Securities Code: 002050 Securities Abbr.: Sanhua Intelligent Control Public Announcement No.: 2019-008
Zhejiang Sanhua Intelligent Controls CO., LTD.
Annual Report 2018 (Abstract)
I. Important Notes
This Abstract is extracted from 2018 Annual Report of Zhejiang Sanhua Intelligent Controls Co., Ltd. (“the
Company). In order to have a full understanding of the operating results, financial status and future
development planning of the Company, investors are suggested to read the full report carefully on the media
designated by the China Securities Regulatory Commission (the “CSRC”).
Indicate by check mark if independent auditor issues non-standard unqualified opinion
□Applicable √Not applicable
Indicate by check mark if there is a pre-arranged plan of profit distribution or transferring capital reserve into
common stock for the report period which has been reviewed and approved by the Board of Directors
√Applicable □Not applicable
Indicate by check mark if transferring capital reserve into common stock
√Applicable □Not applicable
Pre-arranged profit distribution plan reviewed and approved by the Board of Directors: distribute 2.5 Yuan
cash dividends per 10 common stocks (tax inclusive) and 3 stock dividend per 10 common stocks through
capital reserve to all shareholders. 2,116,703,682 shares of common stock were issued and outstanding as of
this reporting date.
Indicate by check mark if preplan for preferred stocks profit distribution to shareholders for the report period
which has been reviewed and approved by the Board of Directors
□Applicable √Not applicable
II. Company Profile
1. Stock profile
Stock abbr. Sanhua Intelligent Control Stock code 002050
Stock exchange Shenzhen Stock Exchange
Contact information Board Secretary Securities Representative
Name Kaicheng Hu Yutong Wong
5F, 18#building, No. 12 St., No. 289
No. 219, Woxi Avenue, Meizhu Town,
Office add. Xiasha Economic Development,
Xinchang County, Zhejiang, China.
Hangzhou, Zhejiang, China.
Tel. 0571-28020008 0575-86255360
E-mail shc@zjshc.com shc@zjshc.com
2. Brief introduction to main business or products in the report period
(Ⅰ) Main business
1
The company is specialized in developing thermal management solution of heat exchange and intelligent
control in a variety of aspects, including buildings, household appliances and vehicles, established on the core
technologies of heat-pump and thermal management system. Based on different development stages, needs and
features of its strategic and matured business, the Company divides its main business into refrigeration
components and automotive components. The company insists on “Focus on leading”, customer orientation
and rapid response to the market.
The company manufactures and markets components of refrigeration (including HVAC and refrigerators),
automotive A/C, new energy vehicle thermal management, coffee maker, dishwasher and washing machine.
Major products of refrigeration business are widely used in residential and commercial A/C, refrigerators, cold
chain logistics, dishwashers, etc., including four-way reversing valve, EEV, solenoid valve, Micro-channel heat
exchanger, Omega pump, etc. Major products of automotive business are widely used in traditional vehicles,
hybrid power vehicles and new energy vehicles, including TXV, receiver drier, EXV, electronic water pump,
etc.
No changes occurred to the main business or operation model in this report period.
(Ⅱ) Industry Development
1. Refrigeration components industry
China is the largest manufacturing base of A/C and refrigerator in the world with its production and sales
volume ranking the first globally. High energy efficiency and intelligent technology has a rapid growth under
the background of increasing requirements in energy-saving and environment protection, which brings new
opportunities as well as a series of new requirements to the component market. As a leader in refrigeration
component industry, the Company will grasp these opportunities and develop steadily.
2. Automotive components industry
The global automotive industry has developed at a high speed, which also increases market demand in
components of automotive A/C and thermal management products. In recent years, the development of new
energy vehicles has become a clear trend, and it brings a variety of higher and new requirements to A/C and
thermal management products. The company focuses on in-depth research of A/C and thermal management
system of new energy vehicles, which has started from components to modules and subsystems. The Company
has become a strategic vendor of Valeo, MAHLE, Volkswagen, Benz, BMW, Volvo, Tesla, GM, Geely, BYD,
SAIC Motor, etc.
