Stock Code: 000100 Stock Name: TCL Tech. Announcement No. 2021-008
TCL科技集团股份有限公司TCL Technology Group Corporation
ANNUAL REPORT 2020 (SUMMARY)
11 March 2021
Ramp up, Catch upand Go all out to be A Global Leader
Chairman’s Statement
The year 2020 marked the start of our global leading strategy, as well as a critical turning point forTCL. In face of the internal and external shocks at the beginning of the year, TCL adhered to theestablished strategies and business plans, and put forward the business strategy of "Ramp up, Catchup". It identified opportunities amid the challenges, scaled up business against headwinds, andforged ahead to bring up the competitiveness to a new level.
Business Review for 2020In the Reporting Period, on the same basis after the 2019 spin-off, the Group recorded a revenue ofRMB76.68 billion, up by 33.9% year-on-year; a net profit of RMB5.07 billion, up by 42.1%year-on-year; a net profit attributable to the company’s shareholders of RMB4.39 billion, up by 67.6%year-on-year; a debt/asset ratio of 65.1% and the net cash flow generated from operating activitiesof RMB16.7 billion. As stated above, the operating efficiency of the Company continued toimprove and all the financial objectives were over-fulfilled for the year.TCL CSOT maintained a leading operating efficiency in the current period, as demonstrated by itsrevenue of RMB46.77 billion, rising by 37.6% year-on-year, and net profit of RMB2.42 billion, upby 151.1% year-on-year. Through technological reform and efficiency enhancement, the capacity ofthe t3 (LTPS) production line in Wuhan grew from 48K to 53K. The t4 production line (OLED)Phase I produced at full capacity while Phases II and III were under rapid construction as scheduled.The t1\t2 and t6 (G11) production lines in Shenzhen continued to operate at full capacity for strongsales. Especially, the capacity of the t6 production line increased from 90K to 98K. The shipmentarea of large-size products climbed by 32.9%. Thanks to the increasing market demand for LCDproducts across the world, prices of large-size LCD panels began to rise in June, boosting theoperating profit of TCL CSOT month by month.TCL CSOT constantly raised its R&D investments in new display technologies, such as printedOLED, QLED, Micro-LED and related key materials and equipment, and made a great strideforward. In the Reporting Period, the PCT applications of the Company increased by 1,536 and theaccumulated PCT applications reached 12,797. Meanwhile, the company made a strategicinvestment in JOLED Inc., aiming to expand the footprint in next-generation display technologies.
During the Reporting Period, the Group successfully acquired Tianjin Zhonghuan ElectronicsGroup Co., Ltd. (Zhonghuan Electronics), which holds a controlling interest in Tianjin ZhonghuanSemiconductor Co., Ltd. (002129.sz) and Tianjin Printronics Circuit Corporation (002134.sz)respectively, as well as other assets including Zhonghuan Computer. Following the acquisition inlate September, Zhonghuan Electronics has been included in the consolidated financial statementssince October 2020. Through the acquisition, the Group has entered the industries ofsemi-conductor photovoltaic and semi-conductor materials.
Business Forecast for 2021In 2021, imbalance between the supply and demand of LCD panel is expected to remain, due to theshort of chips and glass and the delayed new capacity. It is predicted that product prices will remainhigh in the first half of the year, while the second half will witness a balance of supply and demand.Higher demand for LTPS panels will come from vehicle display and IT products, as supply anddemand come close to a balance. In recent years, the OLED capacity has been raised quickly. Themonopolistic advantage of leading enterprises has turned increasingly apparent. Hence, thecompetition will be extremely fierce.Phase I of the t7(G11) plant of TCL CSOT in Shenzhen has been put into production. The LCD andmodule plant of Samsung in Suzhou acquired by the Company are estimated to be consolidated inthe second quarter of this year. In view of this, the shipment and revenue of LCD panels will jumpsignificantly. The t3 (LTPS) production line of Wuhan CSOT has stepped into vehicle display andIT industries with positive performance. A 39.95% non-controlling interest of the t3 production linehas been repurchased, lifting the profit in the current period. Though t4 still faces fierce competitionin OLED we will endeavor to improve our operating results. We expect a strong growth in bothrevenue and profitability of TCL CSOT in 2021.Zhonghuan Semiconductor will release its endogenous power through reform, while optimizing itsdevelopment strategy, promoting innovation in products and technologies forward, and reinforcingquality and profitability. It is estimated that its business performance will go up continuously andcontribute more to the revenue and profit of the Group this year.The industrial finance and investment business will help raise profit in line with the developmentplan. The operating results of Highly, TPC, and other businesses are expected to rise steadily.I am confident that the revenue and profit of the Group will increase remarkably this year.
