Weichai Power Announces 2016 Annual Results

Continuous Improvement in Global Layout and Structural Adjustments Gradually in Place

Excellent Performance for Core Business and Innovation-driven Self-development

HONG KONG, March 29, 2017 /PRNewswire/ -- Weichai Power Co., Ltd. ("Weichai Power" or "the Company", HKSE: 2338, SZSE: 000338) announced its annual results for the year ended 31 December 2016 prepared in accordance with the Generally Accepted Accounting Principles of the PRC.

Financial Highlights

Business Review

During the reporting period, the Company strived to promote structural adjustments and transformations and upgrades under the "new normal" of the economy and supply-side structural reforms, with a clear strategic positioning, a cash-rich foundation and a pragmatic professional team. The Company has been progressing its adjustment gradually, and has become the first company in the industry to experience a V-shaped recovery and entered a new period of growth. The Company grasped the opportunity of industry recovery, achieved ideal operating performance. The main business grew steadily and further consolidated the leading status in the industry.

During the reporting period, the Company reported sales of 198,000 units of heavy-duty truck engines, representing a year-on-year increase of 67.8%, thereby maintaining its leading position in the industry and accounting for a market share of 27%. 32,000 units of engines for wheel loaders of a load capacity of 5 tonnes were sold, representing a year-on-year increase of 19.4% and accounting for a market share of 76.2%; while 21,500 units of medium- and large-sized passenger vehicle engines were sold, representing a year-on-year increase of 5.8% and accounting for a market share of 11.3%.

As for the HDT business, Shaanxi Heavy-duty Motor Company Limited ("SXHDM"), a subsidiary of the Company, reported aggregate sales of 82,000 units of heavy-duty trucks for the year, representing a year-on-year increase of 46.9%. This sales volume ranked fourth in the domestic heavy-duty truck industry, which further increases the Company's competitiveness in this area.

As for the gearbox operation, Shaanxi Fast Gear Co., Ltd. ("Fast Gear"), a subsidiary of the Company, maintained its leading position in the gearbox industry with aggregate sales of 501,000 units of gearboxes, up 23.2% year-on-year.

During the reporting period, KION Group sold 178,000 units of forklift trucks, representing a year-on-year increase of 7.5%, and ranked second in the world and first in Europe. KION achieved solid growth with a net profit of €246 million, representing a year-on-year increase of 11.3%. In order to enhance the core competitiveness of the Company further, to take its international operation to the next level, and to strengthen the group-level allocation of highly quality overseas resources, the Company increased shareholding in KION by subscribing for new offer shares of KION and increasing its shareholding in the secondary market, boosting its shareholding its 43.26%, maintaining its position as the single largest shareholder of KION.

With a backing of stable development, the Group acquired the entire interests in Dematic, a leading global supplier of automation technology and supply chain optimization, at a consideration of EUR2.1 billion, and hence became a global leader in the intralogistics solution sector. Materials handling equipment and services solutions of KION and intralogistics integrated solutions will generate synergies and benefit building the automation logistic and intelligent warehouse golden industry chains.

Flagship Products to Grasp Explosive Growth Opportunities

During the reporting period, leveraging its strong research and development capability and market judgment, the Company prepared itself in advance, adjusted its product structure and grasped market opportunities. The Company promoted high-capacity engines and high-speed standard-loading heavy duty trucks and electric/warehouse forklifts, significantly lifted proportion and sales volume of trendy products.

The sales volume of 12/13L engines recorded a year-on-year growth of 112.9%, lifting the sales volume proportion to 27.6% and leading a high-capacity trend in the industry. The sales volume of 12-16-speed gearboxes recorded a year-on-year growth of 41.0%, lifting the sales volume proportion to 48.1% and leading a multiple gear development in industry. The sales volume of tractors/trucks recorded a year-on-year growth of 66.9%, lifting the sales volume proportion to 69.7% and transforming the Company into a logistics expert from engineering expert. The sales volume of electric/warehouse forklifts recorded a year-on-year growth of 10.2%, lifting the sales volume proportion to 83.0% and highlighted edges in smart warehousing further.