(Ⅲ) Industry Position
The Company is both the largest refrigeration components manufacturer as well as the leading components
manufacturer in automotive A/C and thermal management area. Sanhua has become one of the world’s top
brands and a strategic partner of numerous well-known auto makers and A/C manufacturers. After over 30
years of development, the Company has established industrial leading position in the global refrigeration
components market. Sanhua’s products of EEV, four-way reversing valve, solenoid valve, Micro-channel heat
exchanger and Omega pump rank first globally in terms of market share. The market share of service valve,
automotive TXV, receiver drier is at the forefront of the world.
At the same time, the Company concentrates on R&D of new energy automotive A/C and thermal management
products. Sanhua is the first Chinese enterprise that has won the Pace Award of American Auto News.
2
3. Selected Financial Data
(1) Key accounting data and financial ratios for the past three years
Indicate by check mark if there is any retrospectively restated accounting data of previous years.
√Yes □No
The reason for retrospective restatement
Change of accounting policy
Unit: million Yuan
Increase/decrea
se of current
2017 2016
year over prior
2018
year
Before After After Before After
adjustment adjustment adjustment adjustment adjustment
Revenue 10,835.99 9,581.24 9,581.24 13.10% 7,656.33 7,656.33
Net profit attributable to
1,292.35 1,235.95 1,235.95 4.56% 990.95 990.95
shareholders
Net profit attributable to
shareholders excluding 1,294.77 1,085.28 1,085.28 19.30% 777.51 777.51
non-recurring gains and losses
Net cash flows from operating
1,287.60 648.72 664.09 93.89% 1,507.38 1,521.59
activities
Basic EPS (RMB Yuan / share) 0.61 0.60 0.60 1.67% 0.49 0.49
Diluted EPS (RMB Yuan /
0.61 0.60 0.60 1.67% 0.49 0.49
share)
Weighted average ROE (%) 15.65% 19.12% 19.12% -3.47% 17.79% 17.79%
Increase/decrea
se of current
As of Dec.31, 2017 As of Dec.31, 2016
As of Dec.31, year over prior
2018 year
Before After After Before After
adjustment adjustment adjustment adjustment adjustment
Total assets 13,932.17 12,347.97 12,347.97 12.83% 9,547.13 9,547.13
Net assets attributable to
8,614.84 7,875.37 7,875.37 9.39% 5,887.15 5,887.15
shareholders
The reason for accounting policy change and retrospective restatement
The Company retrospectively restates the corresponding comparative data of the financial statement for the
year 2018 according to Revised Format of General Enterprise Financial Statements for 2018 (Accounting NO.
15), its Interpretation as well as provisions of Enterprise Accounting Standards. Please refer to “Important
accounting policy changes” of the 2018 annual report. The assets-related government subsidies of current year
as well as prior year in the cash flow statement is reclassified from "receipt of cash related to other investment
activities" to "receipt of cash related to other operating activities". Due to the consolidation enterprises under
the same control in 2017, the relative data of 2016 have been adjusted retrospectively. Please refer to the
3
Company’s 2017 Annual Report for more details. Accordingly, the Before Adjustment data for 2016 in the
above table is presented as the After Adjustment data for 2016 disclosed in the Company’s 2017 Annual
Report.
(2) Key accounting data by quarter
Unit: million Yuan
Q1 Q2 Q3 Q4
Revenue 2,577.55 3,012.79 2,674.85 2,570.80
Net profit attributable to
248.31 428.74 346.34 268.96
shareholders
Net profit attributable to
shareholders excluding 239.08 435.30 346.84 273.56
non-recurring gains and losses
Net cash flows from operating
-72.92 254.46 378.88 727.17
activities
Indicate by check mark if any material difference between the above financial indicators or their summations
and those which have been disclosed in the Company’s Quarterly or Interim report.
√Yes □No
Net cash flows from operating activities in this table has been adjusted quarterly according to the latest
regulation, please refer to the reason for accounting change and retrospective restatement mentioned
previously.
