TCL COMMUNICATION TECHNOLOGY HOLDINGS LIMITED (2618.HK) Results Presentation Hong Kong, 20 October
AGENDA BUSINESS REVIEW & OUTLOOK FINANCIAL HIGHLIGHTS Q & A 2
BUSINESS REVIEW & OUTLOOK
OVERVIEW RESULTS Sales Volume: Revenue: Net Profit: Net Profit: Basic EPS: 55.4 million units, up 14% YoY (including 31.1 million units of smart devices, up 20% YoY) HK$20.3 billion, up 1% YoY HK$772 million, up 4% YoY HK$319 million, up 6% YoY Increased to 61.76 HK cents from 61.11 HK cents YoY BUSINESS OVERVIEW Continuous revenue growth: Revenue growth continued despite challenging macroeconomic conditions and other foreign currency depreciation against US dollar Healthy gross margin: Gross margin remained at a healthy level of over 19% Outperforming global smartphone market: Recorded 19.8% YoY smartphone volume growth outpacing the market trend in Q2 (Source: Gartner & Company Data) Outpacing global tablet market: Ranked No. 6 global tablet player with the fastest YoY volume growth in Q2 (Source: Gartner & Company Data) Sustainable growth in internet applications and service business: In the first three quarters of, cumulative number of activated users of mobile Internet application platform grew by almost 3 times YoY to 18.1 million; while the settlement amount of third party payment increased almost 2 times YoY to HK$2.6 billion 4
INDUSTRY RANKING - TOTAL PHONES NO.5 GLOBAL HANDSET BRAND + COMPANY DATA RANK TOP 10 MOBILE PHONE BRANDS IN Q2 15 (Source: Gartner and Company Data) COMPANY Q2 15 SHIPMENTS (MILLION UNITS) Q2 15 MARKET SHARE (%) QoQ GROWTH RATE (%) 1 Samsung 88.7 19.9-9.4-8.9 2 Apple 48.1 10.8-20.1 +36.0 3 Microsoft-Nokia 27.7 6.2-16.1-36.8 4 Huawei 26.1 5.9 +40.5 +43.4 5 TCL-ALCATEL 18.0 4.0 +19.6 +12.3 6 LG 17.6 3.9-10.3-3.8 7 Lenovo-Motorola 16.6 3.7-13.8-13.7 8 Xiaomi 16.1 3.6 +9.0 +28.1 9 ZTE 14.6 3.3 +15.6 +15.3 10 Micromax 9.9 2.2 +21.2 +15.2 Others 162.4 36.5 +0.8 +0.2 TOTAL 445.8 100.0-3.2 +0.4 YoY GROWTH RATE (%) 5
INDUSTRY RANKING SMARTPHONES NO.8 GLOBAL SMARTPHONE BRAND GROWTH OUTPACING OVERALL MARKET + COMPANY DATA RANK TOP 10 SMARTPHONE BRANDS IN Q2 15 (Source: Gartner and Company Data) COMPANY Q2 15 SHIPMENTS (MILLION UNITS) Q2 15 MARKET SHARE (%) QoQ GROWTH RATE (%) YoY GROWTH RATE (%) 1 Samsung 72.1 21.9-11.2-5.3 2 Apple 48.1 14.6-20.1 +36.0 3 Huawei 25.8 7.8 +42.7 +46.3 4 Lenovo-Motorola 16.4 5.0-13.1-14.0 5 Xiaomi 16.1 4.9 +9.0 +28.1 6 LG 14.5 4.4-6.3 +4.5 7 ZTE 11.9 3.6 +21.7 +16.6 8 TCL-ALCATEL 10.1 3.1 +12.4 +19.8 9 Microsoft-Nokia 8.4 2.5-2.0-0.3 10 OPPO 8.2 2.5 +24.1 +90.1 Others 98.1 29.7 +4.8 +16.3 TOTAL 329.7 100.0-1.9 +13.5 6
INDUSTRY RANKING - TABLETS NO.6 GLOBAL TABLET BRAND YEAR-ON-YEAR FASTEST GROWING TABLET BRAND + COMPANY DATA RANK COMPANY TOP 10 TABLET BRANDS IN Q2 15 (Source: Gartner and Company Data) Q2 15 SHIPMENTS (MILLION UNITS) Q2 15 MARKET SHARE (%) QoQ GROWTH RATE (%) YoY GROWTH RATE (%) 1 Apple 11.2 25.1-18.3-18.8 2 Samsung 7.0 15.7-7.2-10.4 3 Lenovo 2.4 5.4-2.4 +3.4 4 Huawei 1.8 4.0 +72.8 -- 5 ASUS 1.3 2.9-23.2-43.2 6 TCL-ALCATEL 1.0 2.2 +37.3 +241.3 7 Microsoft 0.8 1.8 +5.6 +101.9 8 Acer 0.4 0.9-38.4-56.4 9 Amazon 0.4 0.9-34.3-65.2 10 Dell 0.3 0.7-4.4-31.6 Others 18.0 40.4-14.5-8.4 TOTAL 44.6 100.0-11.8-9.1 7
GEOGRAPHICAL REVENUE BREAKDOWN FEATURE PHONES & OTHER PRODUCTS SMART DEVICES CHINA 3% APAC 2% MEA 8% NORTH AMERICA 33% MEA 11% CHINA APAC 8% 3% NORTH AMERICA 23% EUROPE 28% LATIN AMERICA 26% EUROPE 24% LATIN AMERICA 31% 8
