditions. In addition, Ihave personally bought another 174.575 million TCL shares since December 2018 with absolutefaith in the long-term outlook for TCL.
For H1 2019, TCL’s subsidiary CSOT recorded operating revenue of RMB16.28 billion, up by 33.5%year-on-year; and a net profit of RMB1.02 billion, down by 7.83% year-on-year, primarily becauseof a considerable drop in display prices. However, CSOT still managed to achieve a higher sales
TCL Corporation Interim Report 2019 (Summary)volume and sales revenue through maximizing efficiency and cost control, enhancing product andtechnological capability, as well as improving the product mix. The LTPS business, in particular,over-fulfilled the operating objectives with the world’s second largest market share. CSOT’soperating efficiency and profitability remain in the top tier of the industry.TCL’s industrial financing and investment and other businesses continued to improve in operatingperformance in the first half of the year. The relevant gains on asset disposal were recognized in thecurrent period, making a positive contribution to the overall profit growth of TCL.
Product and technological innovation is the key impetus for the development of a company.CSOT spent RMB2.13 billion on R&D in the first half of the year. It is an industry leader in LTPS.It has started to ramp up the production capacity and yield rate of its flexible AMOLED productsand is expected to reach mass production by the end of the year. In the meantime, it puts in a greatdeal of effort to develop large-size commercial display and high-end 4K and 8K products, as well asdisplay products for e-sports, vehicles, etc. By expanding its products and their application in ahorizontal manner, CSOT aims to boost its revenue and earnings.CSOT is also proactively working on the next-generation display technologies, manufacturingprocesses and materials, including Mini-LED on TFT, foldable and fully flexible AMOLED andAMOLED for handsets with an under-screen camera. The “Guangdong Juhua Flexible and PrintedDisplay Technology Platform” led by CSOT has become a leader of the next-generation of displaytechnology, with the product and technological innovation achievements made by the platformhighly recognized in the industry. CSOT filed for 1,056 PCT patents during H1 2019, making it oneof the companies with the most filings in the industry worldwide.CSOT has maintained business growth by means of maximizing cost efficiency, furtherstreamlining the organizational and business flows, increasing operating quality andimproving operating performance.
Looking forward into the rest of the year and the future, global economic growth is expected tobecome increasingly uncertain. China’s economy will inevitably face the escalating risk of theChina-U.S. trade friction, as well as from the slowdown in global economic growth caused by tradeprotectionism and unilateralism. The China-U.S. trade conflicts will not expect to have a greatimpact on CSOT’s semi-conductor display products because it is an intermediate product andit has balanced markets and a strong customer base. But the display industry may experiencea longer trough if the global economy continues declining. As for the other businesses of TCL,
TCL Corporation Interim Report 2019 (Summary)the China-U.S. trade conflicts have little impact.Every economic adjustment comes with the reshuffle in the industry. It is both a challenge andan opportunity for a company to reform its products, technologies and business models. In myopinion, despite the continued oversupply, constant pressure on product prices and expanding lossin the global semi-conductor display industry, the current prices are near the bottom; oversupplywill be gradually eased with more manufacturers or production capacity being phased out thanbeing unleashed in the coming two years; the global industry will be more concentrated as the fittestsurvive in the reshuffle; market demand will be boosted by the steadily growing traditional marketsand the fast growing commercial display market; and the application of new technologies and newmarket demand will bring more opportunities to the industry.Semi-conductor display is one of the most important basic key devices in the electronicinformation industry. And China has the best chance to be a global leader in thesemi-conductor display industry. China has built up its scale and efficiency advantages in thedisplay industry, and is improving its industrial chain. It is getting closer and closer to the globallyadvanced level in terms of new technology development and patent ownership. Although a troughof capacity reduction lies ahead for the industry, indicating a smaller space for profit, globaldemand for display products is sure to rise in the medium and long run. The market is enormous.Meanwhile, entry to the display industry is difficult due to high technological and capital barriers,which means that the industry will become more concentrated. Looking at the landscape of theglobal display industry, Europe and the U.S. are unlikely to return, Japan and Taiwan, China arebeing pushed out of business, while China and South Korea will become the two major players.Therefore, I have complete confidence in the prospects of the semi-conductor display industry.I firmly believe that CSOT will remain in the front of the industry in terms of competitiveness,efficiency and profitability; and that it will keep growing as the completed capacity (the t6, t4and t7 plants) is gradually unleashed. The efficient business structure, strong technologicalinnovation ability and stable capital structure will help CSOT grasp M&A opportunities inthe global industry to complete its industrial chain, as well as to boost its scale, efficiency andcompetitiveness. CSOT will be able to rise against the unfavorable environment as a leader inthe global industry.
