TCL Corporation Interim Report 2019 (Summary)
Stock Code: 000100 Stock Name: TCL Announce ment No. 2019-111
TCL CORPORATION
TCL 集团股份有限公司
INTERIM REPORT 2019 (SUMMARY)
13 August 2019
TCL Corporation Interim Report 2019 (Summary)
Maximize Efficiency & Promote Change and Innovation
Chairman’s Statement
Dear shareholders, business partners and employees,
TCL continued to promote business reform and transformation in the first half of 2019. In face of
the harsh competition, All the employees faced the challenges like brave soldiers. We will survive
by maximizing cost efficiency and grow by promoting change, innovation and exploration. Our
competitiveness keeps rising. This April, TCL successfully span off the intelligent terminal and
related businesses through restructuring and shifted from diversified operations to focused
operations on the semi-conductor dis play and materials business. The company also engaged
in industrial financing and investment based on its main business. The restructuring has enabled
TCL to further improve its operating strategy, optimize its organizational flow and enhance
operating efficiency and competitiveness. For the six months ended 30 June 2019, TCL achieved
pro forma operating revenue of RMB26.12 billion, up by 23.9% year-on-year; and a pro forma net
profit of RMB2.64 billion, representing a year-on-year growth rate of 69.9%. And it has reached its
budget for the first half of the year generally. Through the restructuring, both the capital structure
and the operating efficiency of the company have further improved. In the first half of the year, the
per-capita net profit increased from RMB18,800 to RMB66,600, the debt/assets ratio dropped from
68.4% to 60.4%, and the net cash generated from operating activities amounted to RMB6.15 billion,
suggesting much greater sustainability of the company.
To further improve the shareholder value, TCL put forward a share repurchase programme of
RMB1.5~2.0 billion in the first half of the year, of which RMB1.56 billion has been used so far.
And it will complete the remaining repurchases according to the market conditions. In addition, I
have personally bought another 174.575 million TCL shares since December 2018 with absolute
faith in the long-term outlook for TCL.
For H1 2019, TCL’s subsidiary CSOT recorded operating revenue of RMB16.28 billion, up by 33.5%
year-on-year; and a net profit of RMB1.02 billion, down by 7.83% year-on-year, primarily because
of a considerable drop in display prices. However, CSOT still managed to achieve a higher sales
TCL Corporation Interim Report 2019 (Summary)
volume and sales revenue through maximizing efficiency and cost control, enhancing product and
technological capability, as well as improving the product mix. The LTPS business, in particular,
over- fulfilled the operating objectives with the world’s second largest market share. CSOT’s
operating efficiency and profitability remain in the top tier of the industry.
TCL’s industrial financing and investment and other businesses continued to improve in operating
performance in the first half of the year. The relevant gains on asset disposal were recognized in the
current period, making a positive contribution to the overall profit growth of TCL.
Product and technological innovation is the key impetus for the development of a company.
CSOT spent RMB2.13 billion on R&D in the first half of the year. It is an industry leader in LTPS.
It has started to ramp up the production capacity and yield rate of its flexible AMOLED products
and is expected to reach mass production by the end of the year. In the meantime, it puts in a great
deal of effort to develop large-size commercial display and high-end 4K and 8K products, as well as
display products for e-sports, vehicles, etc. By expanding its products and their application in a
horizontal manner, CSOT aims to boost its revenue and earnings.
CSOT is also proactively working on the next- generation display technologies, manufacturing
processes and materials, including Mini- LED on TFT, foldable and fully flexible AMOLED and
AMOLED for handsets with an under-screen camera. The “Guangdong Juhua Flexible and Printed
Display Technology Platform” led by CSOT has become a leader of the ne xt-generation of display
technology, with the product and technological innovation achievements made by the platform
highly recognized in the industry. CSOT filed for 1,056 PCT patents during H1 2019, making it one
of the companies with the most filings in the industry worldwide.
CSOT has maintained business growth by means of maximizing cost efficiency, further
streamlining the organizational and business flows, increasing operating quality and
improving operating performance.
Looking forward into the rest of the year and the future, global economic growth is expected to
become increasingly uncertain. China’s economy will inevitably face the escalating risk of the
China-U.S. trade friction, as well as from the slowdown in global economic growth caused by trade
protectionism and unilateralism. The China-U.S. trade conflicts will not expect to have a great
impact on CSOT’s semi-conductor display products because it is an interme diate product and
it has balanced markets and a strong customer base. But the display industry may experience
a longer trough if the global economy continues declining. As for the other businesses of TCL,
TCL Corporation Interim Report 2019 (Summary)
the China-U.S. trade conflicts have little impact.
Every economic adjustment comes with the reshuffle in the industry. It is both a challenge and
an opportunity for a company to reform its products, technologies and business models. In my
opinion, despite the continued oversupply, constant pressure on product prices and expanding loss
in the global semi-conductor display industry, the current prices are near the bottom; oversupply
will be gradually eased with more manufacturers or production capacity being phased out than
being unleashed in the coming two years; the global industry will be more concentrated as the fittest
survive in the reshuffle; market demand will be boosted by the steadily growing traditional markets
and the fast growing commercial display market; and the application of new technologies and new
market demand will bring more opportunities to the industry.
