Company Overview and Market Position - Precision Tsugami (China) Corporation Limited is the largest foreign-branded CNC machine tool manufacturer in the Chinese market, with 20 years of rapid development since its establishment in 2003[2] - The company manufactures and sells high-end CNC machine tools, including precision lathes, machining centers, and grinding machines, primarily for the Chinese market, with additional sales to Japan, Europe, the United States, and Southeast Asia[2] - The company's products are widely recognized in industries such as automobile parts, IT communications, electronics, and industrial automation, with a focus on high speed, high precision, and high rigidity[2] - The company's products are sold under the TSUGAMI brand, with or without customizations, through overseas sales channels managed by Tsugami Japan[2] - The company's market position as the largest foreign-branded CNC machine tool manufacturer in China is supported by an industry report from Frost & Sullivan (Beijing) Inc., Shanghai Branch Co., dated December 2018[2] - The company has grown into the largest foreign-branded CNC machine tool manufacturer in the Chinese market since its establishment in 2003[189][190] Financial Performance - Sales revenue for the fiscal year 2023 was approximately RMB 4,046,902,000, representing an 8.4% decrease compared to the previous fiscal year[10] - Gross profit margin decreased from 26.5% in the previous fiscal year to 25.6% for the fiscal year 2023[10] - Net profit for the fiscal year 2023 was approximately RMB 579,188,000, with a net profit margin of 14.3%, a year-on-year decrease of 0.8 percentage points[10] - Basic earnings per share for the fiscal year 2023 amounted to approximately RMB 1.62[10] - The Group's sales revenue for the year was approximately RMB4,046,902,000, a decrease of 8.4% compared to the previous financial year[22] - The gross profit margin decreased from 26.5% to 25.6%, and the net profit margin decreased by 0.8 percentage points to 14.3%[22] - The net profit for the year was approximately RMB579,188,000[22] - Total revenue decreased by 8.4% to approximately RMB4,046,902,000, down from RMB4,419,887,000 last year[25] - Precision lathes sales decreased by 10.4% to approximately RMB3,467,575,000[25] - Precision machining centres sales increased by 5.9% to approximately RMB247,817,000 due to higher demand from the new energy vehicle industry[25] - Precision grinding machines sales decreased by 4.0% to approximately RMB162,858,000[25] - Other sales, including ancillary parts and components, increased by 15.3% to approximately RMB168,652,000[25] - Gross profit decreased by 11.7% to approximately RMB1,036,121,000, with gross profit margin dropping from 26.5% to 25.6%[29] - Other income and gains decreased by 62.1% to approximately RMB68,357,000, primarily due to a one-off insurance compensation of RMB110,530,000 in the previous year[31] - Administrative expenses increased by 10.1% to approximately RMB105,559,000, driven by higher development and depreciation expenses[32] - Other expenses decreased significantly by approximately RMB106,379,000 to RMB11,470,000, mainly due to the absence of fire-related losses from the previous year[33] - Finance costs decreased to approximately RMB674,000 from RMB2,141,000, due to lower interest from bank bill discounting[35] - Income tax expenses decreased by 14.6% to approximately RMB261,831,000 due to lower revenue and profit before tax[40] - Profit for the year decreased by 13.2% from RMB667,404,000 in 2022 to RMB579,188,000 in 2023[40] - Cash and cash equivalents increased to approximately RMB638,572,000 as of 31 March 2023, up from RMB555,433,000 in 2022, driven by higher net cash flows from operating activities and reduced capital expenditures[40] - Net current assets rose to approximately RMB1,998,001,000 as of 31 March 2023, compared to RMB1,655,353,000 in 2022[40] - Capital expenditures for the year ended 31 March 2023 amounted to approximately RMB57,909,000, primarily for processing equipment and software[40] - The Group's gearing ratio decreased to 0.12% as of 31 March 2023, down from 1.1% in 2022[40] - Average inventory turnover days increased to 127 days in 2023, up by 31 days compared to 2022, due to a 22.2% increase in average inventory balance and an 8.4% decrease in sales[47][48] - Current ratio improved to 3.3 as of 31 March 2023, compared to 2.4 in 2022[45] - The Group's average turnover days of trade and notes receivables for the year ended 31 March 2023 were approximately 92 days, representing an increase of approximately 1 day compared to last year[49] - The Group's average turnover days of trade and notes payables for the year ended 31 March 2023 were approximately 88 days, representing an increase of approximately 12 days compared to last year, mainly due to a 5.3% increase in the average balance of trade and bills payables[49] - As at 31 March 2023, the Group's current ratio was approximately 3.3 times, compared to 2.4 times in the previous year, with