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Good afternoon, everyone. Welcome to our
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a strong increase in infrastructure business. This is due to the fast growth telecom power, data centers solutions, EV chargers and wind power business. The other businesses within power electronics and automation were rather flattish. As for the gross profit, thanks to some further price increases, the gross profit was up 10% year-on-year and 3% quarter-on-quarter. So Q4 GP margin was 28.3%, up from 27.9% in Q3 and 27% from a year ago.
Q4 R&D expenses as a percentage of sales, increased slightly to 10.4% from 8.0% in Q3 and 7.3% from a year ago. Year-on-year, the increase of R&D rather had a lot to do with the expansion of our EV team. On the other hand, SG&A ratio increased to 10.7% in Q4 from 10.5% in Q3 and 10.3% from a year ago. Part of the increase was the addition employee bonus from battery process. So the total OpEx in Q4 was TWD 12.3 billion, representing a 5% increase Q-o-Q, and 20% increase Y-o-Y. With the higher OpEx to OP margin in Q4, slightly decreased to 9.2% from 9.4% in Q3 and a year ago.
So here, we provide some breakdown of operating profit by sector for your reference. Year-on-year, we saw the biggest profit improvement in Infrastructure while the decline in automation was mainly related to higher component costs and R&D expenses.
The operating profit in Q4 was around TWD 1.4 billion, which was within the normal range. So in Q4, we had TWD 7.3 billion profit before tax, down 1% Q-o-Q, but up 14% Y-o-Y.
Our EBITDA in Q4 was TWD 10.1 billion, which was up 9% year-on-year but down 2% quarter-on-quarter. Our tax expense in Q4 was about TWD 1.2 billion, representing a 16.1% effective tax rate. Thanks to the lower task expenses, the net profit after tax in Q4 was TWD 6 billion, up 27% year-on-year but down 1% quarter-on-quarter. So the EPS in Q4 was TWD 2.32.
And now we have a look at our cumulative numbers of 2018. 2018 revenues were TWD 237 billion, up 6% year-on-year. If we look at sales breakdown by segment, year-on-year we have faster growth from Automation and Infrastructure. In comparison of Infrastructure where the growth of it was purely organic, the decent growth in automation was mainly related to the acquisition of VIVOTEK, which contributed an extra 8 -- 9-month revenues to our Building Automation business. But even with the slowdown market in China, we still managed to have year-on-year growth in our industrial automation business. The gross profit was up 5% to -- sorry, the gross profit was up 5% in 2018. However, with the heavy cost of pressures in the first half, the gross profit margin in 2018 was down to 26.8% from 27.2% from a year ago. R&D expenses as a percentage of revenues increased to 8.1% in 2018 from 7.5% a year ago, mainly because of the VIVOTEK acquisition as well as the expansion of our R&D team and our EV solution business and our Industrial Automation business.
SG&A as a percentage of sales slightly increased to 11.1 -- 11.0% from 10.9% a year ago. So the total OpEx ratio increased to 19.2% from 18.3% from a year ago, which represents an 11% increase year-on-year. Operating profit in 2018 was TWD 18.2 billion, and operating margin declined to 7.7% from 8.8% from a year ago due to the weak first half. So again, we provided operating profit breakdown for your reference. We can see that operating profit from Infrastructure was improved significantly in 2018 from a year ago, while there was a little contraction in Automation and Power Electronics. Except the higher income from FX, in 2018, we had TWD 4.6 billion of operating profit, which was still within the normal range. So we had TWD 22.8 billion pretax income, so the full year EBITDA was about flattish.
And the tax expense in 2018 was about TWD 18 billion, representing 18.2% effective tax rate. So the net profit after tax in 2018 was TWD 18.2 billion, down 1% year-over-year. So therefore, the EPS for 2018 was 7%, and our proposed cash dividend per share was TWD 5. So if you have any questions, you may ask now.