Strategic Development PlanningThe Group has kept promoting business reform and transformation since 2017 to intensify its corecompetitiveness. In 2019, it completed the spin-off of businesses like terminal products, andfocused on "high-tech, heavy-asset and long-cycle" industries. Business strategies, organizationalprocedures, and resource allocation were adjusted accordingly. The Group will further its businessdevelopment in accordance with the operating strategy regarding "improving operating quality andprofitability, consolidating advantages and improving disadvantages, accelerating global layout, anddriving development via innovation".The semi-conductor display business is a core business of the Group. Through the acquisition ofZhonghuan Semiconductor, the Group extended its presence to the semi-conductor photovoltaic andsemi-conductor materials industry. The above two industries own the features of high technology,huge investment, and a long industrial cycle. In the meantime, long-term strategic management,business capacity across the industrial cycle, and constant financing ability are a must. Furthermore,we must maintain a technological leadership, achieve the best business scale, and plan developmentstrategies with the goal of global leadership. These are exactly the core capabilities and businesslogic of the Group.The reason why we have chosen these two core industries lies in that China has built up an industryscale and a competitive edge across the globe in the semi-conductor photovoltaic and in LCD fieldof semi-conductor display industries. Moreover, Zhonghuan Semiconductor and TCL CSOT havedistinguished themselves to become industry leaders. With the growth in global demand andindustry concentration, more opportunities and challenges will be brought.The "9205" five-year strategic development plan of the Group specifies that ZhonghuanSemiconductor will reinforce its strengths in monocrystalline silicon products, improve its capacityin the photovoltaic industrial chain, and intensify its global business capacity in order to meet thedual goals of global leadership in the photovoltaic industry and national leadership in thesemi-conductor silicon-wafer industry. Meanwhile, TCL CSOT is expected to improve its strengthsin LCD and LTPS, make technical breakthroughs in new display technologies and materials so as tobecome a leading player in the semi-conductor display industry worldwide.TCL's industrial finance and investment business supports the development of the Group’s otherbusinesses and contributes steadily improving income. In terms of industrial finance, the Groupfeatures both highly efficient internal fund management and external financing and supply chain
financial services. With respect to capital and investment, TCL has established a differentiatedcompetitive edge in the corresponding field and turned capital and investment into a core business.In short, the core businesses of the Group consist of three business segments, namely, thesemi-conductor display business, the semi-conductor photovoltaic and semi-conductor materialsbusiness, and the industrial finance and investment business. TCL selects suitable projects related tothe core industrial chain and gradually perfects the industrial ecosystem. In addition, it aims toachieve the strategic goal of global leadership in the two core businesses.Subsidiaries including Highly and TPC embraced robust operations and sustainable profitability.The Group will continuously support their independent development and business expansion.
ProspectsThere are great uncertainties in global economic recovery. Trade protectionism and unilateralismaggravate. I believe that: the advantages of China include social stability, efficient governance,sufficient economic vitality, huge domestic demand, rapid progress in science and technology, andan apparent relative competitive advantage in manufacturing. However, China's disadvantages lie ininadequate quality and profitability of economic development, insufficient core technicalcapabilities, rapid growth in government debts, and huge risks in finance and enterprise debts,which may affect China's economic progress.This year, China has put forward and implemented the "14th Five-year Plan" to build a newdevelopment pattern. The government will continue to vigorously support the real economy,especially manufacturing, strengthen China's comparative advantage in manufacturing in the globaleconomy and improve the competitiveness and value of enterprises. More capital will flow tomanufacturing. In other words, the excellent manufacturing industry will access more resources.China's manufacturing industry has shifted its competitive edge from efficiency and cost control toproducts, technologies and global operations, and will usher in a new development period.Manufacturing constitutes the basis of China's economic competitiveness. Based on the establishedindustry foundation and rapid growth in domestic demand, Chinese enterprises will catch up withleading players in the high-tech manufacturing field and develop a competitive edge, whichsignifies both challenges and opportunities. Personally, I am confident of the prospects of China'shigh-tech manufacturing!The semi-conductor display industry and the semi-conductor photovoltaic and semi-conductor
materials industry, as two strategic and emerging industries, embrace huge markets and promisingprospects. We have laid a favorable foundation and accumulated strength in the two industries. TCLwill embark on new industry planning and distribution in conformity with the "9205" strategic plan.The Board has proposed a final dividend of RMB1.20 per 10 shares, in light of the consistentdividend payout policy of the Group.I would like to express my sincere gratitude to all shareholders and partners for their trust andsupport, and to thank all employees for their efforts!
Li Dongsheng11 March 2021
Part I Important NotesThis Summary is based on the full text of the 2020 Annual Report of TCL Technology GroupCorporation (together with its consolidated subsidiaries, the “Group” or “Company”, except wherethe context otherwise requires). In order for a full understanding of the Company’s operating results,financial position and future development plans, investors should carefully read the aforesaid fulltext on the media designated by the China Securities Regulatory Commission (the “CSRC”).All the directors of the Company attended in person the board meeting for the approval of thisReport.