In a market full of challenges and opportunities, we will stick to our set operating strategy andfulfill every task with no holding back; enhance technological innovation, maximize cost efficiency,and step up globalization; further optimize the business structure and improve the industrial chain;
TCL Corporation Interim Report 2019 (Summary)seize new market opportunities and foster new driving forces of growth; and foster a corporateculture that features entrepreneurship and responsibility to boost internal impetus for growth. CSOThas built up its competitive edges with a stronger presence in the global market. The industrialfinancing and investment and other businesses of TCL also maintain a good momentum, continuingto contribute revenue and earnings to TCL. In view of the current business and market trends, weare confident of continuing to achieve growth in revenue and profit in the second half of the year,which will lay a solid foundation for our sustained growth.In the recent years, the Chinese government has been taking measures such as substantial tax andfee cuts to improve the operating environment for enterprises and support the economy, from whichthe businesses of TCL have benefited to varying degrees. I believe that the ongoing adjustments toChina’s economic structure will create a better environment for the economy and moreopportunities for Chinese enterprises in the globalization aspect. Investment in the economy will berewarded with better returns.Aiming to become a global leader of the industry, TCL will keep enhancing competitivenessand maintain healthy growth to make contributions to the economic and social developmentof China and create more value for shareholders with better financial results.
Li Dongsheng12 August 2019
Part I Important NotesThis Summary is based on the full text of the 2019 Interim Report of TCL Corporation (together withits consolidated subsidiaries, the “Group” or “Company”, except where the context otherwiserequires). In order for a full understanding of the Company’s operating results, financial conditionand future development plans, investors should carefully read the aforesaid full text, which has beendisclosed together with this Summary on the media designated by the China Securities RegulatoryCommission (the “CSRC”).Independent auditor’s modified opinion:
□ Applicable √ Not applicable
Board-approved interim cash and/or stock dividend plan for ordinary shareholders:
The Company has no interim dividend plan, either in the form of cash or stock.Board-approved interim cash and/or stock dividend plan for preferred shareholders:
□ Applicable √ Not applicable
This Summary has been prepared in both Chinese and English. Should there be any discrepancies ormisunderstandings between the two versions, the Chinese version shall prevail.Part II Key Corporate Information
1. Stock Profile
| Stock name | TCL | Stock code | 000100 |
| Stock exchange for stock listing | Shenzhen Stock Exchange | ||
| Contact information | Board Secretary | ||
| Name | Liao Qian | ||
| Office address | 19/F, Tower B, TCL Building, Gaoxin South First Road, Shenzhen High-Tech Industrial Park, Shenzhen, Guangdong Province, China | ||
| Tel. | 0755-3331 1666 | ||
| E-mail address | ir@tcl.com | ||
2. Key Financial Information
Indicate by tick mark whether there is any retrospectively restated datum in the table below.
□ Yes ■ No
| Series No. | Item | H1 2019 | H1 2018 | Change (%) |
| 1 | Operating revenue (RMB)（note） | 43,781,613,735 | 52,523,748,293 | -16.64 |
| 2 | EBITDA | 8,436,689,169 | 6,743,386,144 | 25.11 |
| 3 | Net profit (RMB) | 2,737,062,676 | 1,700,839,860 | 60.92 |
| Net profit attributable to the listed company’s shareholders (RMB) | 2,092,348,692 | 1,585,938,283 | 31.93 | |
| Net profit attributable to the listed company’s shareholders before non-recurring gains and losses (RMB) | 250,467,130 | 993,436,861 | -74.79 | |
| 4 | Basic earnings per share (RMB/share) | 0.1569 | 0.1173 | 33.76 |
| Diluted earnings per share (RMB/share) | 0.1544 | 0.1172 | 31.74 | |
| 5 | Weighted average return on equity (%) | 7.17 | 5.22 | Up by 1.95 percentage points |
| 6 | Net cash generated from/used in operating activities (RMB) | 6,150,821,822 | 4,375,228,294 | 40.58 |
| Net cash per share generated from/used in operating activities (RMB/share) | 0.4539 | 0.3229 | 40.57 | |
| 30 June 2019 | 31 December 2018 | Change (%) | ||
| 7 | Total assets (RMB) | 154,651,894,926 | 192,763,941,739 | -19.77 |
| 8 | Total owners’ equity (RMB) | 61,203,199,795 | 60,871,672,647 | 0.54 |
| Owners’ equity attributable to the listed company’s shareholders (RMB) | 30,239,424,011 | 30,494,364,951 | -0.84 | |
| 9 | Share capital (share) | 13,549,648,507 | 13,549,648,507 | 0.00 |
| 10 | Equity per share attributable to the listed company’s shareholders (RMB/share) | 2.2317 | 2.2506 | -0.84 |
