
Part I Item 3. Key Information This section presents key financial data for the past five years, details the company's dividend history, and outlines significant risks Selected Financial Data The company's revenue was RMB 16,263.2 million in 2018, a slight increase from RMB 16,197.8 million in 2017, but profit attributable to equity holders fell to RMB 695.3 million - The company's main business asset is its 76.4% ownership in Guangxi Yuchai Machinery Company Limited (Yuchai). To reduce financial dependence on Yuchai, the company has diversified its investments, holding a 48.9% interest in HL Global Enterprises Limited (HLGE) and a 7.7% interest in Thakral Corporation Ltd (TCL) as of December 31, 20181617 Selected Consolidated Financial Data (2016-2018) | Financial Metric | 2016 (Restated) | 2017 (Restated) | 2018 | 2018 (US$) | | :--- | :--- | :--- | :--- | :--- | | Statement of Profit or Loss Data (in RMB thousands) | | | | | | Revenue | 13,643,195 | 16,197,819 | 16,263,248 | 2,430,942 | | Gross Profit | 2,972,452 | 3,356,051 | 3,092,021 | 462,178 | | Operating Profit | 979,527 | 1,604,413 | 1,282,521 | 191,703 | | Profit for the year | 735,962 | 1,319,856 | 974,400 | 145,647 | | Attributable to Equity holders | 525,177 | 888,809 | 695,266 | 103,925 | | Basic EPS (RMB/US$ per share) | 13.12 | 21.80 | 17.02 | 2.54 | | Statement of Financial Position Data (in RMB thousands) | | | | | | Total Assets | 18,515,746 | 21,015,059 | 21,657,964 | 3,237,315 | | Equity attributable to equity holders | 7,735,672 | 8,334,287 | 8,395,849 | 1,254,966 | | Statement of Cash Flows Data (in RMB thousands) | | | | | | Net cash from operating activities | 2,276,087 | 1,420,167 | 670,601 | 100,235 | Dividends The company's primary cash flow source is dividends from its subsidiary, Yuchai, with a total dividend of US$2.21 per share declared for fiscal year 2017 - Yuchai, as a Sino-foreign joint stock company, must allocate 10% of its net income (per PRC GAAP) to a statutory reserve fund until the fund reaches 50% of its registered capital, before distributing profits24 Dividends Paid by the Company and Received from Yuchai (2014-2018) | Fiscal Year | Dividend paid by the Company (per share) | Dividend paid by Yuchai to the Company (in RMB thousands) | | :--- | :--- | :--- | | 2014 | US$1.20 | 325,278 | | 2015 | US$1.10 | 271,058 | | 2016 | US$0.85 | 318,050 | | 2017 | US$0.90 | 234,923 | | 2018 | US$2.21 | 307,207 | Risk Factors The company faces multiple risks including share ownership, business operations, China-specific issues, and its investment in HLGE - The controlling shareholder, Hong Leong Asia Ltd., indirectly owns approximately 41.75% of common stock and holds a special share entitling it to elect a majority of the board, which may lead to interests differing from other shareholders29 - The company's business is highly dependent on the Chinese economy, government policies regarding commercial vehicles, and the enforcement of emission standards. A slowdown in China's GDP growth, changes in incentives, or a faster-than-expected shift to electric vehicles could adversely affect demand for its diesel and natural gas engines363941 - A significant portion of sales (27.4% in 2018) is concentrated with the Dongfeng Group, which is also a major competitor, creating dependency and competitive risks51 - The Chinese government's push for new energy vehicles (hybrid, electric) poses a threat to the company's core engine business, with sales of electric commercial vehicles growing and potentially reducing demand for traditional engines616264 - The company faces risks related to the Chinese legal system, which may offer limited protection to foreign investors, and potential difficulties in enforcing its rights as the majority shareholder of Yuchai due to past disagreements with Chinese partners47103 Item 4. Information on the Company China Yuchai International Limited is a Bermuda-based holding company with a 76.4% stake in Yuchai, a major engine manufacturer in China History and Development Established in 1993, China Yuchai International Limited primarily holds a controlling interest in Yuchai and is controlled by Hong Leong Asia Ltd - The company