Midea Group IR presentation 2016.12 1
Corporate Snapshot 2
Milestones Successful transition into a multi-product and global industry leader 3
Return to Shareholders Stable dividend distribution to shareholders every year RMB Bn 4
Overview Leading Global Manufacturer of Home Appliances and HVAC Systems FY 2015 $22 billion Revenue Export to 200+ Countries/Regions Ranked 481th Fortune 2016 Credit ratings A-/A3/A- S&P/Moody s/fitch # 1 Global Home Appliances Player by Revenue Market Cap and rankings FY 2015, US$ Bn 2015 Revenue, US$ Bn Market cap: ~ RMB 200bn + Ranking among A-share companies: 26 Ranking among A-share companies (excl. financial and energy companies):4 Ranking among Shenzhen stock exchange: 2 5
Product Portfolio One of the Most Extensive Product Portfolio of Any Global White Goods Players General SDA Products Kitchen Appliances Major Domestic Appliances Residential A/C Commercial A/C Rice Cooker Kettle Hood Electric Oven side by side Refrigerator French Doors Refrigerator Split A/C Chillers VRF Range Cooktop Standing A/C Heater Juicer Freezer In-line Water Heater Roof-top Microwave Movable A/C Fan Water Purifier Rice Cooker/ Pressure Cooker Dish Washer Smart Washing Machine Washing Machine Central A/C System Mini VRF Vacuum Cleaner Key Components U.S. Ducted A/C and REF Compressor Electric Motor HVAC and Appliance Motor Magnetron Electronic Controller 6
Market Position No.1 No.2 No.1 No.1 No.1 No.1 No.2 No.2 No.3 No.3 No.2 No.3 No.3 7
Turnover Breakdown HVAC account for close to half of revenue; international sales account for over 40% 2016H1 Main Business Turnover Breakdown Unit: RMB Bn Source: 2016 Semi-Annual Report 8
Manufacturing Footprint Inside / Outside of China: 17 / 12 production facilities; ~90,000 / ~15,000 employees Commercial AC Italy (1) Belarus (1) Microwave, Stoves China (17) Residential AC, Commercial AC, Refrigerators, Microwaves, Stoves, Ovens, Disinfection cabinets, Small Appliances, Compressors, Motors Lighting Washing machines, Vacuum Cleaners, Water Heaters Brazil (2) Japan (2) Vietnam (1) Rice Cooker, Fan, Induction Cooker Residential AC, Commercial AC Argentina (1) Residential AC Egypt (1) Residential AC, Commercial AC Saudi Arabia India (2) Residential AC Residential AC, Washing Machine, Refrigerator, Rice Cooker, Fans Thailand (1) Refrigerator, Wash Machine, Rice Cooker, Microwave Oven 9
Corporate Governance 10
Management Handover A family enterprise managed by professional managers In 2012, professional manager team came on board In 2013, Midea Group launched IPO Wenxin Wu (Winson) VP Joined in 1993 Yanmin Gu (Andy) VP Joined in 2000 Hongbo Fang (Paul) Chairman & President Joined Midea in 1992 Fengtao Zhu (Frank) VP & GM of Kitchen Appliances Joined in 1993 Feide Li (Fred) VP & Head of Operations Joined in 1999 Prior to IPO Midea Holding Strategic Investors Midea Group SDA Motor Logistics Management 59.85% 21.15% 19% Issue Shares Share swap Shareholders of Midea Electric 41.17% 58.83% Midea Electric (List Co) Ziqiang Hu (Zack) VP & Chief of Central Research Joined in 2012 Bitong Yin (Berton) VP & & GM of Residential AC Joined in 1999 Jinliang Wang (Kim) VP & Head of Domestic Marketing Joined in 1995 Mingguang Xiao (Peter) CFO Joined in 2000 After IPO Midea Holding Strategic Investors Midea Group (List Co) Management 35.49% 12.54% 11.27% Others 40.70% Board composition: 4 executive + 2 non-executive + 4 independent SDA Motor Logistics Midea Electric 11
Residential AC Kitchen Appliances Toshiba Lifestyle (TLSC) Laundry Refrigerator Commercial AC Living Appliances Environmental Appliances Water Heater Parts & Components Organizational Chart 10 Product Divisions + 8 Platforms + Corporate Functions = Great Synergies Financing Platform Midea Group International Business Platform Procurement Platform E-commerce Platform Logistics Platform Central R&D Institute Service Platform 10 Product Divisions M-Smart Institute 12
Incentive Schemes Clear Shareholding Structure & long-term incentive plans Strategic Investors 4% Management 4% Share Option Plan Three terms of share option plans for employees. Accumulatively account for 6% of TSO. Majorly management in R&D and manufacturing. Controlling Shareholder 36% Midea Group Other Shareholders 56% Partners Program Two terms of Partners Program (ESOP) For key senior management. From professional managers to business partners. 13
