FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary Stock Code: 000026 200026 Short Form of Stock: FIYTA, FIYTA B Announcement No: 2020-013 FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary I. Important Notice This summary of the Annual Report is quoted out of the full text of the Annual Report. Investors desirous to understand entirely the Company's operation results, financial position and future development planning are advised to carefully read the full text of the Annual Report which is published in the medium designated by CSRC. The Board of Directors, the Supervisory Committee, directors, supervisors and senior executives hereby individually and collectively accept responsibility for the correctness, accuracy and completeness of the contents of this report and confirm that there are neither material omissions nor errors which would render any statement misleading. Huang Yongfeng, the Company leader, Chen Zhuo, chief financial officer, and Tian Hui, the manager of the accounting department (treasurer) hereby confirm the authenticity and completeness of the financial report enclosed in this Annual Report. All the directors attended the board meeting for reviewing the Annual Report. Indication of qualified audit opinion Inapplicable The profit distribution preplan or the preplan for conversion of reserve into capital for the reporting period reviewed by the Board of Directors Is there any public reserve converted into capital stock No The profit distribution preplan reviewed and approved by the Board of Directors is summarized as follows: With the total capital stock as at the date of record as the base, the Company would distribute cash dividend at the rate of CNY 2 for every 10 shares (with tax inclusive), bonus share at the rate of 0 share for every 10 shares (with tax inclusive) to the whole shareholders and shall capitalize no reserve. Profit Distribution Preplan for Preferred Shares during the Reporting Period Approved by the Resolution of the Board of Directors Inapplicable III. Company Profile I. Company Information Short form of the stock: FIYTA and FIYTA B Stock Code 000026 and 200026 Stock Exchange Listed with Shenzhen Stock Exchange Liaison Persons and Communication Secretary of the Board Securities Affairs Representative Information Name Pan Bo Zhang Yong 18th Floor, FIYTA Technology Building, Gaoxin S. 20th Floor, FIYTA Technology Building, Gaoxin S. Office Address Road One, Nanshan District, Shenzhen Road One, Nanshan District, Shenzhen Fax 0755-83348369 0755-83348369 Tel. 0755-86013669 0755-86013669 1 FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary Email investor@fiyta.com.cn investor@fiyta.com.cn 2. Summary of the Principal Business or Leading Products during the Reporting Period (1) Principal Business and Operation Model FIYTA is engaged in main business of watch brand management and brand watch retails. In respect of the technological nature, it belongs to precision technology industry. Depending on its accumulated technology and industrial advantages in the high-end precision technology field, the Company is also actively exploring business growth opportunities in new fields such as precision technology and smart watches. (2) Development Status of the Industry and the Company's Position Therein Watches bear both characteristics of precision technology and fashion: high-end watchmaking is supported by precision technology, material technology and craftsmanship as the core. In addition, it is necessary to meet consumers' demands for brands, aesthetics and artistic and cultural connotation. The global watch industry has developed for more than two hundred years, and it has a long history. Technological innovation and design creativity have always pushed the brand forward. Globally, the high-end luxury watch market is mainly controlled by the Swiss watch brands, which are mainly concentrated in brand groups such as Swatch, Richemont, LVMH and Kering. In addition, independent brands such as Patek, Philippe and Rolex also have great influence. In the medium and low end market, it is mainly composed of partial Swiss watch brands, Japanese brands, fashion brands and home-made brands, with fashion style and classic style as the main direction. In recent years, smart watches have developed rapidly, and have won the favor of tech-savvy and sports-savvy citizens. According to the "China Luxury Consumption Report 2019" released by McKinsey China, Chinese’s luxury consumption last year at home and abroad reached CNY 770 billion, accounting for one-third of global luxury consumption. From 2012 to 2018, more than a half of the growth in the global luxury market came from China. Based on the Swiss export market statistics, Mainland China ranked the third; Hong Kong has ranked the first for a long time, which shows that Chinese people still mainly consume foreign-made watches, and the domestic market has great potential for growth. According to an estimate made by the Chinese Academy of Industry Economy Research, the home-made watch market size is about CNY 70 billion. The Brand "FIYTA" is one of China's most well-known watch brands that have grown up under the market