So as far as I know that you have a factory Automation project, so can you give us some -- can you please give us some update about the progress of this project?
Okay, so compared to 2015, so at the end of last year, the direct labor head count actually declined to -- declined by 40% compared to the base in 2015. I know we still need to depreciate the equipment we implement into our production lines. But in terms of the direct labor cost plus the overheads, in 2018, the number was actually lower than the number in 2017.
Okay. So do you have a target for this production line Automation project?
So actually, we have announced our target by the end -- in the end of 2015. So we wanted -- we want to reduce the direct labor head count by 90% compared to the base in 2015. So at the -- in the first year of this project, which was 2016, actually, we saved no -- we didn't really reduce any -- we didn't really reduced that many direct labors. So I think that we will have to expand this project for another year. So we will see a significant difference in terms of the number of direct labors by the end of 2021. Okay, so as for your question that you asked because in order to complete this production line Automation project that you must have to invest a lot into your CapEx investment. So is there an impact on your cost in the next few years? So my answer will be that actually, we think the impact should be manageable so the impact on our profit should be manageable, it should be okay. I think that one of our competitive advantages is actually we have an internal team. The team is able to actually produce those devices and equipment which we need for our factory automation -- for our factory production line automations. So we didn't -- we actually we don't really need to buy those equipments, the Automation equipment -- the Automation devices from external parties such as those Japanese peers or German peers. So we can actually save a lot of cost by making this automation equipment on our own.
Okay, sir, could you please give us some update or some idea about the outlook of the first quarter by segment? So -- and my second question is, could you also please give us some idea about, like how should we think about the margins for this year?
Okay, so in terms of the first quarter, because we haven't really done the deal with Delta Thailand yet, so I have no update on that part. But in terms of our own business, actually, we still expand and we still target organic growth every year. So our strategy is, we hope to grow the new businesses, such as the EV-related business, faster than the other legacy business. [ On ] again, the EV-related business, data standard in another area, which we have high expectation, and we also believe that we have some opportunities there because we have some relationship, and we also have some businesses with those hyperscale data center guys, the global datacenter guys, and we also believe this market will continue to grow in the future. So we also have pretty high expectation for this business. Other than EV-related business and data center solutions, we still have some really high expectation for the Industrial Automation business. Even though the market, especially the China market, looks quite slow at this moment, but we still believe that Industrial Automation is something that the factory owners and the industry, even the whole country, is something that we have to do in order to achieve the longer sustainability. So taking our IA business, for example, even with such quiet market, last year actually we still managed to have 5% year-on-year growth for our Industrial Automation business. Okay, so in terms of the margins, actually everybody knows we had a pretty weak first half in the -- last year first half, so there -- but in the second half that was much better. There were 2 main reasons. One is the component prices of passive components were much more stable in the second half. Another reason is we actually increased some product prices and pass through those cost pressures to our customers. So for this year, actually it's really hard to say to really forecast trend of the component prices, but we believe that, that is less likely to see or to repeat those competent price hike as last year.
So you announced -- actually, you acquired another American company for your Building Automation business. Could you give us -- could you tell us what is the synergy use that you see for this deal?
Okay, so yes, we do have our lighting business before we acquired this company. But I think our focuses are little bit different because we focus more in like the energy-saving, the energy efficiency but when we acquire, I mean, the company, actually, they are more professional in the retail applications. So that is actually a completely different area for us. Because for the retail, like the retail stores, that you need to know how to best demonstrate the colors of the products. So by acquiring this company that we expand out, we hope that we can expand our know-how and also expand our applications into the retail market. So if you -- it's hard for you to imagine what the retail lighting means. For example, actually you can imagine that the lighting you see in department stores and in the biggest smartphone retail stores, so the lighting in those kinds of stores are not simply used to just light up the room, but also help the stores to best demonstrate the value and the colors of the products. So that is something that we generally don't really know so much yet. That's the reason why we build this company.