Strategic Transformations 14
Key Financial Changes Significant margin improvement and strong cash generation capabilities 2011 2015 Change Revenue (RMB Bn) 134.1 138.4 3% Net Earnings (RMB Bn) 6.6 13.6 106% Net Cash / Debt (RMB Bn) * -5.1 64.9 +70 Bn Cash flow from Operating Activities (RMB Bn) 4.1 26.7 551% Revenue per employee (RMB Mn) 6.8 13.1 91% Number of Employees ( 000) 196 105-46% Net Asset (RMB Bn) ** 30.2 56 85% * The calculation of Net Cash here includes Notes Receivable. ** In addition, the dividend paid to the shareholders of the list company and JV partners amount to RMB 18Bn in total in the last five years. 15
Strategic Focuses Strategic focuses shifted to Products, Efficiency, and Globalization Leading Products Focus on consumer-centric; improve product competitiveness Increase investment in R&D and innovation Spin off loss-making product categories; improve product mix Efficiency Driven Global Operation Launch 632 IT project to standardize and streamline process Invest on automation of factories Promote Just-in-time manufacturing and destocking initiatives Consolidate business support to 6 platforms to create synergies Set up International Business Platform (MIB) HQ globalization, subsidiaries localization Business model from OEM to OBM Joint Ventures, Mergers & Acquisitions 16
Technology & Innovation Top Global Innovator with increased R&D expenses, personnel and centers 17
Efficiency Driven Investment on automation & IT; reduction on overcapacity, inventory, leverage Investments Reductions RMB 7Bn on factory automation RMB 2Bn on 632 IT project Product categories: 64 32 SKU: >4,000 2,000 Inventory: 16 10Bn RMB Loan: 14.4 4Bn RMB Lean organization, lean manufacturing, made to orders (T+3 model) 18
Globalization To achieve global allocation of capital and global operations OEM OBM Midea International Business ( MIB ) A management platform with corporate functions Functional Brand Emotional Brand Aspirational Brand An interface between HQ and overseas subs A Special Economic Zone within Midea Group 15 nationalities of less than 100 employees Proven Partner with Leading Global Brands Strategic JV with Little Swan, OEM business JV cooperation in China, India, Egypt, Philippines and South America JV cooperation in HVAC and compressors HQ Globalization Subsidiaries Localization JV cooperation in China with Bosch Thermotechnology JV cooperation in China with Yaskawa on robotics 13.5% Stake in Kuka and cooperation in robotics Global standardization Local Differentiation Joint development with Siix on electronic controllers JV cooperation on Commercial Ac JV cooperation in Belarus 19
Recent Transactions Midea + Toshiba Acquisition of 80.1% stake in the home appliances businesses of Toshiba with a consideration of c.us$500 million Being licensed to use the Toshiba brand worldwide for 40 years; Obtained over 5,000 IP assets 美的以 5 亿美元, 受让 Significant synergies in brand, channels, R&D, supply chain, etc. Midea + Clivet Acquisition of 80% stake in Clivet, a European leading company based in Italy Improve market share on the European as well as global markets Significant synergies in in product offerings, market presence, supply chain, manufacturing and technologies Midea + KUKA Launched a voluntary tender offer at EUR115 in cash per KUKA share; Total consideration amounts to be approximately EUR 3.7Bn 81.04% of shares being tendered, plus the 13.51% shares acquired by Midea prior to the takeover offer, results in a total of 94.55% of all issued shares of KUKA All Completion Conditions are satisfied. Settlement will be completed in the first half of January. Being closed on 30 June 2016 Being closed on 31 October 2016 Still in progress 20
Future Strategies Existing business Leading Products strategy New business Building, security, B to B business New geographic expansion Focusing on strategic markets 21
Business Update 22
Revenue & Margins Revenue growth recovered; both gross and net profit margin further increased Note: Acquisition of TLSC was closed on 30 June 2016. Financial reports of TLSC has been consolidated since then. 23
Cash & Cash Flow Abundant cash-in-hand; strong cash generation capabilities * The calculation of Net Cash here includes Notes receivables. 24
Cash Conversion Cycle Cash conversion cycle became negative 25
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