4. Capital and Shareholders
(1) Top 10 shareholders of common stock and preferred stock with resumed voting rights
Unit: Share
Total number
Total number
of
of Total number of
shareholders
Total number of shareholders shareholders of
of preferred
shareholders of of common preferred stock with
stock with
common stocks at 35,901 stocks at 36,043 0 resumed voting rights 0
resumed
the end of the previous at previous
voting right at
reporting period month-end of month-end of this
the end of the
this report’s report’s disclosure
reporting
disclosure
period
Top 10 shareholders
Pledged or frozen
Quantity of Quantity of restricted stocks
Name Nature Ownership
stocks stocks held
Status Quantity
Domestic
Sanhua Holding
non-state-owned 37.00% 788,374,733 0 Pledged 457,000,000
Group Co., Ltd.
corporate
4
Zhejiang Sanhua Domestic
Lvneng Industry non-state-owned 20.63% 439,495,831 230,686,695
Group Co., Ltd. corporate
Hong Kong
Securities Clearing Foreign
6.45% 137,400,171
Company Ltd. corporate
(HKSC)
Domestic
Yabo Zhang 1.81% 38,480,000 28,860,000
natural person
Goldman, SACHS Foreign
0.92% 19,700,204
& CO. LLC corporate
Domestic
Xinhecheng
non-state-owned 0.85% 18,200,000
Holdings Co., Ltd.
corporate
Bank of
Communications
Co., Ltd.—Guotai
Other 0.66% 14,049,876
Jinying Mixed
Securities
Investment Fund
112 Portfolio of
National Social Other 0.65% 13,888,151
Security Fund
Central Huijin Asset Domestic
Management Co., state-owned 0.64% 13,718,000
Ltd. corporate
Shenzhen Anpeng Domestic
Capital Innovation state-owned 0.63% 13,333,333
Co., Ltd. corporate
Among the above-mentioned shareholders, Sanhua Holding Group Co., Ltd.,
Zhejiang Sanhua Lvneng Industry Group Co., Ltd. and Yabo Zhang are the persons
Explanation on the above-mentioned
acting in concert. The Company is not made aware whether there is any affiliated
shareholders’ affiliated relationship or
relationship between the other shareholders or whether they are persons acting in
concerted action
concert as defined in Administrative Measures for the Acquisition of Listed
Companies.
Explanation on the above-mentioned
shareholders that are engaged in margin Not applicable
trading business
(2) Total number of and top 10 shareholders of preferred stocks
□Applicable √Not applicable
No shareholders holding preferred stocks noted in the reporting period
(3) The ownership and controlling relationship between the Company and its actual controller in
form of diagram
5
33% Daocai Zhang Qingjuan Yu 31%
Yabo Zhang 6% Shaobo Zhang
30%
64.06% Xinchang Huaqing Investment Co., Ltd.
Xinchang Huaxin Investment Co., Ltd. 10.85%
27.27%
11.81%
12.88%
Sanhua Holding Group Co., Ltd.
100%
1.81%
Haoyide International Limited OF Hong Kong
100% 62.11%
Fuxun Co., Ltd.
37.89%
37.00%
Zhejiang Sanhua Lvneng Industry Group Co., Ltd.
20.63%
Zhejiang Sanhua Intelligent Controls Co., Ltd.
5. Bonds
Does the Company have any corporate bond that is publicly issued and listed on the stock exchange and
that are immature or not fully redeemed as of the approved issuance date of the Annual Report?
None
III. Management Discussion and Analysis
1. Business review for the reporting period
Is the Company subjected to the disclosure requirements for specific industries?
No
In 2018, with the global economy and trading landscape undergoing significant adjustments, overall growth
momentum of the global macro economy has slowed down. Meanwhile, under the impact of the Federal
Reserve increasing discount rate and the rising of international trade protectionism, international trade situation
6
is suffering from continuous turmoil. Given such complex and changing domestic and international
environment, the Company insists on the guiding ideology of “Focus on leading and innovation”, adheres to
the implementation of global business strategy. Under such context, the Company’s refrigeration components
business has still realized a positive growth rate, while the automotive components business has entered a
slight growth phase after its high-speed expansion. The automotive industry is experiencing an unprecedented
change, and the trend of new energy and intelligent vehicle is incontrovertible.
