LETTER TO SHAREHOLDERS

2018 marks great advancement of the era. Having celebrated the 40th anniversary of the Chinese economic reform, and looking forward to the upcoming 70th anniversary of the establishment of New China, new perspectives, new starting points, and new systems were born as Midea also celebrated its 50th anniversary. When we look back at history, there were hard times and difficulties, glories and achievements, diligence and hard work, as well as reformation and responsibilities. All of these have powered the advancement of our country, ethnic groups, companies, and individuals.


2018 was a time of changes that had not been seen for a century. Chaos amid the great changes have become the norm and the market settled and returned to reality after all the dust has settled. Crises and opportunities come hand-in-hand amid changes and they rise and fall in the turning cycle. In an era of swift and momentous changes, the courage for reforms becomes the purest form of heritage from Midea's fifty years of development.
 

Despite the hard time we had in 2018, Midea achieved a total revenue of RMB 261.82 billion, which was a year-on-year increase of 8.23%; and achieved RMB 20.23billion in net profit attributable to shareholders of the Company, recording a year-on-year increase of 17.05%. At the same time, we were able to maintain stable operations and raise competitiveness. By expanding R&D investment, launching new products, and leveraging our advantages in channel reforms and synergy, we have obtained great progress and results in terms of Industrial Internet, IoT applications, and the establishment of a multi-brand system. Midea ranked 323rd in Fortune's world Top 500 enterprises in 2018 as it climbed 127 places and took the number one ranking in China's home appliance industry. Midea was ranked 26th among the "Top 100 Most Valuable Chinese Brands" in 2018 by BrandZ™ and its brand value increased by 40%. It has obtained a leading position among domestic high-tech home appliance brands. Midea ranked 138th on the top 500 list of the world's most valuable brands published by the British brand valuation agency Brand Finance.
 

Midea has always upheld the value of enhancing the Company's level of governance and protecting the interests of our shareholders. By repurchasing our stocks amounting to RMB 4 billion amid the fluctuations on the market, Midea contributed to the largest general repurchase completed in recent years. In addition, Midea continued to maintain a stable dividends policy and the cumulative dividends since its holistic listing will reach RMB 35.7 billion (2018 profit distribution plan included). The stable business performance and outstanding governance make Midea one of the most popular long-term investments for foreign investors. The shareholding ratio of international investors once approached 28%.
 

We are now in an unusual era, huge impacts on human work and the skills required in future are being cast by artificial intelligence, machine learning, virtual reality, smart home, Industrial Internet, 5G network and more. Innovation in business models and changes in the structure of the population lead to an endless stream of new competitors and new business models. We are facing a higher level of uncertainty like never before. Past advantages are no longer a blessing, while old weaknesses are no longer obstacles for future development. All great companies across the world must face challenges in different cycles. Companies that confine themselves to the concepts and methods of the industrial age face decline. They may have once flourished but they may also turn to dust in this digital age where change no longer waits for anyone.
 

With “Bring Great Innovations to Life” as our vision, in Midea's 50th anniversary, only through rebirth can we adapt to such a great era and uphold our values and mission. "Change" is our simplest answer in the face of complexity.
 

We will continue to foster changes in business models, truly placing users' demands as our starting point. By adopting a user-centric approach in product development and production and engaging in painful reforms to intensify the transformation in domestic channels, we are going to use the "+ Internet" philosophy and methods for the integration of value chains and system optimization. We shall allocate all resources to areas of concern to end-users and continue to improve user experience and optimize our services.
 

Furthermore, we need to continue to transform our growth and achieve organic growth, by using digital channels to transform sales and retail and establish solid relationships with users. Our systems have to be transformed from traditional marketing to big data marketing, thus providing users with better experience and services. Meanwhile, we shall leverage our scale advantage and expand network effects.
 

It is important to keep investing resources and increasing the growth of our R&D scale and innovation capacity so as to use products to achieve victory. We shall provide diverse products in response to trends for more youthful, high-end and suite designed products, and make all our products smart for advancing into the future. Midea hopes to take advantage of innovation to foster development and invest in robotics, automation, smart logistics, and IoT, so as to harness its advantages in the three key elements of "industrial knowledge, software, and hardware". We shall establish leading industrial Internet platforms and form digitalized solutions for the whole value chain.

 

We shall continue to advance the digital transformation and establish a "digital Midea" by leveraging the ABC (artificial intelligence, big data, and cloud computing) and the IoT. We shall change Midea's existing business model, reduce cost, and increase efficiency by using smart operations and continue to improve our operational capacity through an efficiency-driven approach.
 

Once started, changes and rebirth with have no end. In 2018, He Xiangjian, founder of Midea, was awarded the honorary title of "Pioneer of Reform" by the CPC Central Committee and the State Council. In the fifty years since the company’s founding, each step in Midea's growth is characterized by the change of the era. Market competition has never been easy and Midea's fifty years of development was full of hardships and difficulties. In the face of a rising storm of competition and the rapid changes and the huge waves of the era, everyone who strives to step forward can transform themselves into the storms, waves, and changes.
 

The past is gone and the future is yet far. The greatest act of kindness to the future is to dedicate everything to the present.

Thank you for joining us in our rebirth at 50, let's witness the re-creation of greatness together.
 

Board of Directors, Midea Group Co., Ltd.

April 2019