Midea Group IR presentation
2017.02
1 Corporate Snapshot
2 Milestones
Successful transition into a multi-product and global industry leader
3 Return to Shareholders
Stable dividend distribution to shareholders every year
RMB Bn
4 Overview
Leading Technology Group in consumer appliances, HVAC, robotics and automation systems
FY 2015 Export to Ranked Credit ratings $22 billion 200+ 481st A-/A3/A- Revenue Countries/Regions Fortune 2016 S&P/Moody’s/Fitch
# 1 Global Home Appliances Player by Revenue Market Cap and rankings
2015 Revenue,FY 2015, US$ US$ Bn Bn
Market cap: ~ RMB 200bn
Ranking among A-share companies: 26 + Ranking among A-share companies (excl. financial and energy companies)：4
Ranking among Shenzhen stock exchange: 2 5 Product Portfolio
Major Domestic Kitchen Appliances General SDA Residential A/C Appliances Commercial A/C Products
Split A/C Hood Electric Oven Side by Side French Doors Chillers Rice Cooker Kettle Refrigerator Refrigerator
VRF Range Cooktop Standing A/C
Freezer In-line Water Heater Juicer Heater Microwave Movable A/C Roof-top
Central A/C Dish Smart Washing Washing Washer System Fan Water Machine Machine Mini VRF Purifier Key Components
Vacuum Electric HVAC and Magnetron Electronic Cleaner A/C and REF U.S. Ducted Compressor Motor Appliance Motor Controller
Robotics & Industrial Automation 6 Market Position
Induction Microwave Pressure Water Residential Water Vacuum Rice Cooker Kettle Washer Refrigerator Hoods Gas Stove Cooker Oven Cooker Purifier AC Heater Cleaner
No.1 No.2 No.1 No.1 No.1 No.1 No.2 No.2 No.3 No.3 No.2 No.3 No.3
7 Turnover Breakdown
HVAC account for close to half of revenue; international sales account for over 40%
Motor, Logistics, Outside of China, 3% 1% 44% Air conditioner, Small appliances, 48% 28%
Inside China, Wash machine, 56% 10% Refrigerator, 9% 2016H1 Main Business Turnover Breakdown
Unit: RMB Bn Source: 2016 Semi-Annual Report 8 Manufacturing Footprint
Inside / Outside of China: 17 / 12 production facilities; ~90,000 / ~15,000 employees
Residential AC, Microwave, Stoves Commercial AC, China (17) Refrigerators, Microwaves, Stoves, Belarus (1) Ovens, Disinfection cabinets, Small Appliances, Commercial AC Compressors, Motors Lighting Washing machines, Italy (1) Vacuum Cleaners, Water Heaters
Japan (2)
Rice Cooker, Fan, Induction Cooker Brazil (2) Vietnam (1)
Residential AC, Washing Residential AC, Egypt (1) Machine, Refrigerator, Rice Commercial AC Cooker, Fans India (2) Argentina (1) Thailand (1) Residential AC, Residential AC SaudiCommercial Arabia AC Residential AC Refrigerator, Wash Machine, Rice Cooker, Microwave Oven
In addition, KUKA has 15 manufacturing sites and 13,200 employees worldwide, including 2 sites and over 1,000 employees in China 9 Corporate Governance
10 Management Handover
A family enterprise managed by professional managers
In 2012, professional manager team came on board In 2013, Midea Group launched IPO
Hongbo Fang (Paul) Prior to IPO Chairman & President Strategic Midea Holding Management Joined Midea in 1992 Investors 59.85% 21.15% 19.00%
Bitong Yin (Berton) Fengtao Zhu (Frank) Issue Shares Shareholders of VP & & GM of Residential AC VP & GM of Kitchen Appliances Midea Group Midea Electric Share swap Joined in 1999 Joined in 1993 58.83% 41.17% Yanmin Gu (Andy) Feide Li (Fred) Midea Electric (List SDA Motor Logistics VP VP & Head of Operations Co) Joined in 2000 Joined in 1999
After IPO Ziqiang Hu (Zack) Jinliang Wang (Kim) Strategic VP & Head of Domestic Marketing Midea Holding Management Others VP & Chief of Central Research Investors Joined in 2012 Joined in 1995 35.49% 12.54% 11.27% 40.70%
Mingguang Xiao (Peter) Peng Jiang (Galen) CFO Board Secretary Midea Group Joined in 2000 Joined in 2007 (List Co)
Board composition: SDA Motor Logistics Midea Electric 4 executive + 2 non-executive + 4 independent 11 Organizational Chart
10 Business Units + 8 Platforms + Corporate Functions = Great Synergies
International Financing Midea Group Business Platform
Platform
Procurement E-commerce
Platform Platform
(TLSC)
Logistics KUKA Central R&D
Platform Laundry Institute
Refrigerator
Water Heater Water
Residential AC Residential
Commercial AC Commercial
Living Appliances Living
Kitchen Appliances Kitchen
Parts & Components & Parts
Environmental Appliances Environmental Toshiba Lifestyle Toshiba
Service M-Smart Platform Institute 10 Business Units + KUKA
12 Incentive Schemes
Clear Shareholding Structure & long-term incentive plans
Strategic Three terms of share option plans for employees. Investors Management Share Option Accumulatively account for 6% of TSO. 4% Plan 4% Majorly management in R&D and manufacturing.