Independent auditor’s modified opinion:
□ Applicable √ Not applicable
Board-approved final cash and/or stock dividend plan for ordinary shareholders:
√ Applicable □ Not applicable
Bonus issue from capital reserves:
□ Yes √ No
The Board has approved a final dividend plan for the ordinary shareholders as follows: based on theshare capital of 13,546,581,599 shares on 10 March 2021 that are eligible for profit distribution (thetotal share capital of 14,030,788,362 shares minus the 484,206,763 shares in the Company’s specialsecurities account for repurchase that are not eligible for profit distribution), a cash dividend ofRMB1.2 (tax inclusive) per 10 shares is to be distributed to the shareholders, totalingRMB1,625,589,791.88. The retained earnings of RMB7,145,804,477.12 will carry forward forfuture distribution. Meanwhile, there will be no bonus issue from either profit or capital reserves forthe year under review.Where any changes occur, before the implementation of the dividend plan, to the share capital ofthe Company due to any convertible bonds-to-stock programs, share repurchases, exercises ofequity incentives, new share issues in refinancing, etc., the dividend will be adjusted according tothe principle of “adjusting the total payout amount under the same dividend ratio”, subject to theactual payout amount.Board-approved final cash and/or stock dividend plan for preference shareholders:
□ Applicable √ Not applicable
This Report and its summary have been prepared in both Chinese and English. Should there be anydiscrepancies or misunderstandings between the two versions, the Chinese version shall prevail.Part II Key Corporate Information
1. Stock Profile
| Stock name | TCL Tech. | Stock code | 000100 |
| Place of listing | Shenzhen Stock Exchange | ||
| Contact information | Board Secretary | ||
| Name | Liao Qian | ||
| Office address | 10/F, Tower G1, International E Town, TCL Science Park, 1001 Nanshan District, Shenzhen, Guangdong Province, China | ||
| Tel. | 0755-3331 1666 | ||
| Email address | ir@tcl.com | ||
2. Principal Activities or Products for the Reporting Period
During the Reporting Period, the Company acquired 100% equity of Tianjin Zhonghuan ElectronicsGroup Co., Ltd. Therefore, the businesses of the Company primarily consist of the semi-conductordisplay business, the semi-conductor photovoltaic and semi-conductor materials business, theindustrial finance and investment business, as well as the other businesses.
For further information about the Company’s businesses, please refer to “Part III Directors’ Report”herein.
TCL TechSemi-conductor display
| Semi-conductor display | Semi-conductor photovoltaic & Semi-conductor materials | Industrial finance & investment | Other | |||
| TCL CSOT | China Ray |
| Juhua | CDOT |
| Zhonghuan Photovoltaic | Zhonghuan Advanced |
| TCL Financial | TCL Capital | Highly | TPC | |||
3. Key Financial Information
(1) Key Financial Information of the Past Three Years
Indicate whether there is any retrospectively restated datum in the table below.
□ Yes √ No
Unit: RMB
| Item | 2020 | 2019 | 2020-over-2019 change (%) | 2018 |
| Revenue (RMB) (note) | 76,677,238,079 | 74,933,085,688 | 2.33 | 113,360,075,545 |
| Revenue on the same basis after the spin-off (RMB) (note) | 76,677,238,079 | 57,270,940,685 | 33.89 | 48,240.376,808 |
| EBITDA (RMB) | 19,059,818,227 | 14,224,327,742 | 33.99 | 14,096,523,261 |
| Net profit (RMB) | 5,065,202,767 | 3,657,735,320 | 38.48 | 4,065,194,164 |
| Net profit attributable to the company’s shareholders (RMB) (note) | 4,388,159,018 | 2,617,766,571 | 67.63 | 3,468,207,407 |
| Net profit attributable to the company’s shareholders on the same basis after the spin-off (RMB) (note) | 4,388,159,018 | 2,617,778,635 | 67.63 | 3,153,044,155 |
| Net profit attributable to the company’s shareholders before non-recurring gains and losses (RMB) | 2,933,248,153 | 235,119,321 | 1147.56 | 1,587,391,372 |
| Basic earnings per share (RMB/share) | 0.3366 | 0.1986 | 69.49 | 0.2566 |
| Diluted earnings per share (RMB/share) | 0.3226 | 0.1935 | 66.72 | 0.2562 |
| Weighted average return on equity (%) | 13.75 | 9.09 | 4.66 | 11.98 |
| Net cash generated from/used in operating activities (RMB) | 16,698,282,775 | 11,490,096,405 | 45.33 | 10,486,580,443 |
| 31 December 2020 | 31 December 2019 | Change of 31 December 2020 over 31 December 2019 (%) | 31 December 2018 | |
| Total assets (RMB) | 257,908,278,887 | 164,844,884,926 | 56.46 | 192,763,941,739 |
| Owners’ equity attributable to the company’s shareholders (RMB) | 34,107,795,454 | 30,111,946,237 | 13.27 | 30,494,364,951 |
Note: In April 2019, the Company completed the handover of assets in a significant spin-off. Therefore, the 2019 data included theresults of the spun-off assets for January-March 2019 and a gain of RMB1.15 billion from the spin-off. Provided that the 2019 datawere on the same basis after the spin-off, revenue would be up by 33.9% year-on-year. In 2020, the Company continued to focus onits core business and maximize shareholder’s value by spinning off the Educational Web business, which generated a gain ofRMB234 million. Provided that the spin-off gains were excluded from both of the 2020 and 2019 data, the net profit attributable tothe company’s shareholders would be up by 191.8% year-on-year on the same basis.
(2) Key Financial Information by Quarter
Unit: RMB
| Q1 | Q2 | Q3 | Q4 | |
| Revenue | 13,742,129,162 | 15,591,081,694 | 19,376,776,395 | 27,967,250,828 |
| Net profit attributable to the company’s shareholders | 408,125,802 | 799,940,184 | 817,109,760 | 2,362,983,272 |
| Net profit attributable to the company’s shareholders before non-recurring gains and losses | -109,881,642 | 291,744,489 | 678,187,625 | 2,073,197,681 |
| Net cash generated from/used in operating activities | 2,299,183,493 | 5,048,627,286 | 4,523,259,350 | 4,827,212,646 |
Indicate whether any of the quarterly financial data in the table above or their summations differsmaterially from what have been disclosed in the Company’s quarterly or interim reports.