Note: In April 2019, the Company completed the handover of major assets in a restructuring. Therefore, the operating revenue data ofH1 2019 and H1 2018 are not comparable as the former only includes the January-March 2019 operating revenue generated by the saidassets, while the latter comprises the January-June 2018 such revenue. Upon the recalculation of the H1 2018 operating revenue on thesame January-March basis as H1 2019, the H1 2019 operating revenue would be up by 22.5% year-on-year.The total share capital at the end of the last trading session before the disclosure of this Report:
| Total share capital at the end of the last trading session before the disclosure of this Report (share) | 13,549,648,507 |
| Fully diluted earnings per share based on the latest total share capital above (RMB/share) | 0.1544 |
Note: After the restructuring, the Company has shifted to a global high-tech conglomerate concentrating on the semi-conductor displayand materials business. It is the key operational philosophy and mission of the Company to create value for and grow with theshareholders. In order to effectively protect shareholders’ interests and enhance shareholder value, the Company carried out a sharerepurchase programme during the Reporting Period. Up to the disclosure date of this Summary, 459,659,522 shares have beenrepurchased, of which 3,875,613 shares have been used for the 2019 Restricted Stock Incentive Plan and the Second Global InnovationPartner Plan and the rest will be kept as treasury shares and used for employee stock ownership plans, equity incentive plans orconvertible bonds.The key financial information of H1 2019 and H1 2018 exclusive of the effects of the businesses of the restructuring (pro forma datapresented based on the consolidation scope after the restructuring) is as follows:
| Series No. | Item | H1 2019 | H1 2018 | Change (%) |
| 1 | Operating revenue (RMB) | 26,119,468,731 | 21,074,875,211 | 23.94 |
| 2 | EBITDA | 7,993,437,605 | 5,558,609,267 | 43.80 |
| 3 | Net profit (RMB) | 2,643,352,438 | 1,555,606,917 | 69.92 |
| Net profit attributable to the listed company’s shareholders (RMB) | 2,092,360,755 | 1,470,636,277 | 42.28 | |
| 4 | Basic earnings per share (RMB/share) | 0.1569 | 0.1088 | 44.21 |
| Diluted earnings per share (RMB/share) | 0.1544 | 0.1087 | 42.04 |
| 5 | Weighted average return on equity (%) | 7.17 | 4.71 | 2.46 |
Note: The data of H1 2019 and H1 2018 in the table above exclude the results of the businesses of the restructuring.
3. Shareholders and Their Holdings as at 30 June 2019
Unit: share
| Number of ordinary shareholders | 515,611 | Number of preferred shareholders with resumed voting rights (if any) | 0 | ||||||
| Top 10 shareholders | |||||||||
| Name of shareholder | Nature of shareholder | Shareholding percentage | Number of shares | Restricted shares | Shares in pledge or frozen | ||||
| Status | Shares | ||||||||
| Li Dongsheng and his acting-in-concert parties | Domestic natural person | 9.02% | 1,221,748,009 | 609,636,366 | In pledge | 579,480,000 | |||
| In pledge | 408,899,521 | ||||||||
| Huizhou Investment Holding Co., Ltd. | State-owned legal person | 6.48% | 878,419,747 | ||||||
| Hubei Changjiang Hezhi Hanyi Equity Investment Fund Partnership (Limited Partnership) | Domestic non-state-owned legal person | 5.42% | 733,965,145 | ||||||
| Xinjiang Dongxing Huarui Equity Investment Partnership (Limited Partnership) | Domestic non-state-owned legal person | 2.85% | 385,778,587 | In pledge | 152,660,287 | ||||
| China Securities Finance Corporation Limited | Domestic non-state-owned legal person | 2.75% | 373,231,553 | ||||||
| Beijing Ziguang Investment Co., Ltd. | State-owned legal person | 2.73% | 370,387,916 | ||||||
| Central Huijin Asset Management Co., Ltd. | State-owned legal person | 1.52% | 206,456,500 | ||||||
| CDB Innovation Capital Co., Ltd. | State-owned legal person | 1.40% | 189,685,219 | ||||||
| Guangdong Guangxin Holdings Group Ltd. | State-owned legal person | 1.09% | 147,760,683 | ||||||
| Hong Kong Securities Clearing Company Ltd. | Foreign legal person | 1.01% | 136,307,086 | ||||||
| Related or acting-in-concert parties among the shareholders above | Being acting-in-concert parties upon the signing of the Agreement on Acting in Concert, Mr. Li Dongsheng and Xinjiang Jiutian Liancheng Equity Investment Partnership (Limited Partnership) are the biggest shareholder of the Company with a total of 1,221,748,000 shares. Meanwhile, CDB Innovation Capital Co., Ltd., CDB Equipment Manufacturing Industrial Investment Fund Co., Ltd. and CDB Jingcheng (Beijing) Investment Fund Co., Ltd. are acting-in-concert parties as CDB Innovation and CDB Equipment are both controlled by a majority-owned subsidiary of | ||||||||
| China Development Bank Capital Co., Ltd., and CDB Jingcheng is an investment company managed by a subsidiary of China Development Bank Capital Co., Ltd. | |
| Shareholders involved in securities margin trading (if any) | N/A |
4. Change of the Controlling Shareholder or the Actual Controller in the Reporting PeriodThe biggest shareholder of the Company is Mr. Li Dongsheng and his acting-in-concert parties. Andthe controlling shareholder and the actual controller of the Company remain unchanged.
5. Number of Preferred Shareholders and Shareholdings of Top 10 of ThemNo preferred shareholders in the Reporting Period.