Semi-conductor display is one of the most important basic key devices in the electronic
information industry. And China has the best chance to be a global leader in the
semi-conductor dis play industry. China has built up its scale and efficiency advantages in the
display industry, and is improving its industrial chain. It is getting closer and closer to the globally
advanced level in terms of new technology development and patent ownership. Although a trough
of capacity reduction lies ahead for the industry, indicating a smaller space for profit, global
demand for display products is sure to rise in the medium and long run. The market is enormous.
Meanwhile, entry to the display industry is difficult due to high technological and capital barriers,
which means that the industry will become more concentrated. Looking at the landscape of the
global display industry, Europe and the U.S. are unlikely to return, Japan and Taiwan, China are
being pushed out of business, while China and South Korea will become the two major players.
Therefore, I have complete confidence in the prospects of the semi- conductor display industry.
I firmly believe that CSOT will remain in the front of the industry in terms of competitiveness,
efficiency and profitability; and that it will keep growing as the completed capacity (the t6, t4
and t7 plants) is gradually unleashed. The efficient business structure, strong technological
innovation ability and stable capital structure will help CSOT grasp M&A opportunities in
the global industry to complete its industrial chain, as well as to boost its scale, efficiency and
competitiveness. CSOT will be able to rise against the unfavorable environme nt as a leader in
the global industry.
In a market full of challenges and opportunities, we will stick to our set operating strategy and
fulfill every task with no holding back; enhance technological innovation, maximize cost efficiency,
and step up globalization; further optimize the business structure and improve the industrial chain;
TCL Corporation Interim Report 2019 (Summary)
seize new market opportunities and foster new driving forces of growth; and foster a corporate
culture that features entrepreneurship and responsibility to boost internal impetus for growth. CSOT
has built up its competitive edges with a stronger presence in the global market. The industrial
financing and investment and other businesses of TCL also maintain a good momentum, continuing
to contribute revenue and earnings to TCL. In view of the current business and market trends, we
are confident of continuing to achieve growth in revenue and pro fit in the second half of the year,
which will lay a solid foundation for our sustained growth.
In the recent years, the Chinese government has been taking measures such as substantial tax and
fee cuts to improve the operating environment for enterprises and support the economy, from which
the businesses of TCL have benefited to varying degrees. I believe that the ongoing adjustments to
China’s economic structure will create a better environment for the economy and more
opportunities for Chinese enterprises in the globalization aspect. Investment in the economy will be
rewarded with better returns.
Aiming to become a global leader of the industry, TCL will keep enhancing competitiveness
and maintain healthy growth to make contributions to the economic and social development
of China and create more value for shareholders with better financial results.
Li Dongsheng
12 August 2019
TCL Corporation Interim Report 2019 (Summary)
Part I Important Notes
This Summary is based on the full text of the 2019 Interim Report of TCL Corporation (together with
its consolidated subsidiaries, the “Group” or “Company”, except where the context otherwise
requires). In order for a full understanding of the Company’s operating results, financial condition
and future development plans, investors should carefully read the aforesaid full text, which has been
disclosed together with this Summary on the media designated by the China Securities Regulatory
Commission (the “CSRC”).
Independent auditor’s modified opinion:
□ Applicable √ Not applicable
Board-approved interim cash and/or stock dividend plan for ordinary shareholders:
The Company has no interim dividend plan, either in the form of cash or stock.
Board-approved interim cash and/or stock dividend plan for preferred shareholders:
□ Applicable √ Not applicable
This Summary has been prepared in both Chinese and English. Should there be any discrepancies or
misunderstandings between the two versions, the Chinese version shall prevail.
Part II Key Corporate Information
1. Stock Profile
Stock name TCL Stock code 000100
Stock exchange for stock listing Shenzhen Stock Exchange
Contact information Board Secretary
Name Liao Qian
19/F, Tower B, TCL Building, Gaoxin South First Road, Shenzhen High-Tech Industrial
Office address
Park, Shenzhen, Guangdong Province, China
Tel. 0755-3331 1666
E-mail address ir@tcl.com
2. Key Financial Information
Indicate by tick mark whether there is any retrospectively restated datum in the table below.
□ Yes ■ No
Series
Item H1 2019 H1 2018 Change (%)
No.
