In a significant development within the Chinese corporate landscape, Hisense Network Technology Company has firmly taken control of Colins Electric, marking a pivotal shift that will have repercussions on its financial health and operational dynamics. On February 24, Colins Electric released its annual report, revealing that its net profit for 2024 plummeted by an astonishing 40.54%, culminating at just 178 million yuan. This decline not only underscores the challenges the company faces but also raises questions regarding the effects of its recent governance changes.

The battle for control of Colins Electric unfolded over several months, characterized by intense negotiations and strategic maneuvers. The annual report indicated a staggering increase in management expenses, which soared by over 21% from the previous year. This spike has been attributed to a slew of factors, notably the doubling of intermediary service fees and a notable rise in the remuneration of senior management. Following the board’s resolution and executive transitions, it was reported that key executives remaining at Colins Electric experienced an increase of more than 40% in their pre-tax salaries in 2024.

In addition to the rising costs of management, Colins Electric faced a significant financial setback with provisions for impairment totaling 117 million yuan, primarily affecting accounts receivable and inventories. This year marks the highest impairment losses recorded by the company since its public listing, which further squeezed its profit margins. Conversely, despite these financial strains, Colins Electric upheld its tradition of distributing dividends, offering shareholders a cash dividend totaling approximately 54.5 million yuan, equivalent to 2 yuan for every ten shares.

The juxtaposition of a dramatic net profit decline against the backdrop of inflated executive salaries poses a glaring contradiction. Colins Electric’s total revenue reached about 4.099 billion yuan in 2024, reflecting a modest growth of 4.98%. However, the 40.54% drop in net profit starkly contrasts with this revenue growth, raising concerns over the company's operational efficiencies and strategic direction.

The transition in control became a reality after a protracted struggle for dominance that culminated in an acquisition through a public offer by Hisense Network Technology. By August, Hisense had successfully nominated four non-independent directors to Colins’ board, positioning itself as a decisive force. As a result, the company’s new chairman, Chen Weiqiang, who serves as a senior vice president at Hisense Group, succeeded Zhang Chengsuo, the previous controlling stakeholder, thereby solidifying Hisense's majority stake on the board.

With the new leadership in place, executive salaries were promptly revised, with Colins Electric paying a total of approximately 8.44 million yuan in pre-tax salaries to directors and senior executives in 2024—an increase of 31.16% from 2023. Following the reshuffle, several previous board members exited while key figures from Hisense took over. The transition also saw the company’s former deputy general manager Wang Yong taking a significant leadership role, receiving a pre-tax compensation increase of 61%, reaching 141.14 million yuan, while Qiu Shiyong, the former chairman of the supervisory board, also enjoyed a substantial salary increase of 45%.

The rationale provided by Colins Electric for the escalating management costs points to an expanding workforce and increased operational expenses, including rising office and consultancy fees. The salary for management personnel alone surged to 79.27 million yuan, demonstrating an upward shift of more than 40% compared to the previous year. This rise in operating costs amid declining profits introduces a complex layer of scrutiny regarding corporate governance and financial management strategies.

Despite navigating through a tumultuous transition year, Colins Electric held firm to its commitment to shareholders, announcing a plan to issue new shares and pay cash dividends to maintain investor confidence. Since its Initial Public Offering (IPO) in 2017, this marks the eighth consecutive year of dividend distribution, reflecting an ongoing commitment to providing returns to its investors even amidst operational challenges.

As of December 31, 2024, Hisense Network had acquired a 34.94% stake in Colins Electric, emerging as the controlling shareholder. Moreover, other significant shareholders have opted to delegate their voting rights to Hisense, leading to the company effectively controlling over 44.51% of voting rights. Meanwhile, the Shijiazhuang State Capital Investment and Operation Group holds 11.95% and has formed a united front with other major shareholders, cumulatively possessing nearly 29.85% of voting power.

The current economic landscape puts additional pressure on Colins Electric, which expanded its provision allowances to an unprecedented 117 million yuan, paired with an alarming cash flow drop of nearly 80%. The company’s core operations, which span traditional smart grid services, renewable energy solutions, and comprehensive energy services, face increasing market competition, signifying a broader trend impacting profitability.

Colins Electric attributed its dramatic profit decline to intensified market competition, decreasing gross margins, increased operational costs, and rising impairment provisions. As of the end of 2023, accounts receivable comprised a substantial portion—about 53%—of its current assets, posing further implications for cash flow and liquidity. The impaired provisions notably included significant amounts attributed to credit losses, underscoring underlying issues with receivables management.

Throughout the year, the effects of the control transfer period were palpable, coinciding with worsening market conditions that further strained its cash flow. The company acknowledged challenges in payment rigidity and slower-than-expected collection timelines, resulting in a staggering 76.4% year-on-year decline in net cash flow from operating activities.

As Colins Electric navigates a new chapter under Hisense's stewardship, stakeholders will be watching closely to see how these governance changes will play out in terms of performance recovery and strategic revitalization. The apparent contradiction of robust management pay juxtaposed with depleted profits suggests a critical need for reevaluation of internal policies and financial strategies to ensure that shareholder interests are aligned with executive compensation structures.

In essence, the journey ahead for Colins Electric is undoubtedly marked by challenge and opportunity as it seeks to rebound from a turbulent period while navigating the complexities of its new operational reality. The implications of such a significant transition in control extend beyond immediate financial results, shaping the future trajectory of how Colins Electric engages in strategic growth while balancing the interests of its shareholders and executives alike.