economy after China’s reform and opening-up, and its sales scale has always been at the forefront of the market. The Company has always practiced the original intention of building an international watch brand, relying on the precision manufacture technology, brand influence and channel deep ploughing in the aviation industry, and continued to innovate and breakthrough. The Brand "FIYTA" is one of the world's three major space watch brands. In 2017, the brand was selected in the "Made in China" brand plan by the Ministry of Commerce; "FIYTA won the "China Grand Awards for Industry" in 2018, and was honorably put on the "70 Top Brands for the 70th Anniversary of the Founding of New China" list in 2019. At the same time, the Company introduced Swiss watches to the domestic market earlier, and met the diversified demands of consumers for watch brands through the HARMONY watch retail business channel. After more than two decades’ development, Harmony World Watches has been operating brand watch retail business in more than 60 cities across the country and has nearly 200 chain stores. It has established abundant brand resources and good operating ability, and its market share ranks domestically forefront in the watch retail industry. 3. Summary of Accounting/Financial Data (1) Summary of Accounting/Financial Data in the Past Three Years Does the Company need to make retroactive adjustment or restatement of the accounting data of the previous years No In CNY Increase/decrease in the 2019 2018 reporting year over the 2017 previous year Operating revenue 3,704,210,734.90 3,400,450,599.90 8.93% 3,345,809,703.98 Net profit attributable to the Company’s 215,909,014.15 183,835,095.29 17.45% 140,216,258.28 shareholders 2 FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary Net profit less the non-recurring profit/loss attributable to the Company’s 199,678,661.09 162,758,061.00 22.68% 123,918,527.75 shareholders Net cash flows arising from operating 444,820,768.61 331,627,789.62 34.13% 564,954,561.97 activities Basic earning per share (CNY/share) 0.4943 0.4190 17.97% 0.3196 Diluted earning per share (CNY/share) 0.4943 0.4190 17.97% 0.3196 Return on equity, weighted average (%) 8.21% 7.30% 0.91% 5.79% Increase/decrease of the end of the reporting year End of 2019 End of 2018 End of 2017 over the end of the previous year Total assets 3,760,923,285.37 3,599,691,650.26 4.48% 3,579,789,692.90 Net assets attributable to the 2,654,533,766.99 2,570,134,782.90 3.28% 2,467,967,361.20 Company’s shareholders (2) Summary of Accounting Data Based on Quarters In CNY The first quarter The second quarter The third quarter The fourth quarter Turnover 893,389,751.73 891,646,268.50 954,666,662.24 964,508,052.43 Net profit attributable to the Company’s 64,359,084.46 59,136,376.44 55,235,304.48 37,178,248.77 shareholders Net profit less the non-recurring profit/loss attributable to the Company’s 61,517,359.28 52,109,787.41 55,447,049.05 30,604,465.35 shareholders Net cash flows arising from operating 10,730,388.47 148,284,261.90 145,713,264.14 140,092,854.10 activities Are the above financial indicators or their totals significantly different from the financial indicators disclosed by the Company in the quarterly and semi-annual reports? No 4. Capital Stock and Shareholders (1) Quantity of shares held by the common shareholders and preferred shareholders whose voting rights are restored and shareholding by the top 10 shareholders In shares Total preference Total common Total preference shareholders with the Total common shareholders at the shareholders with voting power recovered shareholders at end of the month the voting power 43,540 39,155 0 at the end of the month 0 the end of the before the date recovered at the before the day of reporting period of disclosing the end of the disclosing the Annual Annual Report reporting period Report Shareholding by top 10 shareholders Pledging or freezing Names of the Nature of the Shareholding Shareholding Number of the restricted shares held Status of the Shareholders shareholder proportion quantity Quantity shares AVIC International State 36.79% 162,977,327 0 Holding Limited corporate Domestic #Yang Zugui 3.39% 15,023,406 0 natural person 3 FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary Basic Endowment State-owned Insurance Fund 0.43% 1,882,800 0 legal person Portfolio 1005 Domestic Huang Haitang 0.36% 1,610,000 0 natural person Domestic Na Zhizhong 0.34% 1,495,000 0 natural person High-Flyer Asset Management Domestic (Zhejiang) Co., non-state-own Ltd. - High-Flyer 0.26% 1,149,993 0 ed legal Quant Qingxi No. person 2 Private-equity Fund Domestic # Liang Lu 0.23% 1,030,700 0 natural person Domestic Zhang Linling 0.23% 1,000,000 0 natural person Industrial and Commercial Bank of China Co., Ltd. - HUITIANFU Domestic Technology non-state-own 0.18% 811,600 0 Innovation ed legal Flexible person Configuration Mixed Securities Investment Fund Domestic Liang Shaoyun 0.18% 781,312 0 natural person Explanation on associated relationship or consistent action Inapplicable of the above shareholders Note to the shareholder(s) involved in the securities margin Inapplicable trading (if any) (2) Total