1 Operating revenue (RM B)（note） 43,781,613,735 52,523,748,293 -16.64
2 EBITDA 8,436,689,169 6,743,386,144 25.11
3 Net profit (RM B) 2,737,062,676 1,700,839,860 60.92
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TCL Corporation Interim Report 2019 (Summary)
Net profit attributable to the listed
2,092,348,692 1,585,938,283 31.93
company’s shareholders (RM B)
Net profit attributable to the listed
company’s shareholders before 250,467,130 993,436,861 -74.79
non-recurring gains and losses (RM B)
Basic earnings per share (RM B/share) 0.1569 0.1173 33.76
4
Diluted earnings per share (RM B/share) 0.1544 0.1172 31.74
Up by 1.95 percentage poi
5 Weighted average return on equity (%) 7.17 5.22
nts
Net cash generated from/used in operating
6,150,821,822 4,375,228,294 40.58
activities (RM B)
6
Net cash per share generated from/used in
0.4539 0.3229 40.57
operating activities (RM B/share)
30 June 2019 31 December 2018 Change (%)
7 Total assets (RMB) 154,651,894,926 192,763,941,739 -19.77
Total owners’ equity (RM B) 61,203,199,795 60,871,672,647 0.54
8 Owners’ equity attributable to the listed
30,239,424,011 30,494,364,951 -0.84
company’s shareholders (RM B)
9 Share capital (share) 13,549,648,507 13,549,648,507 0.00
Equity per share attributable to the listed
10 2.2317 2.2506 -0.84
company’s shareholders (RM B/share)
Note: In April 2019, the Company completed the handover of major assets in a restructuring. Therefore, the operating revenue data of
H1 2019 and H1 2018 are not comparable as the former only includes the January -M arch 2019 operating revenue generated by the said
assets, while the latter comprises the January -June 2018 such revenue. Upon the recalculation of the H1 2018 operating revenue on the
same January-M arch basis as H1 2019, the H1 2019 operating revenue would be up by 22.5% year-on-year.
The total share capital at the end of the last trading session before the disclosure of this Report:
Total share capital at the end of the last trading session before
13,549,648,507
the disclosure of this Report (share)
Fully diluted earnings per share based on the latest total share 0.1544
capital above (RM B/share)
Note: After the restructuring, the Company has shifted to a global high-tech conglomerate concentrating on the semi-conductor display
and materials business. It is the key operational philosophy and mission of the Company to create value for and grow with the
shareholders. In order to effectively protect shareholders’ interests and enhance shareholder value, the Company carried out a share
repurchase programme during the Reporting Period. Up to the disclosure date of this Summary, 459,659,522 shares have been
repurchased, of which 3,875,613 shares have been used for the 2019 Restricted Stock Incentive Plan and the Second Global Innovation
Partner Plan and the rest will be kept as treasury shares and used for employee stock ownership plans, equity incentive plans or
convertible bonds.
The key financial information of H1 2019 and H1 2018 exclusive of the effects of the businesses of the restructuring (pro forma dat a
presented based on the consolidation scope after the restructuring) is as follows:
Series
Item H1 2019 H1 2018 Change (%)
No.
1 Operating revenue (RM B) 26,119,468,731 21,074,875,211 23.94
2 EBITDA 7,993,437,605 5,558,609,267 43.80
Net profit (RM B) 2,643,352,438 1,555,606,917 69.92
3 Net profit attributable to the listed 2,092,360,755 1,470,636,277 42.28
company’s shareholders (RM B)
Basic earnings per share (RM B/share) 0.1569 0.1088 44.21
4
Diluted earnings per share (RM B/share) 0.1544 0.1087 42.04
7
TCL Corporation Interim Report 2019 (Summary)
5 Weighted average return on equity (%) 7.17 4.71 2.46
Note: The data of H1 2019 and H1 2018 in the table above exclude the results of the businesses of the restructuring.
3. Shareholders and Their Holdings as at 30 June 2019
Unit: share
Number of preferred
Number of ordinary shareholders 515,611 shareholders with resumed 0
voting rights (if any)
Top 10 shareholders
Name of Nature of Shareholding Number of Shares in pledge or frozen
Restricted shares
shareholder shareholder percentage shares Status Shares
Li Dongsheng and In pledge 579,480,000
Domestic
his
natural 9.02% 1,221,748,009 609,636,366
acting-in-concert In pledge 408,899,521
person
parties
Huizhou
State-owned
Investment 6.48% 878,419,747
legal person
Holding Co., Ltd.
Hubei Changjiang
Hezhi Hanyi Domestic
Equity Investment non-state-ow
5.42% 733,965,145
Fund Partnership ned legal
(Limited person
Partnership)
Xinjiang
Dongxing Huarui Domestic
Equity Investment non-state-ow
2.85% 385,778,587 In pledge 152,660,287
Partnership ned legal
(Limited person
Partnership)
China Securities Domestic
Finance non-state-ow
2.75% 373,231,553
Corporation ned legal
Limited person
Beijing Ziguang
State-owned
Investment Co., 2.73% 370,387,916
legal person
Ltd.
Central Huijin
Asset State-owned
1.52% 206,456,500
M anagement Co., legal person
Ltd.
CDB Innovation State-owned
1.40% 189,685,219
Capital Co., Ltd. legal person
Guangdong
Guangxin State-owned
1.09% 147,760,683
Holdings Group legal person
Ltd.
Hong Kong
Securities Foreign legal
1.01% 136,307,086
Clearing person
Company Ltd.
Being acting-in-concert parties upon the signing of the Agreement on Acting in Concert, M r. Li
Related or acting-in-concert Dongsheng and Xinjiang Jiutian Liancheng Equity Investment Partnership (Limited Partnership)
parties among the shareholders are the biggest shareholder of the Company with a total of 1,221,748,000 shares. M eanwhile,
CDB Innovation Capital Co., Ltd., CDB Equipment M anufacturing Industrial Investment Fund
above
Co., Ltd. and CDB Jingcheng (Beijing) Investment Fund Co., Ltd. are acting-in-concert parties
as CDB Innovation and CDB Equipment are both controlled by a majority-owned subsidiary of
8
TCL Corporation Interim Report 2019 (Summary)
China Development Bank Capital Co., Ltd., and CDB Jingcheng is an investment company
managed by a subsidiary of China Development Bank Capital Co., Ltd.
