Interim Results 2001 Tomson LI, Chairman 30 August 2001 TCL International Holdings Limited.

Interim Results 2001

Tomson LI, Chairman30 August 2001

TCL International Holdings Limited

2

Agenda

Financial Review

Operation Review

Industry Outlook

Company Outlook (2H2001)

Financial Review

4

Financial Review (1)

(in HK$ millions) 1H2001 1H2000 Change

Turnover 4,529 4,359 +4%

Gross Profit 748 846 -12%

Gross Margin 17% 19% -2%

Net Profit 161 233 -31%

Net Margin 4% 5% -1%

5


Unit (‘000) PRC YoY%

Export YoY%

Total YoY%

TV* 2,713 +12% 359 +7% 3,072 +11%

Refrigerator 92 -40% 0 n.a. 92 -40%

Washing Machine 169 -52% 0 n.a. 169 -52%

Air Conditioner 98 +24% 0 n.a. 98 +24%

AV 289 -42% 38 n.a. 327 -34%

PC 84 -3% 0 n.a. 84 -3%

Mobile Phone 312 +460% 0 n.a. 312 +460%

Unit Sales of 1H2001

* Figures included TM-Henan

6


1H2001 1H2000 Change

TV 16% 18% -2%

White Goods 24% 26% -2%

AV 12% 20% -8%

PC* 9% 12% -3%

Gross Profit Margin

* PC only has 4 months contribution in 1H2001

7

Revenue Mix

1H2000

TV78%

WG15%

AV4%

Others3%

1H2001

TV77%

WG10%

AV2%

Others5%


PC*6%

* PC only has 4 months contribution in 1H2001

8

Revenue breakdown by geographical area

1H2000

PRC94%

Overseas6%

1H2001

PRC94%

Overseas6%


9


1H2001 1H2000

ROE 5.7% 9.8%

Current Ratio 1.7 1.8

Debt/Equity Ratio 0.1 0.2

Interest Cover (times) 25 17

A/R Turnover 42 days 31 days

Inventory Turnover 52 days 64 days

Financial Highlights

Operation Review

11

Operation Review - TV (1)

0

1000

2000

3000

4000

5000

6000

Un

its

sold

('0

00

)

1997 1998 1999 2000 1H2001

Expected sales - 2H2001

• Sustainable Growth under intense competition

Sales of TCL in PRC

12

Operation Review – TV (2)

Strengthened market position in 1H2001 Ranked 1st in PRC TV market in terms of units sold

(Source: MII) Increased market share to 19%

0

5

10

15

20

25

TCL Changhong Konka

2000 1H2001Source: MII

Mark

et

Sh

are

(%

)

13

Swift introduction of new concepts and high-end models 20 new models launched in 1H01 (incl. HiD)

The best performer in the industry in terms of profitability

• Competition in PRC TV market remains keen Price war initiated by Changhong in April 2001

Principally in 29” Decline in CRT (e.g. 29” declined by 20% in 1H01) and

electronic components (declined by 6% in 1H01) prices offset part of the price cuts impact

Margin squeezed 2% to approximately 16%

TCL : Profit (albeit declined by 31%) Hisense : Profit (declined by 15%)Changhong : LossKonka : LossSkyworth* : Loss


* 2001 Final Results (year end: March)

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<21" TV47%

25" TV28%

29" TV23%

>34" TV2%

25" TV26%

29" TV29%

>34" TV4%

<21" TV41%

1H20001H2001

• ASP merely drop by 5-6% due to sales of large size TV grew at a faster pace


15

Operation Review – WGs (1) Performance of White Goods Business unsatisfactory

Unit sales of refrigerator & washing machine dropped more than 40% YoY

Unit sales for air-conditioner increased a mere 24%, which was below expectation

0

50

100

150

200

250

300

350

Refrigerator Washingmachine

Air-conditioner

1H2000 1H2001

Un

its (

‘00

0)

16

Operation Review – WGs (2)

Market shares for refrigerator and washing machine declined in 1H2001 while that of Air-conditioner increased

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Mark

et

sh

are

%

Refrigerator WashingMachine

Air-conditioner

2000 1H2001

17


Air-conditioner More home appliances manufacturers entered the market to

capture high profit margin → Market supply increased Increase in price pressure in 1H2001 → ASP dropped by

13% Decline in component cost helped to offset price pressure

Margin remained stable New products were not well received

Prices were set too high

Strategies for Improvement Adjusting pricing strategy for new products Improve production cost structure