is a Bermuda holding company established on April 29, 1993, primarily to own a controlling interest in Yuchai. It currently holds 76.4% of Yuchai's outstanding shares through six wholly-owned subsidiaries125 - The company is controlled by Hong Leong Asia Ltd., which acquired a special share through its subsidiary HL Technology. This special share grants the right to elect a majority of the company's directors125 - A Cooperation Agreement was signed in 2007 with Yuchai, Coomber, and the State Holding Company, amending a prior Reorganization Agreement. This agreement confirmed that a restructuring and spin-off of Yuchai would not proceed and that the parties would jointly work to expand Yuchai's business142143144 Business Overview Yuchai, the company's core operation, manufactures a wide array of engines, actively developing engines compliant with National VI and Tier-4 standards - Yuchai is actively developing engines to meet upcoming stringent emission standards, including National VI for on-road vehicles (effective 2019-2021) and Tier-4 for off-road machinery (effective 2020)86147148 Yuchai Engine Sales by Category (2016-2018) | Engine Category | 2016 Units Sold | 2017 Units Sold | 2018 Units Sold | | :--- | :--- | :--- | :--- | | Light-duty engines | 71,406 | 84,594 | 106,644 | | Medium-duty engines | 184,994 | 197,622 | 192,512 | | Heavy-duty engines | 63,841 | 84,150 | 75,600 | | Total | 320,424 | 367,097 | 375,731 | - In 2018, Yuchai's total engine sales increased by 2.4% to 375,731 units compared to 2017. Light-duty engine sales grew, while medium- and heavy-duty engine sales saw a slight decline201202 - Yuchai's technical production capacity was approximately 487,500 units as of December 31, 2018, down from 596,250 in 2017. In 2018, 339,800 units were produced at its Yulin facility205 - The company faces intense competition in a fragmented and price-sensitive market. Competition is based on performance, quality, price, and after-sales service. The development of full electric vehicles, especially for public transit buses, presents a growing source of competition232233 Property, Plant and Equipment Yuchai's main manufacturing facilities are located in Yulin City, Guangxi, with a total production capacity of approximately 487,500 units as of December 31, 2018 - Yuchai's primary manufacturing facilities are in Yulin City, with a production land area of approximately 1.8 million square meters245 - As of December 31, 2018, Yuchai's total production capacity was approximately 487,500 units, based on a 2.5 shift, five-day week at 80% utilization245 Item 4A. Unresolved Staff Comments The company reports that it has no unresolved comments from the SEC staff as of the filing date of this Annual Report - As of the filing date, the company has no unresolved comments from the SEC253 Item 5. Operating and Financial Review and Prospects This section provides a detailed analysis of the company's financial performance, liquidity, and capital resources, highlighting a decline in profitability in 2018 Results of Operations In 2018, revenue increased marginally by 0.4% to RMB 16.3 billion, but gross margin contracted due to competitive pressure and sales mix shift Consolidated Statement of Operations as a Percentage of Revenue | Item | 2016* (Restated) | 2017* (Restated) | 2018* | | :--- | :--- | :--- | :--- | | Revenue | 100.0% | 100.0% | 100.0% | | Cost of sales | -78.2% | -79.3% | -81.0% | | Gross profit | 21.8% | 20.7% | 19.0% | | Research and development costs | -4.3% | -3.7% | -2.8% | | Selling, distribution and administrative costs | -11.0% | -10.2% | -9.6% | | Operating profit | 7.2% | 9.9% | 7.9% | | Profit for the year | 5.4% | 8.2% | 6.0% | - 2018 vs. 2017: Revenue increased 0.4% to RMB 16,263.2 million. Gross profit decreased 7.9% to RMB 3,092.0 million, with gross margin falling to 19.0% from 20.7% due to competitive pressure and sales mix changes. Operating profit decreased 20.1% to RMB 1,282.5 million287289294 - 2017 vs. 2016: Revenue increased 18.7% to RMB 16,197.8 million, driven by a 14.6% increase in engine sales. Operating profit grew 63.8% to RMB 1,604.4 million, significantly boosted by a one-time gain of RMB 324.1 