Shareholders involved in N/A
securities margin trading (if any)
4. Change of the Controlling Shareholder or the Actual Controlle r in the Reporting Pe riod
The biggest shareholder of the Company is Mr. Li Dongsheng and his acting- in-concert parties. And
the controlling shareholder and the actual controller of the Company remain unchanged.
5. Number of Preferred Shareholders and Shareholdings of Top 10 of The m
No preferred shareholders in the Reporting Period.
6. Corporate bonds
(1) Bond Profile
Bond name Abbr. Bond code M aturity Balance (RM B’000) Coupon rate
TCL
Corporation’s
Corporate Bonds
Publicly Offered
in 2016 to 16TCL02 112353.SZ 16 M arch 2021 1,500,000 3.56%
Qualified
Investors
(Tranche 1)
(Type 2)
TCL
Corporation’s
Corporate Bonds
Publicly Offered
16TCL03 112409.SZ 7 July 2021 2,000,000 3.50%
in 2016 to
Qualified
Investors
(Tranche 2)
TCL
Corporation’s
Corporate Bonds
Publicly Offered
17TCL01 112518.SZ 19 April 2022 1,000,000 4.80%
in 2017 to
Qualified
Investors
(Tranche 1)
TCL
Corporation’s
Corporate Bonds
Publicly Offered
17TCL02 112542.SZ 7 July 2022 3,000,000 4.93%
in 2017 to
Qualified
Investors
(Tranche 2)
TCL
Corporation’s
Corporate Bonds 18TCL01 112717.SZ 6 June 2023 1,000,000 5.48%
Publicly Offered
in 2018 to
Qualified
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TCL Corporation Interim Report 2019 (Summary)
Investors
(Tranche 1)
TCL
Corporation’s
Corporate Bonds
Publicly Offered
18TCL02 112747.SZ 20 August 2023 2,000,000 5.30%
in 2018 to
Qualified
Investors
(Tranche 2)
TCL
Corporation’s
Corporate Bonds
Publicly Offered
19TCL01 112905.SZ 20 M ay 2024 1,000,000 4.33%
in 2019 to
Qualified
Investors
(Tranche 1)
(2) Financial Indicators as at 30 June 2019
Item 30 June 2019 31 December 2018 Change (%)
Debt/assets ratio 60.43% 68.42% -7.99%
Item H1 2019 H1 2018 Change (%)
EBITDA-to-interest coverage
5.66 7.73 -26.78%
(times)
Part III Operating Performance Discussion and Analysis
(I) Ove rvie w
The Company focused on its core business and achieved solid growth in operating results in the
first half of 2019. This April, TCL successfully spun off the intelligent terminal and related business
in restructuring and shifted from diversified operations to focused operations on the semi-conductor
display and materials business. The company also engaged in industrial financing and investment
based on the main business. On a pro forma basis, for H1 2019, the Company achieved operating
revenue of RMB26.12 billion, up by 23.9% year-on-year; and a net profit of RMB2.64 billion,
representing a year-on-year growth of 69.9%, of which the net profit attributable to the shareholders
amounted to RMB2.09 billion, up by 42.3% year-on-year. On a corporate basis, for H1 2019, the
Company achieved operating revenue of RMB43.78 billion, up by 22.5% 1 year-on-year; and a net
profit of RMB2.74 billion, representing a year-on-year growth of 60.9%, of which the net profit
1
In April 2019, the Company completed the handover of major assets in a restructuring. Therefore, the operating revenue data of H1
2019 and H1 2018 are not comparable as the former only includes the January -M arch 2019 operating revenue generated by the said
assets, while the latter comprises the January -June 2018 such revenue. Upon the recalculation of the H1 2018 operating revenue on the
same January-M arch basis as H1 2019, the H1 2019 operating revenue would be up by 22.5% year-on-year.
10
TCL Corporation Interim Report 2019 (Summary)
attributable to the shareholders amounted to RMB2.09 billion, up by 31.9% year-on- year. The
recognition of RMB1.15 billion net gains on asset disposal during the Reporting Period contributed
to the overall profit growth of the Group.
Ope rating performance has improved during the Reporting Pe riod through streamlining the
organizational structure and redesigning business flows according to the operational
philosophy of maximizing cost efficiency. Upon lean management and cost control efforts, the
per-capita net profit has increased from RMB18,800 to RMB66,600, and the pro forma expense ratio
has decreased from 14.5% to 11.8%. The capital structure and operating efficiency have been
further optimized. The debt/asset ratio has dropped from 68.4% to 60.4%, inventory turnover days
have been reduced by three days compared to H1 2018, and the net cash generated from operating
activities amounted to RMB6.15 billion, suggesting much greater sustainability of the company.