6. Corporate bonds
(1) Bond Profile
| Bond name | Abbr. | Bond code | Maturity | Balance (RMB’000) | Coupon rate |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2016 to Qualified Investors (Tranche 1) (Type 2) | 16TCL02 | 112353.SZ | 16 March 2021 | 1,500,000 | 3.56% |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2016 to Qualified Investors (Tranche 2) | 16TCL03 | 112409.SZ | 7 July 2021 | 2,000,000 | 3.50% |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2017 to Qualified Investors (Tranche 1) | 17TCL01 | 112518.SZ | 19 April 2022 | 1,000,000 | 4.80% |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2017 to Qualified Investors (Tranche 2) | 17TCL02 | 112542.SZ | 7 July 2022 | 3,000,000 | 4.93% |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2018 to Qualified | 18TCL01 | 112717.SZ | 6 June 2023 | 1,000,000 | 5.48% |
| Investors (Tranche 1) | |||||
| TCL Corporation’s Corporate Bonds Publicly Offered in 2018 to Qualified Investors (Tranche 2) | 18TCL02 | 112747.SZ | 20 August 2023 | 2,000,000 | 5.30% |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2019 to Qualified Investors (Tranche 1) | 19TCL01 | 112905.SZ | 20 May 2024 | 1,000,000 | 4.33% |
(2) Financial Indicators as at 30 June 2019
| Item | 30 June 2019 | 31 December 2018 | Change (%) |
| Debt/assets ratio | 60.43% | 68.42% | -7.99% |
| Item | H1 2019 | H1 2018 | Change (%) |
| EBITDA-to-interest coverage (times) | 5.66 | 7.73 | -26.78% |
Part III Operating Performance Discussion and Analysis(I) OverviewThe Company focused on its core business and achieved solid growth in operating results in thefirst half of 2019. This April, TCL successfully spun off the intelligent terminal and related businessin restructuring and shifted from diversified operations to focused operations on the semi-conductordisplay and materials business. The company also engaged in industrial financing and investmentbased on the main business. On a pro forma basis, for H1 2019, the Company achieved operatingrevenue of RMB26.12 billion, up by 23.9% year-on-year; and a net profit of RMB2.64 billion,representing a year-on-year growth of 69.9%, of which the net profit attributable to the shareholdersamounted to RMB2.09 billion, up by 42.3% year-on-year. On a corporate basis, for H1 2019, theCompany achieved operating revenue of RMB43.78 billion, up by 22.5%
year-on-year; and a netprofit of RMB2.74 billion, representing a year-on-year growth of 60.9%, of which the net profit
In April 2019, the Company completed the handover of major assets in a restructuring. Therefore, the operating revenue data of H12019 and H1 2018 are not comparable as the former only includes the January-March 2019 operating revenue generated by the saidassets, while the latter comprises the January-June 2018 such revenue. Upon the recalculation of the H1 2018 operating revenue on thesame January-March basis as H1 2019, the H1 2019 operating revenue would be up by 22.5% year-on-year.
attributable to the shareholders amounted to RMB2.09 billion, up by 31.9% year-on-year. Therecognition of RMB1.15 billion net gains on asset disposal during the Reporting Period contributedto the overall profit growth of the Group.Operating performance has improved during the Reporting Period through streamlining theorganizational structure and redesigning business flows according to the operationalphilosophy of maximizing cost efficiency. Upon lean management and cost control efforts, theper-capita net profit has increased from RMB18,800 to RMB66,600, and the pro forma expense ratiohas decreased from 14.5% to 11.8%. The capital structure and operating efficiency have beenfurther optimized. The debt/asset ratio has dropped from 68.4% to 60.4%, inventory turnover dayshave been reduced by three days compared to H1 2018, and the net cash generated from operatingactivities amounted to RMB6.15 billion, suggesting much greater sustainability of the company.With product and technological innovation as important impetus, CSOT has enhanced itstechnological and industrial abilities, and is able to maintain better-than-the-industry-averageefficiency and profitability. During H1 2019, TCL spent a total of RMB2.67 billion on R&D andfiled for 1,056 PCT patents, which has helped maintain a leading position in the new displaytechnology and materials industry. The capacity of the t3 plant has risen from 45K to 50K per month,the t6 and t4 plants have successfully expanded capacity, and the t7 plant is being built on track.CSOT has a better product mix. The 55-inch TV panels produced by CSOT has the largest marketshare worldwide, and the market share of its LTPS handset panels has moved up to the world’ssecond largest. Revenue by small- and medium-sized display panels has increased to 43% of CSOT’stotal revenue. By way of maximizing cost efficiency, CSOT achieved a net profit of RMB1.02billion, maintaining leading profitability amid an industry trough.The industrial financing and investment businesses of TCL maintain a good developmentmomentum, continuing to contribute strategic synergy and earnings to TCL. These businessesnot only provide capital management and allocation services, help reduce financing costs andcontribute steady earnings to TCL, but also help complete the industrial chain and get a foothold incutting-edge technologies through incubation, investment, etc.Looking forward into the rest of the year and the future, global economic growth is expected tobecome increasingly uncertain. But in the meantime, we should see that 5G, AI and other newcommercial infrastructure are improving, boosting market demand for new products andtechnologies such as Mini-LED, foldable display and printing OLED; that new demand keepsgrowing for display products for use in interactive whiteboards, e-sports, vehicles, etc.; and thatdemand for traditional display products maintains steady growth thanks to the increasing popularityof large-sized and UHD display. Meanwhile, the global semi-conductor display industry will become
more concentrated as the development focus gradually shifts to China.We believe in the co-existence of challenges and opportunities. We are confident that we willgrow against the unfavorable environment and become a leader in the global industry by wayof completing the industrial chain, enhancing technological and scale advantages, increasingcompetitiveness, sticking to our operating strategy, maximizing cost efficiency for survival andpromoting change, innovation and exploration for growth.