million from the sale of HLGE's hotel assets299303306 Liquidity and Capital Resources The company's primary liquidity sources are cash from Yuchai's operations and debt financing, with sufficient liquidity for operational needs Summary of Cash Flows (in RMB thousands) | Cash Flow Activity | 2016 (Restated) | 2017 (Restated) | 2018 | | :--- | :--- | :--- | :--- | | Net cash from operating activities | 2,276,087 | 1,420,167 | 670,601 | | Net cash (used in)/from investing activities | (572,031) | 76,570 | (79,992) | | Net cash (used in)/from financing activities | (1,553,986) | 280,862 | (449,525) | | Net increase in cash and cash equivalents | 179,550 | 1,736,410 | 169,566 | - As of December 31, 2018, the company had RMB 6,128.5 million in cash and bank balances and outstanding borrowings of RMB 2,016.1 million313 - The company has several credit facilities with banks in Singapore, including a US$30.0 million facility with Sumitomo Mitsui, a S$30.0 million facility with MUFG Bank, and a S$30.0 million facility with DBS Bank. As of December 31, 2018, unutilized facilities amounted to RMB 492.8 million318320 Capital Expenditures Capital expenditures significantly increased to RMB 586.5 million in 2018, primarily for expanding and upgrading Yuchai's production capacities Capital Expenditures (2016-2018) | Year | Capital Expenditure (RMB millions) | | :--- | :--- | | 2016 | 285.0 | | 2017 | 261.4 | | 2018 | 586.5 | - As of December 31, 2018, the company had committed capital expenditures of RMB 1,047.1 million (US$156.5 million) for upgrading facilities and building new ones332 Item 6. Directors, Senior Management and Employees This section details the composition of the Board of Directors and executive officers, their compensation, and employee numbers for the company and Yuchai - The Board of Directors consists of ten members as of April 10, 2019. Key executive officers include Hoh Weng Ming (President) and Phung Khong Fock Thomas (Chief Financial Officer)361363 - The aggregate compensation paid to all directors and executive officers of the Company and Yuchai during 2018 was approximately RMB 71.3 million (US$10.7 million)419 - Under the 2014 Equity Incentive Plan, 470,000 options were outstanding as of December 31, 2018, all of which had vested. The options have an exercise price of US$21.11 and expire in July 2024412413 - As of December 31, 2018, Yuchai employed approximately 8,639 people in China, a slight decrease from 8,678 in 2017419 Item 7. Major Shareholders and Related Party Transactions Hong Leong Asia Ltd. is the controlling shareholder with 41.75% ownership and a special share, alongside the Yulin City Government as another major shareholder Major Shareholders as of February 28, 2019 | Shareholder | Number of Shares | Percentage | | :--- | :--- | :--- | | Hong Leong Asia Ltd | 17,059,154 | 41.75% | | The Yulin City Government | 7,028,151 | 17.20% | | Shah Capital Management | 3,396,458 | 8.31% | - A special share, held by an affiliate of Hong Leong Asia, entitles the holder to elect a majority of the company's directors and provides veto power over any shareholder resolution426 - Yuchai pays the company an annual fee of US$1.0 million for management and consulting services. In fiscal year 2018, affiliates of Hong Leong Asia charged the company RMB 6.6 million for general and administrative expenses403437438 Item 8. Financial Information This section refers to the consolidated financial statements and discusses past legal proceedings and agreements aimed at resolving governance issues with Yuchai's Chinese shareholders - The company previously initiated legal proceedings against Yuchai and related parties in 2003 due to difficulties with corporate governance and dividend payments, but these were discontinued after the July 2003 Agreement442 - The Reorganization Agreement (2005) and Cooperation Agreement (2007) were established to resolve recurring difficulties with Yuchai's Chinese shareholders and to jointly expand Yuchai's business, though no assurance can be given that these agreements will resolve all issues443 Item 10. Additional Information This section details the company's corporate structure, governance, regulatory