trade payables decreasing by approximately 24% and overall current liabilities decreasing by approximately 28%[49] - The Group's capital commitments as at 31 March 2023 included RMB105,902,000 for property, plant, and equipment, and RMB6,700,000 for equity investments designated at fair value through other comprehensive income[51] - Precision Nakatsu's new plant investment increased by approximately RMB100 million, with a planned investment of approximately RMB130 million for another plant[51] - The total fees paid or payable to the independent auditor, Ernst & Young, for audit and non-audit services during the year amounted to RMB 1,370 thousand, with audit fees for the year ended 31 March 2023 being RMB 870 thousand and interim review fees for the six months ended 30 September 2022 being RMB 500 thousand[146] COVID-19 Impact and Market Challenges - The COVID-19 pandemic and strict prevention measures significantly impacted logistics, production, and demand for CNC machine tools, particularly in Eastern China[13] - The COVID-19 pandemic and strict control measures significantly impacted logistics and production in Eastern China, particularly in Shanghai, leading to a decline in demand for CNC machine tools[21][24] - The CNC machine tool industry entered a downward adjustment phase due to declining market demand and reduced confidence in the macroeconomic situation[21][24] - COVID-19 pandemic and international geopolitics significantly impacted China's manufacturing industry and overall economy, leading to a decline in demand for high-end CNC machine tools[149] Strategic Initiatives and Future Plans - The company focused on improving product performance, service quality, and cost reduction to enhance competitiveness in a shrinking market[14] - The company continued to invest in new technologies, upgrade existing models, and expand sales of key products to explore potential market demand[14] - The company is preparing for future market demand recovery by investing in the equipment of Tsugami Anhui and constructing a fifth new factory in Pinghu[14] - The company focused on improving product performance, service quality, and reducing costs to enhance competitiveness in a shrinking market[23][24] - The company continued its medium and long-term expansion strategy, including investments in equipment at Tsugami Anhui and the construction of a new factory in Pinghu[23][24] - The company invested in new technologies and models to upgrade existing products and explored potential market demand[23][24] - The company remains confident in the long-term demand for high-end CNC machine tools due to the transformation and upgrading of the Chinese manufacturing industry[17][19] - The company plans to expand product lines, increase production capacity, and strengthen marketing and after-sales service systems to achieve medium and long-term development goals[59] - The company aims to improve product performance, service quality, and reduce costs to provide competitive and cost-effective products, aiming to overtake competitors and increase market share[59] - The company emphasizes the importance of upgrading and transforming China's manufacturing industry from labor-intensive to technology-intensive and further to intelligent manufacturing[58] Corporate Governance and Board Structure - The company has adopted the Corporate Governance Code (CG Code) as its own code of corporate governance and ensures continuous compliance through periodic reviews[89][90] - The roles of Chairman and Chief Executive Officer are performed by the same individual, Dr. Tang Donglei, which deviates from the CG Code[91] - The Board consists of at least three independent non-executive Directors, with at least one-third representation at all times during the year[95] - The Board is responsible for determining the Group's business and investment plans, preparing annual financial budgets, and supervising management[94] - The company has not made insurance arrangements for Directors as it considers no additional risk exists[91] - The company has adopted the Model Code for Securities Transactions by Directors and confirms compliance by all Directors during the year[92][93] - The management provides monthly updates to all Board members in accordance with the CG Code[95] - The Board is collectively responsible for directing and supervising the Company's affairs, including strategy implementation, operational and financial performance monitoring, and ensuring sound internal control and risk management systems[98] - The Board reserves decision-making authority on major matters such as policy, strategies, budgets, internal control, risk management, material transactions, financial information, and significant operational matters[99] - The Chairman and CEO roles are combined under Dr. Tang Donglei, which the Board believes provides consistent leadership and facilitates prompt execution of business strategies, despite deviating from the CG Code[101] - Non-executive Directors, including independent