REGIONAL BUSINESS REVIEW NORTH AMERICA Sales volume: 10.6 million units, almost doubled YoY; Revenue: HK$4.8 billion, up 30% YoY Sales volume of smart devices: 4.6 million units, up 25% YoY Q2 sales volume ranking (Source: IDC & Company data): North America: No. 4 (Total phones); No. 6 (Smartphones) Consolidated operator channels and expanded open market, enhanced tablet sales growth Q4 business plan: Strengthen promotion on entry to mid-level 4G products, further enhance user experience Revenue (HK$ Billion) 6.0 4.0 2.0 3.7 4.8 +30% LATIN AMERICA Sales volume: 17.6 million units, down 10% YoY; Revenue: HK$6.0 billion, down 9% YoY Sales volume of smart devices: 10.7 million units, up 17% YoY Q2 sales volume ranking (Source: IDC & Company data): LATAM: No. 2 (Total phones); No. 3 (Smartphones) Chile: No. 2 (Total phones); No. 2 (Smartphones) Mexico: No. 2 (Total phones); No.4 (Smartphones) Continued to monitor exchange rate movements and reinforced collaboration with operators and distributors to stabilise sales Q4 business plan: Implement stringent cost and credit control policies, focus on entry to midlevel products in response to market changes 0.0 Revenue (HK$ Billion) 9.0 6.0 3.0 0.0 6.6 6.0-9% 9
REGIONAL BUSINESS REVIEW EUROPE Sales volume: 13.5 million units, up 31% YoY; Revenue: HK$5.0 billion, up 2% YoY Sales volume of smart devices: 7.5 million units, up 31% YoY Q2 sales volume ranking (Source: IDC & Company data): Europe: No. 4 (Total phones); No. 6 (Smartphones); No.5 (Tablets) Eastern Europe (excl. Russia): No. 3 (Total phones); No. 7 (Smartphones); No. 4 (Tablets) Secured mid-range market share with IDOL 3 sales Q4 business plan: Introduce a range of cost-effective 4G products to broaden open market Revenue (HK$ Billion) 6.0 4.0 2.0 4.9 5.0 +2% 0.0 THE MIDDLE EAST AND AFRICA Sales volume: 7.2 million units, up 17% YoY; Revenue: HK$2.2 billion, up 13% YoY Sales volume of smart devices: 4.4 million units, up 35% YoY Q2 sales volume ranking (Source: Gartner & Company data): Middle East and Africa: No. 6 (Total phones); No. 4 (Smartphones); No. 3 (Tablets) Q2 sales volume ranking (Source: IDC & Company data): South Africa: No. 4 (Total phones); No. 3 (Smartphones); No. 1 (Tablets) New markets: Saudi Arabia and Nigeria Q4 business plan: Continue to develop new markets, refine entry-level product strategy Revenue (HK$ Billion) 3.0 2.0 1.0 0.0 2.0 2.2 +13% 10
REGIONAL BUSINESS REVIEW APAC Sales volume: 1.6 million units, down 37% YoY; Revenue: HK$ 700 million, down 44% YoY Sales volume of smart devices: 1.1 million units, down 29% YoY Embarked on various measures to streamline operations Q4 business plan: Focus on e-commerce and operator channels, reinforce digital marketing capability Revenue (HK$ Billion) 2.0 1.5 1.0 1.2 0.5 0.7-44% 0.0 CHINA Sales volume: 4.9 million units, up 5% YoY; Revenue: HK$ 1.6 billion, down 6% YoY Sales volume of smart devices: 2.8 million units, up 8% YoY Continued growth in 4G smartphones sales volume, particularly in Guizhou, Zhejiang and Jiangsu - level market share Revenue (HK$ Billion) 2.0 1.5 1.0 0.5 1.6 1.6-6% 0.0 11