Centralize the component purchase of sub-contractors and ZhongShan factory

Further improve R&D capability Increase R&D expenses from 1% to 2.5% of turnover

in 2001

18


Refrigerator & Washing Machine

Transitional period of shifting product strategy Moving to high-end products

The delay of product rollout affected sales performance

Strategies for Improvement

Further improve product mix - shifting to high-end Lifting ASP and gross margin

Speed up new products introduction 26 new models to be launched in 2H

19

Operation Review – PC (1)

PC Overall PC shipments were below expectation in 1H

Slowdown of home PC market in the PRC According to APMSC, units sold of home PC in Jan-May

only grew by 18% which was below IDC’s forecast of 35% The Internet boom last year led to a high expectation

for the demand this year A delayed consumption due to continuous price cuts

INTEL CPU P4 1.5G price cut by 70% in 1H

Upgrade ERP system and internal operation restructuring

Margin squeezed Production failed to reach economies of scale Increasing expenses for R&D, customer services and ERP

system

20

Operation Review – PC (2)

Strategies for Improvement

ERP Installation Better control of inventory and cash flow Further reduce management cost and enhance

operational efficiency

Restructure distribution channel Headcount cut by more than 40%

Market strategies Further expand market share of hi-end products – P4 Concentrate marketing resources on P4 promotion Expect P4 will account for 60% of TCL’s product mix in

2H (17% in 1H) further enhance profitability

21

Operation Review – Overseas (1) Overseas markets maintained steady growth in 1H

TCL – leader in TV export (among all Chinese TV manufacturers)

0

2

4

6

8

10

12Export

Mark

et

Share

(%

)

TCL Konka Skyworth HaierSource: MII

Successfully penetrated into major SE Asian markets TCL is among the top 10 brands in India, Philippines, Vietnam & Indonesia

22

Operation Review – Overseas (2)

Expansion Plans

Existing markets India － consider setting up an assembly factory Vietnam – prepare re-exporting products to other markets

New Markets Middle East – signed distributorship contract Europe – consider setting factory in the Eastern Europe USA – contemplate setting up factory in Mexico or Brazil

An expected growth rate of 30-40% p.a.

Industry Outlook

24

Industry Outlook – TV (1)

Improving market conditions Steady growth in market demand

Expect 5-10% annual growth rate by volume

Urban area expected to grow much faster than rural area

Increase of disposal income stimulates replacement demand

State Council forecasts replacement demand in urban area to have 20m units p.a., representing a replacement rate of over 10%

Market consolidation

PRC market is mostly dominated by the top 3 players

Market share of top 3 players

1997 : 46%

1H2001 : 52%

25


• Industry inventory continues to decline

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

TCL Changhong Konka Skyworth

1Q2001 TV Sales and Production

Production Sales

Source: MII

Un

its (

‘00

0)

26


Potential in overseas markets

China has competitive advantages in TV production Mass manufacturing capacity and capability Low labour cost High quality standards

TCL’s strength in overseas markets Experienced overseas sales management team Local JV partners with strong sales connections Financial strength to develop brand awareness

27

Penetration rate of 10% of urban household lags those in developed countries such as Singapore & HK (over 30%)

Consumption power is increasing

P4 is expected to become the mainstream product in the PRC

Expect P4 will take 60-70% of total market share in Q4

Industry Outlook – PC (1)

China PC market still has room to grow

Company Outlook

29

Company Outlook – Overview

• Results of 2H of 2001 are expected to improve

TV• Industry inventory • CRT price stable• HiD mass production

WGs• Strengthen sales & marketing team• Shift to hi-end products• Strengthen R&D

Units SalesASPMargins

Further price war unlikelyMargin - stable or slightly up

PC• ERP improves efficiency• Strengthen marketing of P4

Further improve product mix• ASP• Margins

Overseas Markets• Further expand market shares

in South East Asian markets• Further expand product lines

and enhance AV & WGs businesses

• Studying expansions in Middle East, US and Europe

30

Company Outlook – New Products

New Products to be launched in 2H TV

• 50 new models to be launched in 2H HiD (Home Information Display) Projection TV Audio TV Smart TV

PC• 2 new product series to be launched in 2H

Targeting mid-low-end and hi-end Focus on appearance and audio function

WGs• More than 20 new models to be launched in 2H

Mobile Phone• 8 new models to be launched in 2H

31

Company Outlook – Target (1)

Revised sales target in 2001 (units in ‘000)