Moved to High-end, Strengthened Foundation and Established New Benchmarks

During the reporting period, the Company upgraded its traditional businesses and explored emerging strategic products and markets to extend vertically to the whole industry chain and establish new industry benchmarks.

As for HDT, 36,000 units of M3000 were sold, representing a year-on-year growth of 50%; the M3000 6x4 model was launched in response to policy adjustments. The sales volume of X3000 vehicles increased by 3.8 times to 23,000 units, and the Company developed a golden version of X3000 to be paired with WP13 engine for high-efficiency transport logistics.

As for gearboxes, the "Energy-saving HDT Gearbox smart manufacturing pilot showcase" had been enlisted as a smart manufacturing pilot showcase product for 2016 by the Ministry of Industry and Information Technology. Products such as wheel-side reducer, 12-speed aluminum gearbox, gear box for passenger cars and light-duty trucks have become new growth drivers.

As for engines, 10,000 units of National V diesel engines WP4.1 were sold, boosting the proportion of light-duty engines to 21%. The Company had struck breakthroughs for a brand-new series of engines for agricultural equipment and satisfied the Stage III off-road standard; it reported sales of 161,000 engines, up 3 times year-on-year. 730 units of Baudouin engines were sold, representing a year-on-year increase of 61%. Theses engines received emission accreditation from EPA of the US. The Company established a standard for longest-serving heavy-duty engines made in China to realize bulk manufacturing support by launching the WP10H/9H engines.

Stepped up R&D, Innovation-driven Self-development

During the reporting period, the Company persistently increased its investments in R&D and constructed a key national laboratory for internal combustion engine reliability. The Company continued to strike key technology breakthroughs; its products are moving to the high end, accelerating its response to market changes.

As for technology, the Company completed the development and economic optimization of 2-17L full-range National V and City National V Engines. It also integrated the SCR design modules to realize standardization of axle distances for SCR of different emission standards and different models.

As for gas injection system, the application of domestically-made fuel system on WP4.1/6/10 off-road Stage III engines, gas injection pumps and common rails received market accreditation, striking major breakthroughs in high-pressure common rail gas injection critical technologies and integrated system applications

As for gearboxes, Series S gearboxes are fully compliant with international standards as a key strategic product tapping the international market. The gearboxes has been successfully applied in high-end vehicle models by mainstream manufacturers China, and has been sold to the US, the Netherlands, Austria, Belarus and other countries and regions.

As for ECU sales and marketing, the Company developed fully inhouse WISE ECU, which can be applied in WISE ECU on National IV, National V and off-road stage III models; 80,000 units were sold. Self-developed ECU completed matching of various Euro VI models; military ECU won a tender for the PLA's third-generation heavy-duty strategic military carts. There was bulk application of Linde Hydraulics on ECU hydraulic platforms; bulk application of SXHDM on ECU vehicle platforms; and bulk market application of new energy and gas-fired engine in ECU.

Smart Manufacturing -- Set an Industry Benchmark and Created Smart Industry Chain

During the reporting period, the Company progressed with the "Made in China 2025" initiatitve. By meeting personalized requirements with the full-range smart transformation, the Company won support from national subsidies and established the Weichai Smart Manufacturing model, enhancing "low-cost, high-efficiency and high-quality" swift manufacturing capabilities.

The Company adopted 3 major segments for smart coverage, global R&D collaboration, smart factories/production and after-sale service platform in order to achieve full product life-cycle management. In 2016, the Company shouldered responsibilities for a number of major projects, including the Ministry of Industry and Information's "High-end diesel engine smart plant based on smart equipment and industry big data" and the Ministry of Science and Technology's "R&D of craftsmanship software and knowledge base for smart and high-speed production of heavy-duty diesel engines", thereby establishing national smart manufacturing benchmark.