Okay, so my question is, as you mentioned that you still believe that Industrial Automation business will be the growth driver for this year. But as far as I know, the Industrial Automation only accounts for 50% -- I'm sorry, 10% of the revenues, and half of it is from the China market. But as far as I know the -- actually the China market is still quite slowdown. We haven't really seen some -- any recovery sign. So can you please tell me that what makes you believe that IA business will continue to be the growth driver for this year or for next few years?
Yes, we do have like 50% revenues in Industrial Automation coming from the China market. But starting from like a few years ago, actually, we also tried hard to penetrate into other geographic areas such as the EMEA and even Japan, but we do have some concerns about this business in the -- one of them is actually some of our peers, especially some Japanese peers, they actually reduced some of their product prices under this macroenvironment. So that indeed puts some pressures on our Industrial Automation margins. So we can't really just compete against with the price. We still need to provide very good products with good quality but much reasonable prices. And also, we need to have a more comprehensive service network for our customers. And those are something that we have been working on for many years.
So how do you see the 5G investment cycle? And how do you see the impact on your telecom power business and networking business?
Okay, so yes, I know that actually many people are talking about the 5G investment cycle, but we haven't really seen it have any significant impact on our business yet. So for one thing that -- speaking of the mass deployment, actually that is a really huge investment for the operators. And so nobody really knows that -- when we will see the biggest investment cycle coming, but Delta has to be ready for that. So I can only say that I can't really forecast the timing, but we are already ready for that. So as long as they start to deploy or implement the 5G devices, then we will be there for this opportunity.
So can you please give us some -- share your thought on the outlook by segment?
You know that actually we are not allowed to give official financial guidance. We -- so the only thing that I can say that our growth driver for this year are still those business I just mentioned, such as the EV-related business, data center solutions, and Industrial Automation business.
I know there -- actually, you are building up a new factory in the southern part of Taiwan, and also you have another one building up in the middle part of Taiwan.
So the factory in the southern part of Taiwan is actually for our [ FinTech ] business. And factory in -- building up in this middle part of Taiwan is actually for our -- is making -- is for our robotic arm business.
So do you have any plan to increase your offer price to Delta Thailand?
No, the -- actually the price is already fixed. So there is no way for us to raise the price because we are already in the process of this acquisition.
I heard that actually the U.S. government, they do not prefer the solar inverters which are made in China. So in that case, do you see any opportunities for Delta especially for your solar inverter business in U.S.?
Actually, I am not aware of the news you talk about. Because I don't think that solar inverters will the most definitive products. In that case, actually that -- maybe the U.S. government they do -- they also don't prefer the PCs from China and that is also -- and that is almost impossible thing to do. So I am actually not sure about the thing you just mentioned. But I don't think they can really ban like everything from China.
Sir, I know that you have been investing a lot into your R&D. So how should I think about the R&D ratio going forward and for this year?
So if you exclude the [ DET ] part, only look at Delta Taiwan alone, I think the R&D ratio would be rather flattish because when the R&D expenses are growing up, our revenues are growing up as well. So I tend to think that our R&D ratio will be rather flattish. But I also need to remind you that other than our own investment into our new businesses, such as our EV-related business, actually the companies we acquired in the past few years, their R&D expenses are actually pretty high. That is also one of the very important reasons for the higher R&D ratios in the recent few years.
So you just mentioned, actually, you have some cost pressures, and also you have some pricing pressures on your Industrial Automation business because some of your peers are cutting their product prices. So how should we think about the margins of your industrial Automation business.
Our profit -- I mean, the bottom line, the OP margin for -- of Industrial Automation is still double-digit, that's no problem at all. But some of the new products in our Industrial Automations because those are still in the investment phase. So the margin might be slightly lower.
Okay. So you mentioned actually that -- as everybody knows that some of the component prices, they were actually going down a little bit in late last year. So as far as I know that actually you have signed some contracts with your suppliers. So should I believe that actually you have already enjoying the lower cost benefit in the last 2 quarters?