□ Yes √ No
4. Share Capital and Shareholder Information at the Period-End
(1) Numbers of Ordinary Shareholders and Preference Shareholders with Resumed VotingRights as well as Holdings of Top 10 Shareholders
Unit: share
| Number of ordinary shareholders at the period-end | 481,178 | Number of ordinary shareholders at the month-end prior to the disclosure of this Report | 542,531 | Number of preference shareholders with resumed voting rights at the period-end (if any) (see note 8) | Not applicable | Number of preference shareholders with resumed voting rights at the month-end prior to the disclosure of this Report (if any) (see note 8) | Not applicable | ||||||
| 5% or greater shareholders or top 10 shareholders | |||||||||||||
| Name of shareholder | Nature of shareholder | Shareholding percentage | Total shares held at the period-end | Increase/decrease in the Reporting Period | Restricted shares held | Unrestricted shares held | Shares in pledge or frozen | ||||||
| Status | Shares | ||||||||||||
| Li Dongsheng and his acting-in-concert party | Domestic natural person/general legal person | 8.26 | 1,158,599,393 | -63,875,598 | 613,931,602 | 544,667,791 | Put in pledge by Li Dongsheng | 224,000,000 | |||||
| Put in pledge by Jiutian Liancheng | 344,899,521 | ||||||||||||
| Huizhou Investment Holding Co., Ltd. | State-owned legal person | 5.30 | 743,139,840 | -135,279,907 | - | 743,139,840 | - | - | |||||
| Hong Kong Securities Clearing Company Ltd. | Foreign legal person | 3.73 | 523,742,567 | 170,252,713 | - | 523,742,567 | - | - | |||||
| Wuhan Optics Valley Industrial Investment Co., Ltd. | State-owned legal person | 3.65 | 511,508,951 | 511,508,951 | 511,508,951 | - | - | - | |||||
| China Securities Finance Corporation Limited | Domestic general legal person | 2.66 | 373,231,553 | - | - | 373,231,553 | - | - |
| Tibet Tianfeng Enterprise Management Co., Ltd. | Domestic general legal person | 2.54 | 355,863,715 | -170,231,927 | - | 355,863,715 | - | - |
| Central Huijin Asset Management Co., Ltd. | State-owned legal person | 1.47 | 206,456,500 | - | - | 206,456,500 | - | - |
| National Social Security Fund-Portfolio 601 | Fund, wealth management product, etc. | 0.99 | 1,38,831,524 | 85,831,524 | - | 1,38,831,524 | - | - |
| Swiss Finance (Hong Kong) Limited | Foreign legal person | 0.91 | 128,247,257 | 128,247,257 | - | 128,247,257 | - | - |
| Star Century Enterprises Limited | Foreign legal person | 0.65 | 90,532,347 | - | 90,532,347 | - | - | - |
| 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) (hereinafter referred to as “Jiutian Liancheng”) are the biggest shareholder of the Company with a total of 1,158.5994 million shares. | |||||||
| Top 10 ordinary shareholders involved in securities margin trading (if any) | None | |||||||
Note: The top 10 shareholders in the table above do not include “The Securities Account of TCL Technology Group Corporation forRepurchases”. As of the end of the Reporting Period, there were 528,066,412 shares in the account.
(2) Number of Preference Shareholders and Shareholdings of Top 10 of Them
□ Applicable √ Not applicable
(3) Ownership and Control Relations between the Actual Controller and the Company
□ Applicable √ Not applicable
5. Corporate Bonds
(1) Bond Profile
| Bond name | Abbr. | Bond code | Value date | Maturity | Outstanding balance (RMB’0,000) | Coupon rate | Way of principal repayment and interest payment |
| TCL Corporation’s Corporate Bonds Publicly | 16TCL02 | 112353 | 16 March 2016 | 16 March 2021 | 150,000 | 3.56% | Interest payable annually and principal |
| Offered in 2016 to Qualified Investors (Tranche 1) (Type 2) | repayable in full upon maturity | ||||||
| TCL Corporation’s Corporate Bonds Publicly Offered in 2016 to Qualified Investors (Tranche 2) | 16TCL03 | 112409 | 7 July 2016 | 7 July 2021 | 200,000 | 3.50% | Interest payable annually and principal repayable in full upon maturity |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2017 to Qualified Investors (Tranche 1) | 17TCL01 | 112518 | 19 April 2017 | 19 April 2022 | 100,000 | 3.40% | Interest payable annually and principal repayable in full upon maturity |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2017 to Qualified Investors (Tranche 2) | 17TCL02 | 112542 | 7 July 2017 | 7 July 2022 | 15,700 | 3.45% | Interest payable annually and principal repayable in full upon maturity |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2018 to Qualified Investors (Tranche 1) | 18TCL01 | 112717 | 6 June 2018 | 6 June 2023 | 100,000 | 5.48% | Interest payable annually and principal repayable in full upon maturity |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2018 to Qualified Investors (Tranche 2) | 18TCL02 | 112747 | 20 August 2018 | 20 August 2023 | 200,000 | 5.30% | Interest payable annually and principal repayable in full upon maturity |
| TCL Corporation’s Corporate Bonds Publicly Offered in 2019 to Qualified Investors (Tranche 1) | 19TCL01 | 112905 | 20 May 2019 | 20 May 2024 | 100,000 | 4.33% | Interest payable annually and principal repayable in full upon maturity |
| TCL Corporation’s Corporate Bonds Publicly | 19TCL02 | 112938 | 23 July 2019 | 23 July 2024 | 100,000 | 4.30% | Interest payable annually and principal |