Besides, the Company has become a global leader in intelligent intralogistics 4.0 solutions, through its acquisition of Dematic, and is capable of providing Unique and comprehensive portfolio of products ranging from forklift trucks to cutting-edge fully automated material handling solutions. The Company now owns advanced integrated software and automation technologies, striving to establish a smart warehousing golden industry chain.

Expanded Foothold in Environment-Friendly Products

During the reporting period, the Company sped up the development and support of new energy products, and actively invested in the new energy area, nurturing its technology strengths for future development.

In 2016, 2991 units of new energy power systems were sold, up 5-fold year-on-year. The series fully covered parallel system, hybrid system, pure electric system and extended range system. The Company has the only laboratory in Shandong for new energy power system that integrates engineering, a national internal combustion engine standardized technology commission hybrid power system working group. This laboratory is also a commercial vehicle and engineering machinery new energy power system industry standardization and innovation base in Shandong.

As for fuel cell technology, the Company invested in Foresight, a high-tech enterprise engaging in fuel cell technology and products and applications. Foresight aims at investing early in fuel-cell technologies and strengthening its layout in new energy, paving the way for future technology development and product upgrades.

Linde Hydraulics -- On Track for Taking Off

The Company has been exploiting the "European quality + China cost" model advantage for Linde Hydraulics. In 2016, the Group achieved improving underlying business fundamentals, and is on track for rapid growth and growing profit contribution.

As for capacity preparation, Linde Hydraulics saw its second motor assembly line commenced production; its 6 models of motors in production passed German accreditation. The line is ready for production of equipment for washing machines, mills, honing machines, thermal burr removal products and has been appointed by Germany's SOP to produce 12 items.

As for product R&D, Linde Hydraulics has 97 newly developed application items, including loaders, agricultural machinery, excavators, cement; engines and hydraulics have been paired in high drive hydrostatic bulldozers; WISE 40 hydraulic controls have been applied in bulldozers, loaders, agricultural machineries and excavators.

In addition, the localized Linde Hydraulics products achieved an excellent performance with a total of 6,000 pumps and motors sold, representing a year-on-year increase of 230%. The products achieved RMB 73 million in revenue, up 124% year-on-year.

KION + Dematic to Complete Smart Warehousing Industry Chain

The "KION warehousing relocation hardware and service + Dematic automated and supply chain optimization technology" completes an automated logistics industry chain, thereby transforming from a technology-driven equipment manufacturer to an integrated software/hardware system total solution service provider.

Since its acquisition of Dematic on November 1, 2016, the Company has gradually transformed itself from an equipment manufacturing company with top-notch technology to a total solution service provider, gradually establishing a commercial model in provision of solutions and leveraging software and services. With Weichai's strong support, KION and Dematic's APAC strategies will boost its sales scale and profitability.

KION is the world's second largest and Europe's largest forklift manufacturing and warehousing technology service provider, commanding a 45% share in the after-sale service market. Dematic is the world's third largest and a leading European automated logistics system solutions provider. The combination of the two will provide a total intelligent intralogistics 4.0 solutions.

International Market -- Full Expansion Rollout

In 2016, the Company tapped the international market via many means: international mergers and acquisitions, overseas joint ventures, local production, trade and exports, efforts that yielded results.

KION Group, an overseas subsidiary of the Company, recorded a revenue of EUR5.59 bn, up 9.6% year-on-year; net profit EUR250 million, up 11.3% year-on-year. The Group recorded RMB650 million profit attributable to the parent.

As for overseas joint ventures, the Company set up a joint venture with MAZ Group of Belarus to tap CIS and European markets. As for international acquisition, KION completed the acquisition of Dematic, a leading specialist for automation and supply chain optimization, complement one another with strong market positions and regional presence, generate both topline and cost synergies. Products made in India were sold to the local community, enlarging the foothold for development in the country. As for trade, 3,000 passenger vehicle engines were sold in Vietnam, up 135%, with 12L sleeping vehicles and coaches accounting for 90% and 60% of the market shares, respectively.