In this reporting period, for the first time, the Company’s total revenue exceeds the milestone of 10 billion,
which concludes at 10.84 billion Yuan with an increase of 13.10% over the same period of last year. The
operating profit is 1.55 billion Yuan with year over year growth rate of 5.03%, and the net profit attributable to
shareholders is 1.29 billion Yuan with year over year growth rate of 4.56%. Based on the product classification,
the revenue of refrigeration business is 9.40 billion Yuan with year over year growth rate of 12.34%, and the
revenue of automotive business is 1.43 billion Yuan with year over year growth rate of 18.33%.
The Company’s major business activities in 2018 include:
Ⅰ. Focus on operation and steady growth of core businesses
1. Refrigeration components business
Under the macroeconomic uncertainty and friction of international trade, the Company seizes the market
opportunities by innovation in technologies and materials and keeps establishing its industrial leading
position. The Company constantly optimizes design for its customer solutions and expands the application
fields of energy-efficient products and their penetration rate, thus the Company can enhance its core
competencies.
2. Automotive components business
The automotive industry is moving from rapid development to a more steady development phase, while
the new energy vehicle industry is achieving high growth rate due to the powerful political drivers and
industrial upgrading. The development of new energy vehicles has become a clear trend along with the
gradual mass production of auto makers. Having developed in the new energy vehicle thermal
management products industry for more than a decade, the Company keeps improving its technical and
manufacturing capabilities following its customers’ demands, and its products are gradually developing
from components to modules and subsystems. The Company has become a qualified supplier of
well-known customers such as Valeo, MAHLE, Volkswagen, Benz, BMW, Volvo, Tesla, GM, Geely, BYD,
SAIC Motor, etc. The maximum value supplied by the Company is over 5,000 Yuan per vehicle, which is
mainly due to its competitive advantages in the field of new energy vehicle thermal management.
Ⅱ. Focus on technology and increase R&D investments
During the reporting period, the company strengthens the core competencies of its strategic products with
sustained R&D investments. R&D expense of 2018 is 437 million Yuan with year over year growth rate of
33.62%. The Company’s R&D investment mainly focuses on the core technologies of heat-pump and
intelligent control in order to develop more competitive products. Meanwhile, it actively promotes lean
production and automation. By the end of this reporting period, the Company has 1,394 skilled technicians and
1,667 patents including 765 patents of invention.
Ⅲ. Strengthen the talent development mechanism of "Selecting, Using, Educating and Retaining" to support
the global development of the Company's business
The company insists the talent development strategy of “Internal training is superior to external recruitment”
and it established three different level of talent training system to identify and make career development
7
planning for excellent cadres. At the same time, the first Management Trainee program was started to ensure
the rapid growth of the Company’s global business. In addition, the Company launched its first stock incentive
plan for directors, senior managers, and some core talents, which closely integrates employees’ career with the
Company’s future development.
Ⅳ. Maintain investor relations and strengthen the awareness of service and return to shareholders
In order to boost investors’ confidence, promote the reasonable value return and enhance the long-term
investment value of the stocks, the Company plans to repurchase its outstanding stocks with the Company’s
self-owned funds in the reporting period. Meanwhile, the Company continuously improves and maintains an
effective and efficient internal control system, regulates its operation of board of director, supervisor and
shareholders’ meeting, and maintains an effective information disclosure and investor relations management,
etc. In addition, timely and smooth communication between the Company and its investors is ensured through
the various means such as platform of Shenzhen Stock Exchange, calls from investors, on-site reception and
other ways.