Controlling Other Shareholder Shareholders 36% 56% Midea Group Two terms of “Partners” Program (ESOP) “Partners” For key senior management. Program From “professional managers” to “business partners”.
13 Strategic Transformations
14 Key Financial Changes
Significant margin improvement and strong cash generation capabilities
2011 2015 Change
Revenue (RMB Bn) 134.1 138.4 3%
Net Earnings (RMB Bn) 6.6 13.6 106%
Net Cash / Debt (RMB Bn) * -5.1 64.9 +70 Bn
Cash flow from Operating Activities (RMB Bn) 4.1 26.7 551%
Revenue per employee (RMB Mn) 6.8 13.1 91%
Number of Employees (‘000) 196 105 -46%
Net Asset (RMB Bn) ** 30.2 56 85%
* The calculation of Net Cash here includes Notes Receivable. ** In addition, the dividend paid to the shareholders of the list company and JV partners amount to RMB 18Bn in total in the last five years. 15 Strategic Focuses
Strategic focuses shifted to Products, Efficiency, and Globalization
• Focus on consumer-centric; improve product competitiveness Leading • Increase investment in R&D and innovation Products • Spin off loss-making product categories; improve product mix
• Launch 632 IT project to standardize and streamline process Efficiency • Invest on automation of factories Driven • Promote Just-in-time manufacturing and destocking initiatives • Consolidate business support to 6 platforms to create synergies
• Set up International Business Platform (MIB) Global • HQ globalization, subsidiaries localization Operation • Business model from OEM to OBM • Joint Ventures, Mergers & Acquisitions
16 Technology & Innovation
Top Global Innovator with increased R&D expenses, personnel and centers
17 Efficiency Driven
Investment on automation & IT; reduction on overcapacity, inventory, leverage
Investments Reductions
RMB 7Bn on RMB 2Bn on Product SKU: Inventory: Loan: factory 632 IT categories: >4,000 1610Bn 14.44Bn automation project 6432 2,000 RMB RMB
Lean organization, lean manufacturing, made to orders (T+3 model)
18 Globalization
To achieve global allocation of capital and global operations
OEM OBM Midea International Business (“MIB”)
• A management platform with corporate functions
Functional Emotional Aspirational • An interface between HQ and overseas subs Brand Brand Brand • A “Special Economic Zone” within Midea Group • 15 nationalities of less than 100 employees
Proven Partner with Leading Global Brands
JV with Little Swan, JV cooperation in China, JV cooperation in HVAC HQ Subsidiaries OEM business India, Egypt, Philippines and compressors Globalization Localization and South America
JV cooperation in China with JV cooperation in China 94.55% Stake in Kuka and Global Local Bosch Thermotechnology on robotics cooperation in robotics standardization Differentiation
Joint development on JV cooperation on JV cooperation in Belarus electronic controllers Commercial Ac
19 Recent Transactions
Midea + Toshiba Midea + Clivet Midea + KUKA
Acquisition of 80.1% stake in the Acquisition of 80% stake in Clivet, a Launched a voluntary tender offer at home appliances businesses of European leading company based in EUR115 in cash per KUKA share; Toshiba with a consideration of Italy Total consideration amounts to be c.US$500 million approximately EUR 3.7Bn Improve market share on the Being licensed to use the Toshiba European as well as global markets 81.04% of shares tendered, plus the brand worldwide for 40 years; 13.51% shares acquired by Midea Obtained美的以 over5亿美元，受 5,000 IP assets让 Significant synergies in in product prior to the takeover offer, results in offerings, market presence, supply a total of 94.55% of all issued shares Significant synergies in brand, chain, manufacturing and of KUKA channels, R&D, supply chain, etc. technologies In line with Midea Smart 2 Strategy
Closed on 30 June 2016 Closed on 31 October 2016 Closed on 6 January 2017
20 Future Strategies
Existing business
“Leading Products” strategy
New geographic expansion
Focusing on strategic markets New business
Building, security, B to B business
21 Midea Corporate Strategy
Continuous Smart 2 Strategy Leading Positions Transformation
Leading Leading Leading Intelligent Products Globalized Business Smart Home Smart manufacturing Products Enterprise Platform
HVAC Home Automation Components New Fields (Building Solution,, Appliance Robotics etc.)