preference shareholders and the shareholding by the top 10 preference shareholders Inapplicable (3) Block Diagram of the Ownership and Control Relations between the Company and the Actual Controller 4 FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary State-owned Assets Supervision and Administration Commission of the State Council 100% Aviation Industry Corporation of China AVIC CCB Aviation Industry Equity Investment (Tianjin) Co., Ltd. 91.14% 8.86% AVIC International Holding Corporation 100% AVIC International Shenzhen Company Limited 37.50% 33.93% AVIC International Holdings Limited 36.79% FIYTA Precision Technology Co., Ltd. 5. Company Bond Did there exist any company bonds which were issued to the public and listed with the stock exchange for trading and was due by the date when the Annual Report was approved for issuing or failed to be fully cashed by the end of the reporting period. No III. Discussion and Analysis on the Operation 1. Operation Summary in the Reporting Period In 2019, the growth of domestic retail consumption slowed down and was clearly differentiated. Domestic brands encountered pressure from consumer upgrading, channel upgrading, and smart wears, etc. Facing the challenges, the Company took “cost reduction and efficiency improvement” and “innovation and development” as its main line, calmly responded to the downward pressure on the market, and jointly promoted continuous breakthroughs in operating performance to further enhance its competitiveness. In the reporting period, the Company realized revenue amounting to CNY 3,704.2107 million with year-on-year growth of 8.93% and realized total profit amounting to CNY 276.2336 million with a year-on-year growth of 19.48%. The Company once again achieved a historical record in revenue and total profit. During the reporting period, the Company carried out the following key work. I. Making solid progress in improving quality and efficiency, and achieving further breakthrough in high-quality development During the reporting period, the Company focused on strengthening cost control, lean supply chain construction, and so on to solidly promote cost reduction and efficiency, continued to optimize the organization's operating model, and actively promoted the construction of driving power mechanism and full coverage. Thanks to the implementation of various tasks to improve quality and efficiency, the Company has continuously improved its efficiency is assets, operation, personnel, and organization. During the reporting period, the Company's inventory turnover rate reached 1.23 times, an increase of 0.13 times over the same period last year; the core channel yield increased by more than 10% year-on-year, and per capita profit increased by more than 20% year-on-year. While continuing to make breakthrough in high-quality 5 FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary development, the Company has further strengthened its organizational capabilities. II. Promoting the Reshaping of the Brand "FIYTA" and Further Enhancing Brand Influence During the reporting period, the "FIYTA" brand followed the trend of consumption upgrading, continued to focus on customer demand, concentrated itself on professional watchmaking, refined aesthetics and Chinese culture, strengthened the brand's core DNA, and actively promoted the brand reshaping around the "Brand Power, Product Power, and Channel Power". The reporting period was the 9th consecutive year when the "FIYTA" brand participated in BASELWORLD. The Company continued to exhibit a number of heavyweight new products in the same hall with the internationally renowned brands in Hall 1; also successfully held the "FIYTA" Time Medal Brand Ceremony to further convey the professional watchmaking spirit and independent aesthetic design brand concept to consumers and partners, continued to deduct the artistic exploration of "Flying", and interpreted the extraordinary spiritual outlook of making progress; launched in succession new products such as the “Master Series” Dunhuang-themed wristwatch, “Mach series” "J-20" joint limitation edition watch, "Attack-11" joint design wristwatch, Heartstring Series, and “Good Character” Series, etc. which have been really loved by consumers. In 2019, the "FIYTA" brand was also the only watch brand listed on the "70 Brands at the 70th Anniversary of the Founding of New China" and won the "People's Ingenuity Brand Award 2019". The brand has been continuously improved in the industry status and brand influence. III. Further Strengthening Investment in R & D and design, and Continuing to Build Technological Hard Power During the reporting period, the Company further increased investment in R&D technology around the design and development of its own driving units, manufacture of key components, R & D and application of new materials, and the construction of high-end watchmaking processes, enhanced core technology advantages, and shortened the gap with the global advanced level. In 2019, the Company continued to make breakthroughs in independent R & D of the driving units and application of new materials, launched in succession three self-developed driving units, and