non-executive Directors, provide strategic advice, ensure high standards of financial reporting, and safeguard the interests of the Company and shareholders[102] - The Board Independence Evaluation Mechanism was established to ensure a strong independent element on the Board, with annual reviews conducted to improve effectiveness and identify areas for improvement[105] - Independent non-executive Directors constitute more than one-third of the Board, providing diversified expertise and independent judgment on strategies, prospects, and internal control[106] - The independence assessment for all Directors was completed individually during the year ended 31 March 2023, with satisfactory results[106] - The Board reviewed the implementation and effectiveness of the Board Independence Evaluation Mechanism during the year ended 31 March 2023, with satisfactory results[107] - Directors receive induction upon appointment and are encouraged to participate in continuous professional development to refresh their knowledge and skills[109] - All Directors participated in continuous professional development during the year and provided records of their training to the Company[110] - All directors participated in appropriate continuous professional development and provided training records for the year[111] - The Board convened a total of four meetings during the year to update directors on business developments[114] - Directors received meeting agendas and relevant documents prior to each Board meeting, ensuring timely and accurate information[115] - The Chairman held a separate meeting with all independent non-executive directors without the presence of other directors[116] - Executive and non-executive directors attended both in-house/external training (Type A) and self-study (Type B) for professional development[113] - Independent non-executive directors Dr. Satoshi Iwabuchi and Dr. Eiichi Koda did not participate in any training during the year[113] - Mr. Motoi Yamada was appointed on 29 April 2022 and resigned on 28 June 2023[113] - Mr. Kenji Yoneyama resigned on 29 April 2022 and was re-appointed on 28 June 2023[113] - Dr. Satoshi Iwabuchi was appointed as an independent non-executive director on 28 June 2023[113] - Dr. Eiichi Koda resigned as an independent non-executive director on 28 June 2023[113] Remuneration and Audit Committees - The Audit Committee reviewed the audited consolidated financial statements for the year ended 31 March 2022 and unaudited consolidated financial statements for the six months ended 30 September 2022[117] - The Audit Committee held two meetings during the year to review financial statements and assess the effectiveness of risk management and internal control systems[117] - The Remuneration Committee determined the remuneration for newly appointed Director Mr. Motoi Yamada and Senior Management Member Dr. Wang Xiaokun[123] - The Remuneration Committee reviewed and approved remuneration packages for Directors and senior management, aligning with industry market standards[123] - The Group's audited consolidated annual results were reviewed by the Audit Committee, confirming compliance with applicable accounting standards and adequate disclosure[118] - The Remuneration Committee's policy links discretionary bonuses and merit payments to the Group's profit performance and individual performance of Directors and senior management[120] - The Audit Committee recommended the re-appointment of the external auditor and approved their remuneration and terms of engagement[117] - The Remuneration Committee held two meetings during the year to address remuneration matters for Directors and senior management[123] - The Audit Committee reviewed the external auditor's independence, objectivity, and the effectiveness of the audit process[118] - The Remuneration Committee's remuneration policy is based on experience, level of responsibility, and general market conditions[120] - The company's senior management remuneration ranges from HK$1,000,001 to HK$2,500,000, with 1 individual in the HK$1,000,001 to HK$1,500,000 band and 2 individuals in the HK$1,500,001 to HK$2,500,000 band[125] Nomination and Diversity Policies - The Nomination Committee held 2 meetings during the year, recommending changes to the Board committee and reviewing the Board's structure, size, composition, and diversity[126] - The company has adopted a Diversity Policy aiming to maintain a balanced and diverse Board profile, considering aspects such as professional experience, skills, gender, age, and cultural background[126] - The Nomination Committee will set measurable objectives for achieving gender diversity on the Board, including numerical targets and timelines[127] - The Nomination Committee will monitor and report annually on the implementation of the Diversity Policy, including progress towards achieving gender diversity on the Board[128] - The Board currently has 1 female member, achieving gender diversity at the Board level, and aims to maintain at least 1 