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Annual Report 2017 Annual Report 2017 年 報 Contents 年報2017 Annual Report 2017 Annual Report 2017 年 報 Contents Company Profile . 1 Major Events Calendar . 2 Chairman’s Statement . 3 Discussion and Analysis of Operation . 5 Corporate Governance Report . 19 Profiles of Directors, Supervisors & Members of the Senior Management . 35 Report of the Directors . 39 Report of the Supervisory Committee . 58 Corporate Information . 60 Financial Statements Prepared in accordance with China Accounting Standards for Business Enterprise . 61 1 Company Profile Hisense Kelon Electrical Holdings Company Limited (the “Company”) is a major manufacturer of white household electrical appliances in the People’s Republic of China (the “PRC” or “China”) under the brand names Hisense, Kelon and Ronshen, each of which have been recognised as “Well-known Trademarks in China” . Founded in 1984 and headquartered in Shunde District, Guangdong Province, the PRC, the Company is principally engaged in research and development, production and marketing of white household electrical appliances such as refrigerators, air-conditioners, washing machines, freezers and kitchen electrical appliances, as well as after-sale service . Its manufacturing bases are located in cities across the country, including Qingdao (Shandong Province), Shunde (Guangdong Province), Jiangmen (Guangdong Province), Yangzhou (Jiangsu Province), Huzhou (Zhejiang Province), and Chengdu (Sichuan Province) . In 1996 and 1999 respectively, the Company’s shares were listed on the main boards of The Stock Exchange of Hong Kong Limited (“the Hong Kong Stock Exchange”) and the Shenzhen Stock Exchange . Refrigerators and washing machines business: Refrigerators and washing machines comprise one of the Company’s principal businesses . In this sector, the Company’s Hisense and Ronshen brands are among the most well-known in China, with Ronshen refrigerators ranked first in terms of the market share for the last 11 consecutive years . Residential Air-conditioning business: Under its well-known Hisense and Kelon air-conditioner brands, the Company was the first to commit to the research and development, production and promotion of inverter air-conditioners in China . Having years of experience, the Company has maintained a consistent focus on developing technological innovations for inverter air- conditioners, improving product quality, and upgrading its industrial capabilities . This has enabled it to lead the development of national standards for inverter air-conditioners, and has earned a reputation as the industry’s “inverter expert” . Central Air-conditioning business: Qingdao Hisense Hitachi Air-Conditioning Systems Co ., Ltd .(“Hisense Hitachi”) was established in 2003 (the Company holding 49% of its equity interest) . A strong competitor in the central air-conditioner market, in terms of market share the brand ranks first in multi-split central air-conditioners for construction projects, and second for retail residential multi-split central air-conditioners . With the support of its strong technical team, the Company will continue to follow its “technology orientation and prudent operation” strategy of development, and its operating thought of “creating quality products, enhancing customer value, raising system efficiency, accelerating business expansion, expanding the international market” . It will increase the competitiveness of its products through technological innovation, improved quality and added value of the products . Overall, the Company’s integrated capabilities will be continuously enhanced, including in the areas of technology, product grade, market scale, profitability and sustainability, to support a steady growth in scale, efficiency and market share . 1 Major Events Calendar JANUARY “Hisense Refrigerator Yu Chen Public Welfare Grant” was established to fund the education of children from deprived areas . FEBRUARY Hisense “Chinese-style Refrigerator” receives a 2017 iF Product Design Award – the “Oscar” of industrial design – at the iF Hannover Industrial Design Forum in Germany . Hisense becomes the first washing machine brand to meet stringent industry standards for dissolved matter limits and test methods for household and similar electrical appliances . It is also the first to meet ‘food-grade’ laundry standards . MARCH Hisense’s “Male Idol” air-conditioner receives the AWE2017 Appliance Innovation Award at the PRC Appliance & Electricals World Expo . APRIL Gao Liwen joins Ronshen Refrigerator as its new spokesperson, appearing with honorary brand ambassador Liza Wang at the handover ceremony . Gao will help bring Ronshen Refrigerator into the hearts and minds of a youthful new generation of customers . MAY The Company’s Hisense, Ronshen and Kelon brands are placed in the ‘CCTV Chinese