2. Significant changes in main business in the reporting period
□Applicable √Not applicable
3. Products contributing to over 10% of the Company’s main business revenue or profit
√Applicable □Not applicable
Unit: Yuan
Revenue: Gross profit
Gross profit Profit: +/-%
Product Revenue Profit +/-% over last margin +/-%
margin (%) over last year
year over last year
Refrigeration
5,960,937,724.48 1,009,630,883.39 32.56% 21.03% 3.62% -3.32%
Unit
AWECO Unit 1,092,953,774.62 -24,690,258.07 14.85% -9.29% -50.24% -2.62%
Micro-channel
1,216,200,152.69 227,355,119.66 30.35% -2.90% -4.13% -4.30%
Unit
Automotive
1,432,231,867.30 304,881,679.69 29.38% 18.33% 43.05% -1.45%
Unit
Other 1,133,667,158.42 29,146,096.27 18.03% 14.70% -54.54% -3.02%
4. Seasonal or periodic characteristics in operating performance that needs special attention
□Applicable √Not applicable
5. Significant changes in revenues, costs and net profit attributable to shareholders with common
shares or their composition comparing to prior reporting period
□Applicable √Not applicable
6. Listing suspension or termination
□Applicable √Not applicable
7. Matters related to financial statements
(1) Explanation on changes in accounting policy, accounting estimations and accounting methods
comparing to prior year financial statement
√Applicable □Not applicable
8
1. In accordance with the Revised Format of General Enterprise Financial Statements for 2018 (Accounting
NO. 15) and its interpretation and the provisions of Enterprise Accounting Standards which were issued by
Ministry of Finance, the corresponding comparative data of the financial statements in 2018 are restated
retrospectively. The accounts and amounts of the financial statements that are significantly affected in
2017 are shown in the following table:
Unit: Yuan
Accounts and amounts of the original financial statement Accounts and amounts of the new financial statement
Balance sheet as of Dec.31, 2017
Notes receivable 1,984,932,895.65 Notes receivable and
3,616,670,930.73
Accounts receivable 1,631,738,035.08 accounts receivable
Notes payable 1,016,823,594.85 Notes payable and accounts
2,497,466,550.92
Accounts payable 1,480,642,956.07 payable
Interest payable 2,364,117.76
Other payable 78,543,886.02
Other payable 76,179,768.26
Income statement in 2017
General and Administrative
General and Administrative 544,849,254.97
872,020,125.73 expense
expense
R&D expense 327,170,870.76
Cash flow statement in 2017 (Note)
Cash inflows from other Cash inflows from other
15,368,289.00 15,368,289.00
investment activities operating activities
Note: The cash inflows of assets-related government subsidies of 15,368,289.00 Yuan in the cash flow statement is reclassified
from "cash inflows from other investment activities" to "cash inflows from other operating activities".
2. Ministry of Finance promulgated four regulations: Interpretation of Enterprise Accounting Standards No.
9: Accounting Treatment of Net Investment Loss under Equity Method, Interpretation of Enterprise
Accounting Standards No. 10: Depreciation Method Based on Income from the Use of Fixed Assets,
Interpretation of Enterprise Accounting Standards No. 11: Amortization method based on income
generated from the use of intangible assets, Interpretation of Enterprise Accounting Standards No. 12:
Whether the Provider and Receiver of Key Manager Services are Affiliated Parties. Since January 1, 2018,
the company has implemented the aforementioned interpretation of Enterprise Accounting Standards. The
implementation of the above interpretations has no impact on the opening balances of the Company’s
financial statement.
(2) Explanation on retrospective restatement due to significant accounting error correction in the
reporting period
□Applicable √Not applicable
(3) Explanation on changes of consolidation scope comparing to prior year’s financial statement
√Applicable □Not applicable
(Ⅰ) Merger of enterprises under different control
1. Merger of enterprises under different control in this reporting period
(1) Basic information
9
Name of acquiree Acquisition date Cost of equity acquisition Ownership Acquisition method
Qingdao Debaiyi Refrigeration Equipment Co.,
2018-07-31 RMB 14,580,943.52 70% Agreement
Ltd.
American Investments Fund I, LLC 2018-05-18 USD 3,188,283.62 100% Agreement
Acquiree’s revenue from Acquiree’s net profit from
Basis of acquisition
Name of acquiree Acquisition date acquisition date to the end acquisition date to the end of
date
of the reporting period the reporting period
Qingdao Debaiyi Substantive Control of
Refrigeration 2018-07-31 Ownership of Subject 4,215,170.69 -2,380,945.62
Equipment Co., Ltd. Equity
Substantive Control of
American Investments
2018-05-18 Ownership of Subject 151,452,858.77 -4,356,244.98
Fund I, LLC
Equity
(2) Other explanations
The Company eventually acquired 70% equity of Qingdao Debaiyi Refrigeration Equipment Co., Ltd.