| Offered in 2019 to Qualified Investors (Tranche 2) | repayable in full upon maturity | ||||||
| TCL Corporation’s Corporate Bonds Publicly Offered in 2019 to Qualified Investors (Tranche 3) | 19TCL03 | 112983 | 21 October 2019 | 21 October 2024 | 200,000 | 4.20% | Interest payable annually and principal repayable in full upon maturity |
| TCL Technology Group Corporation’s Short-Term Corporate Bonds Publicly Offered in 2020 to Professional Investors (Tranche 1) | 20TCLD1 | 149140 | 8 June 2020 | 5 December 2020 | 0 | 2.50% | Principal repayable in full upon maturity with interest |
(2) Latest Rating and Rating Change
According to the Follow-up Rating Report (2020) on TCL Technology Group Corporation’sCorporate Bonds Publicly Offered in 2016 to Qualified Investors (Tranches 1 and 2) issued byChina Chengxin Securities Rating Co., Ltd. on 27 May 2020, the AAA credit status of TCLCorporation and the said bonds was affirmed with a “Stable” outlook.According to the Follow-up Rating Report (2020) on TCL Technology Group Corporation’sCorporate Bonds Publicly Offered in 2017 to Qualified Investors (Tranches 1 and 2) and on TCLTechnology Group Corporation’s Corporate Bonds Publicly Offered in 2018 to Qualified Investors(Tranches 1 and 2) issued by China Chengxin Securities Rating Co., Ltd. on 27 May 2020, the AAAcredit status of TCL Corporation and the said bonds was affirmed with a “Stable” outlook.According to the Credit Rating Report on TCL Technology Group Corporation’s Corporate BondsPublicly Offered in 2019 to Qualified Investors (Tranches 1, 2 and 3) issued by China ChengxinSecurities Rating Co., Ltd. on 28 May 2020, the AAA credit status of TCL Corporation and the saidbonds was affirmed with a “Stable” outlook.During the Reporting Period, the corporate credit ratings conducted on the Company in its programsof corporate bonds and debt financing instrument issues arrived at the same results as its existingcorporate credit rating result.
(3) Selected Financial Information of the Company in the Past Two Years
| Item | 2020 | 2019 | Change (%) |
| EBITDA (RMB’0,000) | 1,905,982 | 1,422,433 | 33.99% |
| Current ratio | 0.92 | 1.12 | -19.34% |
| Debt/asset ratio (%) | 65.08 | 61.25 | 3.83 |
| Quick ratio | 0.66 | 0.85 | -18.82% |
| Debt/EBITDA ratio | 11.36% | 14.09% | -2.73% |
| Interest cover (times) | 2.58 | 2.16 | 19.44% |
| Cash-to-interest cover (times) | 6.45 | 5.32 | 21.24% |
| EBITDA-to-interest cover (times) | 5.98 | 5.17 | 15.67% |
| Debt repayment ratio (%) | 100 | 100 | - |
| Interest payment ratio (%) | 100 | 100 | - |
Part III Directors’ Report(I) Business Overview for the Reporting Period
1. Overview
The year 2020 was extraordinary. The COVID-19 pandemic severely hit the global economy. Tradefrictions further impacted the global industrial chain layout. Consequently, technology enterprisessuffered from a complicated and changeable business environment. That said, de-globalization hasaccelerated the optimization of the industrial layout and the structure of the supply chain. The gistof the allocation of production factors lied in efficiency, profitability, and costs. The cluster effectand management advantage of the Chinese manufacturing industry are gradually becomingprominent. In the context of both opportunities and challenges, we adhered to our strategic target,held the business bottom line of maximizing cost efficiency, and put forward the businessstrategy of "Ramp up, Catch up". The Group identified opportunities among challenges andachieved expansion against headwinds. Besides, TCL grasped opportunities in emerging strategicindustries. For instance, it acquired 100% equity of Zhonghuan Electronics to open up new markets.The Group established the business layout consisting of three business segments, namely, thesemi-conductor display business, the semi-conductor photovoltaic and semi-conductormaterials business, and the industrial finance and investment business, laying a solidfoundation for becoming a global leading technology group.In the Reporting Period, on the same basis after the 2019 spin-off, the Group recorded a revenue of
RMB76.68 billion, up by 33.9% year-on-year; a net profit of RMB5.07 billion, up by 42.1%year-on-year; and a net profit attributable to the company’s shareholders of RMB4.39 billion, up by
67.6% year-on-year. Especially, the net profit attributable to the company’s shareholders in Q4 2020amounted to RMB2.36 billion, up by RMB2.32 billion year-on-year and 189.2% quarter-on-quarter,thanks to the expanded scale, leading efficiency, improved industry cycle, and optimized productstructure of TCL CSOT as well as the incorporation of Zhonghuan Semiconductor into theconsolidated financial statements. Moreover, the Group continued to underline the development ofcore technologies. R&D investments jumped by 41.2% year-on-year to RMB6.54 billion on thesame basis after the spin-off. In the Reporting Period, the PCT applications of the Companyincreased by 1,536 and the accumulated PCT applications reached 12,797. The number of days ofcash turnover was reduced to 13. The net profit per capita surged by 45.4% to RMB108,000. Thedebt/asset ratio was 65.1%. The net cash flow generated from operating activities was RMB16.7billion. The Company enjoyed enhanced operating efficiency and a robust capital structure.