(II) Core Business AnalysisTCL’s core businesses have been changed to comprise the semi-conductor display and materialsbusiness, the industrial financing and investment business and the other businesses:
Pursuant to its development strategy of becoming a world-leading high-tech conglomerate, TCL willconcentrate on its core businesses and gradually shake off the other businesses according to theprinciple of the maximum value for shareholders. Meanwhile, in accordance with the whole newpositioning of a high-tech conglomerate, TCL will enter into the relevant basic and high-techstrategic emerging industries at the proper time by M&A, etc., as well as integrate resources throughthe industrial chain, so as to foster new driving forces.
1. The Semi-Conductor Display and Materials Business
In H1 2019, CSOT recorded a shipment of 9.61 million square metres, up by 9.80% year-on-year;operating revenue of RMB16.28 billion, up by 33.5% year-on-year; and a net profit of RMB1.02billion.The t1 and t2 plants of CSOT in Shenzhen operated at full capacity for strong sales, and the capacityof the t6 plant rose quickly. The t6 plant achieved a shipment of 8.9417 million square metres oflarge-sized panels (equivalent to 9.45 million pieces), up by 3.9% year-on-year; and sales revenue of
TCLCorporation
Other
Other
Industrialfinancing &investment andventure capital
Industrialfinancing &investment andventure capitalSemi-conductordisplay and
materials
Semi-conductordisplay and
materials
CSOT
| CSOT | China Ray | Guangdong Juhua |
| TCL Financial | TCL Capital |
| Highly | Open Edutainment | Environmental Resource | ||
RMB9.19 billion, down by 15.1% year-on-year, primarily caused by much lower product prices thanthe same period of last year.With its capacity rising from a designed 45K to 50K per month, the t3 plant of CSOT in Wuhan isthe largest LTPS plant in the world. The t3 plant reported in H1 2019 a shipment of 668 thousandsquare metres of small- and medium-sized panels, up by 4.58 times year-on-year, equivalent to 57.79million pieces, up by over three times year-on-year; and sales revenue of RMB7.09 billion, up byover four times year-on-year.The t4 flexible AM-OLED plant of CSOT Wuhan saw a faster-than-expected ramp-up of its capacityand yield rate in H1 2019, and is expected to realize the phase-1 mass production in the fourthquarter of the year.
| 2016 | 2017 | 2018 | H1 2019 |
| Shipment (in thousands of square metres) | 13,421 | 16,535 | 18,032 | 9,610 |
| Revenue (in billions of RMB) | 22.34 | 30.57 | 27.67 | 16.28 |
| Gross profit margin (%) | 12.7 | 27.9 | 18.4 | 14.6 |
| Net profit margin (%) | 10.3 | 16.2 | 8.4 | 6.3 |
| EBITDA (%) | 27.7 | 37.2 | 30.0 | 28.6 |
Note: For further data of CSOT, please refer to the segment report in Part XI Financial Statements ofthe full version of this interim report.