realized batch application of such new materials as Grade-5 titanium, Damask steel, etc. The Company applied for 37 patents throughout the year, including 26 invention and utility model patents, and took a lead or participated in the formulation and revision of 4 national and industry standards. The company was identified as the "National Intellectual Property Advantageous Demonstration Enterprise in 2019". IV. Consolidating Channel Advantages and Continuing to Promote Channel Upgrading and Efficiency Improvement During the reporting period, the Company continued to promote the adjustment and upgrading of watch retail channels and the enhancement of efficiency. The Company actively promoted own brand retail channels to be stationed in shopping malls, “HARMONY” seized the growth opportunities of domestic medium and high-end watch brands at the price of over CNY 10,000, continued to strengthen the core business district layout, enhanced excellent operations and the single store output, average customer unit price, sales gross profit rates have steadily increased. Meanwhile, the Company is also rapidly promoting the pilot application of digital retail solutions to accelerate the digitization of stores, membership, merchandise and management. V. Cultivating New Growth Points, and Continuing to Maintain Rapid Growth of New Businesses During the reporting period, the Company continued to promote the development of precision technology business and the exploration of smart watch business, relying on the precision technology advantages accumulated by professional watchmaking and a relatively mature industrial foundation. In 2019, the Company continued deep ploughing of the core market of precision technology business, opened business cooperation with leading companies in various industries, and its operating income increased by 29% year-on-year; the Company continued to invest resources to accelerate the smart watch business layout. The "Jeep" brand smart watches and professional teams jointly promoted iterative product development and technology upgrading. The Company launched three new products, including smart whole realm F02, F02 ESIM version and strong battery life A01, of which the ESIM version has become first smart watches officially certified by China Unicom, and has laid a technological advantage in the field of communications. The Company has continued to maintain quick growth in smart watch business. Movement of the Major Financial Items in 2019: Balance sheet items Items Ending balance Opening balance Variation Cause of the movement proportion Monetary capital 316,668,565.09 164,828,059.97 92.12% Increase of the net flow-in mainly from operating activities. Notes receivable 10,596,431.31 7,051,846.85 50.26% Increase of the receivables arising from growth of the precision technology business scale. Construction-in-proce - 12,041,126.00 -100.00% Mainly due to the construction-in-process converted into fixed ss assets. Advance receipts: 23,433,463.57 16,459,445.00 42.37% Mainly due to the increase of the payments received and influence of partial outstanding receivables. Taxes payable 24,064,803.00 55,923,171.92 -56.97% Mainly due to the influence from the increase of procurements and the tax policy at the end of the year. Other payables 119,616,721.63 71,819,930.30 66.55% Mainly due to the increase of the equity incentive money payable 6 FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary to employees, refurbishment deposit and the down payment for lease. Other -940,209.09 -5,442,139.78 82.72% Mainly due to movement of the translation balance of foreign comprehensive currency statements income Profit Statement Items Items Amount incurred in Amount incurred in Variation Cause of the movement the reporting period the previous period proportion Return on Investment 1,787,907.10 1,001,545.06 78.51% Mainly due to the influence from the profit increase of Shanghai Watch Industry in the current year. Loss from impairment -16,640,961.07 0 Inapplicable Influence from the implementation of the standards for new of credit financial instruments. Loss from impairment -4,295,134.47 -3,264,956.18 31.55% Mainly due to the decrease of the provision for the price falling of of assets inventories and the influence from presentation caused by the implementation of the standards for new financial instruments in the current year. Income from disposal -926,118.60 -181,302.24 -410.81% Mainly due to the loss arising from the disposal of the auxiliary of assets facilities and equipment of Xi’an FIYTA Building in the current year. Non-operating income 4,754,105.30 1,446,357.53 228.70% mainly due to increase of the compensation received by some “HARMONY” stores in the reporting year. Non-operating 1,400,188.87 652,514.97 114.58% Mainly due to increase of the loss arising from adjustment of expenditures partial stores. Cash Flow Statement Items Items Amount incurred in Amount incurred in Variation Cause of the movement the reporting period the previous period proportion Other operation activity related cash receipts 93,832,379.85 49,628,593.69 89.07% Mainly due to the increase of the property margin received in the