environment, exchange controls, and taxation for Bermuda and PRC operations - As a foreign private issuer, the company is subject to different NYSE corporate governance standards than U.S. companies. For example, a majority of the board is not required to be independent, and there is no formal nominating/corporate governance committee448450457 - The company's main subsidiary, Yuchai, is subject to PRC exchange controls. While the Renminbi is convertible for current account transactions like dividends, capital account transactions are restricted, which could affect Yuchai's ability to obtain foreign currency through financing489 - Yuchai is subject to a preferential PRC corporate tax rate of 15% (versus the standard 25%) by qualifying under incentive schemes like the Western Development or High Technology schemes. Dividends paid by Yuchai from post-2007 profits are subject to a 10% withholding tax506516517 - The company believes it was not a Passive Foreign Investment Company (PFIC) for the 2018 tax year, but its status is subject to annual review and could change, which would have adverse U.S. federal income tax consequences for U.S. shareholders542 Item 11. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks, primarily interest rate risk from borrowings and deposits, and foreign currency risk from various currency transactions - The company is exposed to interest rate risk on its bank deposits and borrowings. A hypothetical 50 basis point change in interest rates would impact the profit for the year by approximately RMB 20.6 million555558 - The company faces foreign currency risk from sales, purchases, and financial liabilities denominated in SGD, EUR, RMB, and USD. It uses derivative instruments like forward contracts to hedge some of this risk559560 Part II Item 15. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2018568 - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2018. This was confirmed by an unqualified audit report from Ernst & Young LLP572 Item 16. Corporate Governance and Other Matters This section covers the Audit Committee Financial Expert, Code of Business Conduct, fees paid to the independent auditor, and compliance with foreign private issuer governance practices - The Board of Directors has determined that Mr. Tan Aik-Leang is an "audit committee financial expert"574 - The company has adopted a Code of Business Conduct and Ethics, which is available on its website575 Principal Accountant Fees (in RMB thousands) | Fee Category | 2017 | 2018 | | :--- | :--- | :--- | | Audit fees | 9,129 | 10,443 | | Audit-related fees | 878 | 662 | | Tax fees | 100 | 309 | | All other fees | 265 | 162 | | Total | 10,372 | 11,576 | Part III Item 18. Financial Statements This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2018, prepared in accordance with International Financial Reporting Standards (IFRS) - The independent auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements, confirming they present fairly the financial position and results of operations in conformity with IFRS593 - The financial statements for 2016, 2017, and 2018 have been changed due to the adoption of IFRS 15 (Revenue from Contracts with Customers) and IFRS 9 (Financial Instruments)594 Consolidated Statement of Profit or Loss (in RMB'000) | Item | 2016 (Restated) | 2017 (Restated) | 2018 | | :--- | :--- | :--- | :--- | | Revenue | 13,643,195 | 16,197,819 | 16,263,248 | | Gross profit | 2,972,452 | 3,356,051 | 3,092,021 | | Operating profit | 979,527 | 1,604,413 | 1,282,521 | | Profit for the year | 735,962 | 1,319,856 | 974,400 | | Attributable to Equity holders | 525,177 | 888,809 | 695,266 | Consolidated Statement of Financial Position (in RMB'000) | Item | As of Dec 31, 2017 (Restated) | As of Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Total current assets | 16,008,979 | 16,420,891 | | Total non-current assets | 5,006,080 | 5,237,073 | | Total Assets | 21,015,059 | 21,657,964 | | Equity and Liabilities | | | | Total current liabilities | 9,387,817 | 9,559,250 | | Total non-current liabilities | 665,338 | 951,160 | | Total equity | 10,961,904 | 11,147,554 | | Total Equity and Liabilities | 21,015,059 | 21,657,964 |