Thanks to efficient production line investment strategies, synergy from the industrial chainand excellent management, CSOT is now able to maintain leading operating efficiency andresults in the global industry during all the stages of the industry cycle. Since its operation,CSOT has been able to maintain outstanding net profit and EBITDA margins in the past cyclicalswings of the industry, indicating significantly better-than-the-industry-average resilience. As thedepreciation of the production lines that CSOT invested in at an early time gradually ends in thecoming few years (a decrease of RMB1.1 billion in depreciation expenses of the t1 plant in 2019), itsprofitability will further improve.As CSOT’s new capacity is unleashed faster, its product and market structures will be furtherrefined. With the gradual operation of its production lines, in the next five years, CSOT’s large-sizedpanel output (in area) will reach a compound growth rate of 17%; as for the small- and medium-sizedpanels, the compound growth rate is expected to reach an industry-leading level of 26%, with themarket share of LTPS-LCD already being the world’s second largest and the market competitivenessof flexible AMOLED increasing in a fast speed. Along with the scale-up, CSOT will quickly expandto fast-growing emerging markets of display products for commercial use, use in vehicles and
e-sports, etc. to achieve more balanced market distribution for its products.CSOT drives business growth and enhances competitiveness through product andtechnological innovation. In terms of large-sized panels, CSOT makes good use of the HVAtechnology in its high-end products and is the largest supplier for China’s top six TV makers for fiveconsecutive years as well as a high-end supplier for Samsung and Sony; and vigorously works onhigh-end 4K/8K products and the Mini-LED on TFT technology and products to further enlarge itsshare in the high-end market.As for small- and medium-sized panels, CSOT’s LTPS technology in relation to the COF narrowframe and under-screen fingerprint recognition has reached internationally advanced R&D capabilityand yield rate, accounting for over 80% of the supply to the world’s top six handset makers; andflexible AMOLED developed by CSOT for handsets with an under-screen camera and foldablehandsets will soon begin mass production.Efforts are stepped up to work on new display technologies and materials to establish leadingadvantages relating to the next-generation display technology. TCL constantly focuses on thedevelopment of printed display manufacturing processes and materials. Guangdong Juhua led byCSOT is a flexible printed display R&D platform, which is recognized as the only “National Printedand Flexible Display Innovation Centre” in China. During the Reporting Period, Guangdong Juhuaworked with the upstream material and equipment suppliers to establish an open eco-system for theR&D of the new display technology and production processes, which has further improved theefficiency of equipment and the functions of devices, as well as accelerated the industrialization ofthe production process route of printed display. Guangdong Juhua and JOLED in Japan are now thetwo front runners worldwide in terms of the development and application of printed O-LED.China Ray develops new OLED key materials with independent IP. Based on the different functionallayers of the entire OLED structure, it focuses on the development of EML materials.The evaporatedred-light and green-light emitting materials, as well as the solution-processed red-light emittingmaterials produced by China Ray are all of an industry-wide advanced performance. China Ray’sred-light and green-light emitting materials for evaporated OLED have started mass production. Andthe QLED R&D team has solved the key problems such as the useful life of the red-light andgreen-light emitting materials, with the second most patents in relation to quantum-dotelectroluminescent display in the world.The semi-conductor display industry is driven by technology and investment. The development ofnew display materials provides a basis for the transition and upgrade of the relevant products andtechnologies. In addition to continual investment in basic new materials, technologies and production
processes, CSOT will enhance its technological and industrial eco-system through technologicalcooperation and investment in interests of relevant companies, so as to stay ahead with respect tonew technology and technological transition and innovation.A diverse customer base and internationalization provide important impetus for thesustainable business growth of CSOT. Sales that are not related to TCL’s terminal systems accountfor over 50% of CSOT’s total sales, with the relevant customers being the top companies in theirrespective industries. The construction of the module and whole-widget integrated intelligentmanufacturing park in India under the cooperation of CSOT and TCL Electronics is progressingsmoothly. This project is expected to produce 8 million pieces of large-sized modules and 30 millionpieces of small- and medium-sized modules annually, with the mass production expectedly startingin the first half of 2020. As the international trade disputes escalate, globalization will become adifferentiated competitive edge of CSOT.CSOT has built up leading advantages in efficiency and profitability in the global industry. Theefficient business structure, innovative products and technologies and a strong customer basewill help CSOT grasp M&A opportunities in the global industry and achieve continual growthin scale and earnings.
2. The Industrial financing and Investment Business
(1) TCL Financial
TCL Financial mainly comprises the Group’s finance and the supply chain finance. The financebusiness primarily involves providing financial and management support to the major businesses andsubsidiaries within the Group, and undertaking the functions of efficiency improvement and riskmanagement of Group assets. Over the years, TCL’s credit rating has been maintained at AAA; itsasset scale, gross profit, ROE and capital concentration are all of a leading level in the industry; andits overall financing cost is lower than the industry average.Upholding the service philosophy of “partner finance”, the supply chain finance business continuesto work on TCL’s industrial eco-system in a deeper manner by way of its online supply chain financeplatform. This business provides member and related enterprises with various financing and supplychain financial services, helping them cut down financing costs and increase resource efficiency. Bydoing so, this business is able to generate stable and increasing income.