Overarching platform underpinned by big data, services and ecosystem
Supported by infrastructure seamlessly incorporating logistics, finance and customer service platforms
22 Midea Automation Platform Strategy
Industrial / Logistics Automation Service Robotics
Service- Software / Software Enterprise Cloud & based Eco- Software Big Data Business Systems system Model
Hardware / Product Design +
Cobots Medium-sized Large-sized Increased General Industry Penetration Joint Investment/Development Area Industry
Applications Current Industry Focus
Components Future Investment/Development Area
23 KUKA Overview
2015 Revenue: €3BN → 2020 Revenue: €4 - 4.5BN
KUKA Systems KUKA Robotics 2015 Revenue(1): €1472MM Swisslog 2015 Revenue(1): €910MM 2015 EBIT(1): €115MM 2015 Revenue(1): €621MM 2015 EBIT(1): €100MM 2015 EBIT(1): €(46)MM Industries Systems Product Cell Solution
Industrial Service & Medical Technical Warehouse Reis Automotive Aerospace Healthcare Robotics Robotics Solutions Logistics
Integrated software solutions and modular product platform Application and Industry Systems and Process Robotics Expertise Expertise Expertise
Serving a Variety of End Markets
-
E
re
s/ s/
c
otics
Industry
b
o
Goods
Service
R
Consumer Consumer
Healthca
Commerce
Aerospace
Electronics
Automotive
Logisti Metal
#1 Global Player in Top 5 Global Player in General Industry Robotics Automotive Robotics Note: 1. Segment financials excludes corporate expenses 24 The Chinese Automation Opportunity
China is Facing Rising Labor …While Continuing to Act …Though Its Robotics Costs and Aging Demographics… as “Workshop of the World” Industry is Still in Infancy
Rising Labor Cost Share of Global Handset Production Share of Global Electronics Robot Manufacturing wages (RMB per year) 51,369 Shipment
17,966
2006 2008 2010 2012 2014 75% 35% Source: www.tradingeconomics.com
Aging Population Share of Global Auto Production Share of Global Auto Robot Shipment
2010 19% 70% 11%
2050E 12% 55% 33% 42% 21%
Under 15 15–60 Over 60
Source: KPMG, China 360, 2013 Source: IFR
25 The Chinese Automation Opportunity (cont’d)
Industrial Robots Remain Underpenetrated in China Compared to the U.S.
China U.S.
954 1,141 990 1,050 1,140
4x 3.5x Robots per 6x 10,000 8x Manufacturing 16x 305 300 Employees 195
120 60
Electrical & Electronics Automotive Food Processing Chemical, Rubber & Plastics Metal & Machinery
Chinese Industrial Robots CAGR 69% 30% 72% 25% 44% (10–14)
Rich, Mature Industries in China with Capital to Invest in Automation
Source: IFR 26 Business Update
27 Revenue & Margins
Revenue growth recovered; both gross and net profit margin further increased
Note: Acquisition of TLSC was closed on 30 June 2016. Financial reports of TLSC has been consolidated since then.
28 Cash & Cash Flow
Abundant cash-in-hand; strong cash generation capabilities
* The calculation of Net Cash here includes Notes receivables. 29 Cash Conversion Cycle
Cash conversion cycle became negative
30 Thank you!