STEP-UP PRODUCT STRATEGY - - Octa-core CPU Metal casing Android 4.4 2.8 - Display 7 - Wearable devices Android L Firefox Windows Cloud applications 4G - 4.5 650MHz-1.5GHz Dual-core CPU Android 4.0-4.1 Windows - Quad-core CPU 6.45mm Thickness Android 4.2 Firefox Multi-screen Wifi display on TV GPRS, Ultra-low cost Qwerty key pad Entry-level Multi-touch Panel Technology EDGE Qwerty keypad Multi-touch display - 500MHz-600MHz Android 2.1-2.3 3G 2007-08 2009 2010 2011 2012 2013 Entry-level Feature Phone Advanced Feature Phone EDGE Phone Entry-level Smartphone Advanced Smartphone 12 Smart Connectivity Device 4G / Tablet / Cloud Terminal 2 in 1 / Wearable Device / Multiple OS / IoT
PRODUCTS SELECTED BY GLOBAL MAINSTREAM OPERATORS & DISTRIBUTORS NORTH AMERICA EUROPE LATIN AMERICA CHINA MEA APAC 13
NEW PRODUCTS Quad Core 1.2 GHz CPU Display 8 Mpxl Rear Camera (Underwater Photos & Videos) Long-lasting Battery: 500 hours Standby Time Robust design: Water-Dust-Shockproof IP 67 Technology 8 Colours with Matchable Headsets Octa Core 1.5 GHz CPU FHD IPS Display Slim Body: 9.1 mm Stainless Steel Handle & Stand 3-Watt JBL Stereo Dual Speakers Hands-free Gesture Control Compatible with Android 4.3 or above & ios 7 or above Long Battery Life: 2-5 days Robust design: Water-Dust-Shockproof IP 67 Technology Emotion Pulse Sharing to Social Network Connectivity: Bluetooth 4.0 or above Changeable Front Casings & Wrist Bands 14
NEW PRODUCTS Octa Core 1.4 GHz CPU 5 HD IPS Display Full Lamination 13 Mpxl Rear Camera with F2.0 aperture Dual SIM Dual Standby Premium Design: Metal Frame & Glass Hard Key Quad Core 1 GHz CPU IPS Display Full Lamination 8 Mpxl Rear Camera with EIS Dual SIM Dual Standby Numerous Colourful Covers Awards 15
BRAND BUILDING ACTIVITIES IFA Berlin Germany LA Galaxy Sponsorship The United States First Digital Product Launch - Flash Plus Smartphone The Philippines TCL Autumn New Product Presentation China Eletrolar Show Brazil Tianyi (E-surfing) Terminal Expo & Summit Forum China 16
OUTLOOK CHALLENGES A challenging macroeconomic environment with soft consumer spending Currency fluctuations pose a continued headwind for sales growth Acceleration of competitive pricing pressures and average selling price erosion EXECUTION PLANS Continue to implement stringent credit control and hedging policies to mitigate currency fluctuation impact Increase sales focus on user-centric and cost-competitive mid-high end products Streamline the portfolio with the completion of mass-market smartphones to sustain smartphone volume growth Remain as the market leader in feature phone market Allocate resources to projects with high-growth opportunities Focus on balancing growth and profitability amid stiff global competition GOALS & FORECAST 4G smartphones and tablets will continue to be the main growth drivers in Q4 full-year revenue growth: Maintain the target of 10% YoY 17
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS Revenue (HK$ Million) Income Statement (HK$ Million) YOY (%) YOY (%) 19,996 20,283 Total Sales Vol. 21,702 18,668 +16% 55,395 48,610 +14% Incl. Sales Vol. of Smart Devices units) 11,401 10,896 +5% 31,083 25,932 +20% Total ASP (US$) 42.0 53.4-21% 47.2 52.7-10% Revenue 7,056 7,779-9% 20,283 19,996 +1% Gross Profit Margin (%) 21.8% 19.0% +2.8% 20.2% 19.3% +0.9% Net Profit 319 301 +6% 772 741 +4% Net Profit Margin (%) 4.5% 3.9% +0.6% 3.8% 3.7% +0.1% Basic EPS (HK Cents) 25.11 24.30 +3% 61.76 61.11 +1% 19