With product and technological innovation as important impetus, CSOT has enhanced its
technological and industrial abilities, and is able to maintain better-than-the-industry-average
efficiency and profitability. During H1 2019, TCL spent a total of RMB2.67 billion on R&D and
filed for 1,056 PCT patents, which has helped maintain a leading position in the new display
technology and materials industry. The capacity of the t3 plant has risen from 45K to 50K per month,
the t6 and t4 plants have successfully expanded capacity, and the t7 plant is being built on track.
CSOT has a better product mix. The 55- inch TV panels produced by CSOT has the largest market
share worldwide, and the market share of its LTPS handset panels has moved up to the world’s
second largest. Revenue by small- and medium- sized display panels has increased to 43% of CSOT’s
total revenue. By way of maximizing cost efficiency, CSOT achieved a net profit of RMB1.02
billion, maintaining leading profitability amid an industry trough.
The industrial financing and investment businesses of TCL maintain a good development
mome ntum, continuing to contribute strategic synergy and earnings to TCL. These businesses
not only provide capital management and allocation services, help reduce financing costs and
contribute steady earnings to TCL, but also help complete the industrial chain and get a foothold in
cutting-edge technologies through incubation, investment, etc.
Looking forward into the rest of the year and the future, global economic growth is expected to
become increasingly uncertain. But in the meantime, we should see that 5G, AI and other new
commercial infrastructure are improving, boosting market demand for new products and
technologies such as Mini- LED, foldable display and printing OLED; that new demand keeps
growing for display products for use in interactive whiteboards, e-sports, vehicles, etc.; and that
demand for traditional display products maintains steady growth thanks to the increasing popularity
of large-sized and UHD display. Meanwhile, the global semi-conductor display industry will become
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TCL Corporation Interim Report 2019 (Summary)
more concentrated as the development focus gradually shifts to China.
We believe in the co-existence of challenges and opportunities. We are confident that we will
grow against the unfavorable environme nt and become a leader in the global industry by way
of completing the industrial chain, enhancing technological and scale advantages, increasing
competitiveness, sticking to our operating strategy, maximizing cost efficiency for survival and
promoting change, innovation and exploration for growth.
(II) Core Business Analysis
TCL’s core businesses have been changed to comprise the semi-conductor display and materials
business, the industrial financing and investment business and the other businesses:
Semi-conductor
CS OT China Ray Guangdong
display and
Juhua
materials
TCL Industrial
Corporation financing & TCL Financial TCL Capital
investment and
venture capital
Highly Open En vironmental
Other
Edutainment Resource
Pursuant to its development strategy of becoming a world- leading high-tech conglomerate, TCL will
concentrate on its core businesses and gradually shake off the other businesses according to the
principle of the maximum value for shareholders. Meanwhile, in accordance with the whole new
positioning of a high-tech conglomerate, TCL will enter into the relevant basic and high-tech
strategic emerging industries at the proper time by M&A, etc., as well as integrate resources through
the industrial chain, so as to foster new driving forces.
1. The Semi-Conductor Display and Materials Business
In H1 2019, CSOT recorded a shipment of 9.61 million square metres, up by 9.80% year-on-year;
operating revenue of RMB16.28 billion, up by 33.5% year-on- year; and a net profit of RMB1.02
billion.
The t1 and t2 plants of CSOT in Shenzhen operated at full capacity for strong sales, and the capacity
of the t6 plant rose quickly. The t6 plant achieved a shipment of 8.9417 million square metres of
large-sized panels (equivalent to 9.45 million pieces), up by 3.9% year-on-year; and sales revenue of
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TCL Corporation Interim Report 2019 (Summary)
RMB9.19 billion, down by 15.1% year-on-year, primarily caused by much lower product prices than
the same period of last year.
With its capacity rising from a designed 45K to 50K per month, the t3 plant of CSOT in Wuhan is
the largest LTPS plant in the world. The t3 plant reported in H1 2019 a shipment of 668 thousand
square metres of small- and medium- sized panels, up by 4.58 times year-on-year, equivalent to 57.79
million pieces, up by over three times year-on-year; and sales revenue of RMB7.09 billion, up by
over four times year-on-year.
The t4 flexible AM-OLED plant of CSOT Wuhan saw a faster-than-expected ramp- up of its capacity
and yield rate in H1 2019, and is expected to realize the phase-1 mass production in the fourth
quarter of the year.
2016 2017 2018 H1 2019
Shipment (in thousands of 13,421 16,535 18,032 9,610
square metres)
Revenue (in billions of 22.34 30.57 27.67 16.28
RMB)
Gross profit margin (%) 12.7 27.9 18.4 14.6
Net profit margin (%) 10.3 16.2 8.4 6.3
EBITDA (%) 27.7 37.2 30.0 28.6
Note: For further data of CSOT, please refer to the segment report in Part XI Financial Statements of
the full version of this interim report.
Thanks to efficient production line investment strategies, synergy from the industrial chain
and excellent management, CSOT is now able to maintain leading operating efficiency and
results in the global industry during all the stages of the industry cycle. Since its operation,
CSOT has been able to maintain outstanding net profit and EBITDA margins in the past cyclical
swings of the industry, indicating significantly better-than-the-industry-average resilience. As the
depreciation of the production lines that CSOT invested in at an early time gradually ends in the
coming few years (a decrease of RMB1.1 billion in depreciation expenses of the t1 plant in 2019), its
profitability will further improve.
