FIH Mobile Limited
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FIH Mobile Limited 富智康集團有限公司 FIH Mobile Limited (在開曼群島註冊成立的有限公司) (Incorporated in the Cayman Islands with limited liability) 股份代號 : 2038 Stock Code: 2038 富智康集團有限公 年報 Annual Report 2018 司 2018 Annual Report 2018 年 報 CONTENTS Corporate Information 2 Chairman’s Statement 3 Profile of Directors and Senior Management 5 Report of the Directors 9 Independent Auditor’s Report 58 Consolidated Statement of Profit or Loss and Other Comprehensive Income 64 Consolidated Statement of Financial Position 65 Consolidated Statement of Changes in Equity 67 Consolidated Statement of Cash Flows 68 Notes to the Consolidated Financial Statements 70 Financial Summary 149 Corporate Governance Report 150 CORPORATE INFORMATION FIH MOBILE LIMITED (THE “COMPANY”, AND TOGETHER WITH ITS SUBSIDIARIES, THE “GROUP”) EXECUTIVE DIRECTORS PRINCIPAL BANKERS CHIH Yu Yang (Acting Chairman and Agricultural Bank of China Chief Executive Officer) Bank of Beijing WANG Chien Ho Bank of China KUO Wen-Yi Bank of Communications China Guangfa Bank INDEPENDENT NON-EXECUTIVE China Merchants Bank DIRECTORS Chinatrust Commercial Bank LAU Siu Ki Citibank Daniel Joseph MEHAN DBS Bank TAO Yun Chih Deutsche Bank Industrial Bank COMPANY SECRETARY ING Bank WONG Kin Yan, Vanessa Mizuho Corporate Bank OCBC Bank REGISTERED OFFICE Santander Bank P. O. Box 31119 Grand Pavilion Standard Chartered Bank Hibiscus Way Sumitomo Mitsui Banking Corporation 802 West Bay Road Taipei Fubon Bank Grand Cayman, KY1-1205 The Hongkong and Shanghai Banking Cayman Islands Corporation Limited HEAD OFFICE PRINCIPAL SHARE REGISTRAR AND No. 369 Jianshe South Road TRANSFER OFFICE Anci District SMP Partners (Cayman) Limited Langfang City Royal Bank House — 3rd Floor Hebei Province 24 Shedden Road, P. O. Box 1586 People’s Republic of China Grand Cayman, KY1-1110 Cayman Islands PRINCIPAL PLACE OF BUSINESS IN HONG KONG HONG KONG BRANCH SHARE 8th Floor, Peninsula Tower REGISTRAR AND TRANSFER OFFICE 538 Castle Peak Road Computershare Hong Kong Investor Cheung Sha Wan Services Limited Kowloon 46th Floor, Hopewell Centre Hong Kong 183 Queen’s Road East Wan Chai AUDITOR Hong Kong Deloitte Touche Tohmatsu STOCK CODE LEGAL ADVISORS 2038 Clifford Chance, Hong Kong Freshfields Bruckhaus Deringer, Hong Kong Mayer Brown, Hong Kong 2 FIH MOBILE LIMITED / ANNUAL REPORT 2018 CHAIRMAN’S STATEMENT Dear Shareholders, 2018 was a challenging year for the Group and the handset market saturation and global market uncertainties affected business of our customers. The Group recorded a continuous year-on-year growth in sales but significant net loss as a result of gross margin erosion, foreign exchange loss, increasing in selling and R&D (Research and Development) expenses mainly related to the IIDM (Integration, Innovation, Design, Manufacture) business, and the investment and goodwill impairment losses. Under such circumstance, in order to maintain healthy financial position of the Group and reduce the loss making, the Group has critically reviewed its business strategy and will not accept orders with poor margin and at the same time, carried out rightsizing and cost reduction exercises to reduce overall operating expenses and losses. The Group’s partner, HMD (which has been in the dynamic handset market) came to a strategic decision that HMD will not only seek for the Group’s support but also contract with other ODMs (Original Design Manufacturers) and therefore the Group’s sales to HMD will decline. As there was change to collaboration model between the Group and HMD, the Group decided to discontinue its logistics and distribution business and cut the costs and concentrated the Group’s resources on its core business. Regarding equity investments, the Group has become cautious on managing its investment portfolio, and its investment strategies become more focused on the phone related hardware, software for building up the phone ecosystem portfolio including 5G (5th Generation of Cellular Mobile Communication), AI (Artificial Intelligence), IoT (Internet of Things) smart devices, smart home products or others. The Company currently expects no substantial loss arising from the change in the total fair value of the Group’s investments in certain listed companies and goodwill impairment loss in 2019. Chinese market, the world’s largest smart phone market, remains the Group’s core performance contributor in 2018. However, Chinese market has been in decline since 2017, and there has been a noticeable slowdown both in price and volume in the third quarter of 2018. On the other hand, the trade war between China and U.S. has imposed tariffs on billions of dollars and impacted on traditional OEM (Original Equipment Manufacturing) and manufacturing industry, but fortunately the trade war has not yet directly affected mobile phones as no tariffs being imposed. Due to the Group’s global footprint, the Group is not only working with our Chinese customers in China, but also providing the supply chain management competitiveness enabling their internationalisation and expanding their reach outside