The global political and economic landscape enters a long-term game. The complex and changingexternal environment leads to increasing uncertainties. That said, de-globalization has acceleratedthe restructuring of the global economic pattern. The Chinese manufacturing industry will usher inbetter development opportunities under China's new development pattern whereby "domestic andforeign markets can boost each other". The year 2021 marks the 40th anniversary of TCL. Based onits constant efforts in the manufacturing industry as well as transformation and innovation in thepast four decades, the Group will grasp the golden period for the adjustment of the global economicpattern and progress of the Chinese manufacturing industry. It will regard "improving operatingquality and profitability, consolidating advantages and improving disadvantages, accelerating globallayout, and driving development via innovation" as its operating strategy and promote the two corebusinesses, namely, the semi-conductor display business and the semi-conductor photovoltaic andsemi-conductor materials business in order to achieve its strategic goal of global leadership.With respect to the semi-conductor display business, the Group will constantly push forwardmanagement reform and consider leading efficiency and profitability as a solid foundation forsustainable development. Besides, it will further perfect the strategic layout of businesses and theplan of production lines, optimize the product structure and customer portfolios, make innovationand breakthroughs in new display technologies and materials, and lead the global display industryin comprehensive competitiveness.
In regard to the semi-conductor photovoltaic business, the Group will enhance its strengths in thefield of monocrystalline silicon and wafer, drive product iteration via technological innovation, andspeed up the building of the photovoltaic industrial chain. In addition, it will intensify thecompetitiveness in differentiated products, mainly overlapped-cell modules, and global capabilitiesin order to become a leader in the semi-conductor photovoltaic industry across the world.In terms of the semi-conductor materials business, the Group will keep exerting more efforts tooptimize the investment and products structures of Zhonghuan Advanced and orderly promote thecoverage of power semiconductors and integrated circuit chips of all kind. As the Group maintainsthe leading superiority of 8-12-inch products of Zhonghuan Advanced in semi-conductor chips ofall powers, it will further improve 12-inch products for customers with the advanced productionprocess to raise market share. Meanwhile, it will firmly seize opportunities in China's integratedcircuit industry, focus on the angle of global competition, and accelerate to reinforce its corecapabilities. It will conscientiously extend and expand the semi-conductor industrial chain and catchup with international standards.TCL Tech. will embark on a new development phase and march forward with a stronger drivingforce for development!
2. Core Business Analysis
During the Reporting Period, the Company acquired 100% equity of Tianjin Zhonghuan ElectronicsGroup Co., Ltd. Therefore, the business structure of the Company primarily consists of thesemi-conductor display business, the semi-conductor photovoltaic and semi-conductor materialsbusiness, the industrial finance and investment business, as well as the other businesses.
(1) Semi-conductor display business
TCL Tech
Semi-conductor display
| Semi-conductor display | Semi-conductor photovoltaic & Semi-conductor materials | Industrial finance & investment | Other | |||
| TCL CSOT | China Ray |
| Juhua | CDOT |
| Zhonghuan Photovoltaic | Zhonghuan Advanced |
| TCL Financial | TCL Capital | Highly | TPC |
A turning point of the display industry occurred at the historical bottom in 2020. Prices of large-sizepanels have kept rising since June 2020. Industry profitability has gradually recovered.TCL CSOT demonstrated excellent anti-recession and anti-risk capabilities in a down cycle,and improved its scale, market share, and profitability against headwinds, attributable tomaximized lean management and business synergy. In the Reporting Period, TCL CSOTrecorded a product sales area of 29,097,000 square meters, up by 31.2% year-on-year; a revenue ofRMB46.77 billion, up by 37.6% year-on-year; and a net profit of RMB2.42 billion, up by 151.1%year-on-year. In particular, the net profit in Q4 2020 stood at RMB1.86 billion, up by RMB2.19billion year-on-year.The large-size panel business maintained leading efficiency and profitability in the world,continued to expand its scale advantage, and further promoted its market position. In theReporting Period, t1, t2 and t6 plants continued to operate at full capacity for strong sales. The t7plant was put into production. The shipment of large-size products reached 27,675,000 squaremeters, up by 32.9% year-on-year. 45,746,000 pieces were shipped with a year-on-year increase of
11.0%. Sales revenue was RMB28.98 billion, rising by 53.1% year-on-year. Globally, the Companyrose to second place in the ranking of market shares in TV panels. Besides, it was ranked first,second, and second regarding the market shares in 55-inch, 32-inch, and 65-inch & 75-inchproducts respectively. In terms of commercial displays, the shipment of interactive whiteboardsjumped to the top across the world. Market shares in rail transit products and Esports productsclimbed swiftly.For the medium-sized panel business, product and customer structures were optimized. Forthe small-size panel business, close attention was paid to technological innovation andenhancement. Both businesses advanced quickly in high-end segments. In terms of the t3production line, the shipment of LTPS mobile panels took third place globally. Multiple brands ofhigh-end notebooks, tablets, and vehicle displays were introduced to the medium-size panelbusiness, thus quickly developing the business. The shipment of LTPS notebook panels was rankedsecond in the world. The t4 production line of flexible AMOLED displays produced at full capacityin Phase I. Equipment for Phases II and III are being moved in. Foldable screens and double-curvedscreens for brand manufacturers were mass produced and delivered. The Company successivelyintroduced global first-class brand customers. In the Reporting Period, the shipment area of small-and medium-size products was 1,422,000 square meters with a year-on-year increase of 4.2%.99,235,000 pieces were shipped, down by 12.8% year-on-year. The revenue amounted toRMB17.79 billion, increasing by 18.1% year-on-year.