(2) TCL Capital
TCL Capital includes TCL Venture Capital, Admiralty Harbour Capital Limited and China
Innovative Capital Management Limited (49% owned by the Company). TCL Venture Capitaloperates various funds with a focus on new technologies, materials and applications associated withTCL’s core businesses. Up to the end of the Reporting Period, the venture capital business managesfunds of RMB9.37 billion in total, and has accumulatively invested in 112 projects. Currently, itowns shareholdings in listed companies such as CATL, S.C., Dynanonic, etc., in addition to interestsin Cambricon, DK Electronic Materials, Transwarp and so on. Many projects invested by TCLVenture Capital have established technological and business cooperation with TCL’s businesses, andcertain projects from which TCL Venture capital has withdrawn its investment have also providedsatisfying returns.As a licensed financial enterprise in Hong Kong with investment banking and asset managementqualifications, Harbour Capital started operation early this year. As an overseas financial platform,Harbour Capital completed three debenture issue and underwriting projects, and started to generateincome in its financial advising and asset management operations during the Reporting Period. Italso provides capital support and financial services for TCL’s overseas business expansion and M&Aactivities. As a licensed Hong Kong financial institution with a Mainland China background,Harbour Capital enjoys promising prospects.China Innovative Capital Management Limited is a leading institutional investor in equityinvestments and M&A in relation to listed companies. With years of experience, China InnovativeCapital Management Limited has invested in over 100 listed companies and established strongcredibility. It operated well during the Reporting Period, generating steadily increasing income. Italso provides professional support for TCL’s domestic M&A activities and business expansion.Focusing on the semi-conductor display and artificial intelligence industries, TCL Capital activelyinvested through the industrial chains; and in the meantime explored investment opportunities inregard with other high-end, basic, key technologies, so as to promote technological and businesssynergy, create a fresh impetus for TCL’s growth and generate returns on its investments.Meanwhile, the Group directly invests in a number of listed companies, including a 19.07% interestin 712 Corp. (603712.SH), a 4.99% interest in Bank of Shanghai (601229.SH) and a 20.08% interestin Fantasia Holdings (01777.HK). These shareholding percentages remained the same during theReporting Period.The industrial financial and investment business has seen steady growth in operating performance inrecent years thanks to strict risk control and healthy business expansion. For the Reporting Period,this business recorded income of RMB368 million, up by 76.0% year-on-year. The steadily growingprofit of this business can help the Company offset the cyclical volatility in the semi-conductor
display industry.During the Reporting Period, the other businesses of the Group grew steadily, making positivecontributions to the improvement of the Group’s overall operating performance.
(III) Matters Related to Financial Reporting
1. Changes to Accounting Policies, Accounting Estimates or Measurement Methods Comparedto the Last Accounting Period
(1) Changes to the Accounting Policies
The Company has adopted since 1 January 2019 the revised versions of certain accounting standards(revised by the Ministry of Finance in 2017), namely, the Accounting Standard No. 22 for BusinessEnterprises—Recognition and Measurement of Financial Instruments, the Accounting Standard No.23 for Business Enterprises—Transfer of Financial Assets, the Accounting Standard No. 24 forBusiness Enterprises—Hedge Accounting, and the Accounting Standard No. 37 for BusinessEnterprises—Presentation of Financial Instruments (together, the “New Accounting Standards forFinancial Instruments”). For details of the changed accounting policies, please refer to note IV to thefinancial statements in the full version of this interim report.Effects of the adoption of the New Accounting Standards for Financial Instruments on the Company:
For the financial instruments recognized and measured before 1 January 2019 in a way that isinconsistent with the New Accounting Standards for Financial Instruments, the Company makestransitional adjustments according to the new standards. And the Company does not restate thecomparable financial data of the previous period that is inconsistent with the New AccountingStandards for Financial Instruments. The difference between the original carrying amount of afinancial instrument and the new carrying amount on the date of the adoption of the New AccountingStandards for Financial Instruments is recorded in the retained earnings or other comprehensiveincome as at 1 January 2019.The effects of the adoption of the New Accounting Standards for Financial Instruments on thepresentation of the balance sheet items as at 1 January 2019 are as follows (unit: RMB’000):
| Item | Carrying amount as per the old accounting standards for financial instruments | Change | Carrying amount as per the New Accounting Standards for Financial Instruments |
| Trading financial assets | - | 2,632,626 | 2,632,626 |
| Financial assets at fair value through profit or loss | 1,137,580 | (1,137,580) | - |
| Derivative financial assets | - | 197,798 | 197,798 |
| Notes and accounts receivable | 17,923,667 | (17,923,667) | - |
| Notes receivable | - | 4,272,222 | 4,272,222 |
| Accounts receivable | - | 13,600,479 | 13,600,479 |
| Other receivables | 5,719,379 | (3,196) | 5,716,183 |
| Available-for-sale financial assets | 4,270,845 | (4,270,845) | - |
| Long-term equity investments | 16,957,109 | 160,827 | 17,117,936 |
| Investments in other equity instruments | - | 1,618,075 | 1,618,075 |
| Other non-current financial assets | - | 1,034,117 | 1,034,117 |