China to offset the decline in Chinese market. Therefore, the Group expects the manufacturing business in India and Vietnam will continue to see healthy growth in 2019. In relation to the Group’s continuous fostering and development of long-term relationships and partnerships with customers, in 2018, the Group entered into collaboration with a U.S. based internet customer who is one of the most innovative internet companies in the world to bring the most advanced AI technology embedded smart phones to customers and consumers worldwide. From mobile market perspective, phones are more capable and durable, which will extend the replacement cycle and consumers are not compelled to upgrade quickly, and the phone industry also showed a matured growth pattern in 2018. While the innovation and enhanced user experience are still paramount, there are many innovative products that are expected to be launched in the market in 2019. The Group would adopt innovative technology to differentiate ourselves from competitors for further growth with our customers. Our end-to-end handset manufacturing services solutions were critical in winning businesses in such challenging market environment. We had taken actions to remain lean but agile and control our manufacturing and operating expenses and rationalised our cost structure, which enabled us to respond to challenges in a dynamic market. FIH MOBILE LIMITED / ANNUAL REPORT 2018 3 CHAIRMAN’S STATEMENT Revenue for the year 2018 was US$14,930 million, which represents an increase of US$2,850 million or 23.59%, when compared with 2017 revenue of US$12,080 million. Loss for the year 2018 attributable to owners of the Company was US$857 million, when compared with the corresponding 2017 loss of US$525 million. Basic loss per share for the year 2018 was US10.57 cents. Technologies keep evolving dramatically and the Group has to adapt to the “Internet + Industry” evolution and we will grasp the industry opportunities and make more investment in 5G and other key areas and look ahead to design products that better meet people’s increasingly demanding needs. Since the Group adjusted its pricing strategy and initiated cost optimisation exercise to remain competitive and took necessary actions for its investment portfolio in 2018, we believe the bottom line performance in 2019 would improve as operating expenses should reduce, and pressure on the Group’s gross margins generally ought to ease, over the course of 2019. Thanks to our teamwork and determination in 2018, the Group’s entire staff has worked diligently and strived hard to meet the challenges and to adopt necessary changes for our future developments and long-term success. For this, I would like to extend my gratitude to the support of our board of directors, management team, all staff, customers, shareholders and business partners in the past year. We aim to continue to execute well and strive to make continuous improvements in the years to come. With best regards, CHIH Yu Yang Acting Chairman 6 March 2019 4 FIH MOBILE LIMITED / ANNUAL REPORT 2018 PROFILE OF DIRECTORS AND SENIOR MANAGEMENT DIRECTORS CHIH Yu Yang (Mr.), Chinese (Taiwan) and aged 60, was appointed as the Acting Chairman of the Company effective 1 January 2017. He joined the Company as an executive director in August 2009. He is also the chief executive officer and the chairman of the corporate governance committee respectively of the Company. Mr. Chih is the chairman of the board of directors of Chiun Mai Communication Systems, Inc. (“CMCS”), a subsidiary of the Company in Taiwan which is the primary mobile handset design services arm of the Group. Mr. Chih joined the Group in 2005 when the Group acquired CMCS. Prior to that, Mr. Chih was the founder of CMCS since its establishment in 2001. Mr. Chih is the chairman of the board of directors of FIH Co., Ltd. and Evenwell Digitech Inc., both being subsidiaries of the Company. He is also a director of certain other subsidiaries of the Company, namely Execustar International Limited, FIH Technology Korea Ltd., Greater Success Investments Limited and Transworld Holdings Limited respectively. Moreover, he is a director of certain subsidiaries of 鴻海精密工業股份有限公司 (Hon Hai Precision Industry Co. Ltd. for identification purposes only) (“Hon Hai”). He has 39 years of extensive experience in the communication industries. From 1997 to 2001, Mr. Chih was the vice president and general manager of Communication B.U. in BenQ (formerly Acer Communication and Multimedia, Inc.) where he was responsible for BenQ’s cellular phone business. Prior to that, he held various engineering and managerial positions in companies including ITT Corporation, GTE Corporation and Rockwell Semiconductor Systems. Mr. Chih obtained a Bachelor of Science degree in Electrical Engineering from National Tsing Hua University in Taiwan in 1980. WANG Chien Ho (Mr.), Chinese (Taiwan) and aged 59, joined the Company as an executive director on 7 June 2016. Mr. Wang joined the Company as director of electronic parts manufacturing and SMT (Surface Mount Technology) and system assembly in June 2004.