During the historically low ebb of the semi-conductor display, TCL CSOT adhered to its strategicfocus, achieved countercyclical expansion, and marched toward the strategic goal of globalleadership. TCL CSOT adopted multiple measures to enhance its strengths: First, it acquiredSamsung Suzhou to reinforce the comprehensive competitiveness in the large-size panel business.Second, it acquired a 39.95% non-controlling interest in the t3 plant to raise the contribution of thesmall- and medium-size panel business to the Group’s earnings. Third, it acquired a stake in JOLEDInc. in Japan to accelerate the industrialization of printed display technologies. Fourth, a laboratorywas jointly established by TCL CSOT and San'an Semiconductor, committed to Micro-LEDdevelopment. Fifth, it acquired Moka International Limited to offer customized and one-stopservices related to large-size TV and commercial displays, medium-size IT displays, and vehicledisplays.Looking into the future, the long-term prospects of the semi-conductor display industry arepromising. The LCD industry has basically completed the relocation to Mainland China. At present,industry capacity expansion is drawing to a close. The outdated capacity is being eliminatedgradually. Consequently, as industrial concentration is further improved, leading enterprises havedeveloped a high industry barrier.TCL CSOT will continue intensifying its scale advantage through endogenous growth andM&A deals and join hands with upstream suppliers and downstream customers to create anindustrial ecosystem featuring closer cooperation. In 2021, the t7 production line will continueits production ramp-up. Phases II and III of the t4 production line are in progress as scheduled. Thetakeover of Samsung Suzhou will be completed. TCL CSOT will expand its scale by over 50%,further consolidating its market share and position. In the meantime, the Company will deepen thecooperation with globally top-level brand customers, cultivate global industrial chain resources, andbuild a supply chain system that is more resilient and competitive.Product and revenue structures will be continuously optimized; a layout of high-end productswill be implemented to drive sustainable and quality progress. TCL CSOT will constantly raisethe proportions of high-end products, such as large-size products, 8K products and 120Hz products.For medium-size products, it will accelerate to introduce products with high added value likenotebook and vehicle displays. Regarding small-size flexible OLED, priorities will be given todifferentiated technologies, such as under-display camera, foldable screen and LTPO, whereby TCLCSOT has already enjoyed a competitive advantage. In 2021, it will successively start massproduction and delivery.
The Group will actively expand its presence in next-generation display technologies andmaterials to lead the future technology trend. TCL CSOT will accelerate the industrialproduction and ecosystem construction of printed display processes, through its "National Printedand Flexible Display Innovation Center"—Guangdong Juhua and JOLED Inc. where TCL CSOTacquired a stake. China Ray will vigorously push forward the development of OLED and QLEDmaterials with independent intellectual property rights. It has submitted samples of R-prime and GHmaterials to domestic panel manufacturers. Moreover, it has over 30 core patents in printed OLEDmaterials and is ranked second globally in terms of the number of public patents in the quantum dotelectroluminescent field.
(2) Semi-conductor photovoltaic and semi-conductor materials
In 2020, Zhonghuan Semiconductor continued promoting the goals of achieving global leadershipin the photovoltaic industry and domestic leadership in the semi-conductor silicon-wafer industry.Additionally, it implemented reforms by adjusting the organizational structure, improvingmanagement efficiency, and transforming the manufacturing model to drive quality development. Inthe Reporting Period, Zhonghuan Semiconductor recorded a total revenue of RMB19.06 billion,climbing by 12.8% year-on-year, and a net profit of RMB1.48 billion with a year-on-year increaseof 17.0%. Zhonghuan Semiconductor has been included in the consolidated financial statementssince Q4 2020.
