| 5. | REVENUE AND SEGMENT INFORMATION |
In accordance with the Group’s internal financial reporting, the Group has identified operating segments based on similar economic characteristics, products and services and delivery methods. The Group determines its operating segments based on the report reviewed by the directors of the Company, who are also the chief operating decision makers, to make strategic decisions.
Information reported to the Group’s chief operating decision makers for the purposes of resource allocation and performance assessment focuses specifically on the sales channels through which the Group’s steel wheels are sold. Accordingly, the Group categorizes its business into three operating segments, namely (i) PRC OEM sales; (ii) PRC aftermarket sales; and (iii) International sales.
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PRC OEM sales - production and sales of steel and aluminum wheels to vehicle manufacturers in the PRC. |
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PRC aftermarket sales - production and sales of steel and aluminum wheels to distributors in the PRC. |
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International sales - production and sales of steel wheels to distributors and vehicle manufacturers outside the PRC. |
The Group’s chief operating decision makers make decisions according to the operating results of each segment. Information of segment assets and liabilities is not regularly provided to nor part of the regular reports reviewed by the Group’s chief operating decision makers for the purpose of resources allocation and performance assessment. Accordingly, only segment results are presented.
Segment result represents the profit earned by each segment without adjustments of sales gross up from netting off selling expense, provision of sales rebates and discount, fair value adjustments arising from acquisition of subsidiaries and amortization of capitalized general borrowing costs of qualifying assets, unrealized profit, and without allocation of other income, gain and loss, net exchange gain (loss), selling and distribution costs, research and development expenses, administrative expenses, finance costs, income tax expenses. This is the measure reported to the chief operating decision makers for the purposes of resource allocation and assessment of segment performance.
An analysis of the Group’s revenue and segment results by operating and reportable segments for the years are as follows:
| PRC OEM sales | PRC aftermarket sales | International sales | Consolidated | |||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2015 | 2016 | 2017 | 2017 | ||||||||||||||||||||||||||||||||||||||||
| RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | RMB’000 | US$’000 | ||||||||||||||||||||||||||||||||||||||||
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Revenue from external customers |
814,621 | 856,727 | 1,533,044 | 1,203,753 | 1,028,018 | 914,303 | 431,361 | 365,916 | 383,182 | 2,449,735 | 2,250,661 | 2,830,529 | 435,044 | |||||||||||||||||||||||||||||||||||||||
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Reconciliation adjustments |
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Gross up adjustment to reverse net off of selling expense |
— | — | — | — | — | — | 5,569 | 5,621 | 4,832 | 5,569 | 5,621 | 4,832 | 743 | |||||||||||||||||||||||||||||||||||||||
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Provision of sales rebates and discount |
— | — | — | (9,548 | ) | (6,749 | ) | (4,374 | ) | — | — | — | (9,548 | ) | (6,749 | ) | (4,374 | ) | (672 | ) | ||||||||||||||||||||||||||||||||
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Total consolidated net revenue, as reported |
814,621 | 856,727 | 1,533,044 | 1,194,205 | 1,021,269 | 909,929 | 436,930 | 371,537 | 388,014 | 2,445,756 | 2,249,533 | 2,830,987 | 435,115 | |||||||||||||||||||||||||||||||||||||||
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Segment result (gross profit before reconciliation) |
101,014 | 133,315 | 213,091 | 199,929 | 210,240 | 142,612 | 64,709 | 51,607 | 30,148 | 365,652 | 395,162 | 385,851 | 59,304 | |||||||||||||||||||||||||||||||||||||||
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Reconciliation adjustments |
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Gross up adjustment to reverse net off of selling expense |
— | — | — | — | — | — | 5,569 | 5,621 | 4,832 | 5,569 | 5,621 | 4,832 | 743 | |||||||||||||||||||||||||||||||||||||||
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Provision of sales rebates and discount |
— | — | — | (9,548 | ) | (6,749 | ) | (4,374 | ) | — | — | — | (9,548 | ) | (6,749 | ) | (4,374 | ) | (672 | ) | ||||||||||||||||||||||||||||||||
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Unrealized profit |
5,883 | (918 | ) | 1,071 | — | — | — | — | — | 5,883 | (918 | ) | 1,071 | 165 | ||||||||||||||||||||||||||||||||||||||
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Fair value adjustments arose from acquisition of subsidiaries |
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- Additional depreciation of property, plant and equipment |
(670 | ) | (602 | ) | (773 | ) | (544 | ) | (491 | ) | (333 | ) | (198 | ) | (188 | ) | (152 | ) | (1,412 | ) | (1,281 | ) | (1,258 | ) | (193 | ) | ||||||||||||||||||||||||||