Brand List’s household appliance category . JUNE Hisense becomes the first PRC central air-conditioning brand compatible with Apple’s HomeKit Smart platform . Hisense’s “T-door Refrigerator” is the industry’s first to achieve A+ level sterilisation performance . SEPTEMBER Hisense’s “Master” three-drum washing machine – the world’s first triple washer – receives an IFA Product Technical Innovation Award and a Product Design Innovation Gold Award from the German Chamber of Commerce and Industry and the International Data Group of America . NOVEMBER Hisense air-conditioner series products is named on the “Green Product Leaders 2017” (綠色環保產品領跑榜) list and win the International Award on Green Design 2017 . DECEMBER Entitled “Interconnection between JD and Hisense, Foresight of Brilliant Chances”, the launching ceremony for the 2017 Hisense & JD Intelligent Strategic Cooperation cum New Product Conference of JD-Hisense Intelligent Refrigerator was held . Company subsidiary Hisense Ronshen (Guangdong) Refrigerator Co ., Ltd . is among the first batch of household appliance- makers in Guangdong to be accredited for “same product line, same standards, same quality” in domestic and overseas sales . In the Chinese air-conditioning industry’s annual meeting, the Hisense “Male Idol X” air conditioner win the “High- end Benchmark Award of Chinese Air-conditioner Industry in 2017” (2017年中國空調產業高端標杆獎) and Hisense air- conditioner is named as the “2017 Leading Intelligent Brand in Chinese Air-conditioning Industry” . 2 Chairman’s Statement Dear Shareholders: I am pleased to present the annual report of the Company for the year ended 31 December 2017 (the “Reporting Period”) for shareholders’ review . During the Reporting Period, domestic refrigerator sales remained weak during the Reporting Period . According to inferential statistics from the China Market Monitor Company Limited (“CMM”), in 2017, cumulative retail volume in the refrigerator sector grew by only 3 .7% year-on-year . By contrast, the air-conditioner market had an impressive performance . According to inferential statistics from CMM, in 2017, cumulative retail volume in the air-conditioner market grew by 27 .5% year-on-year . The performance of the central air-conditioner sector was also satisfactory . According to statistics from www .aicon .com .cn, in 2017, the domestic central air-conditioner market grew by approximately 20% year-on-year . Performance in the export market remained stable . According to Customs statistics, in 2017, the export volume of refrigeration products grew by 11 .5% year-on- year, while the export volume of air-conditioning products grew by 11 .5% year-on-year . The current structural optimisation of white goods products and upgraded consumption in the PRC are being driven by continuing supply-side structural reform . CMM statistics show the offline cumulative retail market share of French-style refrigerators increased by 5 .8 percentage points year-on-year in 2017, while the offline cumulative retail market share of side- by-side refrigerators increased by 1 .9 percentage points year-on-year . Offline cumulative retail market share for artistic cabinet air-conditioners in the offline cabinet air-conditioner market increased by 6 .1 percentage points year-on-year; and for the offline cumulative retail market share APF Class I inverter air-conditioners increased by 16 percentage points year-on-year . With the emerging era of “artificial intelligence 2 .0”, consumers’ increasing demand for a quality home life poses new challenges and demands new ideas in the development of household appliance enterprises . Enterprises are taking a demand- oriented approach, focusing on future developing intelligent technologies and enhancing user experience . During the Reporting Period, faced with the complexity of international and domestic economic conditions, the Company persisted in its operational direction of “strengthening the high-end strategy, expanding the high-quality network, enhancing system efficiency, accelerating the industrial expansion, expanding into international markets, ensuring the economies of scale”, and implemented various tasks to steadily improve its scale and efficiency . The Company achieved operating revenues of RMB33 .488 billion, representing a year-on-year increase of 25 .28%, and principal operating revenue of RMB30 .43 billion, representing a year-on-year increase of 23 .34% . Revenue from the refrigerator and washing machine business accounted for 46 .37% of the principal operating revenue, representing a year-on-year increase of 10 .43%; and revenue from the air- conditioner business accounted for 47 .94% of the principal operating revenue, representing a year-on-year increase of 40 .52% . The domestic sales business recorded a principal operating
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