① Semi-conductor photovoltaic business
In terms of new energy materials, the Company focused on the decline of LCOE and has developedand promoted G12 photovoltaic silicon-wafer products and photovoltaic cells and components,which have been widely recognized in the market. It has proposed multiple new technologiesrelated to the improvement of capacity, the upgrading of product quality, and cost reduction in orderto further reinforce the global competitiveness of photovoltaic products. Besides, the company hasdeveloped patented technologies and know-how with independent intellectual property rights, aswell as further sped up Industry 4.0 application and upgrading, covering whole industrialproduction procedures. The total capacity of monocrystalline silicon wafer amounted to 55GW/yearat the end of the Reporting Period, wherein nearly 20% was from the improvement of the originalcapacity.With respect to new energy photovoltaic cells and components, the Company has continued itsinput and innovation to the overlapped-cell modules, which the company owns intellectual property
and industry leadership. It has performed the R&D of the overlapped-cell 3.0 production line so asto enhance the performance and reduce the costs of overlapped-cell modules. Collaborative andjoint innovation have been conducted with domestically leading G12 PERC cell manufacturers. Thecapacity turned 4GW/year at the end of the Reporting Period. The Company considers globalmanufacturing as an essential component of globalization, respects international commercialpractices and intellectual property, and strives to stand out among domestic peers. In the ReportingPeriod, the Company and Total, a French company, jointly completed the incorporation ofMAXEON SOLAR that is registered in Singapore and listed on the NASDAQ market. MAXEONfeatures intellectual property rights and outstanding R&D capacities in IBC cells and componentsand overlapped-cell modules. It will build up its manufacturing system of cells and components aswell as surface and distributed power stations worldwide.
② Semi-conductor materials business
Semi-conductor silicon-wafers are core and fundamental materials of integrated circuits. TCL hasgrasped the opportunities brought by the industrial chain transfer, given full play to the synergyeffect of the semi-conductor display industry, and forged ahead toward the goal of domesticleadership in the semi-conductor materials industry.In the Reporting Period, the Group accelerated the product verification and customer developmentin the semi-conductor materials industry and won recognition of major customers across the world.8- and 12-inch products met the international standards and domestic leading customers highlyrecognized their performance and quality. All launched production lines produced at full capacity.With respect to product structure, the Group has emerged to be a major player regarding digitallogic and storage products, while consolidating the strengths of traditional semi-conductor products.The year-on-year growth rate of the shipping area of silicon wafers surpassed 30% in 2020.Meanwhile, the Group accelerated to perfect its global business landscape, actively built a networkof market channels, created a technical support platform, and improved services of its global systemin Europe, Japan and Taiwan where semiconductor businesses cluster. Its overseas sales accountedfor 40% in 2020.
(3) Industrial Finance and Investment Business
① TCL Financial
TCL’s industrial finance business mainly includes the Group’s finance and the supply chain finance.
The finance team focused on the funding needs of the Group’s key projects, strengthened the activemanagement of liquidity and currency risk, and gradually satisfied financial needs of businessglobalization. The supply chain finance took full advantage of Internet platform. Jointly withdomestic financial institutions, it continuously provided high quality and convenient receivablesfinancing services for small and medium enterprises, realizing the sound development of theindustry.
② TCL Capital
TCL Capital seeks investment opportunities in key fields of high-tech industries, including newdisplay, semi-conductor industry chain, as well as key materials and process equipment. Theseinvestments took a balanced approach to promote technology development and derive economicbenefits. By the end of the Reporting Period, the AUM of TCL Capital exceeded RMB9 billion, and126 projects were invested cumulatively. Currently, it holds the stake of CATL, DKEM, Cambriconand some other listed companies, in addition to interests in Tengyuan Cobalt, Shangtai Tech, ASRMicroelectronics, GalaxyCore, etc. As for Admiralty Harbour Capital, it has issued andunderwritten 18 bonds and 7 debt management projects. Its investment banking and assetmanagement business grew steadily. China Innovative focused on investment opportunities relatedto the Company’s two core businesses, and it has invested in more than 130 listed companiescumulatively with a steady growth in performance.At the end of the Reporting Period, the Company holds a stake of several listed companies directly,including the 712 Corp. (603712.SH), the Bank of Shanghai (601229.SH) and the FantasiaHoldings (01777.HK).(II) Significant Change to Principal Activities in the Reporting Period
□ Yes √ No
(III) Product Category Contributing over 10% of Principal Business Revenue or Profit
Unit: RMB
| Product category | Revenue | Cost of sales | Gross profit margin | YoY change in revenue (%) | YoY change in cost of sales (%) | YoY change in gross profit margin (%) |
| Semi-conductor display devices | 46,765,152,291.00 | 2,696,687,047.00 | 16.89% | 37.57% | 181.34% | 6.55% |
| Distribution of electronics | 22,518,401,333.49 | 330,678,166.00 | 3.47% | 8.08% | 7.23% | -0.12% |
(IV) Business Seasonality that Calls for Special Attention
□ Yes √ No
(V) Significant YoY Changes in Revenue, Cost of Sales and Net Profit Attributable to theListed Company’s Ordinary Shareholders or Their Compositions
□ Applicable √ Not applicable
(VI) Possibility of Listing Suspension or Termination
□ Applicable √ Not applicable
(VII) Matters Related to Financial Reporting
1. YoY Changes to Accounting Policies, Accounting Estimates and Measurement MethodsFor details, see “44. Changes to main accounting policies and estimates” in “V Significantaccounting policies and estimates” in “Part XI Financial Report” of the full text of the 2020 AnnualReport.
2. Retrospective Restatements due to the Correction of Material Accounting Errors in theReporting Period
□ Applicable √ Not applicable
3. YoY Changes to the Scope of the Consolidated Financial StatementsCompared with 2019, 91 subsidiaries (11 newly incorporated and the other 80 over which theCompany newly obtained control) are newly included in and 6 subsidiaries (3 transferred and theother 3 de-registered) are excluded from the consolidation scope of 2020.