So for this question, actually, we have a variety of customer names. So -- and also, actually, the prices negotiation is something that we -- is something always ongoing, we need to do like every quarter even without the stature of this passive components price hike. So we always need to write down on the negotiation with the customers in terms of the product prices.
Okay, so the lower tax rate compared to a year ago was actually because of the integration of our subsidiaries, especially under Eltek. So hence, our tax rate in the next few years could be lower than the previous level of 20% to 25%.
Okay, so because you just mentioned that some of your Japanese peers have actually reduced their product prices and that actually gave you some extra pressures on your Industrial Automation. Could you ask -- could you please give us more detail regarding this part?
So okay, so if you look at -- so if you look at the numbers of the most famous reduction gear producer in Japan, and if you look at their number in last year, actually you can see a huge decline in last year. So that also reflect environment in this moment. So -- but that is just something that we always have to I mean fight for because we always strive for like providing the good-quality products with much better or with much lower prices to our customers. So I would like to give you some detail about DT. So actually, the due date of this project is April 1. So at this moment, because we still don't know that how many shares that we can buy from the shareholders of Delta Thailand. So actually, we have to wait until April 1st, to know the eventually how many shares -- how much percent of shares that we can have of Delta Thailand. So before that, actually we don't have so many details that we can share at this moment.
Okay, so, you mentioned that actually you believe that data center solution business will continue to be the growth driver for this year, but actually, as far as I know that there are many noises in the market because many people are talking about the CapEx growth for data center in this year will slow down compared to the last year. So what you think of this?
Okay, so actually those data center guys, actually those hyperscale data center guys, they have been building up their new data centers for many years.
So they still believe that actually this trend, I mean, will continue because of the increasing need of the Internet bandwidth. So if you look at, I mean, the bandwidth, I mean, the usage of the bandwidth in the U.S., actually I heard about 1/3 of the bandwidth is used or is related to the Netflix watching. So I believe that Netflix will not be the only one case. So those kind of Internet giants such as Microsoft, Amazon and Facebook, Google, actually they are still building up new data centers for their cloud business. So we still believe that there is actually a lot of opportunities and a lot of room for us to grow.
Okay, so my first question is actually, do you see any new opportunities when some companies, they are actually moving out their production lines out from China to somewhere else, so do you see any opportunities from there? And also, because you mentioned that you have your own factory automation plan that -- do you need to invest a lot into the CapEx investment in order to complete this project?
Currently, actually, we are okay with this tariff issues because we have already relocate some of our production lines to Taiwan or to -- to the factories in Taiwan and in Thailand. And in the future if the U.S. government, they continue to raise up the tariffs or to expand products on their government list, then we might also move some of our production lines to India. But so far, we are okay. And in terms of the CapEx, actually, we are never really CapEx heavy company. The most expensive one in our CapEx investment is probably building up new factory or building up new office building, and that is actually not that high compared to our revenues base.
Okay. So because -- actually, the Infrastructure business, I mean, the segment work was growing really, really good last year. So could you please give us more colors in the -- for this business by subsector.
So actually I mentioned a lot -- like I've talked about our data center solution business with the Infrastructure. And I think the -- something that might worth mention, actually, is the telecom business. Because the revenue of telecom business hasn't really growing that much so far before the factory investment cycle, but actually the profit improvement is quite, I mean, the profit improvement of the telecom business is actually quite good. One of the important reason is, we have been acquiring Eltek for many years, so we have done a lot of the streamline work and consultation work. And also we just have -- our CFO just mentioned that actually, after we integrate -- integrated some of their subsidiaries, actually we successfully save a lot of their income tax. So that's the reason that we can see this significant profit improvement of our telecom power business. Yes, the EV chargers is indeed the fastest growing business within our Infrastructure, but that is still pretty tiny, I mean compared to the whole scale of our business.
Okay, so we are running out of time. So thank you for coming today, and thank you.