female Director in compliance with Listing Rules[130] - The Nomination Committee reviewed the Board's structure, size, and diversity to ensure compliance with Listing Rules and alignment with the company's strategy and governance[130] - The company currently has one female board member and aims to maintain at least one female board member to comply with gender diversity requirements[131] - As of 31 March 2023, the company's workforce consists of 2,238 employees, with 68.45% male and 31.55% female employees[132] - The company has adopted a nomination policy on 28 December 2018, outlining criteria for director nomination and appointment, including character, integrity, qualifications, and diversity factors[132] - The nomination committee and/or board may recruit director candidates from various sources, including internal promotion, re-designation, and external recruitment agencies[135] - The nomination committee and/or board assesses candidates based on criteria such as professional qualifications, skills, experience, independence, and gender diversity[134] - The nomination committee makes recommendations to the board for the appointment of suitable candidates as directors[136] - The nomination committee reviews the overall contribution and service of retiring directors and determines if they still conform to the criteria for re-election[136] Risk Management and Internal Control - The Board has established a risk management and internal control system to manage the risk of failure to achieve business objectives, including ESG risks, and to enhance operational efficiency. However, the system provides reasonable, not absolute, assurance against material misstatement or loss[176][178] - The Group has commissioned an independent professional risk advisor to develop a risk management framework, conduct risk assessments, and identify major risks, including ESG risks, ranked by likelihood and severity of impact[177][179] - The internal audit department is responsible for independently reviewing the adequacy and effectiveness of the risk management and internal control systems[180] - The Group has established clear internal control policies, a code of conduct, a comprehensive financial accounting system, and anti-corruption policies to ensure compliance and prevent unethical activities[180] - Management and the internal audit department report findings and the effectiveness of risk management and internal control systems to the Audit Committee and the Board[181][182] - The Board conducts an annual review of financial, operational, and compliance monitoring systems, assessing their effectiveness based on reports from the Audit Committee, management, and internal auditors[183][184] - The company has established an effective risk management and internal control system, covering financial, operational, and compliance monitoring, ensuring accurate financial data and asset protection[185] - The company has implemented an Inside Information Policy to handle and disseminate inside information, ensuring compliance and preventing unauthorized disclosure[186][187] ESG and Sustainability - The company integrates ESG (Environmental, Social, and Governance) concepts into its risk management system and daily operations, emphasizing sustainable development[191] - The company was awarded the "Most Valuable Industrial Manufacturing Company" at the 7th Golden Hong Kong Stocks Awards in December 2022[191] - The company received the title of "Meritorious Enterprise in 2022" from the Pinghu Municipal People's Government in January 2023[191] - The company established an ESG governance structure, with the Board and Audit Committee overseeing ESG matters, holding at least one annual meeting to align ESG strategy with business goals[192] - The ESG working group, composed of core members from various departments, collaborates with third parties to collect and analyze ESG data, monitor performance, and ensure compliance with regulations[192] - The reporting scope covers major operating locations in China, including Precision Tsugami (China) Corporation, Shinagawa Precision Machinery (Zhejiang), and Precision Tsugami (Anhui)[194] - The company conducted a materiality assessment to identify key ESG issues, reviewed and confirmed by the Board, Audit Committee, and working group[196] - The ESG report follows the ESG Reporting Guide of the Hong Kong Stock Exchange, ensuring consistency with the previous year's report unless stated otherwise[196][199] - The company maintains close communication with stakeholders to address core concerns and improve ESG performance through constructive dialogue[200] Shareholder Communication and Engagement - The company maintains an open-door and effective policy for investor communication, providing timely updates through its website and other channels[164][167] - The company has established multiple channels for ongoing dialogue with shareholders, including corporate communications, announcements, and shareholder meetings[168][
津上机床中国(01651) - 2023 - 年度财报