As CSOT’s ne w capacity is unleashed faster, its product and market structures will be further
refined. With the gradual operation of its production lines, in the next five years, CSOT’s large-sized
panel output (in area) will reach a compound growth rate of 17%; as for the small- and medium-sized
panels, the compound growth rate is expected to reach an industry- leading level of 26%, with the
market share of LTPS-LCD already being the world’s second largest and the market competitiveness
of flexible AMOLED increasing in a fast speed. Along with the scale- up, CSOT will quickly expand
to fast- growing emerging markets of display products for commercial use, use in vehicles and
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TCL Corporation Interim Report 2019 (Summary)
e-sports, etc. to achieve more balanced market distribution for its products.
CSOT drives business growth and enhances competitiveness through product and
technological innovation. In terms of large-sized panels, CSOT makes good use of the HVA
technology in its high-end products and is the largest supplier for China’s top six TV makers for five
consecutive years as well as a high-end supplier for Samsung and Sony; and vigorously works on
high-end 4K/8K products and the Mini-LED on TFT technology and products to further enlarge its
share in the high-end market.
As for small- and medium- sized panels, CSOT’s LTPS technology in relation to the COF narrow
frame and under-screen fingerprint recognition has reached internationally advanced R&D capability
and yield rate, accounting for over 80% of the supply to the world’s top six handset makers; and
flexible AMOLED developed by CSOT for handsets with an under-screen camera and foldable
handsets will soon begin mass production.
Efforts are stepped up to work on new display technologies and materials to establish leading
advantages relating to the next-generation display technology. TCL constantly focuses on the
development of printed display manufacturing processes and materials. Guangdong Juhua led by
CSOT is a flexible printed display R&D platform, which is recognized as the only “National Printed
and Flexible Display Innovation Centre” in China. During the Reporting Period, Guangdong Juhua
worked with the upstream material and equipment suppliers to establish an open eco-system for the
R&D of the new display technology and production processes, which has further improved the
efficiency of equipment and the functions of devices, as well as accelerated the industrialization of
the production process route of printed display. Guangdong Juhua and JOLED in Japan are now the
two front runners worldwide in terms of the development and application of printed O-LED.
China Ray develops new OLED key materials with independent IP. Based on the different functional
layers of the entire OLED structure, it focuses on the development of EML materials.The evaporated
red-light and green- light emitting materials, as well as the solution-processed red- light emitting
materials produced by China Ray are all of an industry-wide advanced performance. China Ray’s
red-light and green- light emitting materials for evaporated OLED have started mass production. And
the QLED R&D team has solved the key problems such as the useful life of the red- light and
green-light emitting materials, with the second most patents in relation to quantum-dot
electroluminescent display in the world.
The semi-conductor display industry is driven by technology and investment. The development of
new display materials provides a basis for the transition and upgrade of the relevant products and
technologies. In addition to continual investment in basic new materials, technologies and production
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TCL Corporation Interim Report 2019 (Summary)
processes, CSOT will enhance its technological and industrial eco-system through technological
cooperation and investment in interests of relevant companies, so as to stay ahead with respect to
new technology and technological transition and innovation.
A diverse customer base and internationalization provide important impetus for the
sustainable business growth of CSOT. Sales that are not related to TCL’s terminal systems account
for over 50% of CSOT’s total sales, with the relevant customers being the top companies in their
respective industries. The construction of the module and whole-widget integrated intelligent
manufacturing park in India under the cooperation of CSOT and TCL Electronics is progressing
smoothly. This project is expected to produce 8 millio n pieces of large-sized modules and 30 million
pieces of small- and medium-sized modules annually, with the mass production expectedly starting
in the first half of 2020. As the international trade disputes escalate, globalization will become a
differentiated competitive edge of CSOT.
CSOT has built up leading advantages in efficiency and profitability in the global industry. The
efficient business structure, innovative products and technologies and a strong customer base
will help CSOT grasp M&A opportunities in the global industry and achieve continual growth
in scale and earnings.
2. The Industrial financing and Investment Business
(1) TCL Financial
TCL Financial mainly comprises the Group’s finance and the supply chain finance. The finance
business primarily involves providing financial and management support to the major businesses and
subsidiaries within the Group, and undertaking the functions of efficiency improvement and risk
management of Group assets. Over the years, TCL’s credit rating has been maintained at AA A; its
asset scale, gross profit, ROE and capital concentration are all of a leading level in the industry; and
its overall financing cost is lower than the industry average.
Upholding the service philosophy of “partner finance”, the supply chain finance business continues
to work on TCL’s industrial eco-system in a deeper manner by way of its online supply chain finance
platform. This business provides member and related enterprises with various financing and supply
chain financial services, helping them cut down financing costs and increase resource efficiency. By
doing so, this business is able to generate stable and increasing income.