(referred to as Qingdao Debaiyi) by means of agreement transfer and capital increase. On July 31,
2018, the Company has substantial control over Qingdao Debaiyi and has incorporated it into the
scope of consolidation since August 1, 2018. As of December 31, 2018, the Company has paid a total
of 14,580,943.52 Yuan for equity transfer and capital increase.
The Company acquired 100% of American Investments Fund I, LLC (AIF) owned by Leander J. Foley,
III, Brent Porterfield by means of agreement transfer. On May 18, 2018, the Company has substantial
control over AIF and has incorporated it into the scope of consolidation since May 1, 2018. As of
December 31, 2018, the Company has paid USD 3,188,283.62 for equity transfer.
2. Merger costs and goodwill
Items Qingdao Debaiyi AIF
Merger cost 14,580,943.52 20,450,926.45
Cash paid 14,580,943.52 20,450,926.45
Minus：Fair value of identifiable net asset 14,580,943.52 19,012,845.74
Difference 0.00 1,438,080.71
Investment losses 0.00 1,438,080.71
3. Acquiree’s identifiable assets and liabilities on acquisition date
(1) Basic information
Qingdao Debaiyi AIF
Accounts Fair value on Book value on Fair value on Book value on
acquisition date acquisition date acquisition date acquisition date
Assets 24,437,856.90 24,437,856.90 178,841,656.44 163,407,220.82
cash 13,417,210.95 13,417,210.95 7,175,701.40 7,175,701.40
Notes receivable and accounts 1,628,714.49 1,628,714.49 34,775,708.47 34,775,708.47
receivable
Prepayments 107,399.00 107,399.00 237,900.54 222,254.98
10
Other receivables 113,034.07 113,034.07 669,645.40 669,645.40
Inventories 2,218,727.84 2,218,727.84 23,623,099.85 22,251,944.94
Other current assets 4,422,628.86 4,422,628.86
Fixed assets 2,328,252.55 2,328,252.55 97,468,796.46 83,421,161.31
Construction in progress 16,118.00 16,118.00 3,924,204.58 3,924,204.58
Intangible assets 6,543,970.88 6,543,970.88
Long-term prepaid expense 628,400.00 628,400.00
Other non-current assets 3,980,000.00 3,980,000.00
Liabilities 3,607,937.58 3,607,937.58 159,828,810.70 159,828,810.70
Notes payable and accounts payable 1,252,653.72 1,252,653.72 30,766,972.10 30,766,972.10
Salaries payable 2,904,820.82 2,904,820.82
Tax payable 338,784.79 338,784.79 719,091.38 719,091.38
Other payable 2,016,499.07 2,016,499.07 7,886,347.39 7,886,347.39
Long-term loans 117,551,579.01 117,551,579.01
Net assets 20,829,919.32 20,829,919.32 19,012,845.74 3,578,410.12
Minus: Minority interest 6,248,975.80 6,248,975.80
Acquired net assets 14,580,943.52 14,580,943.52 19,012,845.74 3,578,410.12
(2) The method of determining the fair value of recognized assets and liabilities
The fair value of identifiable assets and liabilities shall be determined by the management of the
Company according to the valuation of the asset-based method or the determination method of the fair
value specified in the guidelines.
(Ⅱ) Change in consolidation scope due to other reasons
1. Increased scope of consolidation
Acquisition
Company Name Acquisition date Actual invested capital Ownership
method
Sanhua (Vietnam) Co., Ltd. New investment 2018-09-04 USD 19,800,000 100%
2. Decreased scope of consolidation
Net profit from beginning of
Disposal Net assets on
Corporation Disposal date the reporting period to the
method disposal date
disposal date
Liquidation
Sanhua Refrigeration Components (Thailand) Co.,
and 2018-02-01 5,228,245.83 572,897.82
Ltd.
Cancellation
(4) Estimation on 2019 Q1 business performance
□Applicable √Not applicable
11
