Haier Smart Home : FY2020 Earnings Report

Important Notice

• I. The Board of Directors, the Supervisory Committee, directors, supervisors and senior management of Haier Smart Home Co., Ltd. ('the Company') hereby assure that the content set out in the annual report is true, accurate and complete, and free from any false record, misleading representation or material omission, and are individually and collectively responsible for the content set out therein.

• II. All Directors of the Company have attended the board meetings.

• III. Hexin Certified Public Accountants Limited LLP has issued a standard and unqualified audit report for the Company.

• IV. Liang Haishan (legal representative of the Company), Gong Wei (chief financial officer of the Company) and Ying Ke (the person in charge of accounting department) hereby certify that the financial report set out in the annual report is true, accurate and complete.

• V. Proposal of profit distribution and proposal of capitalizing capital reserves for the reporting period examined and reviewed by the Board

  Proposal of profit distribution for the reporting period are examined and reviewed by the Board: to declare a cash dividend of RMB3.66 per 10 shares (tax inclusive) to all shareholders based on the total number of shares held on record date and after deducting the repurchased shares from the repurchase account in respect of the future distribution proposal.

• VI. Disclaimer in respect of forward-looking statements

  √ Application □ Not applicable

  Forward-looking statements such as future plans, development strategies as set out in this report do not constitute the Company's substantial commitment to investors. Investors are advised to pay attention to investment risks.

• VII. Is there any fund occupation by controlling shareholders and their related parties for non-operational purposes?

  No

• VIII. Is there any provision of external guarantee in violation of the prescribed decision-making procedures?

  No

• IX. Is there more than half of the Directors who are unable to guarantee the truthfulness, accuracy and completeness of the annual report disclosed by the Company?

  No

Important Notice

• X. Important Risk Warnings

  For the possible risks which the Company may encounter, please refer to the relevant information set out in the Section of 'DISCUSSION AND ANALYSIS ON OPERATIONS' in this report.

• XI. Others

  □ Application √ Not application

Letter to Shareholders

In 2020, a year like no other, with the resolve and dedication of 99,000 employees, Haier Smart Home weathered the storm of Covid-19 and came out even stronger - our net profit reached a record RMB8.876 billion, and our operating activities generated cash flow of RMB17.6 billion.

2020 was also a milestone in Haier Smart Home's own history. With the overwhelming support from shareholders home and abroad, we successfully completed the privatization of Haier Electronics and the listing of H shares (stock code: 6690.HK), establishing ourselves as an integrated platform of people, capital, distribution networks, technologies and expertise with an eternal drive to create value for our users.

In the letter to shareholders from the H-share Prospectus, I reflected on how Haier rose from the verge of bankruptcy and became global appliance industry's most recognizable brand, gaining premium leadership and widespread consumer loyalty in the Chinese market while expanding global footprint by continuously embracing new members into the Haier family. Mitigating the global pandemic has once again reminded us of our inspirations and the culture instilled by Haier's founders from day one: to provide our users with innovative products by leveraging cutting edge technologies, through enhanced services and scenarios applications, infused with our digital capabilities and passion, and become the lifelong partner in our users' journey of making their home a greater and smarter place. With growing confidence, we are going to reinforce the strategic implementation of platforms integration, scenario-based user experiences enhancement, manufacturing optimization and comprehensive digitalization. In the next three years, we remain fully committed to outgrow the appliance industry, improve our operational excellence, give our users the ultimate experiences and create long lasting value for our shareholders.

1. WELL-ESTABLISHED LOCALIZED BRAND PORTFOLIO AND

GLOBALIZED OPERATION PLATFORM PLAY AN ESSENTIAL ROLE IN

ACCELERATING WORLDWIDE MARKET SHARE EXPANSION AND

PROFITABILITY ENHANCEMENT.

China does not only have the world's largest consumer population; it also produces the largest number of appliances every year through its comprehensive supply chain infrastructures. Originated in China, with organic growth and acquisitions in the past twenty years, Haier has completed the building of our global portfolio, unlike others, we chosen to serve global users directly from our localized facilities. 2020 was remarkable for our overseas business as we became the No.1 in kitchen appliances, domestic air conditioners and top-load washing machines in the US; No. 1 in washing machines in Australia & New Zealand; No. 1 in freezer and large refrigerators in Japan; total overseas revenue grew 8.6% to RMB100 billion.

It has become increasingly evident that our investment in our proprietary brands with a local touch and our endeavours to consolidate a globalized operating platform are bearing fruit. Continued integrations around the world have improved product and service offerings, more examples of multilateral collaborations that once created best-selling front loader and new water heater in the US are in the pipeline; secondly we stand ready to share decade-long experience of online operations with our colleagues abroad, where rapid e-commerce penetration is expected post pandemic; thirdly, pioneering the application of IoT technologies in China and the US gives us the opportunity to accumulate scenario and product innovations that are fundamental to strengthening our competitiveness in the rest of the world.

Letter to Shareholders

2. LEVERAGING ON PREMIUM LEADERSHIP, PRODUCT INNOVATION AND SCENARIO APPLICATIONS TO REALIZE QUALITY GROWTH

Casarte also had another magnificent year in 2020. In China, it remains the unchallenged No.1 in refrigerators, washing machines & air conditioners over RMB10,000, with 79% growth in kitchen appliances. We also see great potentials in new categories including tumble dryers, dish washers, small kitchen appliances and water purifiers.

More and more of the appliances we make are smart with connectivity, a feature we believe will be a prerequisite in the near future, where information can be gathered, analysed and processed to form user insights, so we could make products and provide services that cater to exactly what our users what. Haier's advances in IoT-based technologies and products have also received worldwide recognition. In the US, for the third consecutive year, IoT Breakthrough, a leading market intelligence agency, awarded GE Appliances (GEA) the Best Smart Home Appliances Company in appraising its continued innovations in IoT-based home appliances product and smart home solutions.

We have long been aware of our users' growing frustration with featureless shelf displays and obvious lack of real interaction. Our answer was launching the brand-new scenario-based Three-Winged Bird Stores, with a built-in smart kitchen, smart living room, smart bedroom, smart bathroom, store visitors can explore integrated one-stop appliance & decoration solutions helped by our dedicated sales teams that are well trained by interior designers and food connoisseur, this revolutionary immersive experience is expected to form the foundation of a longer lasting relationship with our users that could enhance traffic conversion with increasing loyalty.

3 CREATE GREATER VALUE THROUGH END-TO-END DIGITAL REFORM

Haier's digital transformation has three focuses: digitalized user experience, digitalized operation process and digitalized business model. More and more users, younger generations in particular, favour the Internet for information, interaction and consumption, which means alliances with omni-channel partners including e-commerce platforms, social media, livestreaming businesses are critical for our growth, on the other hand, we ought to consolidate and streamline the backend operations in fulfilment, installation and after sales services so our omni-channel users can switch seamlessly without compromising Haier's product offerings, unique user insights, customized designs and comprehensive scenario applications. This is preciously why Haier Smart Home Cloud System was developed to mobilize and consolidate our operations in distribution, franchised stores, logistics and after sales services. With this enhanced interaction, our users receive the products and services they wish for while we become one-step closer to them, this whole process is our definition of consumer-oriented retail service transformation.

Several initiatives have also been made in renovating our factories, including identifying & prioritizing core activities and improving inventory turnover, with the aim to mitigate cost impact from escalating commodity prices; production was made leaner with reduction of SKUs, modularization of suppliers, and end to end inventory management. By aligning managerial KPI in PLM functions with the overall profit target, we were able to further streamlined SOP and enhance profitability management.