(2) TCL Capital
TCL Capital includes TCL Venture Capital, Admiralty Harbour Capital Limited and China
15
TCL Corporation Interim Report 2019 (Summary)
Innovative Capital Management Limited (49% owned by the Company). TCL Venture Capital
operates various funds with a focus on new technologies, materials and applications associated with
TCL’s core businesses. Up to the end of the Reporting Period, the venture capital bus iness manages
funds of RMB9.37 billion in total, and has accumulatively invested in 112 projects. Currently, it
owns shareholdings in listed companies such as CATL, S.C., Dynanonic, etc., in addition to interests
in Cambricon, DK Electronic Materials, Transwarp and so on. Many projects invested by TCL
Venture Capital have established technological and business cooperation with TCL’s businesses, and
certain projects from which TCL Venture capital has withdrawn its investment have also provided
satisfying returns.
As a licensed financial enterprise in Hong Kong with investment banking and asset management
qualifications, Harbour Capital started operation early this year. As an overseas financial platform,
Harbour Capital completed three debenture issue and underwriting projects, and started to generate
income in its financial advising and asset management operations during the Reporting Period. It
also provides capital support and financial services for TCL’s overseas business expansion and M&A
activities. As a licensed Hong Kong financial institution with a Mainland China background,
Harbour Capital enjoys promising prospects.
China Innovative Capital Management Limited is a leading institutional investor in equity
investments and M&A in relation to listed companies. With years of experience, China Innovative
Capital Management Limited has invested in over 100 listed companies and established strong
credibility. It operated well during the Reporting Period, generating steadily increasing income. It
also provides professional support for TCL’s domestic M&A activities and business expansion.
Focusing on the semi-conductor display and artificial intelligence industries, TCL Capital actively
invested through the industrial chains; and in the meantime explored investment opportunities in
regard with other high-end, basic, key technologies, so as to promote technological and business
synergy, create a fresh impetus for TCL’s growth and generate returns on its investments.
Meanwhile, the Group directly invests in a number of listed companies, including a 19.07% interest
in 712 Corp. (603712.SH), a 4.99% interest in Bank of Shanghai (601229.SH) and a 20.08% interest
in Fantasia Holdings (01777.HK). These shareholding percentages remained the same during the
Reporting Period.
The industrial financial and investment business has seen steady growth in operating performance in
recent years thanks to strict risk control and healthy business expansion. For the Reporting Period,
this business recorded income of RMB368 million, up by 76.0% year-on- year. The steadily growing
profit of this business can help the Company offset the cyclical volatility in the semi-conductor
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TCL Corporation Interim Report 2019 (Summary)
display industry.
During the Reporting Period, the other businesses of the Group grew steadily, making positive
contributions to the improvement of the Group’s overall operating performance.
(III) Matters Related to Financial Reporting
1. Changes to Accounting Policies, Accounting Estimates or Measurement Methods Compared
to the Last Accounting Period
(1) Changes to the Accounting Policies
The Company has adopted since 1 January 2019 the revised versions of certain accounting standards
(revised by the Ministry of Finance in 2017), namely, the Accounting Standard No. 22 for Business
Enterprises—Recognition and Measurement of Financial Instruments, the Accounting Standard No.
23 for Business Enterprises—Transfer of Financial Assets, the Accounting Standard No. 24 for
Business Enterprises—Hedge Accounting, and the Accounting Standard No. 37 for Business
Enterprises—Presentation of Financial Instruments (together, the “New Accounting Standards for
Financial Instruments”). For details of the changed accounting policies, please refer to note IV to the
financial statements in the full version of this interim report.
Effects of the adoption of the New Accounting Standards for Financial Instruments on the Company:
For the financial instruments recognized and measured before 1 January 2019 in a way that is
inconsistent with the New Accounting Standards for Financial Instruments, the Company makes
transitional adjustments according to the new standards. And the Company does not restate the
comparable financial data of the previous period that is inconsistent with the New Accounting
Standards for Financial Instruments. The difference between the original carrying amount of a
financial instrument and the new carrying amount on the date of the adoption of the New Accounting
Standards for Financial Instruments is recorded in the retained earnings or other comprehensive
income as at 1 January 2019.