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- Additional amortization of prepaid lease payments |
(762 | ) | (754 | ) | (987 | ) | (618 | ) | (615 | ) | (424 | ) | (225 | ) | (236 | ) | (194 | ) | (1,605 | ) | (1,605 | ) | (1,605 | ) | (247 | ) | ||||||||||||||||||||||||||
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- Amortization of capitalized general borrowing cost of qualifying assets |
(360 | ) | (1,273 | ) | (1,801 | ) | (292 | ) | (1,041 | ) | (774 | ) | (107 | ) | (400 | ) | (354 | ) | (759 | ) | (2,714 | ) | (2,929 | ) | (450 | ) | ||||||||||||||||||||||||||
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Total consolidated gross profit, as reported |
105,105 | 129,768 | 210,601 | 188,927 | 201,344 | 136,707 | 69,748 | 56,404 | 34,280 | 363,780 | 387,516 | 381,588 | 58,649 | |||||||||||||||||||||||||||||||||||||||
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Other income, gains and losses |
16,410 | 11,680 | 21,171 | 3,254 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Net exchange gain (loss) |
5,793 | 2,546 | (3,521 | ) | (541 | ) | ||||||||||||||||||||||||||||||||||||||||||||||
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Selling and distribution costs |
(212,273 | ) | (181,911 | ) | (173,800 | ) | (26,713 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Research and development expenses |
(51,253 | ) | (84,639 | ) | (57,419 | ) | (8,825 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Administrative expenses |
(136,681 | ) | (139,377 | ) | (130,203 | ) | (20,012 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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Finance costs |
(15,913 | ) | (21,387 | ) | (21,375 | ) | (3,285 | ) | ||||||||||||||||||||||||||||||||||||||||||||
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(Loss) profit before taxation |
(30,137 | ) | (25,572 | ) | 16,441 | 2,527 | ||||||||||||||||||||||||||||||||||||||||||||||
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Income tax credit (expense) |
1,570 | (352 | ) | (7,389 | ) | (1,136 | ) | |||||||||||||||||||||||||||||||||||||||||||||
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(Loss) profit for the year |
(28,567 | ) | (25,924 | ) | 9,052 | 1,391 | ||||||||||||||||||||||||||||||||||||||||||||||
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The Group’s products can be categorized into tubed steel wheels, tubeless steel wheels, off-road steel wheels, aluminum wheels and wheel components. The categorization is mainly based on the type of vehicles to which the respective product is assembled as well as the product’s component composition. Revenue from these products is as follows:
| 2015 | 2016 | 2017 | 2017 | |||||||||||||
| RMB’000 | RMB’000 | RMB’000 | US$’000 | |||||||||||||
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Tubed steel wheels |
1,373,210 | 1,227,862 | 1,286,535 | 197,737 | ||||||||||||
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Tubeless steel wheels |
918,191 | 818,488 | 1,242,528 | 190,973 | ||||||||||||
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Off-road steel wheels |
43,403 | 36,593 | 51,451 | 7,908 | ||||||||||||
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Aluminum wheels |
27,413 | 103,759 | 191,868 | 29,490 | ||||||||||||
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Wheel components |
83,539 | 62,831 | 58,605 | 9,007 | ||||||||||||
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Total consolidated revenue |
2,445,756 | 2,249,533 | 2,830,987 | 435,115 | ||||||||||||
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Geographical information
The Group’s operations are located in the PRC. The following table provides an analysis of the Group’s sales by geographical markets based on locations of customers:
| 2015 | 2016 | 2017 | 2017 | |||||||||||||
| RMB’000 | RMB’000 | RMB’000 | US$’000 | |||||||||||||
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The PRC (country of domicile) |
2,008,826 | 1,877,996 | 2,442,973 | 375,478 | ||||||||||||
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Vietnam |
32,584 | 31,866 | 40,058 | 6,157 | ||||||||||||
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Thailand |
55,752 | 49,148 | 35,824 | 5,506 | ||||||||||||
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Indonesia |
26,134 | 25,556 | 35,597 | 5,471 | ||||||||||||
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Malaysia |
30,646 | 25,624 | 33,042 | 5,078 | ||||||||||||
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South Korea |
34,520 | 31,364 | 12,757 | 1,961 | ||||||||||||
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Others* |
257,294 | 207,979 | 230,736 | 35,464 | ||||||||||||
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| 2,445,756 | 2,249,533 | 2,830,987 | 435,115 | |||||||||||||
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| * | No further analysis by countries in this category is presented because the revenue from each individual country is insignificant to the total revenue. |
All the Group’s non-current assets are located in the PRC.
Information about major customers
No single customer contributed 10% or more of total sales to the Group during each of the years ended December 31, 2015, 2016 and 2017.