QUARTERLY REVENUE OF HANDSETS & OTHER PRODUCTS SUSTAINABLE REVENUE GROWTH Revenue (HK$ Billion) 12 10 Smart devices Handsets and other products 10.7 1.1 8 6 5.5 7.5 2.3 5.5 6.7 1.3 7.8 1.0 6.7 6.5 0.7 0.6 7.1 0.9 4 2 0 2.1 1.5 0.6 Q1 2012 3.0 1.9 1.1 Q2 2012 3.1 1.5 3.9 2.0 1.6 1.9 2012 Q4 2012 2.4 1.2 1.2 Q1 2013 4.0 1.5 2.5 Q2 2013 2.1 3.4 2013 5.2 Q4 2013 1.2 4.3 Q1 5.4 Q2 6.8 9.6 Q4 6.0 5.9 6.2 Q1 Q2 20
QUARTERLY SALES VOLUME OF TABLETS ROBUST QUARTERLY VOLUME GROWTH Volume 1,500 1,339 1,250 1,099 1,000 986 750 718 500 513 289 250 63 0 Q1 Q2 Q4 Q1 Q2 21
SMARTPHONES SALES VOLUME PROPORTION & ASP REFINED PRODUCT PROFORLIO STRATEGY ASP (USD) Sales Proportion of Smart Devices (%) ASP Smart devices proportion 100% 70 90% 60 50 40 34.6 35.6 37.1 37.1 37.0 41.8 45.4 50.2 52.2 52.4 53.4 58% 53% 55.1 54.7 62% 62% 47.1 56% 42.0 53% 80% 70% 60% 50% 30 40% 46% 40% 20 27% 34% 30% 20% 10 10% 14% 19% 17% 17% 10% 0 Q1 2012 Q2 2012 2012 Q4 2012 Q1 2013 Q2 2013 2013 Q4 2013 Q1 Q2 Q4 Q1 Q2 0% 22
GROSS MARGIN TREND SUSTAINABLE HEALTH RANGE 25.0% 21.8% 20.0% 19.0% 19.6% 19.4% 19.0% 19.2% 19.1% 19.5% 17.4% 15.0% Brand Value and Customer Relationship Continuous Cost-Down Effort 10.0% Pricing and Currency Strategy Economies of scale 5.0% Product competitiveness 0.0% 2012 2013 Q1 Q2 Q4 Q1 Q2 23
FINANCIAL POSITION HIGHLIGHTS STATEMENT OF FINANCIAL POSITION (HK$ Million) 30 September 31 December Change (%) Non-current assets 4,457 3,691 +21% Current assets Inventories 3,207 3,293-3% Trade & factored receivables 7,189 8,244-13% Other current assets 2,637 2,081 +27% Pledged deposits 1,235 1,914-35% Cash and cash equivalents 420 473-11% Total current assets 14,688 16,005-8% Current liabilities Interest-bearing bank and other borrowings (2,939) (4,312) -32% Other current liabilities (5,206) (5,929) -12% Trade and notes payables (6,276) (5,167) +21% Total current liabilities (14,421) (15,408) -6% Net current assets 267 597-55% Total assets less current liabilities 4,724 4,288 +10% Non-current liabilities (817) (109) +650% Net assets 3,907 4,179-7% 24
KEY FINANCIAL RATIOS 30 September 31 December Gearing Ratio * 14% 15% Current Ratio 1.02 1.04 Trade Receivables Turnover Days** 80 72 Inventories Turnover Days *** 29 37 NAV Per Share HK$ 3.07 HK$ 3.43 Basic Earnings Per Share ( / FY ) 61.76 HK cents 91.58 HK cents * Calculated -bearing borrowings over total assets, excluding foreign exchange programme ** Excluding factored trade receivables *** Only inventories in factory 25
Q & A
THANK YOU Disclaimer The information contained herein should not be utilized for any legal purposes in regards to any investment decision or results. In particular, this document does not constitute any recommendation or invitation for subscribing for or sale and purchase of any securities of TCL Communication Technology Holdings Limited (the. The Company hereby expressly disclaims any liability for any loss or damage resulting from or in connection with any reliance by any investor on the information contained herein. A number of forward-looking statements may be made during this presentation. Forward-looking statements are any statements that are not historical facts. These forward-looking statements are based on the current expectations of the Company and there can be no assurance that such expectations will prove to be correct. Because forward-looking statements involve risks and uncertainties, the actual results could differ materially from these statements. 27