The effects of the adoption of the New Accounting Standards for Financial Instruments on the
presentation of the balance sheet items as at 1 January 2019 are as follows (unit: RMB’000):
Carrying amount as per Change Carrying amount as per the
the old accounting New Accounting Standards
Item
standards for financial for Financial Instruments
instruments
Trading financial assets - 2,632,626 2,632,626
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TCL Corporation Interim Report 2019 (Summary)
Financial assets at fair value through
1,137,580 (1,137,580) -
profit or loss
Derivative financ ial assets - 197,798 197,798
Notes and accounts receivable 17,923,667 (17,923,667) -
Notes receivable - 4,272,222 4,272,222
Accounts receivable - 13,600,479 13,600,479
Other receivables 5,719,379 (3,196) 5,716,183
Available-for-sale financial assets 4,270,845 (4,270,845) -
Long-term equity investments 16,957,109 160,827 17,117,936
Investments in other equity instruments - 1,618,075 1,618,075
Other non-current financial assets - 1,034,117 1,034,117
Trading financial liabilities - 143,457 143,457
Financial liabilities at fair value through
-
profit or loss 212,097 (212,097)
Derivative financ ial liabilities - 68,640 68,640
Deferred income tax liabilities 440,352 820 441,172
Other comprehensive income (1,174,162) 334,950 (839,212)
Retained earnings 10,000,973 (106,833) 9,894,140
Total equity attributable to owners of
30,494,365 228,117 30,722,482
the Company as the parent
Non-controlling interests 30,377,308 (994) 30,376,314
(2) Critical Accounting Policies and Estimates
Carrying amount adjustments of financial assets classified and measured as per the New Accounting
Standards for Financial Instruments (unit: RMB’000):
Carrying amount Reclassification Change Carrying
as per the old (exclusive of incurred by amount as per
accounting change incurred measurement the New
standards for by measurement) Accounting
Item
financial Standards for
instruments (31 Financial
December 2018) Instruments (1
January 2019)
Trading financial assets - 2,572,150 60,476 2,632,626
Of which: Financial assets at fair
value through profit or loss
- 230,844 -
reclassified to trading financial
assets
Of which: Available-for-sale
financial assets reclassified to - 2,341,306 60,476
trading financial assets
Financial assets at fair value
1,137,580 (1,137,580) - -
through profit or loss
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TCL Corporation Interim Report 2019 (Summary)
Of which: Financial assets at fair
value through profit or loss
- (230,844) -
reclassified to trading financial
assets
Of which: Financial assets at fair
value through profit or loss
- (197,798) -
reclassified to derivative financial
assets
Of which: Financial assets at fair
value through profit or loss
- (708,938) -
reclassified to other non-current
financial assets
Derivative financial assets - 197,798 - 197,798
Of which: Financial assets at fair
value through profit or loss
- 197,798 -
reclassified to derivative financial
assets
Notes receivable - 4,272,222 - 4,272,222
Accounts receivable - 13,604,358 (3,879) 13,600,479
Other receivables 5,719,379 - (3,196) 5,716,183
Available-for-sale financial assets 4,270,845 (4,270,845) - -
Of which: Available-for-sale
financial assets reclassified to - (2,341,306) -
trading financial assets
Of which: Available-for-sale
financial assets reclassified to
- (1,604,360) -
investments in other equity
instruments
Of which: Available-for-sale
financial assets reclassified to other - (325,179) -
non-current financial assets
Long-term equity investments 16,957,109 - 160,827 17,117,936
Investments in other equity
- 1,604,360 13,715 1,618,075
instruments
Of which: Available-for-sale
financial assets reclassified to
- 1,604,360 13,715 -
investments in other equity
instruments
Carrying amount adjustments of financial assets classified and measured as per the New Accounting
Standards for Financial Instruments (unit: RMB’000):
Carrying amount as Reclassification Change Carrying amount
per the old (exclusive of incurred by as per the New
accounting standards change incurred measurement Accounting
Item for financial by measurement) Standards for
instruments (31 Financial
December 2018) Instruments (1
January 2019)
Other non-current financial
assets - 1,034,117 - 1,034,117
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TCL Corporation Interim Report 2019 (Summary)
Of which: Financial assets at
fair value through profit or loss
- 708,938 -
reclassified to other
non-current financial assets
Of which: Available-for-sale
financial assets reclassified to
- 325,179 -
other non-current financial
assets
Trading financial liabilities
- 143,457 - 143,457
Of which: Financial liabilities
at fair value through profit or
- 143,457 -
loss reclassified to trading
financial liabilities
Financial liabilities at fair
212,097 (212,097) - -
value through profit or loss
Of which: Financial liabilities
at fair value through profit or
- (143,457) -
loss reclassified to trading
financial liabilities
Of which: Financial liabilities
at fair value through profit or
- (68,640) -
loss reclassified to derivative
financial liabilities
Derivative financial liabilities
- 68,640 - 68,640
Of which: Financial liabilities
at fair value through profit or
- 68,640 -
loss reclassified to derivative
financial liabilities
The effects of the reclassification or measurement of financial assets as per the New Accounting
Standards for Financial Instruments on the beginning retained earnings, other comprehensive income,
deferred income tax liabilities, equity attributable to owners of the Company as the parent and
non-controlling interests (unit: RMB’000):
Carrying amount as per the Effect of the Carrying amount as per
old accounting standards accounting standard the New Accounting
Item for financial instruments revisions Standards for Financial
(31 December 2018) Instruments (1 January
2019)
Deferred income tax liabilities 440,352 820 441,172
Other comprehensive income (1,174,162) 334,950 (839,212)
Retained earnings 10,000,973 (106,833) 9,894,140
Total equity attributable to
owners of the Company as the 30,494,365 228,117 30,722,482
parent
Non-controlling interests 30,377,308 (994) 30,376,314
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TCL Corporation Interim Report 2019 (Summary)
2. Retrospective Restatements due to the Correction of Material Accounting Errors in the
Reporting Period
No such cases.
3. Changes to the Scope of Consolidated Financial Statements Compared to the Last
Accounting Period
Compared with 2018, 14 subsidiaries (all newly incorporated) are newly included in and 298
subsidiaries (285 transferred, 6 de-registered and the other 7 due to the shift from a subsidiary to an
associate) are excluded from the consolidation scope of H1 2019.
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