Outlook

Looking ahead into 2017, the global economy will continue to see sluggish growth with a weak recovery, with rising uncertainties and instability. The "America First" policy promulgated by the Trump administration of the US raised expectations about of growth of the US economy, but has brought about immense uncertainties for the global economic recovery. On the other hand, while greater challenges lie ahead for economic recovery within the European Union, the paces of growth in emerging markets and developing economies are expected to accelerate. Generally speaking, the global economy is expected to grow at approximately 3.4%. Domestically, the Chinese Government settled on a economic policy framework of adapting to the "new normal", with supply-side reforms as the centerpiece, speeding up fundamental and key reforms and massively revitalizing the real economy. The overall Chinese economy will sustain a stable pace of growth, with the annual GDP growth estimated at approximately 6.5%.

The Company is cautiously optimistic about the development trend of its related industries. In 2017, it is expected that the Chinese HDT market will attain a year-on-year growth of 9.2%. The increase is mainly attributable to a PPP project, which is a "mega infrastructure" project worth RMB4,700 billion; a rising replacement demand for trucks as a result of the tightened policy; and the trend of migration of highly efficient logistics and transportation services to the high end. Buoyed by factors such as investments in infrastructure and newly-commenced construction projects, and a stable demand for replacement vehicles, the construction machinery industry will continue to grow. Consumption and smart manufacturing upgrades will continue to boost the growth of automated warehouse industry.

Leveraging synergies from its globally coordinated R&D, advanced technology in smart manufacturing, product and service diversity and its strong base of loyal customers, the Company has started its preparation work in advance. Having essentially completed upgrades and replacement of products of engines and heavy-trucks, the Company is poised to maintain its leading position in the market of high-power engines, heavy-duty gear boxes and complete heavy-duty trucks. The Board of Directors has full confidence in the prospect of the Company.

Mr. Tan Xuguang, Chairman and CEO of Weichai Power, said: "This year, the Company will commit to the main theme of 'strengthening its base and operations, seizing and capturing markets, speeding up innovation and striving to excel in its development', along with the thirteen battles it had previously proposed, and will work strenuously in areas such as innovation, market leadership, integration of informatization and industrialization, synergy and cost reduction. At the same time, the Company will remain committed to its development goal of 'going high-end and seeking to become the best in the world'. The Company will adhere to the principle of 'Unified Strategy, Independent Operation, Resources Sharing' and accelerate exploiting of synergies among the business segments of vehicles, construction machinery, powertrains, intelligent warehouses and automobile components, accelerating the global business layout and resource integration to continually enhance the quality and benefit of globalization, as well as its migration to the high end market segment."

About Weichai Power Co., Ltd. (HKSE: 2338, SZSE: 000338)

Founded in 2002, Weichai Power Co., Ltd. ("Weichai Power" or "the Company") is one of the largest car parts and power system conglomerates in China. Its clusters include dozens of quality companies such as Shaanxi Heavy-duty Motor Company Limited, Shaanxi Fast Gear Co., Ltd., KION GROUP AG, Dematic Group and Linde Hydraulics GmbH & Co. (KG). The Company's business covers four major segments: vehicles and machines, powertrain, hydraulics and automobiles parts, formulating the most complete and the most competitive industry chain in the automobile industry across China. It also boasts the most fundamental technology and product in the construction machinery industry, and is fast becoming one of the leading comprehensive automobile and equipment manufacturing companies in China. Weichai Power was listed on the Main Board of the Stock Exchange of Hong Kong on 11 March 2004 and on the Shenzhen Stock Exchange on 30 April 2007.

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Important note:

This press release contains forward-looking statements relating to the business outlook, forecast business plans and growth strategies of the Company. These forward-looking statements are based on information currently available to the Company and are stated herein on the basis of the outlook at the time of this announcement. They are based on certain expectations, assumptions and premises, some of which are subjective or beyond our control. The forward-looking statements may prove to be incorrect and may not be realized in future. Underlying the forward-looking statements are a large number of risks and uncertainties. Further information regarding these risks and uncertainties is included in our other public disclosure documents.