current year. Net cash flows arising from operating 444,820,768.61 331,627,789.62 34.13% Mainly due to increase of the recoveries activities arising from the sales growth in the current year and at the same time decrease of the tax payment. Net cash received from disposal of fixed 626,107.64 53,280.03 1075.13% Mainly due to increase of the fixed assets assets, intangible assets and other long-term disposed in the current year. assets Net cash flow arising from capital-raising -126,755,283.74 -207,831,024.31 39.01% Mainly due to decrease of repayment of the activities bank loans over the same period of the previous year in the current year. Influence of the change of exchange rate on 468,366.93 702,253.60 -33.31% Mainly due to the influence of the change of the cash and cash equivalent exchange rate. Net increase of cash and cash equivalents 152,470,505.12 -22,324,831.35 782.96% Mainly due to net flow-in of operating activities and at the same time decrease of repayment of the bank loans over the same period of the previous year in the current year. Ending balance of cash and cash 315,093,565.09 162,623,059.97 93.76% Mainly due to net flow-in of operating equivalents activities and at the same time decrease of repayment of the bank loans over the same period of the previous year in the current year. 2. Did there exist any significant change in the principal business during the reporting period No 3. Products taking over 10% of the prime operating revenue or prime operating profit of the Company In CNY 7 FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary Year-on-year Year-on-year Year-on-year increase/decrease increase/decrease increase/decrease of operating profit of gross profit rate Product description Revenue Operating profit Gross profit rate of operating over the same over the same revenue over the period of previous period of previous previous year year year Watch brand 1,110,678,489.04 330,952,343.65 70.20% 0.76% -0.95% 0.51% business Watch retail and 2,352,930,477.41 1,779,026,456.80 24.39% 12.53% 12.82% -0.20% services Precision technology 91,341,945.34 17,624,342.11 19.29% 29.12% 55.84% 3.30% business Leases 132,005,033.07 103,826,863.43 78.65% 11.56% 8.32% -2.36% Others 17,254,790.04 11,921,631.32 69.09% -4.69% -30.69% -25.92% 4. Does there exist operation seasonality or periodicity necessary to be paid special attention to No 5. Note to the Significant Change in Operation Revenue, Operation Costs, Total Amount of Composition of the Net Profit Attributable to the Company's Common Shareholders during the Reporting Period over the Previous Reporting Period Inapplicable 6. Listing Suspension or Delisting Possibly to be Confronted with Inapplicable 7. Matters in Connection with the Financial Report (1) Explanation on the Changes in the Accounting Policy, Accounting Estimate, and Accounting Method in Comparison with the Financial Report of the Previous Year The Ministry of Finance issued a series of new standards for financial instruments on March 31, 2017 and May 2, 2017, and required domestic listed companies to take effect from January 1, 2019. According to the regulations, the Company would implement the aforesaid new rules and make change of the corresponding accounting policies. However, this would produce no significant impact on the Company's current and previous net profit, total assets and net assets. For details, please refer to the “Announcement on Change of the Accounting Policies 2019-026” disclosed by the Company on the Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn/ on April 23, 2019. On April 30, 2019, the Ministry of Finance promulgated the “Circular on Amending and Issuing the General Corporate Financial Statement Templates for the Year 2019” (CAI KUAI [2019] No. 6) (hereinafter referred to as the “Amendment Circular”), according to which general corporate financial statement templates should be amended and non-financial enterprises are required to implement the Accounting Standards for Business Enterprises to compile the 2019 interim financial statements and annual financial statements, as well as financial statements for subsequent periods, in accordance with the requirements of the Accounting Standards for Business Enterprises and the Amendment Circular. According to the regulations, the Company would implement the aforesaid new rules and make change of the corresponding accounting policies. However, this would produce no significant impact on the Company's current and previous net profit, total assets and net assets. For details, please refer to the “Announcement on Change of the Accounting Policies 2019-044” disclosed by the Company on the Securities Times, Hong Kong Commercial Daily and http://www.cninfo.com.cn/ on Thursday, August 15, 2019. (2) Explanation on Serious Accounting Errors Occurred during the Reporting Period Necessary to be Restated Retrospectively Inapplicable 8 FIYTA Precision Technology Co., Ltd. 2019 Annual Report, Summary (3) Explanation on the Changes in the Scope of the Consolidated Statements in Comparison with the Financial Report of the Previous Year Inapplicable FIYTA Precision Technology Co., Ltd. Board of Directors March 20, 2020 9