| Trading financial liabilities | - | 143,457 | 143,457 |
| Financial liabilities at fair value through profit or loss | 212,097 | (212,097) | - |
| Derivative financial liabilities | - | 68,640 | 68,640 |
| Deferred income tax liabilities | 440,352 | 820 | 441,172 |
| Other comprehensive income | (1,174,162) | 334,950 | (839,212) |
| Retained earnings | 10,000,973 | (106,833) | 9,894,140 |
| Total equity attributable to owners of the Company as the parent | 30,494,365 | 228,117 | 30,722,482 |
| Non-controlling interests | 30,377,308 | (994) | 30,376,314 |
(2) Critical Accounting Policies and Estimates
Carrying amount adjustments of financial assets classified and measured as per the New AccountingStandards for Financial Instruments (unit: RMB’000):
| Item | Carrying amount as per the old accounting standards for financial instruments (31 December 2018) | Reclassification (exclusive of change incurred by measurement) | Change incurred by measurement | Carrying amount as per the New Accounting Standards for Financial Instruments (1 January 2019) |
| Trading financial assets | - | 2,572,150 | 60,476 | 2,632,626 |
| Of which: Financial assets at fair value through profit or loss reclassified to trading financial assets | - | 230,844 | - | |
| Of which: Available-for-sale financial assets reclassified to trading financial assets | - | 2,341,306 | 60,476 | |
| Financial assets at fair value through profit or loss | 1,137,580 | (1,137,580) | - | - |
| Of which: Financial assets at fair value through profit or loss reclassified to trading financial assets | - | (230,844) | - | |
| Of which: Financial assets at fair value through profit or loss reclassified to derivative financial assets | - | (197,798) | - | |
| Of which: Financial assets at fair value through profit or loss reclassified to other non-current financial assets | - | (708,938) | - | |
| Derivative financial assets | - | 197,798 | - | 197,798 |
| Of which: Financial assets at fair value through profit or loss reclassified to derivative financial assets | - | 197,798 | - | |
| Notes receivable | - | 4,272,222 | - | 4,272,222 |
| Accounts receivable | - | 13,604,358 | (3,879) | 13,600,479 |
| Other receivables | 5,719,379 | - | (3,196) | 5,716,183 |
| Available-for-sale financial assets | 4,270,845 | (4,270,845) | - | - |
| Of which: Available-for-sale financial assets reclassified to trading financial assets | - | (2,341,306) | - | |
| Of which: Available-for-sale financial assets reclassified to investments in other equity instruments | - | (1,604,360) | - | |
| Of which: Available-for-sale financial assets reclassified to other non-current financial assets | - | (325,179) | - | |
| Long-term equity investments | 16,957,109 | - | 160,827 | 17,117,936 |
| Investments in other equity instruments | - | 1,604,360 | 13,715 | 1,618,075 |
| Of which: Available-for-sale financial assets reclassified to investments in other equity instruments | - | 1,604,360 | 13,715 | - |
Carrying amount adjustments of financial assets classified and measured as per the New AccountingStandards for Financial Instruments (unit: RMB’000):
| Item | Carrying amount as per the old accounting standards for financial instruments (31 December 2018) | Reclassification (exclusive of change incurred by measurement) | Change incurred by measurement | Carrying amount as per the New Accounting Standards for Financial Instruments (1 January 2019) |
| Other non-current financial assets | - | 1,034,117 | - | 1,034,117 |
| Of which: Financial assets at fair value through profit or loss reclassified to other non-current financial assets | - | 708,938 | - | |
| Of which: Available-for-sale financial assets reclassified to other non-current financial assets | - | 325,179 | - | |
| Trading financial liabilities | - | 143,457 | - | 143,457 |
| Of which: Financial liabilities at fair value through profit or loss reclassified to trading financial liabilities | - | 143,457 | - | |
| Financial liabilities at fair value through profit or loss | 212,097 | (212,097) | - | - |
| Of which: Financial liabilities at fair value through profit or loss reclassified to trading financial liabilities | - | (143,457) | - | |
| Of which: Financial liabilities at fair value through profit or loss reclassified to derivative financial liabilities | - | (68,640) | - | |
| Derivative financial liabilities | - | 68,640 | - | 68,640 |
| Of which: Financial liabilities at fair value through profit or loss reclassified to derivative financial liabilities | - | 68,640 | - |
The effects of the reclassification or measurement of financial assets as per the New AccountingStandards for Financial Instruments on the beginning retained earnings, other comprehensive income,deferred income tax liabilities, equity attributable to owners of the Company as the parent andnon-controlling interests (unit: RMB’000):
| Item | Carrying amount as per the old accounting standards for financial instruments (31 December 2018) | Effect of the accounting standard revisions | Carrying amount as per the New Accounting Standards for Financial Instruments (1 January 2019) |
| Deferred income tax liabilities | 440,352 | 820 | 441,172 |
| Other comprehensive income | (1,174,162) | 334,950 | (839,212) |
| Retained earnings | 10,000,973 | (106,833) | 9,894,140 |
| Total equity attributable to owners of the Company as the parent | 30,494,365 | 228,117 | 30,722,482 |
| Non-controlling interests | 30,377,308 | (994) | 30,376,314 |
2. Retrospective Restatements due to the Correction of Material Accounting Errors in theReporting PeriodNo such cases.
3. Changes to the Scope of Consolidated Financial Statements Compared to the LastAccounting PeriodCompared with 2018, 14 subsidiaries (all newly incorporated) are newly included in and 298subsidiaries (285 transferred, 6 de-registered and the other 7 due to the shift from a subsidiary to anassociate) are excluded from the consolidation scope of H1 2019.