2001 Latest target

2000 Units Sold

Change%

TV 6,500* 5,800** +12%

Refrigerator 200 240 -17%

Washing machine 430 630 -32%

Air conditioner 220 170 +29%

AV 400 950 -58%

PC 260 260 0%

Mobile Phone 960 220 +336%

* TV 2001 target includes 800K of export

** Included 700K units of export

32

Revenue Mix

*Figures included TM-Henan. Assume PC has full year contribution

FY2000FY2001

TV81%

WG12%

AV4%

Others3%

TV74%

WG9%

AV3%

PC11%

Others3%


33

*Figures included TM-Henan

FY2000FY2001

PRC94%

Overseas6%

PRC93%

Overseas7%

Revenue breakdown by geographical area


Acquisition of Distribution Network

30 August 2001


35

Agenda

Transaction Overview

Distribution Network

Plans and Strategies

Transaction Overview

37

Terms of Acquisition

VendorTCL Holdings (ultimate holding company)

Purchase price Rmb 28 millions for 51% stake

Valuation1.5 times book value & 1 time PER (FY2000)

Consideration Fully paid by cash

38

Acquisition Rationale

• Further enhance product and market information flow

Improve operating efficiency

better inventory & A/R control

• Improve overall TCL’s competitiveness through direct control of distribution network

Further enhance customer service via retail outlets

• Broaden the Group’s earning base

May distribute non-TCL brands after China’s accession to WTO

• Improve transparency of our operations

• Strategically important to increase the Group’s sales

39

Before Acquisition

TCL Holdings

TCL Distribution

Network


(HKSE: 1070)

Public

51%54% 46%

15 yrs’ Distribution Agreement

40

After Acquisition

TCL Holdings

TCL Distribution

Network


(HKSE: 1070)

Public

54% 46%

51%

TCL King Electrical Appliances (Huizhou)

Distribution Network

42

Overview

• Largest company under TCL Holdings, with more than 9,200 employees

• Most established & extensive professional home appliances distribution network in the PRC

• Serve as marketing and customer service channels

• Annual distribution revenue* reached Rmb10 billion in 2000

* Distribution revenue mainly came from consignment sales of TCL

International Holdings’ products

43

Milestones

91 Set up 1st distribution subsidiary in Shanghai

92 Set up distribution companies in Wuhan, Xian, Harbin

93-96 Increase sales points continuously according to marketing plan

96 TCL’s TV became the top 3 best selling TVs in the PRC

97 Set up 7 regional management offices

98 Expand distribution network to rural areas

99 Commence the sales of white goods

00-01 Computerize distribution network and set up logistics management system

44

Note: Distribution network consists of 7 regions, 33 branches and 182 sales offices

Nationwide Coverage

Northern RegionBeijing, Tianjin, Baotou, Jinan, Qingdou, Jining, Shijiazhuang

North West RegionXian, Lanzhou,Taiyuan, Xinjiang

South West RegionChengdu, Chongqing, Guiyang, Kunming

Southern RegionGuangzhou, Shenzhen, Maoming, Nanning, Changsha, Fuzhou

HeadofficeHuizhou

Eastern RegionNanjing, Shanghai, Hefei, Hangzhou, Yangzhou

Central RegionZhengzhou, Luohe, Wuhan, Nanchang

North East RegionShenyang, Changchun, Harbin

45

Growth of distribution revenue

5.2

96 97 98 99 2000

2.63.1

9.3

In Rmb billions

10.4

Year

46

Financial Review

(in Rmb millions) 1H 2001 2000

Income

- Commission* 469 944

- Others 10 244

Expenses

- Advertising 75 239

- Transportation 29 49

- Salary 89 178

* Sales commission due from consignment sales

Net Profit 2 57

47

Competitive Strengths

• One of the largest distribution networks for home appliance products in China, with broad product and service offerings

• Long-term, preferred relationships with local distributors and retailers

• Strong management team with proven track record

• Advanced computer system (e.g. 進銷存 ) to have better inventory control and cash management

• Local knowledge and experience

49


Objectives Plans and Strategies

Improve network operation efficiency

– Establish logistics, IT, financial and customer service computer system to enhance data exchange among departments

Expand services to maximize network utilization rate

– Serve as customer service outlets– Implement CRM to improve customer

service– Provide value added services to distributors

such as marketing services, marketing training, product and pricing information, pre-sales consultation

Extend reach to end consumers

– Explore opportunities to establish alliance shops (an effective way to extend reach to end consumers)

TCL BE THE LEADER IN ALL HOUSEHOLD APPLIANCES

Open Forum

Interim Results 2001 Tomson LI, Chairman 30 August 2001 TCL International Holdings Limited.

Documents

Transcript of Interim Results 2001 Tomson LI, Chairman 30 August 2001 TCL International Holdings Limited.